A credit market instrument that pays the owner a fixed coupon payment every year until
the maturity date and then repays the face value is called a
A) simple loan.
B) fixed-payment loan.
C) coupon bond.
D) discount bond.
Answer:
The rational expectations hypothesis implies that when macroeconomic policy changes,
A) the economy will become highly unstable.
B) the way expectations are formed will change.
C) people will be slow to catch on to the change.
D) people will make systematic mistakes.
Answer:
If the Federal Reserve conducts open market purchases, the money supply ________,
shifting the LM curve to the ________, everything else held constant.
A) decreases; right
B) decreases; left
C) increases; right
D) increases; left
Answer:
If the Federal Reserve conducts open market ________, the money supply ________,
shifting the LM curve to the left, everything else held constant.
A) purchases; decreases
B) sales; decreases
C) purchases; increases
D) sales; increases
Answer:
If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $1000 billion, and excess reserves total $1 billion, then the
monetary base is
A) $400 billion.
B) $401 billion.
C) $500 billion.
D) $501 billion.
Answer:
The case for Federal Reserve independence does not include the idea that
A) political pressure would impart an inflationary bias to monetary policy.
B) a politically insulated Fed would be more concerned with long-run objectives and
thus be a defender of a sound dollar and a stable price level.
C) policy is always performed better by an elite group such as the Fed.
D) a Federal Reserve under the control of Congress or the president might make the
so-called political business cycle more pronounced.
Answer:
Because borrowers, once they have a loan, are more likely to invest in high-risk
investment projects, banks face the
A) adverse selection problem.
B) lemon problem.
C) adverse credit risk problem.
D) moral hazard problem.
Answer:
When money prices are used to facilitate comparisons of value, money is said to
function as a
A) unit of account.
B) medium of exchange.
C) store of value.
D) payments-system ruler.
Answer:
In the early 1970s, the U.S. ran large balance of payments ________, causing an
________ dollar and an ________ German mark.
A) deficits; undervalued; overvalued
B) deficits; overvalued; undervalued
C) surpluses; undervalued; overvalued
D) surpluses; overvalued; undervalued
Answer:
A capital ________ can promote financial instability in an emerging-market country
because it is what forces a country to ________ its currency.
A) inflow; devalue
B) inflow; revalue
C) outflow; devalue
D) outflow; revalue
Answer:
Assume a closed economy. Suppose that autonomous consumption equals $400,
planned investment equals $500, government expenditure equals $200, net taxes
equals $50, and the mpc equals 0.9.
If net exports decrease by 250 and the mpc is 0.75, equilibrium aggregate output
A) increases by 1000.
B) increases by 750.
C) decreases by 750.
D) decreases by 1000.
Answer:
If the government finances its spending by selling bonds to the central bank, the
monetary base will ________ and the money supply will ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) not change; not change
Answer:
Under the Gramm-Leach-Bliley Act the oversight of the securities activities of bank
holding companies belongs to
A) the SEC.
B) the Comptroller of the Currency.
C) the U.S. Treasury.
D) the Federal Reserve.
Answer:
Suppose the economy is producing at the natural rate of output. Assuming a fixed
natural rate of output and everything else held constant, the development of a new,
more productive technology will cause ________ in the unemployment rate in the short
run and ________ in inflation in the short run.
A) an increase; an increase
B) a decrease; a decrease
C) a decrease; an increase
D) no change; no change
Answer:
The figure above illustrates the effect of an increased rate of money supply growth at
time period T0. From the figure, one can conclude that the
A) liquidity effect is smaller than the expected inflation effect and interest rates adjust
quickly to changes in expected inflation.
B) liquidity effect is larger than the expected inflation effect and interest rates adjust
quickly to changes in expected inflation.
C) liquidity effect is larger than the expected inflation effect and interest rates adjust
slowly to changes in expected inflation.
D) liquidity effect is smaller than the expected inflation effect and interest rates adjust
slowly to changes in expected inflation.
Answer:
The principal-agent problem that exists for bank trading activities can be reduced
through
A) creation of internal controls that combine trading activities with bookkeeping.
B) creation of internal controls that separate trading activities from bookkeeping.
C) elimination of regulation of banking.
D) elimination of internal controls.
Answer:
If workers demand and receive higher real wages (a successful wage push), the cost of
production ________ and the short-run aggregate supply curve shifts ________.
A) rises; leftward
B) rises; rightward
C) falls; leftward
D) falls; rightward
Answer:
________ in the expected future domestic exchange 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:
The primary assets of a pension fund are
A) money market instruments.
B) corporate bonds and stock.
C) consumer and business loans.
D) mortgages.
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:
Bonds with no default risk are called
A) flower bonds.
B) no-risk bonds.
C) default-free bonds.
D) zero-risk bonds.
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.
Answer:
As in the United States, an important factor in the banking crises in Latin America was
the
A) financial liberalization that occurred in the 1980s.
B) decline in real interest rates that occurred in the 1980s.
C) high inflation that occurred in the 1980s.
D) sluggish economic growth that occurred in the 1980s.
Answer:
When the Fed supplies the banking system with an extra dollar of reserves, deposits
________ by ________ than one dollara process called multiple deposit creation.
A) increase; less
B) increase; more
C) decrease; less
D) decrease; more
Answer:
As “haircuts” increased during 2007-2009, financial institutions found that to borrow
the same loan amount now required ________ collateral.
A) less
B) no
C) more
D) default-free
Answer:
________ is a process of bundling together smaller loans (like mortgages) into standard
debt securities.
A) Securitization
B) Origination
C) Debt deflation
D) Distribution
Answer:
An expansionary monetary policy may cause asset prices to rise, thereby reducing the
likelihood of financial distress and causing consumer durable and housing expenditures
to rise. This monetary transmission mechanism is referred to as
A) the household liquidity effect.
B) the wealth effect.
C) Tobin’s q theory.
D) the cash flow effect.
Answer:
Evidence suggests that a liquidity trap is possible when
A) real interest rates are at zero.
B) real interest rates are at or just above zero.
C) nominal interest rates are at zero.
D) nominal interest rates are at or just above zero.
Answer:
In the market for reserves, a lower interest rate paid on excess reserves
A) decreases the supply of reserves.
B) increases the supply of reserves.
C) decreases the effective floor for the federal funds rate.
D) increases the effective floor for the federal funds rate.
Answer:
You can borrow $5000 to finance a new business venture. This new venture will
generate annual earnings of $251. The maximum interest rate that you would pay on the
borrowed funds and still increase your income is
A) 25%.
B) 5%.
C) 10%.
D) 5%.
Answer:
The two most important categories of assets on the Fed’s balance sheet are ________
and ________ because they earn interest.
A) discount loans; coins
B) securities; discount loans
C) gold; coins
D) cash items in the process of collection; SDR certificate accounts
Answer:
When I purchase a 10 percent coupon bond, I calculate a yield to maturity of 8 percent.
If I hold this bond to maturity, then my return on this asset is
A) 10 percent.
B) 8 percent.
C) 12 percent.
D) there is not enough information to determine the return.
Answer: