________ in the domestic interest rate causes the demand for domestic assets to shift to
the ________ and the domestic currency to depreciate, everything else held constant.
A. An increase; right
B. An increase; left
C. A decrease; right
D. A decrease; left
Answer:
Rising interest-rate risk
A. increased the cost of financial innovation.
B. increased the demand for financial innovation.
C. reduced the cost of financial innovation.
D. reduced the demand for financial innovation.
Answer:
Open market purchases ________ reserves and the monetary base thereby ________
the money supply.
A. raise; lowering
B. raise; raising
C. lower; lowering
D. lower; raising
Answer:
Currency includes
A. paper money and coins.
B. paper money, coins, and checks.
C. paper money and checks.
D. paper money, coins, checks, and savings deposits.
Answer:
The legislation overturning the Glass-Steagall Act is
A) the McFadden Act.
B) the Gramm-Leach-Bliley Act.
C) the Garn-St. Germain Act
D) the Riegle-Neal Act.
Answer:
The most important source of the changes in supply conditions that stimulate financial
innovation has been the
A. deregulation of financial institutions.
B. dramatic increase in the volatility of interest rates.
C. improvement in information technology.
D. dramatic increase in competition from foreign banks.
Answer:
Factors that led to worsening conditions in Mexico’s 1994-1995 financial markets, but
did not lead to worsening financial market conditions in East Asia in 1997-1998 include
A. rise in interest rates abroad.
B. bankers’ lack of expertise in screening and monitoring borrowers.
C. deterioration of banks’ balance sheets because of increasing loan losses.
D. stock market decline.
Answer:
The interest rate for primary credit is usually set ________ basis points ________ the
federal funds rate. In March 2008, this gap was changed to ________ basis points.
A. 50; below; 100
B. 100; above; 25
C. 100; below; 50
D. 50; above; 25
Answer:
The most liquid securities traded in the capital market are
A. corporate bonds.
B. municipal bonds.
C. U.S. Treasury bonds.
D. mortgage-backed securities.
Answer:
The leverage ratio is the ratio of a bank’s
A. assets divided by its liabilities.
B. income divided by its assets.
C. capital divided by its total assets.
D. capital divided by its total liabilities.
Answer:
Which of the followings is NOT a current duty of the Board of Governors of the
Federal Reserve System?
A. setting margin requirements, the fraction of the purchase price of the securities that
has to be paid for with cash
B. setting the maximum interest rates payable on certain types of time deposits under
Regulation Q
C. approving the discount rate “established” by the Federal Reserve banks
D. voting on the conduct of open market operations
Answer:
Everything else held constant, an autonomous monetary policy easing ________
aggregate ________.
A. increases; demand
B. decreases; demand
C. decreases; supply
D. increases; supply
Answer:
Everything else held constant, in the market for reserves, when the federal funds rate is
3%, increasing the interest rate paid on excess reserves from 1% to 2%
A. lowers the federal funds rate.
B. raises the federal funds rate.
C. has no effect on the federal funds rate.
D. has an indeterminate effect on the federal funds rate.
Answer:
The Federal Reserve will engage in a matched sale-purchase transaction when it wants
to ________ reserves ________ in the banking system.
A. increase; permanently
B. increase; temporarily
C. decrease; temporarily
D. decrease; permanently
Answer:
A short-term debt instrument issued by well-known corporations is called
A. commercial paper.
B. corporate bonds.
C. municipal bonds.
D. commercial mortgages.
Answer:
Everything else held constant, if consumption expenditure falls by 160 when disposable
income falls by 200, the mpc is
A. 0.
B. 0.2.
C. 0.4.
D. 0.8.
Answer:
If the Fed decides to reduce bank reserves, it can
A. purchase government bonds.
B. extend discount loans to banks.
C. sell government bonds.
D. print more currency.
Answer:
Points on the IS curve satisfy ________ market equilibrium.
A. money
B. goods
C. stock
D. bond
Answer:
In Keynes’s liquidity preference framework, individuals are assumed to hold their
wealth in two forms
A. real assets and financial assets.
B. stocks and bonds.
C. money and bonds.
D. money and gold.
Answer:
If borrowers with the most risky investment projects seek bank loans in higher
proportion to those borrowers with the safest investment projects, banks are said to face
the problem of
A. adverse credit risk.
B. adverse selection.
C. moral hazard.
D. lemon lenders.
Answer:
Which of the following instruments are traded in a capital market?
A. corporate bonds
B. U.S. Treasury bills
C. negotiable bank CDs
D. repurchase agreements
Answer:
Suppose interest rates are kept very low for a long time such that there is a spike in the
amount of lending. Everything else held constant, this could cause ________ bubble.
A. an irrational exuberance
B. a credit-driven
C. a stock
D. a debt-driven
E.
Answer:
When a financial institution hedges the interest-rate risk for a specific asset, the hedge
is called a
A. macro hedge.
B. micro hedge.
C. cross hedge.
D. futures hedge.
Answer:
In the absence of regulation, banks would probably hold
A. too much capital, reducing the efficiency of the payments system.
B. too much capital, reducing the profitability of banks.
C. too little capital.
D. too much capital, making it more difficult to obtain loans.
Answer:
Because Keynes assumed that the expected return on money was zero, he argued that
people would
A. never hold money.
B. never hold money as a store of wealth.
C. hold money as a store of wealth when the expected return on bonds was negative.
D. hold money as a store of wealth only when forced to by government policy.
Answer:
The monetary policy strategy that provides an automatic rule for the conduct of
monetary policy is
A) exchange-rate targeting.
B) monetary targeting.
C) inflation targeting.
D) the implicit nominal anchor.
Answer:
A ________ yield curve predicts a future increase in inflation.
A. steeply upward sloping
B. slight upward sloping
C. flat
D. downward sloping
Answer:
Which set of goals can, at times, conflict in the short run?
A. high employment and economic growth
B. interest rate stability and financial market stability
C. high employment and price level stability
D. exchange rate stability and financial market stability
Answer:
To say that the forward market lacks liquidity means that
A. forward contracts usually result in losses.
B. forward contracts cannot be turned into cash.
C. it may be difficult to make the transaction.
D. forward contracts cannot be sold for cash.
Answer:
When banks borrow money from the Federal Reserve, these funds are called
A. federal funds.
B. discount loans.
C. federal loans.
D. Treasury funds.
E.
Answer:
The lon-run aggregate supply curve can be expressed by
A. output as a function of potential output.
B. inflation as a function of past inflation.
C. inflation as a function of past inflation and output gap.
D. output as a function of inflation and output gap.
Answer:
Everything else held constant, if a central bank makes an unsterilized ________ of
foreign assets, then the domestic money supply will decrease and the domestic currency
will ________.
A) purchase; appreciate
B) purchase; depreciate
C) sale; appreciate
D) sale; depreciate
Answer:
Deposit insurance has not worked well in countries with
A. a weak institutional environment.
B. strong supervision and regulation.
C. a tradition of the rule of law.
D. few opportunities for corruption.
Answer: