The expected return from a portfolio made up equally of two assets that move perfectly
opposite of each other would have a standard deviation equal to:
A. 1.0
B. -1.0
C. 0.0
D. 0.5
Answer:
Suppose Tom receives a one-year loan from ABC Bank for $5,000.00. At the end of the
year, Tom repays $5,400.00 to ABC Bank. Assuming the simple calculation of interest,
the interest rate on Tom’s loan was:
A. $400
B. 8.00%
C. 7.41%
D. 20%
Answer:
The information contained in the Fed’s teal book is released to the public:
A. immediately after the FOMC meeting in which they are used.
B. within two weeks after the FOMC meeting in which they are used.
C. the material in the green book is never released to the public.
D. five years after the FOMC meeting in which they are used.
Answer:
Which of the following is not true of adverse selection?
A. It exists because information is perfect.
B. It describes the problem a lender faces in identifying loan applicants as good or bad
risk borrowers.
C. It arises because borrowers have more information than lenders regarding their
creditworthiness.
D. It arises if lenders try to charge an average price to all applicants.
Answer:
The primary objective of most central banks in industrialized economies is:
A. high securities prices.
B. low unemployment.
C. price stability.
D. a strong domestic currency.
Answer:
The rationale for the existence of central banks is mainly that:
A. financial markets lack transparency.
B. they are needed for the supervision of banks.
C. financial intermediation cannot occur without a central bank.
D. financial systems are prone to periods of extreme volatility.
Answer:
The portfolio demand for money reflects:
A. the money we hold for our everyday transactions.
B. the portion of wealth people desire to hold in the form of money.
C. the money we hold to purchase stocks and bonds and other financial securities.
D. the money we hold for our everyday transactions and the money we hold to
purchase stocks and bonds and other financial securities.
Answer:
Which of the following statements is most correct?
A. The market federal funds rate equals the target federal funds rate.
B. Since 2008, the market federal funds rate has remained solidly within the target
range announced by the Fed.
C. Since 2008, the market federal funds rate has varied wildly, sometimes moving
outside the target range announced by the Fed.
D. There doesn’t appear to be any relationship at all between the target and market
federal fund rates.
Answer:
Implicit government support for “too big to fail” banks:
A. increases the scrutiny of the bank’s risk by large corporate depositors.
B. reduces the risk faced by depositors with accounts less than $250,000.
C. reduces the risk faced by depositors with accounts exceeding $250,000.
D. reduces the moral hazard problem of insuring large banks.
Answer:
A decrease in the real interest rate in the U.S. will cause net exports to:
A. increase because exports will remain constant but imports will decrease.
B. decrease because exports will decrease and imports will increase.
C. decrease because exports will increase but imports will increase.
D. increase because exports will increase and imports will decrease.
Answer:
The means for assuring accountability and transparency:
A. may differ across the central banks of different countries.
B. are the same for all successful central banks.
C. involve setting specific numerical targets so there is no confusion as to what the
goal is.
D. are opposite to each other; increasing one means decreasing the other.
Answer:
Policymakers can stabilize the economy by shifting:
A. the short-run aggregate supply curve.
B. the dynamic aggregate demand curve.
C. the long-run aggregate supply curve.
D. neither the short-run aggregate supply curve nor the dynamic aggregate supply
curve.
Answer:
The central bank of the United States is:
A. the Bank of America
B. the Federal Reserve System
C. the U.S. Treasury
D. Citibank
Answer:
Government-sponsored enterprises like Fannie Mae and Freddie Mac usually borrow at
interest rates:
A. below what private lenders pay.
B. exceeding what private lenders pay.
C. that are the same as private lenders since they are really a private lender.
D. that are slightly below the federal funds rate.
Answer:
The Consumer Price Index (CPI):
A. tends to understate the impact of price changes.
B. tends to overstate the impact of price changes due to substitution bias.
C. is more accurate than the GDP deflator.
D. assumes that consumers substitute away from cheaper goods.
Answer:
Given the following formula for the Taylor rule:
Target federal funds rate = 2 + current inflation + ½(inflation gap) + ½(output gap). If
the current rate of inflation is 5% and the target rate of inflation is 2%, and output is 3%
above its potential, the target federal funds rate would be:
A. 6.5%.
B. 2.5%.
C. 3.5%.
D. 10%.
Answer:
A cross-country analysis of money growth shows that the growth rate in the money
supply was:
A. lower in countries with lower inflation rates.
B. higher in countries with lower inflation rates.
C. lower in countries with higher inflation rates.
D. the same whether the countries had high or low inflation rates.
Answer:
A country running a current account deficit over a long time is likely to see its exchange
rate:
A. hold steady.
B. appreciate.
C. depreciate.
D. the rate can rise, fall, or hold steady; the current account and the exchange rate are
not linked.
Answer:
Recent history has shown that the government regulations requiring the disclosure of
information from public corporations have:
A. all but eliminated the problems of asymmetric information.
B. reduced but not eliminated the problems of asymmetric information.
C. just about eliminated the market for information services.
D. resulted in symmetric information.
Answer:
The European Central Bank has ensured independence by:
A. explicitly forbidding the Governing Council from taking instructions from any
government.
B. making sure the ECB’s financial interests supports member countries’ political
organizations.
C. by appointing the Executive board members for life.
D. not taking votes on policy matters.
Answer:
A central bank’s purchase of securities made by writing checks on itself will:
A. decrease the size of its balance sheet.
B. have no impact at all on the balance sheet.
C. increase the size of their balance sheet.
D. only change the composition of its assets.
Answer:
The high transaction costs associated with a barter system refers to the:
A. fact that, often times, these exchanges are taxed by governments.
B. risk associated with having to carry an inventory of goods to trade.
C. high cost associated with finding someone with whom to exchange.
D. cost of drawing up complete contracts.
Answer:
The Expectations Hypothesis assumes:
A. a high level of uncertainty regarding the future of long-term yields.
B. investors know the yields on bonds today and form expectations of the yields on
short-term bonds in future time periods.
C. securities of different maturities are not perfect substitutes for each other.
D. the risk premium increases with longer maturities.
Answer:
Default risk is the risk associated with:
A. the bond issuer not being able to make the promised payments.
B. the illiquidity associated with small issues.
C. the effect on bond prices caused by changes in market rates of interest.
D. changes in the expected inflation rate.
Answer:
If the Federal Reserve in the United States begins to purchase foreign currency and pay
for these purchases with dollars, this should cause:
A. the dollar to appreciate.
B. the dollar to depreciate.
C. import prices to decrease.
D. exports to decrease.
Answer:
A pure discount bond is also known as a:
A. consol.
B. fixed payment loan.
C. coupon bond.
D. zero-coupon bond.
Answer:
When central bankers are acting preemptively they are:
A. letting markets work and taking a wait and see approach.
B. aggressively trying to hit a zero inflation target.
C. usually focused on reducing expansionary gaps.
D. taking bold steps to stabilize the economy.
Answer:
Currently the requirement of holding a non-interest-bearing reserve account at the Fed
must be met by:
A. all banks, member or not.
B. only member banks.
C. member banks and nonmember banks over $100 million in assets.
D. only nationally chartered banks.
Answer:
Which of the following best expresses the payment a lender receives for lending money
for three years?
A. 3PV
B. PV(1 + i)3
C. PV/(1 + i)3
D. FV/(1 + i)3
Answer:
If a futures contract for U.S. Treasury bonds increases by “12” in the financial page
listings, the value of the contract increased by:
A. $120.00.
B. $1200.00.
C. $375.00.
D. $240.00.
Answer:
Stocks appear to present risk, yet many people have substantial parts of their wealth
invested in them. This behavior could be explained by:
A. people are irrational in their investment behavior, only focusing on positive
outcomes.
B. people are not very risk-averse and do not require a risk premium for stocks.
C. investing in stocks over the long run is not as risky as short-term holdings of stocks.
D. people are not efficient users of information.
Answer:
Appreciation of the real exchange rate:
A. makes U.S. exports more expensive to foreigners.
B. makes U.S. exports less expensive to foreigners.
C. means a basket of U.S. goods would exchange for fewer foreign goods.
D. benefits all U.S. producers.
Answer:
Of the following, which would not be considered an unconventional monetary policy
approach?
A. Discount rate
B. Policy duration commitment
C. Quantitative easing
D. Credit easing
Answer:
In the short run, the aggregate supply curve is:
A. vertical.
B. horizontal.
C. upward sloping.
D. downward sloping.
Answer:
Hedge funds can be described as:
A. low risk.
B. moderate risk.
C. very high risk.
D. only as risky as the entire stock market as measured by an index such as the S&P
500.
Answer:
If the U.S. Supreme Court ruled that states could no longer require people to have auto
insurance, do you think most people would cancel their policies? Explain.
Answer: