When the domestic currency is initially overvalued in a fixed exchange rate regime, the
central bank must intervene in the foreign exchange market to ________ the domestic
currency, thereby allowing the money supply to ________.
A) purchase; decline
B) sell; decline
C) purchase; increase
D) sell; increase
When a primary dealer sells a government bond to the Federal Reserve, reserves in the
banking system ________ and the monetary base ________, everything else held
constant.
A) increase; increases
B) increase; decreases
C) decrease; increases
D) decrease; decreases
By hedging a portfolio, a bank manager
A) reduces interest-rate risk.
B) increases reinvestment risk.
C) increases exchange-rate risk.
D) increases the probability of gains.
If the dollar depreciates relative to the Swiss franc
A) Swiss chocolate will become cheaper in the United States.
B) American computers will become more expensive in Switzerland.
C) Swiss chocolate will become more expensive in the United States.
D) Swiss computers will become cheaper in the United States.
Keynes argued that the transactions component of the demand for money was primarily
determined by the level of people’s ________, which he believed were proportional to
________.
A) transactions; income
B) transactions; age
C) incomes; wealth
D) incomes; age
Because sterilized interventions mean offsetting open market operations, there is no
impact on the monetary base and the money supply, and therefore a sterilized
intervention
A) causes the exchange rate to overshoot in the short run.
B) causes the exchange rate to undershoot in the short run.
C) causes the exchange rate to depreciate in the short run, but has no effect on the
exchange rate in the long run.
D) has no effect on the exchange rate.
Which of the following instruments are traded in a capital market?
A) U.S. Government agency securities
B) negotiable bank CDs
C) repurchase agreements
D) U.S. Treasury bills
Regulations that reduced competition between banks included
A) branching restrictions.
B) bank reserve requirements.
C) the dual system of granting bank charters.
D) interest-rate ceilings.
The Policy Trilemma states that a country or a monetary union can’t pursue the
following three policies at the same time
A) capital control, a fixed exchange rate, and an independent monetary policy.
B) free capital mobility, a fixed exchange rate, and an independent monetary policy.
C) free capital mobility, a flexible exchange rate, and an independent monetary policy.
D) capital control, a flexible exchange rate, and an independent monetary policy.
If workers believe that government policymakers will increase aggregate demand to
avoid a politically unpopular increase in unemployment when workers demand higher
wages, then workers will not fear higher unemployment and their wage demands will
result in
A) demand-pull inflation.
B) hyperinflation.
C) deflation.
D) cost-push inflation.
If in an efficient market all prices are correct and reflect market fundamentals, which of
the following is a FALSE statement?
A) A stock that has done poorly in the past is more likely to do well in the future.
B) One investment is as good as any other because the securities’ prices are correct.
C) A security’s price reflects all available information about the intrinsic value of the
security.
D) Security prices can be used by managers to assess their cost of capital accurately.
In practice, the Fed’s policy of targeting ________ in the 1960s proved to be ________,
destabilizing the economy.
A) money market conditions; countercyclical
B) money market conditions; procyclical
C) monetary aggregates; countercyclical
D) monetary aggregates; procyclical
If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment
every year is
A) $650.
B) $1,300.
C) $130.
D) $13.
An investment bank helps ________ issue securities.
A) a corporation
B) the United States government
C) the SEC
D) foreign governments
If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $1000 billion, and excess reserves total $1 billion, then the
monetary base is
A) $400 billion.
B) $401 billion.
C) $500 billion.
D) $501 billion.
To claim that a lottery winner who is to receive $1 million per year for twenty years has
won $20 million ignores the process of
A) face value.
B) par value.
C) deflation.
D) discounting the future.
A key finding of the economic analysis of financial structure is that
A) the existence of the free-rider problem for traded securities helps to explain why
banks play a predominant role in financing the activities of businesses.
B) while free-rider problems limit the extent to which securities markets finance some
business activities, nevertheless the majority of funds going to businesses are channeled
through securities markets.
C) given the great extent to which securities markets are regulated, free-rider problems
are not of significant economic consequence in these markets.
D) economists do not have a very good explanation for why securities markets are so
heavily regulated.
Demand-pull inflation can result when
A) policymakers set an unemployment target that is too high.
B) a persistent budget deficit is financed by selling bonds to the public.
C) a persistent budget deficit is financed by selling bonds to the central bank.
D) workers get numerous wage increases.
The bond markets are important because they are
A) easily the most widely followed financial markets in the United States.
B) the markets where foreign exchange rates are determined.
C) the markets where interest rates are determined.
D) the markets where all borrowers get their funds.
In the market for reserves, if the federal funds rate is between the discount rate and the
interest rate paid on excess reserves, a decline in the reserve requirement ________ the
demand of reserves, ________ the federal funds rate, everything else held constant.
A) decreases; lowering
B) increases; lowering
C) increases; raising
D) decreases; raising
If prices in the diamond market become less volatile, all else equal, then the demand for
diamonds ________ and the demand for gold ________.
A) increases; decreases
B) increases; increases
C) decreases; decreases
D) decreases; increases
By taking the short position on a futures contract of $100,000 at a price of 115 you are
agreeing to ________ a ________ face value security for ________.
A) sell; $100,000; $115,000.
B) sell; $115,000; $100,000.
C) buy; $100,000; $115,000.
D) buy; $115,000; $100,000.
FIRREA increased the core-capital leverage requirement for thrift institutions from 3%
to
A) 8%.
B) 5%.
C) 10%.
D) 25%
Which of the following appears in the capital account part of the balance of payments?
A) a gift to an American from his English aunt
B) a purchase by the Honda corporation of a U.S. Treasury bill
C) a purchase by the Bank of England of a U.S. Treasury bill
D) income earned by the Honda corporation on its automobile plant in Ohio
That most used cars are sold by intermediaries (i.e., used car dealers) provides evidence
that these intermediaries
A) have been afforded special government treatment, since used car dealers do not
provide information that is valued by consumers of used cars.
B) are able to prevent potential competitors from free-riding off the information that
they provide.
C) have failed to solve adverse selection problems in this market because “lemons”
continue to be traded.
D) have solved the moral hazard problem by providing valuable information to their
customers.
Channeling funds from individuals with surplus funds to those desiring funds when the
saver does not purchase the borrower’s security is known as
A) barter.
B) redistribution.
C) financial intermediation.
D) taxation.
The less interest-sensitive is money demand, the
A) more effective is fiscal policy relative to monetary policy.
B) more effective is monetary policy relative to fiscal policy.
C) steeper is the IS curve.
D) flatter is the LM curve.
Most mutual funds are
A) no-load funds.
B) load funds.
C) large-load funds.
D) small-load funds.
Although foreign exchange market trades are said to involve the buying and selling of
currencies, most trades involve the buying and selling of
A) bank deposits denominated in different currencies.
B) SDRs.
C) gold.
D) ECUs.
When the Treasury bond market becomes less liquid, other things equal, the demand
curve for corporate bonds shifts to the ________ and the demand curve for Treasury
bonds shifts to the ________.
A) right; right
B) right; left
C) left; right
D) left; left