Which of the following features would characterize a good monetary policy
instrument?
A. observable only to monetary policy officials.
B. tightly linked to monetary policy objectives.
C. controllable and rigid.
D. difficult to change.
Answer:
Which of the following financial instruments is used mainly to transfer risk?
A. Asset-backed securities
B. Bonds
C. Options
D. Stocks
Answer:
Economic researchers have found:
A. no examples of countries with high rates of money growth and low inflation rates.
B. many examples of countries with low rates of money growth and high inflation
rates.
C. many examples of countries with high rates of money growth and low inflation
rates.
D. no relationship between rates of money growth and inflation rates.
Answer:
Examples of economies of scale are:
A. the additional fees financial intermediaries charge on small accounts.
B. the decrease in overall transaction costs that occur as volume increases.
C. the reduction in the cost per transaction that occurs as the number of transactions
increase.
D. the decrease in overall information costs that occurs as more transactions are
handled.
Answer:
The formula for required reserves is:
A. (1/rD) D.
B. 1/rD.
C. rD.
D. D/rD.
Answer:
The largest regulatory change in U.S. financial markets since 1930 is known as:
A. Basel III.
B. the Fred-Bob Act.
C. the Gramm-Leach-Bliley Act.
D. the Dodd-Frank Act.
Answer:
Companies whose stocks increase the most during a stock market bubble will:
A. have a difficult time raising investment capital.
B. tend to under-invest.
C. usually rebound faster once the bubble bursts.
D. find it difficult to put their capital to profitable use after the bubble bursts.
Answer:
Financial intermediation is:
A. far less important than direct finance through stock and bond markets.
B. only a little more important than direct finance in the United States.
C. much more important than direct finance through stock and bond markets.
D. the same thing as finance through stock and bond markets.
Answer:
A credit card that charges a monthly interest rate of 1.5% has an effective annual
interest rate of:
A. 18.0%
B. 19.6%
C. 15.0%
D. 17.50%
Answer:
As an economy produces more different types of goods:
A. it is more difficult to quote prices if the economy does not use money.
B. the number of relative prices decreases.
C. money becomes less useful as a unit of account.
D. money becomes less useful as a standard of value.
Answer:
How many members belong to the board of directors for each of the Reserve Banks of
the Fed?
A. Seven
B. Nine
C. Twelve
D. Fourteen
Answer:
The Bank Holding Company Act of 1956:
A. significantly broadened the scope of what bank holding companies could do.
B. limited bank holding companies to operating only within their chartered state.
C. limited the scope of bank holding companies in terms of services offered.
D. repealed the McFadden Act of 1927.
Answer:
Which of the following would shift the short-run aggregate supply curve to the right?
A. An increase in oil prices
B. A reduction in the minimum wage
C. A change in the law requiring overtime pay for anyone working more than 30 hours
a week
D. An increase in payroll taxes
Answer:
An individual who neither uses nor produces a commodity but buys a futures contract
for the asset is:
A. speculating that the price of the commodity is going to fall.
B. speculating that the price of the commodity is going to increase.
C. is using arbitrage to earn profits without taking a risk.
D. is hedging and transferring risk.
Answer:
Spreading risk involves:
A. finding assets whose returns are perfectly negatively correlated.
B. adding assets to a portfolio that move independently.
C. investing in bonds and avoiding stocks during bad times.
D. building a portfolio of assets whose returns move together.
Answer:
What is the future value of $1,000 after six months earning 12% annually?
A. $1,050.00
B. $1,060.00
C. $1,120.00
D. $1,058.30
Answer:
The answer to the question of whether or not a U.S. dollar will buy more in the U.S. or
in a foreign country is determined by:
A. the nominal exchange rate.
B. the real exchange rate.
C. whether the nominal exchange rate is > or < than 1.
D. you cannot determine the answer until you travel to the foreign country and convert
U.S. dollars to the foreign currency.
Answer:
Stagflation occurs when:
A. the inflation rate decreases and current output decreases.
B. the inflation rate increases and current output decreases.
C. the inflation rate decreases and current output increases.
D. the inflation rate increases and current output increases.
Answer:
Why are stock market bubbles costly for the economy?
A. They imply that the actual stock price is equal to the fundamental value of the stock.
B. They hurt consumers more than corporations.
C. They lead to a reduction in real investment in both the short-term and long-term.
D. They lead to a misallocation of resources in both the short-term and long-term.
Answer:
Answer:
The Federal Reserve’s Fedwire system is used mainly to provide:
A. a means for foreign banks to transfer funds to U.S. banks.
B. an inexpensive and reliable way for financial institutions to transfer funds to one
another.
C. an inexpensive way for individuals to pay their bills on-line.
D. a means for the Treasury to collect tax payments.
Answer:
The self-correcting mechanism to return the economy to potential output from output
gaps is the change in:
A. potential output.
B. aggregate demand.
C. short-run aggregate supply.
D. the real interest rate by the central bank.
Answer:
Doubling the future value will cause the:
A. present value to double.
B. present value to decrease.
C. present value to increase by less than 100%.
D. interest rate, i, to decrease.
Answer:
An investor who diversifies by purchasing a 50-50 mix of two stocks that are not
perfectly positively correlated will find that the standard deviation of the portfolio is:
A. the sum of the standard deviations of the two individual stocks.
B. greater than the sum of the standard deviations of the individual stocks.
C. greater than the standard deviation from holding the same balance in only one of
these stocks.
D. less than the standard deviation from holding the same balance in only one of these
stocks.
Answer:
A primary financial market is:
A. a market just for corporate stocks.
B. a market only for AAA rated Securities.
C. the New York Stock Exchange.
D. one in which newly issued securities are sold.
Answer:
Next year, the price of a stock is expected to be $2200 and the stock will pay a $55
dividend. The interest rate is 10%. Based on equation 7 in the chapter, what is the
current price of this stock?
A. $1,980
B. $2,000
C. $2,050
D. $2,035
Answer:
In 2012, the average daily volume on the Federal Reserve’s Fedwire system was:
A. $24 billion.
B. $240 billion.
C. $2.4 trillion.
D. $240 million.
Answer:
An automobile insurance company that writes millions of policies is practicing a form
of:
A. mutual fund.
B. hedging risk.
C. spreading risk.
D. eliminating systematic risk.
Answer:
Considering a bank’s balance sheet, which of the following statements is false?
A. Total Bank Assets + Total Bank Liabilities = Total Bank Capital
B. Total Bank Assets = Total Bank Liabilities + Total Bank Capital
C. Total Bank Liabilities = Total Bank Assets – Total Bank Capital
D. Total Bank Capital = Total Bank Assets – Total Bank Liabilities
Answer:
The impact on the foreign exchange market for dollars resulting from the Fed selling
euros will be:
A. a decrease in the demand for dollars.
B. a decrease in the supply of dollars.
C. an increase in the supply of dollars.
D. a decrease in the interest rate in the U.S.
Answer:
Which of the following statements is most correct?
A. Money is wealth but not all wealth is money.
B. Money is a means of payment but is not part of wealth.
C. In order to be considered part of a person’s wealth, an asset must have a positive
return.
D. Wealth is a store of value and a means of payment.
Answer:
While money is an asset not all assets are money because:
A. only money stores value.
B. money works as a means of payment.
C. only money is a good asset to hold during times of inflation.
D. money must be legal tender.
Answer:
By 2014, the euro had become the currency of:
A. every country in Europe.
B. eighteen countries in Europe.
C. twenty-five countries in Europe.
D. all European countries except Great Britain.
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