Which of the following is NOT a way in which prices communicate information in the
markets for bonds, stocks, foreign exchange, and financial instruments?
(a) Prices of financial assets represent expectations of future value.
(b) Prices of financial assets reflects the preferences of policymakers.
(c) Long-term bond yields provide information about expected future short-term yields.
(d) Differences in interest rates in various countries reveal information about expected
changes in exchange rates.
Answer:
In which of the following countries has the Bank of China not shown significant
expansion?
(a) The United States
(b) Russia
(c) Canada
(d) Hong Kong
Answer:
Simple loans and discount bonds differ from coupon bonds and fixed-payment loans in
that
(a) interest on simple loans and discount bonds is taxable, while interest on coupon
bonds and fixed-payment loans is not.
(b) interest on coupon bonds and fixed-payment loans is taxable, while interest on
simple loans and discount bonds is not.
(c) interest rates on simple loans and discount bonds are generally higher than interest
rates on comparable coupon bonds and fixed-payment loans.
(d) interest on simple loans and discount bonds is paid in a single payment, while
issuers of coupon bonds and fixed-payment loans make multiple payments of interest
and principal.
Answer:
Which of the following expressions gives the expected rate of return on foreign assets
in dollar terms?
(a) Rf= if EXe/EX
(b) R = if EXe/EX
(c) Rf= if+ EXe/EX
(d) Rf= i + EXe/EX
Answer:
The Chairman of the Federal Open Market Committee is also
(a) the president of the Federal Reserve Bank of New York.
(b) the chairman of the Securities and Exchange Commission.
(c) the chairman of the Federal Deposit Insurance Corporation.
(d) the chairman of the Board of Governors.
Answer:
The trade balance is
(a) by definition identical to the current account balance.
(b) the difference between merchandise exports and merchandise imports.
(c) almost invariably larger than the capital account balance.
(d) the difference between merchandise exports and merchandise imports and by
definition identical to the currency account balance.
Answer:
Keynes assumed that the return on money was
(a) zero.
(b) the same as the return on bonds.
(c) the same as the return on bonds, adjusted for capital gains.
(d) the nominal interest rate minus the expected inflation rate.
Answer:
If a British automobile sells for £20,000 and the British pound is worth $1.50, then the
dollar price of the automobile is
(a) $1.60.
(b) $12,500.
(c) $20,000.
(d) $30,000.
Answer:
In the United States, federal government expenditures and tax rates are determined by
(a) the Federal Reserve.
(b) the President, in consultation with his cabinet.
(c) Congress.
(d) the President and Congress.
Answer:
If the Treasury buys $2 million in gold, the monetary base will
(a) fall by $2 million.
(b) rise by $2 million.
(c) rise by $2 million times the money multiplier.
(d) be unchanged.
Answer:
The Foreign Bank Supervision Enhancement Act of 1991 was passed as a result of
(a) the savings-and-loan crisis.
(b) the BCCI scandal.
(c) the failure of the Bank of United States.
(d) the failure of the Bank of America
Answer:
Inflation is an economic problem because it
(a) leads inevitably to unemployment.
(b) makes prices less useful as signals for resource allocation.
(c) leads to recession.
(d) results in rapid increases in the money supply.
Answer:
The Fed has attempted to solve the problems of being unable to control directly the
variables that determine economic performance and the timing lags in observing and
reacting to economic fluctuations by
(a) pressing Congress for legislation that would expand its powers.
(b) using targets to meet its goals.
(c) abandoning some goals in order to achieve others.
(d) devising new monetary policy tools.
Answer:
The main reason that markets for finance do not resemble simple auction markets, such
as the market for wheat, is that
(a) markets for finance tend to be dominated by a few large lenders.
(b) because of asymmetric information, savers must spend resources to learn about
borrowers.
(c) markets for finance are much more closely regulated by the government than are
other markets.
(d) simple auction markets usually suffer from excess demand for their products.
Answer:
On the Fed’s balance sheet a deferred availability cash item
(a) represents funds not yet collected by the Fed from banks against which checks have
been drawn.
(b) is an asset.
(c) is a liability.
(d) represents taxes due to the Federal government but not yet collected.
Answer:
Bank holding companies are
(a) banks that own nonfinancial companies.
(b) banks that are technically bankrupt but whose assets have not yet been sold off.
(c) nonbank banks.
(d) large companies that hold many different banks as subsidiaries.
Answer:
The Fed has ignored advice to use a broad variable such as the stock of nonfinancial
credit or nominal GDP as an intermediate target because
(a) such broad targets are not allowable under the provisions of the Federal Reserve
Act.
(b) such broad targets are not easily measurable.
(c) such broad targets are not easily controllable.
(d) of congressional pressure to use M1 as the intermediate target.
Answer:
The managers of a firm seek to obtain a loan from a local bank. They tell the bank’s
loan officer that the loan is intended to finance an expansion in the company, but in
reality they intend to use the funds to finance next month’s payroll. This incident is an
example of
(a) the problem of asymmetric information.
(b) the problem of the illiquidity of bank loans.
(c) banks’ failing to charge high enough interest rates on business loans.
(d) a situation in which direct finance, rather than indirect finance, should have been
employed.
Answer:
During a credit crunch
(a) banks typically lower interest rates to attract new borrowers.
(b) small-business investment increases relative to large-business investment.
(c) banks typically hold much smaller portions of their portfolios in loans.
(d) housing investment increases relative to large-business investment.
Answer:
According to the new classical approach to the aggregate supply curve, the aggregate
supply curve slopes upward because
(a) increases in the price level result in lower real balances.
(b) higher current output results in higher desired investment.
(c) higher prices result in higher levels of spending as consumers attempt to stay ahead
of inflation.
(d) businesses have difficulty in distinguishing relative price increases from general
price increases.
Answer:
The thrift industry prospered during the period from the 1930s to the 1960s because
(a) there was very little government regulation of the industry.
(b) interest rates were continually increasing, but inflation rates were low.
(c) interest rates were stable and regulation limited interest payments to depositors.
(d) banks were prohibited from engaging in mortgage lending.
Answer:
Which of the following is NOT a primary center of foreign-exchange trading?
(a) New York
(b) London
(c) Munich
(d) Tokyo
Answer:
Which of the following is a depository institution?
(a) The New York Stock Exchange
(b) Greater Illinois Savings and Loan
(c) Prudential Insurance Company
(d) Fidelity Magellan Mutual Fund
Answer:
Branches of U.S. banks in which city control the most assets?
(a) Tokyo
(b) Hong Kong
(c) Paris
(d) London
Answer:
In financial panics in the United States in the nineteenth and early twentieth centuries
(a) interest rates rose and stock prices fell in financial markets.
(b) interest rates fell and stock price rose in financial markets.
(c) interest rates and stock prices both fell in financial markets.
(d) interest rates and stock prices both rose in financial markets.
Answer:
What is the name of the pension plan under which employees can make tax-deductible
contributions through regular payroll deductions?
(a) 401(k) plans
(b) Social security plans
(c) Early retirement plans
(d) 486(b) plans
Answer:
Which of the following is true of Federal Reserve float?
(a) It is typically zero.
(b) The amount of cash items in the process of collection typically exceeds the amount
of deferred availability cash items.
(c) The amount of deferred availability cash items typically exceeds the amount of cash
items in the process of collection.
(d) Over long periods of time float is a significant source of change in the monetary
base.
Answer:
A change in the inflation rate will
(a) not affect the demand for real balances.
(b) affect the demand for real balances through its effect on real output.
(c) affect the demand for real balances through its effect on the payments system.
(d) affect the demand for real balances through its effect on the nominal market interest
rate.
Answer:
Under FDICIA who would have to approve in order for the too-big-to-fail policy to be
implemented?
(a) The President of the United States
(b) A two-thirds majority in Congress
(c) Two-thirds of the FDIC’s directors, the Fed’s Board of Governors, and the Secretary
of the Treasury
(d) The Federal Open Market Committee and the Comptroller of the Currency
Answer:
Which of the following statements is correct?
(a) The supply curve for loanable funds slopes up, whereas the supply curve for bonds
slopes down.
(b) The demand curve for loanable funds slopes up, whereas the demand curve for
bonds slopes down.
(c) The demand curve for loanable funds and the demand curve for bonds both slope up.
(d) The supply curve for bonds and the supply curve for loanable funds both slope up.
Answer:
In the market for loanable funds the price of the funds exchanged is
(a) the price of bonds.
(b) the volume of bonds purchased.
(c) the volume of bonds sold.
(d) the interest rate.
Answer:
Which of the following statements concerning the problems of commercial banks
during the 1980s is NOT true?
(a) The rising cost of funds led banks to make riskier loans.
(b) Interest rate risk was as least as great a problem for banks as for thrifts.
(c) Banks increased their exposure to risk through their investments in HLTs.
(d) By limiting diversification, branching restrictions contributed to the increase in bank
failures.
Answer:
If the value of money increases over time, then we know
(a) the economy must be experiencing inflation.
(b) the economy must be experiencing deflation.
(c) economic growth must be very rapid.
(d) economic growth must be very slow.
Answer:
In the basic AD-SRAS model, the assumption is made that
(a) bank loans are imperfect substitutes for other forms of finance.
(b) all sources of finance are perfect substitutes.
(c) the real interest rate overstates the cost of funds to borrowers.
(d) the real interest rate understates the cost of funds to borrowers.
Answer:
Which of the following statements is NOT true of consumer finance companies?
(a) Their borrowers have higher default risk than bank customers.
(b) They charge higher interest rates than banks do on similar loans.
(c) They lend primarily to consumers.
(d) They are strictly regulated by state governments.
Answer: