The Fed’s current position towards the existing monetary aggregates is
A) it is convinced that M1 is the best measure of the money supply.
B) it is convinced that M2 is the best measure of the money supply.
C) it is an issue of ongoing research.
D) it is reverting to considering currency alone as the best measure of the money
supply.
Answer:
In the long run, the key reason that money is neutral is that
A) the federal budget is balanced.
B) prices are flexible.
C) business cycles have become much milder.
D) the nominal interest rate must equal the real interest rate.
Answer:
Which of the following is NOT an example of transactions costs?
A) high interest rates
B) lawyers’ fees
C) brokerage commissions
D) minimum investment requirements
Answer:
The demand curve for bonds would be shifted to the left by an
A) increase in wealth.
B) increase in expected returns on bonds.
C) increase in expected inflation.
D) increase in the liquidity of bonds relative to other assets.
Answer:
Which of the following is NOT true of the foreign-exchange market?
A) It is an over-the-counter market.
B) Most foreign-exchange trading takes place in London.
C) The busiest trading time is morning east coast time, when markets in New York and
London are both open.
D) Trading volume worldwide exceeds $1 trillion per day.
Answer:
$1 received n years from now has a value today of
A) ($1 + i)/i.
B) $1/(1 + i).
C) ($1 + i/i.
D) $1/(1 + i.
Answer:
The financial system performs the role of communicating information by
A) constantly increasing the liquidity of most assets.
B) constantly reducing the riskiness of most assets.
C) incorporating all available information into the prices of financial assets.
D) providing to investors for a nominal charge all government reports available about a
particular company.
Answer:
Which of the following is NOT a bank liability?
A) checkable deposits
B) CDs
C) mortgage loans
D) borrowings from the Federal Reserve
Answer:
The public interest view of Fed motivation holds that the Fed acts in the interest of
A) the general public.
B) banks.
C) Congress.
D) itself.
Answer:
On a coupon bond, the yield to maturity
A) always equals the coupon rate.
B) equates the present value of all the bond’s payments to its price today.
C) increases when the market price of the bond increases.
D) equals the coupon payment divided by the current price of the bond.
Answer:
Why may investors buy a Treasury bill with a negative real interest rate?
A) fear of rising inflation
B) concern about high yields on other bonds
C) fear of default by the U.S. government
D) concern about the high default risk of alternative investments
Answer:
If labor costs rise at the same time that the federal government decreases its purchases,
in the short run
A) aggregate output and the price level will both increase.
B) aggregate output will increase, but the price level will fall.
C) aggregate output and the price level will both fall.
D) aggregate output will fall, but the price level may either increase or decrease.
Answer:
Suppose that savers become less willing to purchase medium-quality corporate bonds.
The result will be that the prices of medium-quality corporate bonds will
A) fall relative to the price of U.S. Treasury securities, but rise relative to the price of
high-quality corporate bonds.
B) rise relative to the price of U.S. Treasury securities, but fall relative to the price of
high-quality corporate bonds.
C) rise relative to the prices of U.S. Treasury securities and high-quality corporate
bonds.
D) fall relative to the prices of U.S. Treasury securities and high-quality corporate
bonds.
Answer:
The purpose of collateral and restrictive covenants is to reduce ________ in debt
contracts.
A) adverse selection
B) transactions costs
C) moral hazard
D) loan amounts
Answer:
In 2012, Ben Bernanke expressed which concern about persistently high
unemployment?
A) It would result in high inflation.
B) It would result in structural damage to the economy that would last for years.
C) It would never decline to desired levels.
D) It would cost him his job.
Answer:
Herd behavior can best be described as
A) the large number of investors involved in the stock market.
B) how large participation in financial markets increase market efficiency.
C) informed investors can outperform relatively uninformed investors.
D) relatively uninformed investors follow the behavior of other investors instead of
consider fundamentals.
Answer:
If the federal government replaced the current income tax with a value-added tax
A) the prices of Treasury and municipal bonds would rise.
B) the prices of Treasury and municipal bonds would fall.
C) the prices of Treasury bonds would rise, while the prices of municipal bonds would
fall.
D) the prices of Treasury bonds would fall, while the prices of municipal bonds would
rise.
Answer:
What is the yield to maturity on a simple loan that requires payment of $500 plus $30 in
interest one year from now?
A) 6%
B) 6.38%
C) 5.3%
D) Not enough information has been provided to determine the answer.
Answer:
Which of the following is NOT true of restrictive covenants?
A) They sometimes require borrowers to maintain the value of collateral offered to the
lender.
B) They increase the marketability and liquidity of loans.
C) They sometimes require a borrower to maintain a certain minimum level of net
worth.
D) They sometimes limit a borrower’s risk taking.
Answer:
Wealth is
A) the sum of the value of assets.
B) equal to income.
C) a flow variable.
D) the sum of the value of assets minus value of liabilities.
Answer:
Which of the following is an asset of the Fed?
A) reserves of banks
B) currency in circulation
C) discount loans to banks
D) checkable deposits in commercial banks
Answer:
An interest rate swap involving the exchange of floating-rate obligations for fixed-rate
obligations is known as
A) swaption.
B) swap option.
C) forward swaps.
D) plain vanilla.
Answer:
The equilibrium real interest rate in Belgium will be
A) generally above the world real interest rate.
B) generally below the world real interest rate.
C) equal to the world real interest rate.
D) determined by the equilibrium between desired domestic saving and desired
domestic investment.
Answer:
If an investor is certain that market interest rates will decline in the future, which of the
following will she be most likely to purchase?
A) a six-month government bill
B) a two-year government note
C) a ten-year government bond
D) a fifty-year government bond
Answer:
On a bank’s balance sheet, liabilities are
A) the uses of acquired assets.
B) the sources of acquired funds.
C) all those items of value owned by the bank.
D) by definition equal to the bank’s assets.
Answer:
The “troika” that helped Greece avoid defaulting on its debt including all of the
following EXCEPT:
A) IMF
B) European Central Bank
C) World Bank
D) European Commission
Answer:
To help offset the costs from loan defaults, the First National Bank of Gotham decides
to increase the interest rate it charges on its business loans. As a result of this increase in
the interest rate, the creditworthiness of Gotham’s loan applicants is likely to
A) improve.
B) deteriorate.
C) be unchanged.
D) be unchanged, unless the economy enters a recession at the same time as the interest
rate is increased.
Answer:
The difference between currency outstanding and currency in circulation is equal to
A) vault cash.
B) bank reserves.
C) coins issued by the U.S. Treasury.
D) zero; they are the same thing.
Answer:
We would not expect a Japanese financial asset and a U.S. financial asset with identical
risk, liquidity, and information characteristics to have different expected returns because
A) the U.S. and Japanese governments have pledged themselves to avoid this outcome.
B) traders would buy the asset with the higher expected yield and sell the asset with the
lower expected yield until the yields were brought into equality.
C) traders would sell the asset with the higher expected yield and buy the asset with the
lower expected yield until the yields were brought into equality.
D) the exchange rate between the dollar and the yen would adjust automatically to
eliminate any difference in yields.
Answer:
As a result of the financial crisis, checkable deposits:
A) became a smaller portion of overall liabilities
B) experienced little change
C) hit a new record high in terms of the percent of liabilities
D) nearly doubled in terms of the percent of liabilities
Answer:
If, while you are holding a coupon bond, its market price falls, you can be sure that
A) the coupon payment you are receiving must have been reduced.
B) the interest rate on other similar bonds must have fallen.
C) the interest rate on other similar bonds must have risen.
D) the par value of the bond must have declined.
Answer:
The futures price
A) reflects traders’ expectations of the spot price on the day of delivery.
B) is always above the spot price on the day of delivery.
C) is always below the spot price on the day of delivery.
D) is always equal to the spot price at every point in time.
Answer: