During a banking panic, a lender of last resort will
A) purchase banks which are having difficulty but appear sound.
B) make loans to solvent but temporality illiquid banks.
C) make loans to insolvent but liquid banks.
D) make loans to any banks which request them.
Answer:
Banks who held mortgage-backed securities “took a bath” during the financial crisis of
2007-2009 due to:
A) rising yields in secondary markets which led to a decline in the price of
mortgage-backed securities.
B) falling yields in secondary markets which led to a decline in the price of
mortgage-backed securities.
C) their inability to issue new mortgages.
D) more rapid pre-payment of mortgages.
Answer:
About what percentage of the goods and services purchased by U.S. consumers,
businesses, and governments in 2012 were produced by foreigners?
A) 5%
B) 14%
C) 18%
D) 40%
Answer:
When a central bank buys foreign assets,
A) its assets and liabilities rise by the same amount.
B) its assets and liabilities fall by the same amount.
C) the composition of its assets changes, but its liabilities are unaffected.
D) the composition of its liabilities changes, but its assets are unaffected.
Answer:
A financial contract in which a bank agrees to sell the expected future returns from an
underlying bank loan to a third party is referred to as:
A) loan sale
B) loan commitment
C) credit rationing
D) microlending
Answer:
According to the liquidity premium theory, what does a flat yield curve indicate?
A) Short-term interest rates are expected to remain stable.
B) Short-term interest rates are expected to rise.
C) Short-term interest rates are expected to fall.
D) Long-term interest rates are expected to fall.
Answer:
A bank’s costs include all of the following EXCEPT
A) the interest it pays to depositors.
B) the interest it pays on its loans or debt.
C) the cost of providing services.
D) the fees paid to maintain its reserve at the Federal Reserve.
Answer:
What is the main reason the Fed operates in a political arena?
A) It lacks a constitutional mandate.
B) The members of the Board of Governors must run for reelection every fourteen
years.
C) The members of the Board of Governors are typically prominent politicians.
D) It is under the direct control of Congress.
Answer:
The financial system provides risk sharing by allowing
A) borrowers to obtain funds either directly or indirectly.
B) savers to earn interest tax-free.
C) borrowers to convert liabilities into assets.
D) savers to hold many assets.
Answer:
A shift of the AD curve
A) to the right is considered expansionary, and a shift to the left is considered
contractionary.
B) to the left is considered expansionary, and a shift to the right is considered
contractionary.
C) to the right or to the left is considered contractionary.
D) to the right or to the left is considered expansionary.
Answer:
Which of the following equations is correct?
A) M = m( + ER)
B) M = m( + BR)
C) M = m(C + BR)
D) M = C + R
Answer:
Which of the following best describes a “bubble”?
A) when the price of an asset reaches a new high
B) an unsustainable increase in the price of a class of assets
C) rapid increases in inflation
D) when bond prices rise more quickly than stock prices
Answer:
The primary motive for financial innovation during the regulatory process is
A) profit.
B) adherence to the new regulations.
C) return to the way business was conducted prior to the new regulations.
D) increase coordination with other financial institutions.
Answer:
The default risk premium fluctuates mainly
A) because bond rating agencies tend to be inconsistent in their ratings of bonds.
B) because risk-neutral investors will often become risk-averse as time passes.
C) because taxes tend to rise over the long run.
D) as new information about a borrower’s creditworthiness becomes available.
Answer:
Apart from the United States, in countries where central bank board members serve
fixed terms of office,
A) none have terms as long as fourteen years.
B) many serve for life or good behavior.
C) all have terms longer than fourteen years.
D) the head of the central bank rarely has a term longer than one year.
Answer:
Issuers of coupon bonds
A) make a single payment of principal when the bonds matures, but multiple payments
of interest over the life of the bond.
B) make a single payment of interest and principal.
C) make multiple payments of principal, but a single payment of interest.
D) make a single payment of principal at the time the bond is issued and multiple
payments of interest over the life of the bond.
Answer:
The required return on equity for an individual stock includes which of the following?
A) systemic risk
B) idiosyncratic risk
C) risk-free interest rate
D) all of the above
Answer:
If market participants have rational expectations,
A) they can assume the stock prices they observe represent the fundamental values of
those stocks
B) they know to purchase stocks that are priced below their fundamental value
C) they will achieve higher returns than those with adaptive expectations
D) they can earn above-average returns on their investments
Answer:
On the books of the Fed the difference between borrowed reserves and discount loans is
equal to
A) excess reserves.
B) required reserves.
C) currency in circulation.
D) zero; they are the same thing.
Answer:
All of the following have contributed to increased use of ATMs EXCEPT:
A) some banks charging customers for services performed by tellers than can be done
by ATMs
B) some banks closing branches in low-income neighborhoods
C) ease by which customers can make use of ATMs to make deposits and withdrawals
D) increased use of debit cards for transactions
Answer:
The situation in which investors choose to put their funds in a safe asset during
uncertain times is known as
A) hedging.
B) speculation.
C) flight to quality.
D) arbitrage.
Answer:
Which function of money allows for specialization to take place?
A) medium of exchange
B) unit of account
C) store of value
D) standard of deferred payment
Answer:
Which of the following is fixed on a coupon bond?
A) coupon rate
B) current yield
C) market price
D) yield to maturity
Answer:
In the market for loanable funds the price of the funds exchanged is
A) the price of bonds.
B) the volume of bonds purchased.
C) the volume of bonds sold.
D) the interest rate.
Answer:
Which of the following is the highest bond rating assigned by Moody’s Investors
Service?
A) Aaa
B) A
C) B
D) Baa
Answer:
The coupon rate is the
A) annual coupon payment divided by the face value of the bond.
B) annual coupon payment divided by the market value of the bond.
C) difference between the face value of the bond and its par value.
D) coupon paid every 6 months divided by par value.
Answer:
Which of the following is true of the U.S. balance of payments?
A) It includes as receipts all inflows of funds from foreigners to the United States.
B) It includes as receipts only inflows of funds used to purchase U.S. produced goods
and services.
C) It includes as receipts inflows of funds used to purchase U.S. goods or services or to
acquire U.S. assets but not funds received as unilateral transfers.
D) It includes as receipts inflows of funds used to purchase U.S. goods or services and
funds received as unilateral transfers but not inflows of funds used to acquire U.S.
assets.
Answer:
Which criterion is NOT useful when evaluating a theory?
A) It has predictive power.
B) It fits one’s pre-conceived bias.
C) It offers a model consistent with investor behavior.
D) It explains actual data well.
Answer:
Economists who have studied the Phillips curve have concluded that it can shift due to
all of the following EXCEPT
A) demand shocks.
B) supply shocks.
C) changes in household expectations of inflation.
D) changes in firms’ expectations of inflation.
Answer:
If there is an excess supply of bonds at a given price of bonds, then
A) the interest rate will fall.
B) the interest rate will rise.
C) the price of bonds will fall.
D) the interest rate may rise or the interest rate may fall depending upon the reasons for
the excess demand for bonds.
Answer: