The quantity theory of money along with the assumption of a constant velocity can
explain which of the following?
A. At a given level of money growth, the higher the level of real growth the higher the
level of inflation will be.
B. At a given level of money growth, the higher the level of real growth the lower the
level of inflation will be.
C. If real growth is higher than money growth, the price level must be rising.
D. If real growth equals money growth, the price level is falling.
Answer:
In a financial market where information is symmetric:
A. there would be moral hazard.
B. one party to a transaction knows information the other party does not.
C. the ability to obtain information is available to only one party.
D. there would be no adverse selection.
Answer:
Which of the following statements is most accurate?
A. Central bank statements in developed countries are similar both in length and in the
speed with which policy changes are announced.
B. Central bank statements in developed countries differ both in length and in the speed
with which policy changes are announced.
C. Central bank statements in developed countries are similar in length but differ in the
speed with which policy changes are announced.
D. Central bank statements in developed countries differ in length but are similar in the
speed with which policy changes are announced.
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:
The Dow Jones Industrial Average is:
A. an index made up of the stock prices of the 100 largest corporations in the U.S.
B. an index that measures the value of purchasing 100 shares in each of the
corporations that make up the index.
C. the average price of stock in 30 of the largest companies in the U.S.
D. the broadest measure of stock market performance.
Answer:
You hold an FDIC insured savings account at your neighborhood bank. Your current
balance is $275,000. If the bank fails you will receive:
A. $275,000.
B. $250,000.
C. $100,000.
D. $125,000.
Answer:
During the early years of the Great Depression, the monetary base and M2:
A. both increased significantly.
B. both decreased significantly.
C. moved in opposite directions; M2 increased while the monetary base decreased.
D. moved in opposite directions; the monetary base increased but M2 decreased.
Answer:
The likelihood that the Fed will implement a change that will seriously harm the
economy is minimized by the fact that:
A. only bright, well-intentioned people are appointed to key roles at the Fed.
B. Congress can remove the Chairman of the Fed at any time.
C. the Board of Governors ultimately must answer to the U.S. President since he can
replace them.
D. there is decision making by committee.
Answer:
A primary financial market is:
A. located only in New York, London, and Tokyo but can handle transactions
anywhere in the world.
B. one where the borrower obtains funds directly from the lender for newly issued
securities.
C. a market where U.S. Treasury bonds are traded.
D. one that can only deal in the highest investment grade securities.
Answer:
The standard deviation is generally more useful than the variance because:
A. it is easier to calculate.
B. variance is a measure of risk, where standard deviation is a measure of return.
C. standard deviation is calculated in the same units as payoffs and variance isn’t.
D. it can measure unquantifiable risk.
Answer:
A bank that makes most of its long-term loans at adjustable interest rates is:
A. reducing both interest rate and credit risk.
B. increasing credit risk and reducing interest rate risk.
C. reducing credit risk and increasing interest-rate risk.
D. increasing both interest-rate and credit risk.
Answer:
An unsecured loan is:
A. a loan where the applicant does not have any net worth.
B. a loan where the applicant does not post any collateral.
C. another name for a mortgage loan.
D. usually a low-risk loan.
Answer:
As a person’s wealth increases we would expect the demand for money to:
A. decrease.
B. increase dollar for dollar with wealth.
C. increase but at a rate less than dollar for dollar.
D. not change; money demand does not vary with wealth, only with income.
Answer:
The three branches of the Federal Reserve System include each of the following,
except:
A. the Board of Governors.
B. the Federal Deposit Insurance Corporation.
C. the Federal Open Market Committee.
D. the twelve regional Federal Reserve Banks.
Answer:
Which of the following correctly portrays a bank’s balance sheet?
A. Total Bank Liabilities = Total Bank Capital + Total Bank Assets
B. Total Bank Assets = Total Bank Capital – Total Bank Liabilities
C. Total Bank Assets = Total Bank Liabilities – Total Bank Capital
D. Total Bank Assets = Total Bank Liabilities + Total Bank Capital
Answer:
The number of voting members on the Federal Open Market Committee is:
A. 7.
B. 12.
C. 19.
D. 8.
Answer:
How many members are on the Board of Governors of the Federal Reserve System?
A. Twelve, one for each district
B. Seven
C. Nine
D. Fourteen
Answer:
The value of fiat money:
A. comes from its intrinsic value.
B. is worth more as a commodity than its value as money.
C. comes from government decree.
D. means that it is more desirable than currency.
Answer:
During economic slowdowns (recessions) the velocity of money tends to:
A. remain relatively stable.
B. increase slightly.
C. increase dramatically.
D. decrease.
Answer:
A bank supervisor examines the bank’s portfolio of loans to see if the loans are being
repaid in a timely manner. In terms of the acronym CAMELS, this would be part of
rating the bank’s:
A. asset quality.
B. losses.
C. management.
D. earnings.
Answer:
Bonds cannot have yields less than zero because:
A. the U.S. treasury guarantees all bonds to have a positive yield.
B. the banking technology does not exist to deal with negative yields.
C. people can always hold cash.
D. all of the answers given are correct.
Answer:
A financial instrument would include:
A. only a written obligation and a transfer of value.
B. only a written obligation and a specified date.
C. a written obligation, a transfer of value, a future date, and certain conditions.
D. a written obligation, a transfer of value, a specific date for payment, uncertain
conditions.
Answer:
M1 is:
A. less than 25% of GDP.
B. equal to GDP.
C. about four times larger than GDP.
D. about one fourth the amount of GDP.
Answer:
Today the primary distinction between direct and indirect finance is in:
A. direct finance the asset holder has a claim on a financial institution while in indirect
finance the asset holder has a direct claim on the borrower.
B. indirect finance the lender has a direct claim on the borrower while in direct finance
the lender has a claim on a financial institution.
C. direct finance the asset holder has a direct claim on the borrower while in indirect
finance the asset holder has a claim on a financial institution.
D. indirect finance the asset holder has a claim on the government while in direct
finance the asset holder has a direct claim on a private sector corporation.
Answer:
The quantity of securities held by the Federal Reserve is controlled through:
A. the U.S. Treasury.
B. the Fed’s annual budget.
C. open market operations.
D. the purchases made by the regional Reserve banks.
Answer:
According to the Expectations Hypothesis:
A. when short-term interest rates are expected to rise in the future, the long-term
interest rates are equal to current short-term interest rates.
B. when short-term rates are expected to remain constant in the future, the long-term
interest rates are higher than current short-term interest rates.
C. short-term bonds are perfect substitutes for long-term bonds.
D. expectations of future short-term rates equal estimates of current short-term rates.
Answer:
An over-the-counter (OTC) market is:
A. made up of dealers who only sell government bonds.
B. an example of a centralized market.
C. made up of dealer who buy and sell only for their own accounts.
D. made up of dealers who buy and sell for their customers and for their own accounts.
Answer:
A risk-averse investor compared to a risk-neutral investor would:
A. offer the same price for an investment as the risk-neutral investor.
B. require a higher risk premium for the same investment as a risk-neutral investor.
C. place more focus on expected return and less on return than the risk-neutral investor.
D. place less focus on expected return than the risk-neutral investor.
Answer:
If a fair coin is tossed, the probability of coming up with either a head or a tail is:
A. ½ or 50 percent.
B. Zero.
C. 1 or 100 percent.
D. Unquantifiable.
Answer:
Executive board members of the European System of Central Banks are appointed by:
A. a committee made up of bank presidents in the member countries.
B. a committee made up of heads of state of member countries.
C. the finance ministers of member countries.
D. the directors of the National Central Banks.
Answer:
The simple deposit expansion multiplier is really too simple for understanding the link
between changes in a central bank’s balance sheet and the quantity of money in the
economy because it:
A. ignores how central banks could change their balance sheet.
B. assumes banks hold excess reserves.
C. ignores the fact people might change their currency holdings.
D. ignores changes in vault cash.
Answer: