The Ricardian equivalence proposition will not hold if
(a) the government finances its expenditures by borrowing rather than by taxing.
(b) the government finances its expenditures by taxing rather than by borrowing.
(c) consumers face restrictions on the amount they can borrow.
(d) consumers finance their tax payments by borrowing.
Answer:
An increase in the willingness of banks to lend will result in
(a) a lower real interest rate, whereas an increase in the money supply will lead to a
higher real interest rate.
(b) a lower real interest rate as will an increase in the money supply.
(c) a higher real interest rate as will an increase in the money supply.
(d) a higher real interest rate, whereas an increase in the money supply will lead to a
lower real interest rate.
Answer:
The Bretton Woods system was expected to be more stable than the gold standard
because
(a) the world supply of gold had increased greatly by the time the Bretton Woods
system was established.
(b) large trade deficits and surpluses would be unlikely to occur under the Bretton
Woods system.
(c) fewer countries were involved in the Bretton Woods system than had been involved
in the gold standard.
(d) the IMF was set up to be a lender of last resort.
Answer:
Buying and selling securities on the basis of insider information is against the law
(a) in all cases.
(b) only in the state of New York.
(c) for those who obtained the information because of their position within the firms
involved in the trade.
(d) for those who, having obtained the information, refuse to divulge it to the general
public.
Answer:
In comparing money market and capital market instruments, money market instruments
are typically
(a) riskier than capital market instruments.
(b) more liquid than capital market instruments.
(c) less liquid than capital market instruments.
(d) riskier, but more liquid, than capital market instruments.
Answer:
At the natural rate of unemployment,
(a) the unemployment rate is zero.
(b) only the structurally and the frictionally unemployed are without jobs.
(c) only the frictionally unemployed are without jobs.
(d) the economy is producing at its maximum level of output.
Answer:
An increase in expected inflation
(a) usually leads to falling nominal interest rates.
(b) results in increased nominal capital gains on physical assets.
(c) will shift the bond demand curve to the right.
(d) will shift the supply curve for loanable funds to the right.
Answer:
A syndicate is
(a) a group of brokers illegally making use of insider information.
(b) a group of commercial banks that agrees to accept the checks of each other’s
depositors.
(c) a group of investment banks underwriting a large security issue.
(d) a group of dealers that markets a government bond issue.
Answer:
Under the preferred habitat theory, the expectation that future short-term rates will be
constant results in a yield curve that
(a) is flat.
(b) slopes upward.
(c) slopes downward.
(d) is flat, slopes upward, or slopes downward, depending on the size of the term
premium at each maturity.
Answer:
What is the yield to maturity on a simple loan that requires payment of $5000 plus $200
in interest one year from now?
(a) 4%
(b) 4.17%
(c) 10.4%
(d) Not enough information has been provided to determine the answer.
Answer:
The demand for bonds is
(a) equivalent to the demand for loanable funds.
(b) equivalent to the supply of loanable funds.
(c) represented by an upward-sloping line when the price of bonds is on the vertical axis
and the quantity of bonds demanded is on the horizontal axis.
(d) represented by a downward-sloping line when the interest rate is on the vertical axis
and the quantity of bonds demanded is on the horizontal axis.
Answer:
When the staff of the account manager at the Fed’s Open Market Trading Desk analyzes
forecasts on Treasury deposits and information on the timing of future Treasury sales of
securities, what agency does it interact with?
(a) The Securities and Exchange Commission
(b) The Treasury’s Office of Government Finance
(c) The Treasury’s Office of Federal Reserve Relations
(d) The Federal Deposit Insurance Corporation
Answer:
Suppose that a coupon bond is listed in The Wall Street Journal as having a coupon rate
of 8.25% and a bid price of 120:19. Its current yield is
(a) 6.84%.
(b) 6.86%.
(c) 8.50%.
(d) 8.52%.
Answer:
Points along the aggregate demand curve represent combinations of the price level and
current output for which
(a) the money market and the goods market are in equilibrium, but the market for
nonmoney assets may not be.
(b) the goods market and the market for nonmoney assets are in equilibrium, but the
money market may not be.
(c) the money market and the market for nonmoney assets are in equilibrium, but the
goods market may not be.
(d) the money market, the market for nonmoney assets, and the goods market must all
be in equilibrium.
Answer:
In the money channel, loans by financial institutions
(a) are central to understanding the impact of monetary policy on output.
(b) play no special role in the money supply process.
(c) are considered poor substitutes for other sorts of borrowing.
(d) are considered important only during recessions.
Answer:
Many economists argue that the gain to European countries from all of them using the
same currency
(a) would be very slight.
(b) would be significant.
(c) is impossible to measure.
(d) would depend upon whether the new currency would be paper money or gold coins.
Answer:
In a put options contract the
(a) seller has the obligation to receive the instrument at a specified time.
(b) buyer has the obligation to deliver the instrument at a specified time.
(c) buyer has the obligation to receive the instrument at a specified time.
(d) seller has the obligation to deliver the instrument at a specified time.
Answer:
Why, since the early 1980s, have Fed policymakers made low inflation a major goal?
(a) Because high inflation rates reduce the tax revenues collected by the federal
government
(b) Because they wish to avoid the rapid and sustained price increases that occurred
during the 1970s
(c) Because Congress passed a law in 1981 mandating the Fed to reduce the inflation
rate to 2%
(d) Because high inflation rates increase the value of the dollar and make U.S. goods
less competitive in foreign markets
Answer:
What is the current limit on balances that are covered by federal deposit insurance?
(a) $10,000
(b) $100,000
(c) $500,000
(d) $1,000,000
Answer:
If banks become less willing to lend, which category of spending is likely to be most
affected?
(a) Consumer durables
(b) Consumer nondurables
(c) Net exports
(d) Government purchases
Answer:
The speculative attack on the German mark in 1971 resulted in
(a) a large increase in the German monetary base.
(b) a decline in the value of the mark relative to the dollar.
(c) a decision to end the floating of the mark against the dollar.
(d) a large decrease in the German monetary base.
Answer:
Which of the following is NOT a government financial institution?
(a) Social Security Administration.
(b) Federal National Mortgage Association.
(c) Federal Land Banks.
(d) Student Loan Market Association.
Answer:
Orange county lost a great deal of money during 1994 because
(a) its treasurer refused to buy any derivatives for the county’s financial portfolio.
(b) short-term interest rates rose when the county’s treasurer had expected them to fall.
(c) short-term interest rates fell when the county’s treasurer had expected them to fall.
(d) a short fall in tax revenue forced the county to default on its bonds.
Answer:
Deleveraging
(a) is another name for underwriting.
(b) refers to underwriting carried out by merchant banks.
(c) refers to investment banks helping firms reduce their debt burdens.
(d) refers to a takeover of a corporation by its management.
Answer:
According to the equation of exchange, the percentage change in the price level (
) is equal to
(a) + + .
(b) + .
(c) + .
(d) + .
Answer:
The growth rate of the money supply
(a) increases during both booms and recessions.
(b) increases during booms and falls during recessions.
(c) falls during booms and increases during recessions.
(d) falls during both booms and recessions.
Answer:
Which problem in financial institutions was particularly in the news during the 1980s
and early 1990s?
(a) Fraud among insurance companies
(b) Low rates of return on mutual funds
(c) The crisis in deposit insurance
(d) Failure of the federal government to pay interest on Treasury bonds
Answer:
If you are indifferent between investing $1,000 for one year in a U.S. Treasury security
that has an interest rate of 5% or in a Canadian government security that has an interest
rate of 8%, you must be expecting
(a) the inflation rate in the United States will be higher than the inflation rate in Canada
during the year.
(b) the U.S. dollar to depreciate against the Canadian dollar by 3% during the year.
(c) the U.S. dollar to appreciate against the Canadian dollar by 3% during the year.
(d) productivity growth in Canada to be greater than productivity growth in the United
States during the year.
Answer:
Followers of the new classical approach believe that for stabilization policies to be
effective they must
(a) be unexpected.
(b) be announced before they are implemented.
(c) take the form of monetary policy.
(d) take the form of fiscal policy.
Answer:
The supply curve of loanable funds slopes up because
(a) at higher bond prices more loanable funds will be supplied.
(b) higher interest rates reduce the inflation rate.
(c) an increase in the interest rate makes lenders more willing and able to supply more
funds.
(d) a decrease in the interest rate makes lenders more willing and able to supply more
funds.
Answer: