Which of the following does NOT describe the relationship between banks and small
business during the 2000s (prior to the financial crisis)?
A) Banks typically applied fixed guidelines for granting loans, leaving little room for
personal judgment.
B) Fewer small businesses received loans as banks shifted their focus to mortgages.
C) Many small businesses were receiving loans from regional and national banks.
D) More banks became convinced that it would be profitable to loosen their loan
guidelines to make more borrowers eligible to receive credit.
Answer:
Currently, the FDIC insures deposits up to a limit of
A) $1000.
B) $100,000.
C) $250,000.
D) $1,000,000.
Answer:
When investment banks buy or sell securities on their own account, it’s called
A) financial engineering.
B) proprietary trading.
C) underwriting.
D) factoring.
Answer:
Which country was least supportive of expansionary policy by the European Central
Bank during the Financial Crisis of 2007-2009?
A) Spain
B) Portugal
C) Greece
D) Germany
Answer:
As a result of higher expected inflation,
A) the demand and supply curves for loanable funds both shift to the right and the
equilibrium interest rate usually rises.
B) the demand and supply curves for loanable funds both shift to the left and the
equilibrium interest rate usually falls.
C) the demand curve for loanable funds shifts to the right, the supply curve for loanable
funds shifts to the left, and the equilibrium interest rate usually rises.
D) the demand curve for loanable funds shifts to the left, the supply curve for loanable
funds shifts to the right, and the equilibrium interest rate usually rises.
Answer:
How can a global savings glut affect the United States?
A) It can reduce the world real interest rate, thus encouraging borrowing by Americans.
B) It can increase the world real interest rate, thus encouraging saving by Americans.
C) It can reduce the supply of loanable funds for the United States.
D) It can reduce the demand for loanable funds for the United States.
Answer:
In an effort to increase government revenue, Congress and the president decide to
increase the corporate profits tax. The likely result will be
A) the supply curve for bonds shifts to the left.
B) the demand curve for bonds shifts to the left.
C) the equilibrium interest rate rises.
D) the equilibrium price of bonds falls.
Answer:
A stress test of banks, such as that undertaken in the Spring of 2009, is designed to:
A) ensure that banks have followed proper accounting standards
B) make sure that banks are properly managed
C) gauge how well banks would fare if the economy worsens
D) estimate the impact of a bank panic on the overall economy
Answer:
Primary dealers are those
A) permitted to trade directly with the Fed.
B) who work under the account manager at the Federal Reserve Bank of New York.
C) who specialize in selling bonds to small private investors.
D) responsible for assuring that interest rates do not decline unless the FOMC has given
specific instructions that they decline.
Answer:
Which of the following statements is correct?
A) Federal Reserve district banks are owned by the government.
B) Member banks receive no return on the stock they own in Federal district banks.
C) Federal Reserve district banks pay dividends on their earnings to member banks.
D) The boards of directors of the district banks are all local bankers.
Answer:
A bubble occurs when
A) the price of a stock is above its fundamental value.
B) inside information is used to make profits from trading a company’s stock.
C) a company reports profits that are significantly above or below the expectations of
financial analysts.
D) the futures price is greater than the price of the underlying asset.
Answer:
When market participants have adaptive expectations
A) they use all information available to them.
B) they only slowly adjust their expectations to news which could affect prices or
returns.
C) they are more likely to make accurate forecasts than if they have rational
expectations.
D) they are able to forecast interest rates more accurately than inflation rates.
Answer:
Investment banks are vulnerable because
A) the maturity of their liabilities is less than the maturity of their assets.
B) the maturity of their assets is less than the maturity of their liabilities.
C) they tend to be underleveraged.
D) they tend to primarily hold short-term assets.
Answer:
Technical Analysis is a version of:
A) insider trading
B) adaptive expectations
C) rational expectations
D) efficient markets
Answer:
Open market operations
A) lack flexibility because only very small purchases or sales may be carried out in any
given month.
B) lack flexibility because open market purchases cannot easily be offset by subsequent
open market sales.
C) are more flexible than other policy tools.
D) may be carried out only on the third Friday of each month.
Answer:
All of the following are advantages of currency pegging EXCEPT
A) it reduces exchange rate risk.
B) it is a check against inflation.
C) it provides protection for firms that have taken out loans in foreign currencies.
D) it keeps the exchange rate closer to its equilibrium rate.
Answer:
Banks deal with problems of adverse selection by
A) charging high interest rates.
B) gathering information about the default risk of borrowers.
C) making only short-term loans.
D) making only long-term loans.
Answer:
With regard to crowd funding, all of the following accurately describe “qualified
investors” EXCEPT:
A) they must have incomes of at least $200,000 per year
B) there are no longer any distinctions between investors following the passage of the
JOBS act
C) they must have assets of at least $1 million not including the value of their house
D) they must make up a majority of investors in each start up
Answer:
Suppose Apple announces that its earnings for the fourth quarter of 2013 rose to $2
billion. As a result of this announcement the price of Apple’s stock does not change. The
best explanation of this is
A) market participants were expecting Apple’s earnings to be greater than $2 billion.
B) market participants expected Apple’s earnings to be $2 billion.
C) market participants expected Apple’s earnings to be less than $2 billion.
D) market participants have adaptive expectations.
Answer:
The Federal Reserve pursued an expansionary monetary policy during 1964 in order to
A) pull the United States out of a deep recession.
B) counteract the effects of a deep cut in federal income taxes.
C) keep interest rates from rising.
D) bring down the inflation rate.
Answer:
Temporary, short-term discount loans to banks in areas in which agriculture and tourism
are important are known as
A) primary credit.
B) secondary credit.
C) seasonal credit.
D) repo loans.
Answer:
Fannie Mae and Freddie Mac both
A) sell bonds to investors and use the funds to purchase mortgages.
B) help regulate the banking system.
C) directly lend funds to people seeking mortgages.
D) reduce access to funds for mortgages by purchasing existing mortgages.
Answer:
Why are corporations more likely to raise funds externally by debt instead of equity?
A) moral hazard is less of a problem with debt contracts
B) transactions costs tend to be higher in the stock market than bond market
C) to avoid paying dividends
D) interest rates tend to be lower than dividend rates
Answer:
The primary difference between an American and European option is:
A) American options must be exercised on the expiration date
B) European options must be exercised on the expiration date
C) American options may be exercised at any point up until the expiration date
D) European options may be exercised at any point up until the expiration date
Answer:
The amount of funds the borrower receives from the lender with a simple loan is called
the
A) principal.
B) equity.
C) claim.
D) collateral.
Answer:
Most of the increase in the monetary base between 2007 and 2012 was due to increases
in:
A) currency
B) bank deposits
C) excess reserves
D) Treasury bills
Answer:
Which of the following bond ratings by Moody’s Investors Service would NOT be
considered to be below investment grade?
A) Baa
B) Ba
C) B
D) All of these ratings are considered below investment grade.
Answer:
Which of the following can be described as when a bank buying securities owned by a
business while agreeing to sell them back at a later date?
A) repurchase agreement
B) reverse repurchase agreement
C) federal funds
D) discount loans
Answer:
Which of the following statements concerning stabilization policy is correct?
A) Increasing government spending during an economic boom would be an example of
a stabilization policy.
B) Increasing taxes during a recession would be an example of a stabilization policy.
C) New Keynesian economists are skeptical of the value of stabilization policies.
D) Increasing the money supply during a recession is an example of a stabilization
policy.
Answer:
Explicit provisions in a loan agreement that prohibit the borrower from engaging in
certain activities is called:
A) credit rationing
B) restrictive covenants
C) credit-risk analysis
D) adverse selection
Answer:
Currently, the price of gold is
A) fixed by the United States.
B) adjusted periodically by the IMF.
C) adjusted periodically by the World Bank.
D) determined in the market by demand and supply.
Answer:
In quantity theory terms, during a hyperinflation,
A) money supply increases rapidly, but velocity does not
B) velocity increases rapidly, but money supply does not
C) both the money supply and velocity increase rapidly
D) neither the money supply nor velocity increase rapidly
Answer:
Which type of borrowers were least likely to default in their mortgage at the beginning
of the financial crisis?
A) those with fixed-rate mortgages who made large down payments
B) those with alt-A loans
C) subprime borrowers
D) those with adjustable-rate mortgages
Answer:
What is the yield to maturity of a perpetuity with a coupon of $40 and a price of $800?
Answer:
How do high interest rates increase the risk of adverse selection in the bond market?
Answer:
Make use of a T-account to show the effect of the Fed’s sale of $500 million worth of
government securities on the Fed’s balance sheet. (assume the Fed receives a check
from the sale of securities)
Answer:
Use the following data to calculate equilibrium real GDP: C= .75Y, I = $2 trillion,
G=$1 trillion and NX = -$0.5 trillion.
Answer:
Why do banking panics normally lead to recessions?
Answer:
What alternative to restrictions on capital inflows do some economists recommend to
minimize the possibility of increased lending booms and risk taking by domestic banks?
Answer:
What are four inefficiencies of a barter system?
Answer:
Explain how does an increase in real interest rates affect the components of AE.
Answer:
Suppose the private bond rating agencies ceased to exist. What would be the impact on
the bond market?
Answer:
What are the differences between common stock and preferred stock?
Answer:
What is normally the ultimate cause of hyperinflation?
Answer:
Why do futures have lower information costs and higher liquidity than forward
contracts?
Answer:
Suppose interest rates in the U.S. are 3% while interest rates on comparable bonds in
Japan are 1%. By how much is the exchange rate between the yen and dollar expected
to change according to the interest-rate parity condition?
Answer:
How would proponents of the efficient markets hypothesis use the Gordon-Growth
model to explain the movement of stock prices during the Financial Crisis of
2007-2009?
Answer:
Describe the facts found in the bond market about the relationship between interest
rates on bonds of different maturities.
Answer:
What are the primary reasons for and against a policy of “too big to fail.”
Answer:
How does the use of collateral and net worth help reduce the problem of adverse
selection?
Answer:
Who serves as voting members of the Federal Open Market Committee (FOMC)?
Answer: