Drexel Burnham Lambert pioneered the widespread issuance of
A) junk bonds.
B) commercial paper.
C) callable bonds.
D) convertible bonds.
The prepayment uncertainty associated with __________ makes the maturity of these
securities uncertain.
A) corporate bonds
B) corporate stocks
C) GNMA pass-through securities and other mortgage-related securities
D) certificates of deposit
Monetarists view government intervention in the economy as
A) necessary to maintain full employment.
B) unnecessary and potentially damaging.
C) effective because it stimulates capital formation.
D) leads to consistently higher employment and output.
If there is an exogenous increase in investment spending, Monetarists argue that there
would be little or no effect on real output because the interest rate would __________,
investment would __________, saving would __________, and consumption would
__________.
A) decline; increase; increase; decrease
B) decline; increase; decrease; increase
C) rise; decrease; decrease; increase
D) rise; decrease; increase; decrease
The impact of monetary policy on the exchange rate is emphasized by
A) supply-side economists.
B) Monetarists.
C) Keynesians.
D) rational expectations theorists.
From the Keynesian perspective, an exogenous increase in investment is likely to lead
to
A) a decrease in interest rates.
B) an increase in output.
C) an increase in the money supply.
D) a decrease in government spending.
For state nonmember banks, the “primary” federal regulator is the
A) Federal Reserve.
B) FDIC.
C) House Banking Committee.
D) Comptroller of the Currency.
If the ratio of net worth to vault cash is .2, the prime rate is .05, and the required reserve
ratio is .25, the demand deposit expansion multiplier is
A) 2.
B) 4.
C) 5.
D) .25.
Suppose a nation has a total population of 100,000,000. Out of that, 70% are in the
labor force and 65% of the population is employed. What is the nation’s unemployment
rate?
A) 5.0%
B) 7.1%
C) 7.7%
D) 30.0%
A worldwide system of fixed exchange rates was organized and maintained under the
International Monetary Fund
A) in the three decades before World War I.
B) in the years between the world wars.
C) from the end of World War II until the early 1970s.
D) from the early 1960s to the late 1980s.
An increase in the interest rate causes
A) movement up the IS curve.
B) movement down the LM curve.
C) the IS curve to shift to the left.
D) the LM curve to shift to the right.
The most fundamental proposition of modern portfolio theory is that
A) investment risk is reduced by investing in on security.
B) the smaller the standard deviation is, the larger is the risk of a portfolio.
C) even though an asset is risky in isolation, when combined with other assets the risk
of the portfolio is less, perhaps even zero.
D) uncertain outcomes make for risky investments.
In the early 1980s, rising interest rates caused a tremendous __________ in the value of
savings-and-loan __________.
A) inflow; liabilities
B) inflow; assets
C) outflow; liabilities
D) outflow; assets
The Federal Reserve uses the federal funds rate as an operating target because
A) it is an excellent indicator of the economy’s underlying inflation rate.
B) it is very sensitive to bank reserve level changes.
C) it is determined by the Treasury.
D) the Fed sets the rate directly.
The “wealth effect” of lower interest rates is that bond prices are __________ so people
respond to this by __________ consumption and thus __________ aggregate demand.
A) increased; increasing; increasing
B) increased; increasing; decreasing
C) lowered; increasing; increasing
D) lowered; increasing; decreasing
In the view of the Classical economists, rising aggregate demand leads to
A) lower unemployment.
B) inflation.
C) higher unemployment.
D) deflation.
Jobs in the private financial sector focus on __________; jobs in the public sector with
the Federal Reserve, the Federal Deposit Insurance Corporation, or state agencies focus
on __________.
A) profits; profits
B) safety; profits
C) profits; safety
D) safety; safety