A futures contract is
A) an agreement that specifies the delivery of a commodity or financial instrument at an
agreed-upon future date at a currently agreed-upon price.
B) an agreement that specifies the delivery of a commodity or financial instrument at an
agreed-upon future date, with the price to be negotiated at the time of delivery.
C) an agreement that specifies the delivery of a commodity or financial instrument at a
currently agreed-upon price, with date of delivery to be negotiated subsequently.
D) an agreement that specifies the delivery of a commodity or financial instrument,
with the price and date of delivery to be negotiated subsequently.
Answer:
Special Drawing Rights
A) are granted by the Fed to banks which want to trade in the foreign exchange
markets.
B) were eliminated when the Bretton Woods system broke down.
C) are created by the IMF in its role as lender of last resort.
D) were created by the Nixon administration on August 15, 1971.
Answer:
All of the following are likely results of a negative demand shock EXCEPT
A) a negative output gap.
B) lower inflation.
C) IS shifts to the left.
D) Phillips curve shifts to the left.
Answer:
What does the coefficient a in the new classical expression for short-run aggregate
supply represent?
A) the full employment level of output
B) the price level in the previous period
C) how much output responds when the actual price level differs from the expected
price level
D) how much the price level responds when the actual level of output differs from the
full employment level of output
Answer:
If the Fed sterilizes the purchase of foreign assets,
A) the monetary base is left unchanged.
B) the monetary base rises by the amount of the purchase.
C) the monetary base falls by the amount of the purchase.
D) the monetary base may rise, fall, or remain unchanged depending on the reaction of
domestic interest rates to the purchase.
Answer:
Banks face liquidity risk because
A) they can have difficulty meeting their depositor’s demands to withdraw money.
B) they are unable to borrow from the Federal Reserve.
C) households and businesses may seek to borrow a large amount of funds in a short
period of time.
D) governments tend to run high budget deficits.
Answer:
Which of the following represents the equation that would be used to determine the
yield to maturity of a three-year fixed payment loan of $1400 which has payments of
$500 per year?
A) $1400 = $500/(1+i) + $500/(1+i)2 + $500/(1+i)3
B) $1400 = $500/(1+i)3
C) i = (1400-500)/1400
D) $1400 = $500/(1+i) + $500/(1+i)2 + $500(1+i)3 + 1400/(1+i)3
Answer:
The demand curve for bonds would be shifted to the left by
A) an increase in expected returns on other assets.
B) a decrease in the information costs of bonds relative to other assets.
C) a decrease in expected inflation.
D) an increase in the liquidity of bonds relative to other assets.
Answer:
A firm’s agents are its
A) shareholders.
B) management.
C) marketing department.
D) customers.
Answer:
If the Japanese central bank performed a sterilized intervention to reduce the value of
the yen, the most likely result is:
A) a lower value of the yen due to an increase in the monetary base in Japan.
B) a lower value of the yen due to a decrease in Japanese interest rates.
C) a higher value of the yen since the intervention was sterilized.
D) no change in the value of the yen since neither the monetary base nor Japanese
interest rates would be affected.
Answer:
The assumption of asymmetric information means that
A) borrowers and lenders have the same information.
B) borrowers and lenders have perfect information.
C) borrowers know more than lenders.
D) lenders know more than borrowers.
Answer:
Credit rationing refers to
A) the increase in the interest rate that occurs when the demand for credit increases.
B) the increase in the interest rate that occurs when the supply of credit increases.
C) the increase in the interest rate that occurs when the supply of credit decreases.
D) a restriction in the availability of credit.
Answer:
Which type of analyst should generally outperform market index according to the
Efficient Markets Hypothesis?
A) technical analysts
B) fundamental analysts
C) those that follow the random walk
D) none of the above
Answer:
According to the Gordon-Growth model, if the stock price is $21, required return on
equity is 10% and the current dividend is $1, what is the expected growth rate of
dividends?
A) 2%
B) 5%
C) 10%
D) 15%
Answer:
A company that retains a high bond rating during a recession in which many other
companies see their bond ratings cut will experience
A) an increased flow of funds into the market for its securities.
B) an increased demand for its securities, resulting in a higher expected return.
C) a decreased demand for its securities, resulting in a lower expected return.
D) a decreased flow of funds into the market for its securities.
Answer:
The rate of return is equal to the
A) sum of the coupon rate and the current yield.
B) yield to maturity.
C) sum of the current yield and the actual rate of capital gain or loss.
D) sum of the current yield and the expected rate of capital gain.
Answer:
If in the short run prices did not respond at all to changes in aggregate demand, the
short-run aggregate supply curve would
A) be vertical.
B) be horizontal.
C) slope up.
D) slope down.
Answer:
When output exceeds its full-employment level,
A) the short-run aggregate supply function shifts up.
B) wages fall.
C) the short-run aggregate supply function shifts down.
D) aggregate supply exceeds aggregate demand.
Answer:
How is a monopolistically competitive firm likely to respond to fluctuations in demand
in the short run?
A) by selling more or less at the posted price
B) by changing prices
C) by reducing menu costs
D) by increasing menu costs
Answer:
Suppose you are a manager for a company that produces grape jelly. Which of the
following is the best way for you to reduce your risk?
A) acquire a derivative that increases in value if grape prices increase
B) acquire a derivative that increases in value if grape jelly prices increase
C) sell a derivative that increases in value if grape prices increase
D) sell a derivative that increases in value if grape jelly prices increase
Answer:
The president of which Federal Reserve bank is always a voting member of the Federal
Open Market Committee?
A) Philadelphia
B) Boston
C) Chicago
D) New York
Answer:
A consequence of the impact lag is that the Fed
A) may not know the impact of a change in policy.
B) might not be able to correct a mistaken policy soon enough.
C) may not have current information about the state of the economy.
D) may see the impact of a change in policy on inflation, but not economic growth.
Answer:
The economist known for his early empirical work supporting the efficient markets
hypothesis is
A) Milton Friedman.
B) John Muth.
C) Eugene Fama.
D) Glenn Hubbard.
Answer:
Which of the following statements is correct?
A) Because in practice few borrowers are bank-dependent, the bank lending channel is
of little real-world importance.
B) In the interest rate channel, an expansionary monetary policy may cause a leftward
shift in the AD curve.
C) In the bank lending channel, an expansionary monetary policy can increase output in
the short run even if it does not result in a decrease in the real interest rate.
D) In the interest rate channel, an expansionary monetary policy affects spending but
not output.
Answer:
Which of the following is NOT generally recognized as a channel for monetary policy?
A) interest rate channel
B) balance sheet channel
C) financial market channel
D) bank lending channel
Answer:
If the Fed wants to reduce the value of the dollar, it will
A) sell foreign assets and buy dollars.
B) sell dollars and buy foreign assets.
C) buy foreign assets and also buy dollars.
D) sell foreign assets and also sell dollars.
Answer:
On a bank’s balance sheet, assets are
A) the uses of acquired funds.
B) the sources of acquired funds.
C) those items owed by the bank to depositors and others.
D) by definition equal to the bank’s liabilities.
Answer:
In what year did the mutual fund industry in the United States begin?
A) 1812
B) 1924
C) 1974
D) 1990
Answer:
The primary assets of the Fed are
A) discount loans and reserves.
B) discount loans and government securities.
C) government securities and reserves.
D) discount loans and open market operations.
Answer:
In the aggregate demand-aggregate supply model, if entrepreneurs become convinced
that future profitability of capital has increased,
A) current output will fall, but the price level will rise.
B) current output will rise, but the price level will fall.
C) current output and the price level will both rise.
D) current output and the price level will both fall.
Answer:
All of the following were significant changes in the mortgage market in the 2000s
EXCEPT
A) investment banks became significant participants in the secondary mortgage market.
B) lenders loosened lending standards.
C) mortgage-backed securities became more popular with investors.
D) borrowers tended to increase the amount of their down payments.
Answer: