An increase in housing starts, typically due to __________ interest rates, is often
thought to precede __________.
A) rising; an expansion
B) rising; a recession
C) falling; an expansion
D) falling; a recession
When the U.S. Treasury sells gold, the immediate effect is that __________ and
__________.
A) reserves increase; currency in circulation decreases
B) reserves decrease; currency in circulation increases
C) reserves increase; Treasury deposits decrease
D) reserves decrease; Treasury deposits increase
A bank’s excess reserves are equal to
A) total reserves minus required reserves.
B) demand deposits minus loans.
C) cash plus deposits at the central bank.
D) net worth.
A rise in deposit rates, all else constant, __________ a bank’s __________ risk.
A) lowers; credit
B) lowers; interest rate
C) raises; credit
D) raises; interest rate
The current level of deposit insurance is
A) $100,000 per depositor.
B) $100,000 per deposit.
C) $200,000 per depositor.
D) $200,000 per deposit.
A bank has total assets of $3,000,000. Of these assets, $200,000 are cash and $300,000
are Treasury securities. Furthermore, the bank holds municipal revenue bonds of
$600,000, residential mortgages of $1,000,000, and consumer and commercial loans of
$900,000. The bank has capital of $100,000. This bank’s risk-adjusted capital ratio is
A) 9.3%.
B) 4.0%.
C) 3.3%.
D) 8.0%.
When the Treasury borrows from the non-bank public and makes an expenditure of an
equal amount, the money supply
A) rises by a multiple of the expenditure.
B) rises by an amount equal to the expenditure.
C) rises by an amount less than the expenditure.
D) is unaffected.
According to academic research, securities prices reflect new information
A) within a few minutes.
B) within a day.
C) within a week.
D) within a month.
The difference between M1 and M2 definitions of the money supply is that M2 includes
A) demand deposits at banks.
B) large denomination time deposits.
C) retail money market mutual funds shares.
D) NOW accounts.
The textbook states that in attacking moral hazard, having both risk-based capital
requirements and risk-based deposit insurance premiums
A) is necessary, to deal with the problem from both sides of the bank’s balance sheet.
B) is redundant and that one of the policies should be ended.
C) is necessary in order to deal with the moral hazard of both bankers and depositors.
D) may be redundant in theory but advisable in practice given the difficulty of
measuring risk.
An unexpected fall in the Producer Price Index should send bond prices __________
and stock prices __________.
A) up; up
B) up; down
C) down; up
D) down; down
If asset A is a 30-year U.S. Treasury bond yielding 9 percent and asset B is a 30-year
corporate bond issued by General Motors that also yields 9 percent, risk averse
investors would
A) prefer asset A.
B) prefer asset B.
C) be indifferent between the two assets.
D) differ according to their rate of time preference.
A sign that the Federal Reserve is moving to raise interest rates would be
A) an increase in bank reserves.
B) large purchases of Treasury securities by the Federal Reserve.
C) a widening gap between the Treasury bill yield and the discount rate.
D) a narrowing gap between the Treasury bill yield and the discount rate.
A “guaranteed” business loan is one
A) made under a line of credit.
B) backed up by outside collateral.
C) backed up by inside collateral.
D) the business owner is personally liable for repaying.
Total bank reserves are an example of a Federal Reserve
A) tool.
B) intermediate target.
C) operating target.
D) objective.
The deposit expansion multiplier is increased if the Federal Reserve
A) buys government securities.
B) sells government securities.
C) lowers reserve requirements.
D) raises reserve requirements.