An increase in interest rates
A) increases the value of the dollar, net exports, and equilibrium output.
B) increases the value of the dollar, reducing net exports and equilibrium output.
C) reduces the value of the dollar, net exports, and equilibrium output.
D) reduces the value of the dollar, increasing net exports and equilibrium output.
Answer:
In September 2008, the Reserve Primary Fund, a money market mutual fund, found
itself in the situation know as “breaking the buck.” This means that
A) they could no longer afford to redeem shares at the par value of $1.
B) they required shareholders to contribute a dollar more in fees each month.
C) shareholders were able to redeem shares for more than a $1.
D) shares earned more than a dollar in interest.
Answer:
China chooses to have ________ and ________ and therefore, cannot have free capital
mobility at the same time.
A) a fixed exchange rate, no control of monetary policy.
B) a fixed exchange rate, an independent monetary policy.
C) a flexible exchange rate, an independent monetary policy.
D) a flexible exchange rate, no control of monetary policy.
Answer:
Contractual savings institutions include
A) mutual savings banks.
B) money market mutual funds.
C) commercial banks.
D) life insurance companies.
Answer:
The rate of output at which the price level has no tendency to rise or fall is called the
A) natural rate of output.
B) potential level of income.
C) bliss point.
D) efficient level of output.
Answer:
In the loanable funds framework, the ________ is measured on the vertical axis.
A) price of bonds
B) interest rate
C) quantity of bonds
D) quantity of loanable funds
Answer:
The problems of raising the level of the inflation target include
A) if the zero-lower-bound problem is rare, then the benefits of a higher inflation target
are not very large.
B) the costs of higher inflation in terms of the distortions it produces in the economy
are high.
C) it is more difficult to stabilize the inflation rate at a higher targeting level.
D) all of the above.
Answer:
Banks are required to file ________ usually quarterly that list information on the bank’s
assets and liabilities, income and dividends, and so forth.
A) call reports
B) balance reports
C) regulatory sheets
D) examiner updates
Answer:
There are two types of open market operations: ________ open market operations are
intended to change the level of reserves and the monetary base, and ________ open
market operations are intended to offset movements in other factors that affect the
monetary base.
A) defensive; dynamic
B) defensive; static
C) dynamic; defensive
D) dynamic; static
Answer:
Banks engage in regulatory arbitrage by
A) keeping high-risk assets on their books while removing low-risk assets with the
same capital requirement.
B) keeping low-risk assets on their books while removing high-risk assets with the
same capital requirement.
C) hiding risky assets from regulators.
D) buying risky assets from arbitragers.
Answer:
If workers do not believe that policymakers are serious about fighting inflation, they are
most likely to push for higher wages, which will ________ aggregate ________ and
lead to unemployment or inflation or both, everything else held constant.
A) decrease; demand
B) increase; demand
C) decrease; supply
D) increase; supply
Answer:
Under the Bretton Woods system, a country running a balance of payments surplus
________ international reserves, and had to implement ________ monetary policy to
weaken its currency.
A) lost; expansionary
B) lost; contractionary
C) gained; expansionary
D) gained; contractionary
Answer:
Starting in 1974, the conventional M1 money demand function began to
A) severely underpredict the demand for money.
B) severely overpredict the demand for money.
C) predict more precisely the demand for money.
D) do none of the above.
Answer:
Suppose that the Bank of Japan buys U.S. dollar assets with yen-denominated assets.
Everything else held constant, this transaction will cause ________ in the foreign assets
held by the Federal Reserve and ________ in the U.S. monetary base.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
Answer:
The preferred habitat theory of the term structure is closely related to the
A) expectations theory of the term structure.
B) segmented markets theory of the term structure.
C) liquidity premium theory of the term structure.
D) the inverted yield curve theory of the term structure.
Answer:
The process in which people take their funds out of the banking system seeking
higher-yielding securities is called
A) capital mobility.
B) loophole mining.
C) disintermediation.
D) deposit jumping.
Answer:
Financial innovations occur because of financial institutions search for
A) profits.
B) fame.
C) stability.
D) recognition.
Answer:
A ________ is a subsidiary of a U.S. bank that is engaged primarily in international
banking.
A) Edge Act corporation
B) Eurodollar agency
C) universal bank
D) McFadden corporation
Answer:
When the value of loans begins to drop, the net worth of financial institutions falls
causing them to cut back on lending in a process called
A) deleveraging.
B) releveraging.
C) capitulation.
D) deflation.
Answer:
The equivalent to the Federal Reserve’s discount rate in the European System of Central
Banks is the
A) federal funds rate.
B) marginal lending rate.
C) deposit facility rate.
D) lombard rate.
Answer:
Banks acquire the funds that they use to purchase income-earning assets from such
sources as
A) cash items in the process of collection.
B) savings accounts.
C) reserves.
D) deposits at other banks.
Answer:
An increase in the nonborrowed monetary base, everything else held constant, will
cause
A) the money supply to fall.
B) the money supply to rise.
C) no change in the money supply.
D) demand deposits to fall.
Answer:
When the Treasury bond market becomes more liquid, other things equal, the demand
curve for corporate bonds shifts to the ________ and the demand curve for Treasury
bonds shifts to the ________.
A) right; right
B) right; left
C) left; right
D) left; left
Answer:
If the 2005 inflation rate in Canada is 4 percent, and the inflation rate in Mexico is 2
percent, then the theory of purchasing power parity predicts that, during 2005, the value
of the Canadian dollar in terms of Mexican pesos will
A) rise by 6 percent.
B) rise by 2 percent.
C) fall by 6 percent.
D) fall by 2 percent.
Answer:
The bailout of the savings and loan industry was much delayed and, therefore, much
more costly to taxpayers because
A) of regulators’ initial attempts to downplay the seriousness of problems within the
thrift industry.
B) politicians listened to the taxpayers rather than the S&L lobbyists.
C) Congress did not wait long enough for many of the problems in the thrift industry to
correct themselves.
D) regulators could not be fired, therefore, they didn’t care if they did a good job or not.
Answer:
Assuming initially that rr = 10%, c = 40%, and e = 0, an increase in rr to 15% causes
the M1 money multiplier to ________, everything else held constant.
A) increase from 2.55 to 2.8
B) decrease from 2.8 to 2.55
C) increase from 1.82 to 2
D) decrease from 2 to 1.82
Answer:
One purpose of regulation of financial markets is to
A) limit the profits of financial institutions.
B) increase competition among financial institutions.
C) promote the provision of information to shareholders, depositors and the public.
D) guarantee that the maximum rates of interest are paid on deposits.
Answer:
All else the same, when the Fed calls in a $100 discount loan previously extended to the
First National Bank, reserves in the banking system
A) increase by $100.
B) increase by more than $100.
C) decrease by $100.
D) decrease by more than $100.
Answer:
Prior to the 1980s, S&Ls and mutual savings banks were restricted almost entirely to
A) commercial real estate loans.
B) home mortgages.
C) education loans.
D) vacation loans.
Answer:
If aggregate output is below the natural rate level, nonactivists of policies would
recommend that the government
A) do nothing.
B) try to eliminate the high unemployment by attempting to shift the aggregate supply
curve to the right.
C) try to eliminate the high unemployment by attempting to shift the aggregate demand
curve to the right.
D) try to eliminate the high unemployment by attempting to shift the aggregate demand
curve to the left.
Answer: