Over long periods of time (say 30 years or more), investors would have received the
highest returns by investing in
a. stocks
b. corporate bonds
c. government bonds
d. gold
Answer:
The decline in interest rates is most pronounced in:
a. the first half of recoveries
b. the second half of recoveries
c. the first half of recessions
d. the second half of recessions
Answer:
Which of the following is a depository-type financial intermediary?
a. commercial bank
b. savings and loan association
c. credit union
d. all of the above
Answer:
According to the text, which of the following items served as the most effective store of
value in the period 1926-2003?
a. money
b. government bonds
c. common stocks
d. gold
Answer:
A nation’s central bank is ultimately responsible for
a. the trend behavior of the money supply
b. the long-run behavior of the nation’s price level
c. both of the above
d. neither of the above
Answer:
A depreciation of the U.S. dollar tends to:
a. help U.S. consumers and help U.S. farmers
b. help U.S. consumers and hurt U.S. farmers
c. help U.S. consumers and hurt workers in the U.S. auto industry
d. hurt U.S. consumers and help workers in the U.S. auto industry
Answer:
The yield differential on U.S. Treasury securities (long-term minus short-term) tends to:
a. rise during economic expansions
b. fall during recessions
c. do both of the above
d. do neither of the above
Answer:
The Federal Reserve’s procedural changes implemented in October 1979 included
a. abandoning money growth rate targets
b. specifying a monetary base target
c. specifying a net free reserves target
d. widening the federal funds rate target range
Answer:
In connection with the S&L fiasco, which period was the critical one in which the moral
hazard problem escalated dramatically and most of the damage was done to taxpayers?
a. 1968-1979
b. 1976-1980
c. 1982-1988
d. 1988-1992
Answer:
In the Keynesian view of the bank demand for excess reserves
a. at very low interest rates, bank demand for excess reserves becomes infinitely elastic
b. at very low interest rates, bank demand for excess reserves becomes completely
inelastic
c. at very high interest rates, bank demand for excess reserves becomes infinitely elastic
d. at very high interest rates, bank demand for excess reserves becomes completely
inelastic
Answer:
This theory of term structure emphasizes institutional characteristics of financial
institutions in determining the term structure.
a. liquidity premium
b. pure expectations
c. segmented markets
d. all of the above
Answer:
If yesterday’s exchange rate was $2/pound, and today’s exchange rate is .6 pound/$,
then over the last day
a. the dollar has depreciated
b. the dollar has appreciated
c. the dollar has neither appreciated nor depreciated
d. not enough information is given to answer the question
Answer:
Which of the following statements is true about capital market instruments?
a. Capital market instruments have less than 1 year to maturity when issued.
b. Capital market instruments never sell at a discount.
c. Capital market instruments can be traded in auction markets or over the counter.
d. Capital market instruments always bear specified interest payments.
Answer:
An output gap exists when
a. actual output equals potential output
b. potential output is less than actual output
c. actual output is less than potential output
d. unemployment is less than the natural rate of unemployment
Answer:
Suppose you buy $1,000 worth of newly-issued IBM bonds. Which of the following is
correct?
a. You have loaned $1,000 to IBM corporation.
b. You now own a small portion of IBM corporation.
c. Both of the above are correct.
d. None of the above are correct.
Answer:
Which of the following is not a method by which Treasury notes are initially offered?
a. auction
b. installment
c. exchange
d. subscription
Answer:
Inflation is generally lower in ____ countries and higher in ____ countries.
a. developing; developed
b. developed; developing
c. there is no link between inflation and the stage of a country’s development
d. not enough information is given to answer the question
Answer:
Prospective measures of money that place different weights on the different items
included in the measure are known as:
a. broad measures of money
b. divisia aggregates
c. commodity money
d. fiat money
Answer:
Which of the following is not a provision of FDICIA?
a. created a “too big to fail” policy
b. increased capital requirements for banks and thrifts
c. increased the Federal Reserve’s authority to supervise foreign banks in the U.S.
d. mandated risk-based deposit premiums
Answer:
As an economist, you determine that checking accounts have 8/10 the “moneyness” of
currency, savings accounts have 5/10 the moneyness of currency, time deposits have
4/10 the moneyness of currency, and money market mutual fund shares have 2/10 the
moneyness of currency. If currency = $1000, checkable deposits = $2000, savings
accounts = $4000, time deposits = $4000, and MMMF shares = $2000, the M1 money
supply would be:
a. $3,000
b. $2,600
c. $6,600
d. $13,000
Answer:
Economists believe that the existence of FDIC deposit insurance does which of the
following?
a. reduces the propensity for bank panics
b. increases the moral hazard problem in banking
c. does both of the above
d. does neither of the above
Answer:
A given bank will normally expand loans and/or buy securities by no more than the
amount of its excess reserves because
a. its profits will decline if it does so
b. it will create excess money if it does so
c. it must expect to lose reserves in the amount of its new loans and investments
d. the government explicitly forbids such activity
Answer:
Which of the following is a potential explanation for the behavior of the Federal
Reserve in the early 1930s?
a. The Fed was too restrictive because it was watching M1 and M2 rather than
short-term interest rates.
b. The Fed misjudged the nature of its own monetary policy by looking at the wrong
indicators.
c. The Fed was too restrictive because it was watching real, rather than nominal, interest
rates.
d. The Fed was too stimulative because it paid too much attention to the money supply
figures.
Answer:
The nominal and real annual rates of return, respectively, from shares of common stock
over the past 75 years have been approximately
a. 12 percent and 4 percent, respectively
b. 10 percent and 7 percent, respectively
c. 7 percent and 2 percent, respectively
d. 5 percent and 3 percent, respectively
Answer:
The largest source of income for banks stems from
a. interest on loans the bank has made to its customers
b. interest paid by the Fed on reserve balances
c. interest on the bank’s portfolio of securities
d. service fees paid to the bank by customers
Answer:
Today’s 90-day forward exchange rate is 110 yen/$. Assume you know with certainty
that the spot exchange rate in 90 days will be 125 yen/$. If you are interested in turning
a quick buck, you could
a. buy yen today in the spot market
b. buy yen in the forward market
c. sell yen in the forward market
d. none of the above will allow you to turn a quick buck
Answer:
Of the following, which exerts the greatest amount of control over the monetary base?
a. the public
b. the commercial banking system
c. the Federal Reserve
d. all of the above exert equal power over the monetary base
Answer:
Suppose that a country’s sacrifice ratio is 6, and that GDP is $2,000 billion. In order to
reduce inflation from 7 percent to 4 percent, the nation must bear an economic loss of
a. $36 billion
b. $120 billion
c. $360 billion
d. $1,200 billion
Answer:
The 25 nations which are currently members of the European Union include
a. France
b. Italy
c. Germany
d. all of the above
Answer:
The amount by which long-term yields exceed the average of successive expected
short-term yields is known as the:
a. risk premium
b. liquidity premium
c. term premium
d. none of the above
Answer:
Which of the following transactions will cause the base to decrease?
a. banks borrow $300 of reserves at the discount window
b. the Fed buys $200 million of Treasury bills
c. the Fed sells a box of old baseball cards on eBay
d. the Treasury pays its employees with checks drawn on its Fed account
Answer: