During most of the 1970s, officials at the Fed:
A. overestimated inflation and underestimated the growth rate of potential GDP.
B. overestimated the growth rate of potential GDP and underestimated inflation.
C. underestimated both the growth rate of output and inflation.
D. overestimated both the growth rate of potential GDP and inflation.
Answer:
If current output deviates from potential output, the short-run aggregate supply curve
may shift because:
A. aggregate demand has to shift.
B. potential output will have to shift.
C. input costs (including wages) adjust.
D. the economy’s long-run growth rate will have to adjust.
Answer:
If the monetary policy reaction curve has a relatively steep slope, the dynamic
aggregate demand curve is likely to have a:
A. relatively steep slope.
B. relatively flat slope.
C. positive slope.
D. zero slope.
Answer:
The impact on the foreign exchange market for dollars resulting from the Fed selling
euros will be:
A. a decrease in the demand for dollars.
B. a decrease in the supply of dollars.
C. an increase in the supply of dollars.
D. a decrease in the interest rate in the U.S.
Answer:
One major difference between a debit and credit card is:
A. you can build a credit history with the credit card but not with the debit card.
B. you have to pay interest on your purchases if you use a credit card.
C. credit cards are money and the debit card is not.
D. debit cards charge late fees.
Answer:
The current yield of a bond:
A. is another term for the coupon rate.
B. is another term for the yield to maturity.
C. equals zero for a zero-coupon bond since these bonds have no coupon payments.
D. is the difference between its future value and its present value.
Answer:
The financial crisis of 2007-2009 has made which of the following regulatory goals a
top priority for government:
A. disclosure of accounting information.
B. minimum capital requirements.
C. avoidance of systemic risk.
D. promotion of competition.
Answer:
A share of stock resembles a consol in all of the following ways except that the:
A. share of stock does not have a maturity date.
B. annual dividend the stock pays resembles the coupon on a consol.
C. prices of both can be computed using a variation of the net present value formula.
D. are both residual claims.
Answer:
For every $100 in assets, a bank has $40 in interest-rate sensitive assets, and the other
$60 in non-interest-rate sensitive assets. The same bank has $50 for every $100 in
liabilities in interest-rate sensitive liabilities, the other $50 are in liabilities that are not
interest-rate sensitive. If the interest rate on assets increases from 5 to 6 percent, and the
interest rate on liabilities increases from 3 to 4 percent, the impact on the bank’s profits
per $100 of assets will be:
A. an increase of $0.10.
B. a decrease of $0.10.
C. a reduction of $1.00.
D. zero since the interest rates on assets and liabilities increased by the same amount.
Answer:
Money Center Banks differ from community banks in all of the following ways except:
A. they are usually much smaller.
B. they obtain their funds primarily through borrowing and not by deposits.
C. they are a much smaller percentage of the total number of banks.
D. they are actively engaged in the money market.
Answer:
Real business cycle theory seeks to explain business cycle fluctuations by focusing on:
A. shifts in potential output.
B. the inflexibility of prices and wages.
C. aggregate demand.
D. changes in monetary policy.
Answer:
Which of the following is true?
A. Long-term bond yields move together but short-term yields do not.
B. Short-term bond yields move together but long-term yields do not.
C. U.S. Treasury bill yields are lower than the yields on commercial paper.
D. Long-term bond yields are usually the same as short-term yields.
Answer:
Discount lending ties into the Fed’s function of:
A. lender of last resort.
B. open market operations.
C. the government’s bank.
D. regulation of banking.
Answer:
During World War II, the Fed accommodated the war effort by:
A. significantly curtailing credit in the economy.
B. keeping bond prices high and interest rates low.
C. selling any Treasury securities the public did not purchase.
D. curtailing credit and keeping bond prices high.
Answer:
Which fact about the term structure is the Expectations Theory unable to explain?
A. Why interest rates on bonds with different terms to maturity tend to move together
over time.
B. Why yields on short-term bonds are more volatile than yields on long-term bonds.
C. Why longer-term yields tend to be higher than shorter-term yields.
D. Why long-term bond yields are influenced by expected future short-term bond
yields.
Answer:
The formula for required reserves is:
A. (1/rD) D.
B. 1/rD.
C. rD.
D. D/rD.
Answer:
The central bank of the United States is:
A. the Bank of America
B. the Federal Reserve System
C. the U.S. Treasury
D. Citibank
Answer:
A share of Microsoft stock would best be described as which of the following?
A. A derivative instrument
B. A means of payment
C. An underlying instrument
D. A debt instrument
Answer:
Diversification can eliminate:
A. all risk in a portfolio.
B. risk only if the investor is risk averse.
C. the systematic risk in a portfolio.
D. the idiosyncratic risk in a portfolio.
Answer:
If foreigners are restricted in their ability to buy investments in a country then that
government is imposing:
A. controls on capital inflows.
B. controls on capital outflows.
C. controls on both capital inflows and outflows.
D. fixed exchange rates.
Answer:
The risk premium that investors associate with a bond increases with all of the
following except:
A. maturity.
B. inflation risk increases.
C. interest-rate risk.
D. an improved bond rating.
Answer:
A bank’s net worth is synonymous with its:
A. assets.
B. assets + a bank’s liabilities.
C. capital.
D. required reserves.
Answer:
In the long run, if we ignore changes in velocity, inflation will:
A. be zero.
B. equal the rate of money growth.
C. equal money growth less the growth in potential output.
D. equal money growth plus the growth in potential output.
Answer:
Which of the following statements regarding checkable deposits is most accurate?
A. Checkable deposits are a larger source of bank funds today than in 1970.
B. Checkable deposits are no longer a source of bank funds.
C. Checkable deposits are a less important source of bank funds today than in 1970.
D. Checkable deposits continue to be the largest source of bank funds.
Answer:
Mergers resulting from the financial crisis of 2007-2009 have left what percentage of
deposits in the hands of 4 banks?
A. 10%
B. 30%
C. 40%
D. 60%
Answer:
Which of the following would tend to decrease the size of the time value of the option?
A. The price volatility of the underlying asset is high.
B. The time to expiration of the contract is far away.
C. The underlying price of the asset approaches the strike price.
D. The time to expiration of the options contract is near.
Answer:
Which of the following could not be commodity money?
A. Gold coins
B. Cigarettes
C. U.S. Currency
D. Silk
Answer:
Interest-rate risk results from:
A. bond prices being fixed over the life of the bond.
B. a mismatch between an individual’s investment horizon and a bond’s maturity.
C. the fact that most people hold bonds until they mature.
D. inflation being uncertain.
Answer:
In practice, it is difficult to keep inflation and output from fluctuating when aggregate
expenditures change because:
A. it takes time for policymakers to recognize that shifts have occurred.
B. changes in interest rates do not have an immediate impact on the economy.
C. changes in consumer or business confidence can be very difficult to recognize as
they are occurring.
D. all of the answers given are correct.
Answer:
A homeowner discovers that a large tree in his yard is diseased and may fall in a bad
windstorm and if it falls, it will likely destroy the garage. The cost to have the tree cut
down is significant but the homeowner has an insurance policy and figures that if the
tree falls and destroys the garage, the insurance company will pay, and the deductible is
less than the cost to have the tree removed. This is an example of:
A. information symmetry.
B. adverse selection.
C. moral hazard.
D. screening.
Answer:
Assume the Expectations Hypothesis regarding the term structure of interest rates is
correct. If the current one-year interest rate is 3% and the one-year-ahead expected
one-year interest rate is 5%, then the current two-year interest rate should be:
A. 3%.
B. 5%.
C. 4%.
D. 8%.
Answer:
A country that exports more than it imports will:
A. have a current account deficit and a capital account deficit.
B. have a current account surplus and a capital account surplus.
C. have a current account deficit and a capital account surplus.
D. have a current account surplus and a capital account deficit.
Answer:
A bank’s Return on Equity (ROE) is calculated by:
A. dividing the bank’s net profit after taxes by the bank’s capital.
B. dividing the banks liabilities by the bank’s capital.
C. taking the bank’s assets plus the net profit after taxes and dividing this sum by the
bank’s capital.
D. dividing the bank’s net profit after taxes by the sum of the bank’s assets and its
liabilities.
Answer:
When the price of a bond is below the face value, the yield to maturity:
A. is below the coupon rate.
B. will be above the coupon rate.
C. will equal the current yield.
D. will equal the coupon rate.
Answer: