The existence of financial intermediaries has the following consequence:
a. it increases interest rates, hurting home buyers
b. it hurts small savers by creating another “middleman”
c. it stimulates saving and investment, thus helping growth
d. none of the above
Answer:
During the last 100 years, money growth statistics suggest that the Fed has most often
acted
a. procyclically
b. countercyclically
c. the same regardless of the phase of the business cycle
d. not enough information is given to answer the question
Answer:
The percentage of one year’s output that a nation must forego in order to reduce
inflation by one percentage point is called the
a. payback period
b. Phillips coefficient
c. payoff ratio
d. sacrifice ratio
Answer:
The behavior of which variable dominates the behavior of the money multiplier?
a. k
b. re
c. rr
d. none of the above
Answer:
Suppose that a nation’s economy is characterized by many aggregate demand shocks
and few aggregate supply shocks. In this case, adoption of an inflation target will
a. increase instability in output
b. have no effect on the stability of output
c. reduce instability in output
d. not enough information is given to answer the question
Answer:
Economies of scale
a. are experienced when the average cost curve for the bank is negatively sloped
b. are experienced when it is cheaper to produce a group of services together rather than
separately
c. have not been proven to exist in banking services
d. occur due to the confusion and duplication associated with a large bureaucracy
Answer:
In the long run, if inflation is higher in India than in the U.S., one would expect
a. the dollar to depreciate relative to the rupee
b. the rupee to depreciate relative to the dollar
c. the rupee to appreciate relative to the dollar
d. two of the above are correct
Answer:
As a general rule, velocity behaves in a ____ fashion.
a. procyclical
b. countercyclical
c. cyclically neutral
d. not enough information is given to answer the question
Answer:
Which of the following statements is correct?
a. Asymmetric information gives rise to the problems of moral hazard and adverse
selection.
b. Moral hazard gives rise to the problems of adverse selection and asymmetric
information.
c. Adverse selection gives rise to the problems of asymmetric information and moral
hazard.
d. None of the above is true.
Answer:
The largest Federal Reserve asset is
a. discount loans to depository institutions
b. Federal Reserve notes outstanding
c. gold certificates
d. U.S. government securities
Answer:
Which of the following is the largest and fastest-growing debtor in the United States, as
of 2002?
a. farms and unincorporated businesses
b. the federal government
c. households
d. non-financial corporations
Answer:
Your bank has $1,000 million in assets and a capital accounts ratio of 8 percent.
Suddenly, your bank is forced to write off $120 million in bad loans it made to an
unstable banana republic. Your bank:
a. becomes insolvent
b. suffers from illiquidity prior to the write-off
c. has sufficient capital accounts to absorb the loan losses
d. will see its capital accounts increase as a result of the bad loan write-off
Answer:
When the dollar appreciates relative to the Japanese yen
a. each dollar buys more yen
b. each yen buys fewer dollars
c. the yen depreciates relative to the dollar
d. all of the above are true
Answer:
The empirical data on the Great Depression indicate that its cause can be attributed to
a. a series of adverse demand shocks
b. a series of adverse supply shocks
c. a series of positive demand shocks
d. a series of positive supply shocks
Answer:
The Clinton economy (1993-2000) can be characterized by
a. high inflation and falling output
b. low inflation and falling output
c. high inflation and rising output
d. low inflation and rising output
Answer:
After finding $2,000 in a coffee can buried in your backyard, you deposit the cash in
your checking account. Given a 10 percent reserve requirement, this action will
ultimately lead to an additional expansion of deposits in the amount of
a. $200
b. $1,800
c. $18,000
d. $20,000
Answer:
You bank has a rate of return on equity of 10 percent and has earnings of $1000. If the
return on assets is 1.5 percent, your bank’s capital accounts/total assets ratio must be
a. 1.5 percent
b. 3.33 percent
c. 6.67 percent
d. 15 percent
Answer:
With respect to the money supply contraction of the early 1930s, Friedman and
Schwartz believe that
a. the Fed should have engaged in heavy open market securities sales
b. you cannot “push on a string”
c. Fed policy was highly restrictive
d. all of the above are true
Answer:
Potential real GDP tends to ____ over time.
a. increase
b. decrease
c. remain constant
d. we cannot generalize about the trend of potential real GDP over time
Answer:
A trend toward more frequent paydays
a. increases money demand and increases velocity
b. increases money demand and reduces velocity
c. reduces money demand and increases velocity
d. reduces money demand and reduces velocity
Answer:
In the event the Fed were to sell dollars in foreign exchange markets to reduce the
strength of the dollar, then
a. P would increase
b. OA would decrease
c. OA would increase
d. none of the above would occur
Answer:
The foreign exchange rate is:
a. the price of one nation’s currency expressed in units of foreign currency
b. the interest rate charged in foreign nations
c. the price of foreign products in the U.S.
d. none of the above
Answer:
Which of the following statements is not true?
a. the president of the New York Fed may vote at all FOMC meetings
b. each of the seven members of the Board of Governors may vote at all FOMC
meetings
c. each of the twelve Fed district bank presidents may vote at all FOMC meetings
d. all of the above are true
Answer:
When a nation’s price level is above its equilibrium price level,
a. inventories are drawn down, encouraging firms to increase prices and increase output
b. inventories are drawn down, encouraging firms to reduce prices and reduce output
c. inventories accumulate, encouraging firms to increase prices and increase output
d. inventories accumulate, encouraging firms to reduce prices and reduce output
Answer:
Which of the following is true about savings and loan associations?
a. They were created to fund the investment expenditures of large businesses.
b. There are many more savings and loan associations today than there were twenty
years ago.
c. They have traditionally been highly specialized.
d. The number of savings and loan associations declined immediately after World War
II.
Answer:
Policy activists believe that
a. the Fed should use its tools to actively pursue discretionary monetary policy
b. the Fed should adhere to a passive policy rule
c. the Fed should ignore prevailing economic decisions in determining the course of
policy
d. none of the above is true
Answer:
Loans made by the Federal Reserve to depository institutions are in the form of
a. capital accounts
b. cash
c. float
d. reserves
Answer:
Stock prices are likely to rise if
a. inflation expectations are revised upward
b. interest rates rise
c. the economy becomes less volatile
d. none of the above
Answer:
A bond with a coupon rate of 12 percent sells for $1090 and matures in 3 years.
Calculate the yield to maturity.
a. 2.75 percent
b. 8.25 percent
c. 11.00 percent
d. 13.75 percent
Answer:
Which of the following is potentially a short-range target or operating target of Fed
policy?
a. M1
b. the government bond yield
c. the unemployment rate
d. none of the above
Answer:
The largest component of GDP expenditures is
a. investment
b. consumption
c. government spending
d. net exports
Answer:
Suppose k = 0.50, re = 0.005, and the Fed boosts rr from 10 percent to 12 percent.
Given other factors, the U.S. money supply will
a. fall by about 3 percent
b. fall by about 10 percent
c. rise by about 10 percent
d. rise by about 3 percent
Answer:
The primary source of earnings for commercial banks is
a. income derived from the interest earned on loans
b. income derived from the bank’s holdings of securities
c. income derived from the services the bank provides its customers
d. income derived from underwriting securities
Answer: