Considering the data on real and nominal interest rates for the U.S. from 1979 to 2012,
which of the following statements is most accurate?
A. The real interest rate remains unchanged over time.
B. There have been times when the real interest rate has been negative.
C. Nominal interest rates higher in 2000 than they had been at any other point in time.
D. The inflation rate is always greater than the real interest rate.
Answer:
The Federal Deposit Insurance Corporation (FDIC) was created:
A. in 1933 as a part of the Glass-Steagall Act.
B. when the Federal Reserve was created in 1914.
C. prior to the stock market crash of 1929.
D. in 1927 as a part of the McFadden Act.
Answer:
During a recession you would expect the difference between the commercial paper rate
and the yield on U.S. T-bills of the same maturity to:
A. be the same since their maturities are the same.
B. increase reflecting the possibility of higher default risk for commercial paper.
C. decrease.
D. fluctuate rarely.
Answer:
The dividends that stockholders receive are:
A. fixed by contract and paid annually.
B. distributions from profits.
C. paid before all other obligations of the company are met.
D. always equal to the average amount of interest paid to a bond holder, adjusting for
the value of the holdings.
Answer:
The long-run aggregate supply curve intersects the horizontal axis at the:
A. potential level of output.
B. current level of output.
C. expected rate of inflation.
D. actual rate of inflation.
Answer:
Which of the following best expresses the payment a saver receives for investing their
money for two years?
A. PV + PV
B. PV + PV(1 + i)
C. PV(1 + i)2
D. 2PV(1 + i)
Answer:
High oil prices tend to harm the auto industry and benefit oil companies; therefore, high
oil prices are an example of:
A. systematic risk.
B. idiosyncratic risk.
C. neither systematic nor idiosyncratic risk.
D. both systematic and idiosyncratic risk.
Answer:
The movement away from bank lending towards asset-backed securities has:
A. increased the importance of the bank-lending channel of monetary policy.
B. eliminated the bank-lending channel as a mechanism for monetary policy.
C. decreased the importance of the bank-lending channel.
D. led the FOMC to abandon interest-rate targets.
Answer:
In recent years the U.S. banking structure has changed in such a way that there are
now:
A. more banks.
B. fewer branches.
C. fewer banks but more branches.
D. fewer banks and fewer banks with branches.
Answer:
Financial markets:
A. enable buyers and sellers to exchange financial instruments but not risk.
B. enable buyers and sellers to exchange risk by buying and selling financial
instruments.
C. only allow the transfer of risk through derivative securities.
D. do not allow for the transfer of risk but do help reduce it.
Answer:
Under the Expectations Hypothesis, a downward-sloping yield curve suggests:
A. investors expect future short-term interest rates to fall.
B. investors expect future short-term interest rates to rise.
C. this is a trick question, the yield curve always slopes upward.
D. investors expect future short-term interest rates to remain constant.
Answer:
The European equivalent of the U.S.’s market federal funds rate is called the:
A. overnight cash rate.
B. target refinancing rate.
C. European discount rate.
D. overnight repurchase rate.
Answer:
Since the Federal Reserve was created, it has:
A. averted all financial panics that could have plagued the U.S. economy.
B. averted a few financial panics but not most.
C. improved its skill at securing financial stability.
D. proved to be much better at preventing international panics than domestic ones.
Answer:
When the price of a bond is above face value the yield to maturity:
A. is below the coupon rate.
B. will be above the coupon rate.
C. will equal the current yield.
D. will equal the coupon rate.
Answer:
If monetary policymakers respond aggressively to current inflation above the target
inflation rate, the:
A. monetary policy reaction curve would be flat.
B. dynamic aggregate demand curve would have a steep slope.
C. monetary policy reaction curve would have a positive and steep slope.
D. dynamic aggregate demand curve would shift rightward.
Answer:
If the U.S. government’s borrowing needs increase, in the bond market this would be
seen as:
A. the bond demand curve shifting right.
B. a movement up the bond supply curve.
C. the bond demand curve shifting left.
D. the bond supply curve shifting right.
Answer:
The most broadly based stock index in use is the:
A. Nasdaq Composite Index.
B. Wilshire 5000.
C. Dow Jones Industrial Average.
D. Standard and Poor’s 500 Index.
Answer:
Systematic risk:
A. is the risk eliminated through diversification.
B. represents the risk affecting a specific company.
C. cannot be eliminated through diversification.
D. is another name for risk unique to an individual asset.
Answer:
In the foreign exchange market, the demand for U.S. dollars is made up from:
A. foreigners desiring to purchase U.S. goods, services, and assets.
B. Americans who want to hold more currency.
C. Americans wishing to purchase foreign goods, services, and assets.
D. Americans who want to invest in foreign assets.
Answer:
Vesting can make job changes costly because:
A. you may not be able to take your entire pension benefit from your previous job with
you.
B. once you leave one job fully vested the only other pension you can be eligible for is
Social Security.
C. you can only become fully vested in one company’s pension.
D. vested employees earn higher returns on their funds.
Answer:
One major difference between a debit and credit card is:
A. you can build a credit history with the credit card but not with the debit card.
B. you have to pay interest on your purchases if you use a credit card.
C. credit cards are money and the debit card is not.
D. debit cards charge late fees.
Answer:
Private mortgage insurance is usually required in situations where:
A. the lender feels the buyers have overpaid for the house.
B. the buyers have no down payment.
C. the buyers have a down payment less than 20 percent of the purchase price.
D. in the lenders’ view the buyers do not have adequate monthly income to handle the
mortgage payment.
Answer:
Lloyd’s of London is perhaps most known for:
A. being the largest insurance company in the world.
B. going out of business when it insured too many odd risks.
C. offering insurance against unusual risks.
D. being the oldest insurance company in the world.
Answer:
In its role as the bankers’ bank, a central bank performs each of the following, except:
A. providing loans during times of financial distress.
B. providing deposit insurance.
C. overseeing commercial banks and the financial system.
D. managing the payments system.
Answer:
If we let Md reflect money demand, then we can write the equation for money demand
as:
A. Md = VY.
B. Md = PY.
C. Md = (1/V) PY.
D. Md = V(Y/P).
Answer:
Which of the following statements is most correct?
A. The FOMC sets the federal funds rate.
B. The discount rate is the primary policy tool of the FOMC.
C. The FOMC sets the target federal funds rate.
D. The difference between the target and actual federal funds rate is the dealer’s spread.
Answer:
Short-run movements in nominal exchange rates are primarily due to:
A. changing prices of goods and services in the countries involved.
B. changing expected rates of return on domestic and foreign assets.
C. inflation differentials.
D. changes in exports.
Answer:
A country’s current account represents:
A. the amount one country owes to another country.
B. the net flow of all transactions between one country and another country.
C. the amount a country imports from the rest of the world.
D. the net flow of goods and services between that country and the rest of the world.
Answer:
Which of the following statements is most correct?
A. Policymakers can eliminate the effects of negative supply shock.
B. Policymakers can neutralize movements in aggregate demand.
C. Policymakers can shift the short-run aggregate supply curve.
D. Shifts in the monetary policy reaction function used to stabilize the economy shift
the short-run aggregate supply curve.
Answer:
If a bond’s rating improves, we would expect:
A. the demand for this bond to increase, all other factors constant.
B. the demand for and the yield of this bond to increase, all other factors constant.
C. the demand for this bond to decrease, and its yield to increase, all other factors
constant.
D. both the demand for and the price of the bond to decrease, all other factors constant.
Answer:
Fannie Mae, Freddie Mac, and similar government-sponsored enterprises obtain their
funds from:
A. the U.S. Treasury.
B. the Federal Reserve.
C. issuing commercial paper and bonds.
D. both the U.S. Treasury and the Federal Reserve.
Answer:
The value of a derivative is determined by:
A. the Federal Reserve.
B. SEC regulation.
C. the value of the underlying asset.
D. the risk-free rate.
Answer:
Bank failures tend to occur most often during periods of:
A. stock market run ups when, like many companies, banks tend to be overvalued.
B. high inflation when the fixed rate loans of many banks cause their real returns to
decrease.
C. recessions when many borrowers have a difficult time repaying loans and lending
activity slows.
D. wars and other civil unrest.
Answer:
The notion that stock prices reflect all current available information:
A. makes the risk of holding stocks greater.
B. indicates that mutual fund managers will not, on average, outperform market
averages.
C. says stock prices should be more rigid than they are.
D. makes it easier to predict the movements in the price of a stock.
Answer: