When an insurance company makes a direct loan to a firm, the loan is known as
(a) a private placement.
(b) a commercial paper.
(c) an account receivable.
(d) an account payable.
Answer:
When market participants have rational expectations
(a) they use all information available to them.
(b) they only slowly adjust their expectations to news that could affect prices or returns.
(c) they are less likely to make accurate forecasts than if they have adaptive
expectations.
(d) they are able to forecast interest rates more accurately than inflation rates.
Answer:
Currently, the dominant reserve currency is the
(a) U.S. dollar.
(b) Japanese yen.
(c) German mark.
(d) British pound.
Answer:
The new Keynesian approach shares with the new classical approach
(a) the assumption of rational expectations.
(b) the conclusion that money does not affect output in the short run.
(c) the conclusion that only unexpected changes in the money supply affect output in
the short run.
(d) the assumption that the short aggregate supply curve is vertical.
Answer:
In the Baumol-Tobin view of the transactions demand for money,
(a) economic agents do not adjust their money holdings in the face of interest rate
fluctuations.
(b) economic agents trade off the benefits of holding money against the cost of interest
foregone from holding bonds.
(c) the quantity of money demanded will rise only if the interest rate rises.
(d) the quantity of money demanded will rise only if the interest rate falls.
Answer:
In the money channel, an expansionary monetary policy will shift to the right
(a) only the money supply line.
(b) only the money supply line and the aggregate demand curve.
(c) only the money supply line and the money demand curve.
(d) the money supply line, the money demand curve, and the aggregate demand curve.
Answer:
If the relationship between consumer and business spending and investment decisions
and the interest rate is stable
(a) the demand for money and nonmoney assets must be unstable.
(b) money supply targets are preferred.
(c) interest rate targets are preferred.
(d) the real side of the economy must be unstable.
Answer:
Which of the following countries did not suffer a banking crisis during the early 1930s?
(a) Canada
(b) United States
(c) France
(d) Germany
Answer:
If the rate of growth of U.S. productivity is higher than the rates of growth of
productivity in most other countries,
(a) the prices of U.S. goods will fall relative to foreign goods.
(b) the prices of U.S. goods will rise relative to foreign goods.
(c) the U.S. real exchange rate will depreciate.
(d) the cost of producing U.S. goods will rise faster than the cost of producing foreign
goods.
Answer:
Sustained growth in the money supply doesn’t affect real output in the long run but does
lead to inflation according to
(a) new classical economists, but not new Keynesian economists.
(b) both new classical and new Keynesian economists.
(c) new Keynesian economists, but not new classical economists.
(d) neither new classical nor new Keynesian economists.
Answer:
Finance companies
(a) take in deposits from savers and make loans to borrowers.
(b) sell commercial paper and securities and make loans to borrowers with the funds.
(c) take in deposits from savers and purchase assets with the funds.
(d) bring together small savers and large borrowers.
Answer:
A coupon bond has a coupon of $75, a par value of $1000, and a market price of $750.
Its current yield equals
(a) 7.50%.
(b) 10.00%
(c) its yield to maturity.
(d) Not enough information has been provided to calculate the current yield for this
bond.
Answer:
Which of the following is NOT an important reason why governments around the world
regulate financial markets?
(a) To ensure that all participants in the financial system have access to information
(b) To reduce the cost to governments of borrowing funds
(c) To maintain financial stability
(d) To advance economic policy by interacting with the financial system
Answer:
A speculator who believes strongly that interest rates will fall would be likely to
(a) buy futures contracts on Treasury bills.
(b) sell futures contracts on Treasury bills.
(c) sell Treasury bonds in the spot market.
(d) decrease now the amount of money which he lends.
Answer:
Purchases and sales of stocks, bonds, and houses take place
(a) only in general equilibrium.
(b) in the goods market.
(c) in the money market.
(d) in the nonmoney asset market.
Answer:
If the Fed wants to increase the value of the dollar it will
(a) sell foreign securities and buy dollars in international currency markets.
(b) buy foreign securities and sell dollars in international currency markets.
(c) buy foreign securities and also buy dollars in international currency markets.
(d) sell foreign securities and also sell dollars in international currency markets.
Answer:
If the Fed purchases $10 billion of U.S. Treasury bills, the monetary base will increase
by
(a) $10 billion.
(b) $10 billion times the money multiplier.
(c) an amount that depends on the ratio of excess reserves to checkable deposits.
(d) an amount that depends on the ratios of excess reserves to checkable deposits and
currency to checkable deposits.
Answer:
If nominal money balances increase from $2 billion to $3 billion, while the price level
increases from 100 to 200, real money balances will
(a) have increased by 25%.
(b) have decreased by 25%.
(c) have increased by 100%.
(d) have decreased by 100%.
Answer:
Financial innovation
(a) may reduce the cost of risk sharing to lenders.
(b) is discouraged by the government because of its adverse impact on tax revenues.
(c) will generally reduce the liquidity of financial assets.
(d) has occurred frequently in financial markets, but rarely in financial intermediaries.
Answer:
A falling dollar makes U.S. goods
(a) more expensive abroad and increases the volume of U.S. exports.
(b) less expensive abroad and increases the volume of U.S. exports.
(c) less expensive abroad and decreases the volume of U.S. exports.
(d) more expensive abroad and decreases the volume of U.S. exports.
Answer:
The dollar
(a) appreciated during the early 1980s and depreciated during the late 1980s.
(b) depreciated during the early 1980s and appreciated during the late 1980s.
(c) appreciated during the early and late 1980s.
(d) depreciated during the early and late 1980s.
Answer:
A balance sheet
(a) is a statement showing an individual’s or a firm’s financial position at a particular
point in time.
(b) is a statement showing an individual’s or a firm’s income over a period of time.
(c) is a statement listing the tax liabilities incurred by an individual or a firm.
(d) can be constructed for any nonfinancial firm, but cannot be constructed for a
financial firm.
Answer:
The principal activities of international banking are
(a) engaging in currency swaps.
(b) accepting deposits from savers and lending to borrowers.
(c) fending off restrictive domestic regulations.
(d) fending off restrictive international regulations.
Answer:
Between 1939 and 2000 consumer prices rose about
(a) 10%.
(b) 25%.
(c) 50%.
(d) 950%.
Answer:
In the bank lending channel, an expansionary monetary policy will shift to the right
(a) only the money supply line.
(b) only the money supply line and the aggregate demand curve.
(c) only the money supply line and the money demand curve.
(d) the money supply line, the money demand curve, and the aggregate demand curve.
Answer:
Which of the following is a money market asset?
(a) Repurchase Agreements
(b) U.S. Government Agency Securities
(c) State and Local Government Bonds
(d) Mortgages
Answer:
The portfolios that mutual funds offer to savers are
(a) usually made up of bonds.
(b) usually made up of common stocks.
(c) tax free in most states.
(d) usually more liquid than the underlying assets.
Answer:
An open market sale
(a) decreases the price of Treasury securities and also decreases their yield.
(b) increases the price of Treasury securities and decreases their yield.
(c) increases the price of Treasury securities and also increases their yield.
(d) decreases the price of Treasury securities and increases their yield.
Answer:
Because the Carter credit controls of 1980 were unexpected and imposed by the
government we can conclude that
(a) the subsequent decline in demand for bank loans most likely caused the 1980
recession.
(b) the subsequent decline in bank loans was the result of a shift in bank loan supply
that was independent of any shift in bank loan demand.
(c) the subsequent decline in the supply of bank loans was most likely caused by the
1980 recession.
(d) the controls led to an increase in the demand for money.
Answer:
A cut in the federal income tax will cause the IS curve to
(a) shift to the left and intersect the FE line at a higher real interest rate.
(b) shift to the right and intersect the FE line at a lower real interest rate.
(c) shift to the left and intersect the FE line at a lower real interest rate.
(d) shift to the right and intersect the FE line at a higher real interest rate.
Answer:
The primary purpose of the financial system is to
(a) make it possible for checks written on a bank in one part of the country to clear
against an account in a bank in another part of the country.
(b) allow the government to raise enough money to cover its budget deficit.
(c) move funds from those who want to spend less than they have available to those
with productive investment opportunities.
(d) facilitate the efficient exchange of goods and services.
Answer: