The interest rate decisions made by the Federal Open Market Committee:
A. can be overridden by the President.
B. can be overridden by the Secretary of the Treasury.
C. can be overridden by the U.S. Senate by a two-thirds majority.
D. cannot be overridden by anyone outside of the Federal Reserve.
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 FOMC targets the federal funds rate, but if they are going to alter the course of the
economy they must influence the:
A. real interest rate as well.
B. long-term nominal interest rate as well.
C. real exchange rate as well.
D. nominal exchange rate as well.
Answer:
Which of the following would be an example of a capital outflow control?
A. Mexico limiting the number of U.S. dollars an American can bring into the country
B. Mexico excludes foreigners from purchasing short-term debt
C. Mexico limiting the number of pesos its citizens can take out of the country
D. All of the answers given would be examples of capital outflow controls
Answer:
Once you buy a coupon bond, which of the following can change?
A. Coupon rate
B. Coupon payment
C. Face value
D. Yield to maturity
Answer:
The process of financial intermediation:
A. creates a net cost to an economy.
B. increases the economy’s ability to produce.
C. is always used when a borrower needs to obtain funds.
D. is used primarily in underdeveloped countries.
Answer:
On November 20, 1985, the Bank of New York needed to use the lender of last resort
function due to:
A. a run on the bank started by a rumor that the president of the bank embezzled tens
of millions of dollars from the bank.
B. a computer error caused the bank’s records to wipe out the balances of all of its
customers.
C. a rumor that the bank was about to be taken over by FDIC due to insolvency.
D. a computer error that made it impossible for the bank to keep track of its Treasury
bond trades.
Answer:
The tendency for large banks to have a higher return on equity than small banks
suggests:
A. small banks have better management than large banks.
B. large banks can charge higher interest rates than small banks.
C. there could be significant economies of scale in banking.
D. larger banks are better able to escape the cost of regulation.
Answer:
A bank’s off-balance-sheet activities usually:
A. increase both its assets and liabilities while reducing net income.
B. increase its net income but do not change its assets or liabilities.
C. increases a bank’s liabilities but not its assets.
D. increases a bank’s assets but not its liabilities.
Answer:
Answer:
The variance of a portfolio containing n assets with independent returns:
A. increases as n increases.
B. decreases as n increases.
C. is constant for any n greater than two.
D. does not change in a predictable way when n increases.
Answer:
The direct impact on spending of short-term interest rate changes by central banks is:
A. definitely the strongest of all transmission mechanisms.
B. not that powerful.
C. only effective for consumption but not investment.
D. only effective for net exports but not for investment and consumption.
Answer:
In the United States, monetary policy is formed by:
A. an individual advised by a close group of people.
B. committee.
C. the President and approved by Congress.
D. the Chairman of the Federal Reserve and can only be overturned by the presidents
of the Regional Federal Reserve 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:
One reason for having a monetary policy framework is:
A. it makes clear what specific goals the central bankers are pursuing.
B. it provides leeway for central bankers to change their goals without communicating
the change and disrupting financial markets.
C. it provides central bankers the secrecy needed to perform their jobs effectively.
D. it can make goal setting vague enough so that the central bankers can always claim
success.
Answer:
From October 1997 to January 1998, the economy of South Korea was in turmoil. One
of the problems was:
A. the currency of South Korea appreciated considerably making it very difficult for
Korean exporters to sell goods abroad.
B. the value of the U.S. $ compared to the Korean won fell by more than half.
C. U.S. goods became very cheap to Koreans making it difficult for Korean
manufacturers to compete with imports.
D. the value of the won fell by more than half compared to the U.S. dollar, making
U.S. goods very expensive to Koreans and Korean goods relatively inexpensive for
U.S. residents.
Answer:
Considering the balance sheet for all commercial banks in the U.S., the net worth of
banks is:
A. about 12% of total liabilities.
B. about 5 times total assets.
C. about the same as total assets.
D. about 4 times total liabilities.
Answer:
In 1997, there was a speculative attack on the Thai baht. This resulted from the:
A. belief by speculators that the Thai central bank had an oversupply of U.S. dollar
reserves.
B. belief by speculators that the Thai central bank didn’t have sufficient U.S. dollar
reserves to maintain the current fixed rate.
C. revelation that the Thai central bank had converted its gold reserves into foreign
exchange.
D. overthrow of the Thai president and the central bank.
Answer:
Increases in productivity result in:
A. higher inflation as output increases.
B. lower inflation as output decreases.
C. opportunities for policymakers to reduce their inflation target without inducing a
recession.
D. none of the answers provided is correct.
Answer:
Recession can cause widespread bank crises for all of the following reasons except:
A. there is less business investment as banks make fewer loans.
B. borrowers’ default rates increase.
C. bank capital increases.
D. the negative effect on banks’ balance sheets.
Answer:
U.S. monetary policy is best described as:
A. aimed at keeping inflation low and stable and growth high and stable.
B. determining the denominations of a country’s currency.
C. one of the most important functions of congress.
D. attempting to keep inflation constant at zero percent.
Answer:
Financial intermediaries, through their ability to lower transaction costs:
A. allow for people to be more self-sufficient.
B. increase the amount of trading that occurs in an economy.
C. take people away from their comparative advantage.
D. reduce the number of financial transactions that occur.
Answer:
The Nasdaq Composite Index is:
A. a value-weighted index.
B. a price-weighted index.
C. made up of over 5000 companies traded on the NYSE.
D. made of mainly older firms and is heavily weighted by manufacturing.
Answer:
Most finance companies specialize in one of three loan types. Which of the following is
not one of those three types?
A. Consumer loans for purchases such as appliances
B. Margin loans for buying stock
C. Sales loans for purchases such as cars
D. Business loans for firms to use to buy new equipment
Answer:
Following the consolidation that resulted from the 2007-2009 financial crisis in the
U.S., the 4 largest commercial banks share of total deposits was:
A. 75%.
B. 50%.
C. 40%.
D. 25%.
Answer:
In theory, lower real interest rates will tend to cause all but which of the following to
increase?
A. Consumption spending
B. Investment spending
C. Net exports
D. Government spending
Answer:
The amount of information an individual would seek before making a decision:
A. is about the same across all individuals.
B. varies directly with the importance of the decision.
C. is the same across all decisions but varies across individuals.
D. depends on how much time it will take to get the information regardless of the
decision.
Answer:
Which of the following would give the most importance to the goal of exchange rate
stability?
A. Large, closed economies
B. The U.S. and Japan and other developed countries
C. Emerging market countries where exports and imports are central to the structure of
the economy
D. Europe
Answer:
Which of the following statements is most correct?
A. Reserves are assets of the central bank and liabilities of the U.S. Treasury.
B. Reserves are assets of the central bank and liabilities of the commercial banks.
C. Reserves are liabilities of the commercial banks and assets of the U.S. Treasury.
D. Reserves are assets of the commercial banks and liabilities of the central bank.
Answer:
Increases in the real interest rate in the U.S. will cause net exports to:
A. decrease, because the dollar depreciates.
B. increase, because the dollar depreciates.
C. decrease, because the dollar appreciates.
D. increase, because the dollar appreciates.
Answer:
A monetary policy reaction curve requires the central bank to have a(n):
A. money growth target.
B. inflation target.
C. unemployment target.
D. economic growth target.
Answer:
Once the FOMC meetings adjourn, the public is made aware of the FOMC’s decision:
A. immediately after the meeting.
B. forty-eight hours after the meeting adjourns.
C. within five business days.
D. twenty-four hours after the meeting adjourns.
Answer:
Which of the following is not a reason why the yield to maturity can differ from the
current yield?
A. Because the yield to maturity considers the capital gain/loss.
B. Because the current yield focuses only on the coupon payment and the purchase
price.
C. Because most bonds are not purchased for face value.
D. Because the current yield moves in the opposite direction from price.
Answer:
Comparing an option to a futures contract it would be correct to say:
A. the risk involved in each is equal.
B. a futures contract carries more risk than the option contract.
C. an option contract carries more risk than the futures contract.
D. neither involves risk; they are tools to eliminate risk.
Answer:
An investor deposits $400 into a bank account that earns an annual interest rate of 8%.
Based on this information, how much interest will he earn during the second year
alone?
A. $25.60
B. $32
C. $34.56
D. $64
Answer: