The Federal Reserve
a. adheres to a strict inflation target
b. does not explicitly target inflation
c. is given a range of permissible rates in which inflation must fall
d. is characterized by none of the above
Answer:
The aggregate demand curve shows
a. the direct relationship between total spending and output
b. the direct relationship between expenditures and inflation
c. the inverse relationship between interest rates and output
d. the inverse relationship between the price level and expenditures
Answer:
National banks are chartered and supervised, respectively, by
a. the Comptroller of the Currency and the Comptroller of the Currency
b. the Comptroller of the Currency and the Federal Reserve
c. the Comptroller of the Currency and the FDIC
d. the FDIC and the Comptroller of the Currency
Answer:
Which of the following is true regarding coupon-paying bonds?
a. If yields have risen since a bond was issued, it will sell at a discount from face value.
b. The bid yield is always higher than the asked yield.
c. The asked price is always higher than the bid price.
d. All of the above are true.
Answer:
Suppose news is reported that a plane carrying most of the U.S. government cabinet is
missing over the Pacific Ocean. The most likely impact, in the context of our short-run
exchange rate model, is that
a. RF shifts right, and the dollar depreciates
b. RF shifts left, and the dollar depreciates
c. iD shifts right, and the dollar depreciates
d. iD shifts right, and the dollar appreciates
Answer:
Critics of a government laissez-faire policy toward bank mergers believe that a large
portion of the proposed mergers are motivated by
a. monopoly power and economies of scale
b. monopoly power and executive compensation
c. economies of scale and scope
d. economies of scale and diversification
Answer:
In which theory does the existence of an ascending yield curve definitely imply that the
market expects interest rates to rise?
a. segmented markets theory
b. pure expectations theory
c. preferred habitat theory
d. liquidity premium theory
Answer:
Which of the following typically exhibits the largest week-to-week fluctuations?
a. discounts and advances
b. float
c. other assets of the Fed
d. the Fed’s gold and SDR accounts
Answer:
Defensive operations are undertaken by the Federal Reserve System in order to
a. achieve desired output and inflation targets
b. bring about desired changes in the nation’s GDP
c. prevent other factors from triggering undesired changes in reserves and the monetary
base
d. assist securities dealers in periods of stress
Answer:
The commercial banks that own the Fed
a. have significant power over the Fed’s policies
b. share the majority of the profits the Fed earns
c. are responsible for electing the Board of Governors
d. do none of the above
Answer:
The atmosphere of the Fed’s discount window during the Great Depression can be
characterized as
a. explicitly loose, as the Fed encouraged banks to borrow and made it cheap for them
to do so
b. explicitly tight, as the Fed ratcheted up interest rates
c. implicitly loose, as the discount rate fell relative to market interest rates
d. implicitly tight, as the discount rate rose relative to market interest rates
Answer:
Macroeconomic shocks that affected the U.S. banking system in the 1980s include
a. the severe worldwide recession of 1981-1983
b. dramatic hikes in oil prices
c. the increase in inflation after the early 1980s
d. all of the above
Answer:
The most flexible tool of policy is the ____ tool.
a. reserve requirement
b. open market operations
c. discount window
d. none of the above
Answer:
Suppose that the pure expectations theory of term structure is correct, and that we
currently observe a perfectly flat yield curve. If the Fed suddenly announces that it will
move to reduce the overall level of interest rates, we would expect to observe a ____
yield curve following the announcement.
a. ascending
b. descending
c. flat
d. cannot determine answer with given information
Answer:
Of the ten factors that influence the monetary base
a. three affect the base positively; seven affect the base negatively
b. six affect the base positively; four affect the base negatively
c. six affect the base negatively; four affect the base positively
d. eight affect the base positively; two affect the base negatively
Answer:
What type of risk is present to a significant degree when one purchases a U.S. Treasury
bill?
a. market risk
b. liquidity risk
c. default risk
d. none of the above
Answer:
Adoption of an inflation targeting regime
a. may cause increased instability in output
b. may reduce the central bank’s flexibility to respond to crises
c. may do both of the above
d. may do neither of the above
Answer:
Which of the following factors contribute to the moral hazard problem in banking?
a. shrinking capital account ratios
b. regulators’ “too big to fail” policy
c. deposit insurance
d. all of the above
Answer:
The designation “legal tender”:
a. means that a seller cannot legally refuse payment made in that form
b. applies to all forms of M1 money today
c. is a necessary and sufficient condition for an item to be considered money
d. all of the above
Answer:
In the ESCB, monetary policy decisions are made by the
a. ECOFIN
b. Executive Board
c. Governors
d. Governing Council
Answer:
Which of the following are excluded from M2?
a. large time deposits (above $100,000)
b. small time deposits at depository institutions
c. money market mutual fund shares
d. none of the above
Answer:
Which of the following macroeconomic variables was not included in the convergence
criteria?
a. inflation rate
b. national debt
c. budget deficits
d. all of the above were addressed in the convergence criteria
Answer:
Federal deposit insurance was established
a. to reduce depositors’ incentives to withdraw funds when worried about their bank
b. in 1982
c. by the Federal Reserve Act
d. because of the “too big to fail” policy
Answer:
A depreciation of the dollar:
a. can help alleviate persistent trade deficits
b. means that the dollar can buy more units of foreign currency
c. reduces the cost of imports to U.S. consumers
d. places undue competitive pressures on U.S. manufacturers
Answer:
In liquidity premium theory, existence of an upward-sloping yield curve is taken to
mean that:
a. interest rates are expected to remain constant
b. interest rates are expected to rise
c. interest rates are expected to fall
d. none of the above is necessarily true
Answer:
The behavior of net free reserves may be described as
a. countercyclical (falling during economic expansions)
b. endogenous
c. inconsistent with economic stabilization if used as a target of policy
d. all of the above
Answer:
When a customer deposits $100 currency in the 4th National Bank, that bank’s
a. excess reserves rise by $100
b. required reserves rise by $100
c. reserves rise by $100
d. none of the above occurs
Answer:
Overall, Chile’s inflation rate was ____ before implementation of an inflation targeting
regime and ____ since.
a. low; remained roughly constant
b. low; fell dramatically
c. high; remained roughly constant
d. high; fell dramatically
Answer:
Suppose that a bond sells at a discount. Then:
a. the yield to maturity exceeds the coupon rate
b. the coupon rate exceeds the yield to maturity
c. both of the above are true
d. none of the above is true
Answer:
If members of the FOMC disagree greatly about whether a given monetary policy is the
correct choice, this may lead to an increase in ____.
a. recognition lag
b. implementation lag
c. impact lag
d. none of the above
Answer:
The higher a bank’s capital accounts ratio, ceteris paribus,
a. the lower that bank’s equity multiplier will be
b. the less likely that bank will become insolvent
c. the lower that bank’s return on equity will be
d. all of the above
Answer:
The charter of the Bank of the United States was not renewed in 1811. The primary
reason for rejection of the new charter was that
a. the Bank had discriminated against Federalists in granting loans
b. the Bank had favored established agriculture over newly-formed industrial
enterprises
c. the Bank had taken action to drive state banks out of business
d. all of the above
Answer:
Commercial banks obtain funds by
a. borrowing from other banks
b. issuing demand deposits
c. issuing ownership claims (equity)
d. all of the above
Answer: