Money market mutual funds
A) function as interest-earning checking accounts.
B) are legally deposits.
C) are subject to reserve requirements.
D) have an interest-rate ceiling.
Answer:
The high growth rate in China in the last twenty years has similarities to the high
growth rate of ________ during the 1950s and 1960s.
A) the United States
B) the Soviet Union
C) Brazil
D) Mexico
Answer:
Which of the following is a potential operating instrument for the central bank?
A) The monetary base
B) The M1 money supply
C) Nominal GDP
D) The discount rate
Answer:
The Baumol-Tobin analysis suggests that
A) velocity is relatively constant.
B) the transactions component of the demand for money is negatively related to the
level of interest rates.
C) the speculative motive is nonexistent.
D) velocity is unrelated to the transactions motive.
Answer:
Financial markets have the basic function of
A) getting people with funds to lend together with people who want to borrow funds.
B) assuring that the swings in the business cycle are less pronounced.
C) assuring that governments need never resort to printing money.
D) providing a risk-free repository of spending power.
Answer:
Discovery of new gold in Alaska will ________ the ________ of gold, ________ its
price, everything else held constant.
A) increase; demand; increasing
B) decrease; demand; decreasing
C) decrease; supply; increasing
D) increase; supply; decreasing
Answer:
If the money supply is $2 trillion and velocity is 5, then nominal GDP is
A) $1 trillion.
B) $2 trillion.
C) $5 trillion.
D) $10 trillion.
Answer:
Which is the most important category of Fed assets?
A) Securities
B) Discount loans
C) Gold and SDR certificates
D) Cash items in the process of collection
Answer:
The ________ interest rate more accurately reflects the true cost of borrowing.
A) nominal
B) real
C) discount
D) market
Answer:
The situation in which expansionary fiscal policy does not lead to a rise in aggregate
output is referred to as
A) fiscal neutrality.
B) a recession.
C) complete crowding out.
D) inflation.
Answer:
Under the Bretton Woods system, if IMF loans were insufficient to prevent ________
of a currency, then the country was allowed to devalue its currency by setting a new,
________ exchange rate.
A) depreciation; lower
B) depreciation; higher
C) appreciation; lower
D) appreciation; higher
Answer:
________ in the money supply creates excess ________ money, causing interest rates
to ________, everything else held constant.
A) A decrease; demand for; rise
B) An increase; demand for; fall
C) An increase; supply of; rise
D) A decrease; supply of; fall
Answer:
Under the Exchange Rate Mechanism of the European Monetary System, when the
British pound depreciated below its lower limit against the German mark, the German
central bank was required to buy ________ and sell ________, thereby ________
international reserves.
A) pounds; marks; losing
B) pounds; marks; gaining
C) marks; pounds; gaining
D) marks; pounds; losing
Answer:
The equation that shows the amount of the monetary base needed to support existing
levels of checkable deposits, excess reserves, and currency is
A) MB = (rr × D) + ER + C.
B) MB = (rr + D) + ER + C.
C) MB = + ER + C.
D) MB = (rr × D) – ER – C.
Answer:
The financial panic of 1907 resulted in such widespread bank failures and substantial
losses to depositors that the American public finally became convinced that
A) the First Bank of the United States had failed to serve as a lender of last resort.
B) the Second Bank of the United States had failed to serve as a lender of last resort.
C) the Federal Reserve System had failed to serve as a lender of last resort.
D) a central bank was needed to prevent future panics.
Answer:
The new Consumer Financial Protection Bureau is an independent agency but is funded
and housed within
A) the Treasury Department.
B) the Federal Reserve.
C) the SEC.
D) the IRS.
Answer:
Which of the following is most likely to lead to inflationary monetary policy?
A) Declining oil prices
B) Resolution of conflict in the Middle East
C) The enactment of a free-trade agreement with Mexico
D) Rising government budget deficits
Answer:
Under the current managed float exchange rate regime; countries with surpluses in their
balance of payments frequently do not want to see their currencies appreciate because it
makes their goods ________ expensive abroad and foreign goods ________ in their
countries.
A) more; cheaper
B) more; costlier
C) less; cheaper
D) less; costlier
Answer:
If the interest rate is 7 percent on euro-denominated assets and 5 percent on
dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate,
for Francois the Frenchman the expected rate of return on dollar-denominated assets is
A) 11 percent.
B) 9 percent.
C) 5 percent.
D) 3 percent.
E) 1 percent.
Answer:
Because information is scarce
A) helps explain why equity contracts are used so much more frequently to raise capital
than are debt contracts.
B) monitoring managers gives rise to costly state verification.
C) government regulations, such as standard accounting principles, have no impact on
problems such as moral hazard.
D) developing nations do not rely heavily on banks for business financing.
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:
The legislation that overturned the prohibition on interstate banking is
A) the McFadden Act.
B) the Gramm-Leach-Bliley Act.
C) the Glass-Steagall Act
D) the Riegle-Neal Act
Answer:
If the required reserve ratio is 25 percent, the simple deposit multiplier is
A) 5
B) 2.5
C) 4
D) 10
Answer:
An increase in the riskiness of corporate bonds will ________ the yield on corporate
bonds and ________ the yield on Treasury securities, everything else held constant.
A) increase; increase
B) reduce; reduce
C) increase; reduce
D) reduce; increase
Answer:
When a bank buys a government bond from the Federal Reserve, reserves in the
banking system ________ and the monetary base ________, everything else held
constant.
A) increase; increases
B) increase; decreases
C) decrease; increases
D) decrease; decreases
Answer:
Everything else held constant, when prices in the art market become more uncertain,
A) the demand curve for bonds shifts to the left and the interest rate rises.
B) the demand curve for bonds shifts to the left and the interest rate falls.
C) the demand curve for bonds shifts to the right and the interest rate falls.
D) the supply curve for bonds shifts to the right and the interest rate falls.
Answer:
Assuming initially that rr = 10%, c = 40%, and e = 0, a decrease in rr to 5% causes the
M1 money multiplier to ________, everything else held constant.
A) increase from 2.8 to 3.11
B) decrease from 3.11 to 2.8
C) increase from 2 to 2.22
D) decrease from 2.22 to 2
Answer:
Defining money becomes ________ difficult as the pace of financial innovation
________.
A) less; quickens
B) more; quickens
C) more; slows
D) more; stops
Answer:
Most of a bank’s operating income results from
A) interest on assets.
B) service charges on deposit accounts.
C) off-balance-sheet activities.
D) fees from standby lines of credit.
Answer:
The upward and downward movement of aggregate output produced in the economy is
referred to as the
A) roller coaster.
B) see saw.
C) business cycle.
D) shock wave.
Answer: