If you sell a $100,000 interest-rate futures contract for 105, and the price of the
Treasury securities on the expiration date is 108, your ________ is ________.
A) profit; $3000
B) loss; $3000
C) profit; $8000
D) loss; $8000
The monetary policy strategy that relies on a stable money-income relationship is
A) exchange-rate targeting.
B) monetary targeting.
C) inflation targeting.
D) the implicit nominal anchor.
Real business cycle theory states that the most important cause of business cycles is
A) shocks to the money supply.
B) interest rate shocks.
C) Federal Reserve policy decisions.
D) shocks to tastes and technology.
A particularly attractive feature of the ________ is that it tells you what the market is
predicting about future short-term interest rates by just looking at the slope of the yield
curve.
A) segmented markets theory
B) expectations theory
C) liquidity premium theory
D) separable markets theory
During the Great Depression years 1930-1933 there was a very high rate of business
failures and defaults, we would expect the risk premium for ________ bonds to be very
high.
A) U.S. Treasury
B) corporate Aaa
C) municipal
D) corporate Baa
In the 1950s the interest rate on three-month Treasury bills fluctuated between 1 percent
and 3.5 percent; in the 1980s it fluctuated between ________ percent and ________
percent.
A) 5; 15
B) 4; 11.5
C) 4; 18
D) 5; 10
If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the
monetary base is
A) $480 billion.
B) $480.8 billion.
C) $80 billion.
D) $80.8 billion.
In the case of an insurance policy, ________ occurs when the existence of insurance
encourages the insured party to take risks that increase the likelihood of an insurance
payoff.
A) moral hazard
B) opportunism
C) adverse selection
D) shirking
If real GDP grows from $10 trillion in 2002 to $10.5 trillion in 2003, the growth rate for
real GDP is
A) 5%.
B) 10%.
C) 50%.
D) 0.5%.
According to the liquidity premium theory of the term structure
A) because buyers of bonds may prefer bonds of one maturity over another, interest
rates on bonds of different maturities do not move together over time.
B) the interest rate on long-term bonds will equal an average of short-term interest rates
that people expect to occur over the life of the long-term bonds plus a term premium.
C) because of the positive term premium, the yield curve will not be observed to be
downward sloping.
D) the interest rate for each maturity bond is determined by supply and demand for that
maturity bond.
Allowing individuals to manage a portion of their Social Security funds is
A) socialization.
B) privatization.
C) democratization.
D) regeneration.
Relative to life insurance companies, property and casualty insurance companies hold
A) more liquid assets.
B) more long-term government bonds.
C) more commercial mortgages.
D) fewer municipal bonds.
An autonomous monetary policy easing ________ real interest rates and ________
output in the short run, thereby ________ stock prices.
A) raises; lowers; lowering
B) raises; raises; raising
C) lowers; raises; raising
D) lowers; raises; lowering
In the basic closed-economy ISLM model, the money demand is a function of
A) output.
B) money supply.
C) interest rates.
D) both A and C.
Using Taylor’s rule, when the equilibrium real federal funds rate is 3 percent, the
positive output gap is 2 percent, the target inflation rate is 1 percent, and the actual
inflation rate is 2 percent, the nominal federal funds rate target should be
A) 5 percent.
B) 5.5 percent.
C) 6 percent.
D) 6.5 percent.
Everything else held constant, an increase in marginal tax rates would likely have the
effect of ________ the demand for municipal bonds, and ________ the demand for
U.S. government bonds.
A) increasing; increasing
B) increasing; decreasing
C) decreasing; increasing
D) decreasing; decreasing
A bank failure occurs whenever
A) a bank cannot satisfy its obligations to pay its depositors and other creditors.
B) a bank suffers a large deposit outflow.
C) a bank has to call in a large volume of loans.
D) a bank refuses to make new loans.
Stock market crashes lead us to believe that
A) factors other than market fundamentals have an effect on asset prices.
B) unexploited profit opportunities never exist.
C) crashes are always predictable when market participants behave rationally.
D) bubbles are a natural outcome of an efficient market.