Because of the “lemons problem” the price a buyer of a used car pays is
A. equal to the price of a lemon.
B. less than the price of a lemon.
C. equal to the price of a peach.
D. between the price of a lemon and a peach.
Answer:
During business cycle expansions when income and wealth are rising, the demand for
bonds ________ and the demand curve shifts to the ________, everything else held
constant.
A. falls; right
B. falls; left
C. rises; right
D. rises; left
Answer:
Open market sales shrink ________ thereby lowering ________.
A. the money multiplier; the money supply
B. the money multiplier; reserves and the monetary base
C. reserves and the monetary base; the money supply
D. the money base; the money multiplier
Answer:
A advantage of using swaps to hedge interest-rate risk is that swaps
A. are less costly than futures.
B. can be written for long horizons.
C. are not subject to default risk.
D. are more liquid than futures.
Answer:
A deposit outflow results in equal reductions in
A. loans and reserves.
B. assets and liabilities.
C. reserves and capital.
D. assets and capital.
Answer:
In the market for reserves, if the federal funds rate is between the discount rate and the
interest rate paid on excess reserves, a ________ in the reserve requirement increases
the demand for reserves, ________ the federal funds interest rate, everything else held
constant.
A. rise; lowering
B. decline; raising
C. decline; lowering
D. rise; raising
Answer:
The Fed’s mistakes of the early 1930s were compounded by its decision to
A. raise reserve requirements in 1936-1937.
B. lower reserve requirements in 1936-1937.
C. raise the monetary base in 1936-1937.
D. lower the monetary base in 1936-1937.
Answer:
In a ________ banking system, commercial banks provide a full range of banking,
securities, and insurance services, all within a single legal entity.
A) universal
B) severable
C) barrier-free
D) dividerless
Answer:
A decrease in autonomous consumer expenditure causes the equilibrium level of
aggregate output to ________ at any given interest rate and shifts the ________ curve
to the ________, everything else held constant.
A. rise; LM; right
B. rise; IS; right
C. fall; IS; left
D. fall; LM; left
Answer:
In the long-run ISLM model and with everything else held constant, the long-run effect
of a cut in government spending is to ________ real output and ________ the interest
rate.
A. increase; increase
B. increase; not change
C. not change; increase
D. not change; decrease
Answer:
Under a fixed exchange rate regime, if a country has an undervalued exchange rate,
then its central bank’s attempt to keep its currency from ________ will result in a
________ of international reserves.
A) depreciating; gain
B) depreciating; loss
C) appreciating; gain
D) appreciating; loss
Answer:
The ________ traces out the points for which total quantity of goods produced equals
total quantity of goods demanded.
A. LM curve
B. IS curve
C. consumption function
D. investment schedule
Answer:
A lower level of income causes the demand for money to ________ and the interest rate
to ________, everything else held constant.
A. decrease; decrease
B. decrease; increase
C. increase; decrease
D. increase; increase
Answer:
When the economy suffers a permanent negative supply shock and the central bank
responds by changing the autonomous component of monetary policy to keep inflation
at the target inflation rate, then
A. aggregate demand curve shifts leftward.
B. aggregate demand curve shifts rightward.
C. output will be unchanged.
D. both A and C.
Answer:
When comparing the banking crisis in the United States to the crises in Latin America,
cost to the taxpayers of the government bailouts was
A. higher in Latin American than in the United States.
B. higher in the United States than in Latin America.
C. about the same in both Latin America and the United States.
D. positive in Latin America but negative in the United States.
Answer:
With regard to external sources of financing for nonfinancial businesses in the United
States, which of the following are accurate statements?
A. Marketable securities account for a larger share of external business financing in the
United States than in Germany and Japan.
B. Since 1970, most of the newly issued corporate bonds and commercial paper have
been sold directly to American households.
C. Direct finance accounts for more than 50 percent of the external financing of
American businesses.
D. Smaller businesses almost always raise funds by issuing marketable securities.
Answer:
When a primary dealer buys a government bond from the Federal Reserve, reserves in
the banking system ________ and the monetary base ________, everything else held
constant.
A. increase; increases
B. increase; decreases
C. decrease; increases
D. decrease; decreases
Answer:
Everything else held constant, an increase in currency holdings will cause
a. the money supply to rise.
b. the money supply to remain constant.
c. the money supply to fall.
d. checkable deposits to rise.
Answer:
A budget ________ occurs when government expenditures exceed tax revenues for a
particular time period.
A. deficit
B. surplus
C. surge
D. surfeit
Answer:
The spread between interest rates on low quality corporate bonds and U.S. government
bonds
A. widened significantly during the Great Depression.
B. narrowed significantly during the Great Depression.
C. narrowed moderately during the Great Depression.
D. did not change during the Great Depression.
Answer:
If the government finances its spending by selling bonds to the central bank, the
monetary base will ________ and the money supply will ________.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. not change; not change
Answer:
Everything else held constant, an increase in marginal tax rates would likely have the
effect of ________ the demand for municipal bonds, and ________ the demand for
U.S. government bonds.
A. increasing; increasing
B. increasing; decreasing
C. decreasing; increasing
D. decreasing; decreasing
Answer:
Since depositors, like any lender, only receive fixed payments while the bank keeps any
surplus profits, they face the ________ problem that banks may take on too ________
risk.
A. adverse selection; little
B. adverse selection; much
C. moral hazard; little
D. moral hazard; much
Answer:
When the government has a surplus, as occurred in the late 1990s, the ________ curve
of bonds shifts to the ________, everything else held constant.
A. supply; right
B. supply; left
C. demand; right
D. demand; left
Answer:
Which of the following statements are TRUE?
A. A decrease in default risk on corporate bonds lowers the demand for these bonds, but
increases the demand for default-free bonds.
B. The expected return on corporate bonds decreases as default risk increases.
C. A corporate bond’s return becomes less uncertain as default risk increases.
D. As their relative riskiness increases, the expected return on corporate bonds increases
relative to the expected return on default-free bonds.
Answer:
Suppose that from a new checkable deposit, First National Bank holds eight million
dollars on deposit with the Federal Reserve, nine million dollars in excess reserves, and
faces a required reserve ratio of ten percent. Given this information, we can say First
National Bank has ________ million dollars in vault cash.
A. one
B. two
C. nine
D. ten
Answer:
The price of gold should be ________ to the expected inflation rate.
A. positively related
B. negatively related
C. inversely related
D. unrelated
Answer:
Since Social Security benefits are paid from current contributions, the system is a
A. privatized system.
B. overfunded system.
C. “pay-as-you-go” system.
D. defined contribution system.
Answer:
The large number of banks in the United States is an indication of
A) vigorous competition within the banking industry.
B) lack of competition within the banking industry.
C) only efficient banks operating within the United States.
D) consumer preference for local banks.
Answer:
For small investors, the best way to pursue a “buy and hold” strategy is to
A. buy and sell individual stocks frequently.
B. buy no-load mutual funds with high management fees.
C. buy no-load mutual funds with low management fees.
D. buy load mutual funds.
Answer:
A clause in a mortgage loan contract requiring the borrower to purchase homeowner’s
insurance is an example of a
A. proscriptive covenant.
B. prescriptive covenant.
C. restrictive covenant.
D. constraint-imposed covenant.
Answer:
The price of one country’s currency in terms of another country’s currency is called the
A. exchange rate.
B. interest rate.
C. Dow Jones industrial average.
D. prime rate.
Answer:
The negative relation between investment spending and the interest rate is what gives
the ________ curve its ________ slope.
A. IS; upward
B. IS; downward
C. LM; downward
D. LM; upward
Answer: