The Federal Reserve District banks
(a) do not engage in monetary policy.
(b) engage in monetary policy directly through discount lending.
(c) engage in monetary policy directly through open market operations.
(d) engage in monetary policy directly through their membership on Federal Reserve
committees.
Answer:
The economist known for his early empirical work supporting the efficient markets
hypothesis is
(a) Milton Friedman.
(b) John Muth.
(c) Eugene Fama.
(d) Glenn Hubbard.
Answer:
If the Fed sells foreign assets, the monetary base will
(a) fall by the amount of the sale, only if the Fed buys domestic bank deposits with the
proceeds.
(b) fall by the amount of the sale, only if the Fed buys domestic currency with the
proceeds.
(c) fall by the amount of the sale, whether the Fed buys domestic bank deposits or
domestic currency with the proceeds.
(d) rise by the amount of the sale.
Answer:
The supply curve for bonds would be shifted to the left by
(a) a decrease in government borrowing.
(b) a decrease in the corporate tax on profits.
(c) an increase in tax subsidies for investment.
(d) an increase in expected inflation.
Answer:
Sales finance companies
(a) purchase accounts receivable of small firms at a discount.
(b) sell commercial paper and buy long-term corporate bonds.
(c) take in deposits from savers and buy corporate commercial paper.
(d) are affiliated with companies which manufacture or sell goods.
Answer:
The Fed’s practices since World War II have
(a) shown that interest rate targets are always preferable to monetary aggregate targets.
(b) shown that monetary aggregate targets are always preferable to interest rate targets.
(c) produced poor operating targets, but successful intermediate targets.
(d) not produced very successful intermediate targets.
Answer:
An option buyer
(a) has a greater insurance benefit than the purchaser of a futures contract.
(b) bears the risk of unfavorable price movements.
(c) is purchasing a naked option if he or she does not also own the underlying asset.
(d) generally will incur a lower cost than will the purchaser of a futures contract.
Answer:
If the FOMC’s directive indicates a change in monetary policy, the account manager at
the Fed’s Open Market Trading Desk, must
(a) design dynamic open market operations.
(b) design defensive open market operations.
(c) seek approval of the change from the Secretary of the Treasury.
(d) seek approval of the change from a majority of the presidents of the Federal Reserve
district banks.
Answer:
Which of the following is likely to be true as the international coordination of bank
regulation continues?
(a) Branches of foreign banks probably will continue to be treated differently than
domestic banks by the lender of last resort.
(b) Cross-border transactions of domestic banks will be addressed by the foreign lender
of last resort.
(c) Deposit insurance will follow host country rules for branches and subsidiaries.
(d) Regulation will become an even more serious impediment to international capital
flows.
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:
Certificates of deposit differ from demand deposits in that they
(a) do not pay interest.
(b) have penalties for early withdrawal.
(c) are sold only by S&Ls.
(d) pay non-taxable interest.
Answer:
Which of the following is NOT included in M2?
(a) Currency
(b) Savings bonds
(c) Money market deposit accounts
(d) Overnight repurchase agreements
Answer:
LIBOR measures
(a) the duration of fixed-rate assets.
(b) the vulnerability of a bank’s net worth to interest rate risk.
(c) rates that international banks charge on dollar-denominated loans.
(d) the value of the dollar relative to the currencies of the major trading partners of the
United States.
Answer:
In the aggregate demand-aggregate supply model, if firms expect businesses taxes to
rise
(a) current output will fall, but the price level will rise.
(b) current output will rise, but the price level will fall.
(c) current output and the price level will both rise.
(d) current output and the price level will both fall.
Answer:
An important difference between the new classical and new Keynesians views is that
new classicals
(a) assume that all firms are price takers, but new Keynesians assume that some firms
are price setters.
(b) take into account the existence of long-term nominal wage and price contracts, but
new Keynesians do not believe they are important.
(c) focus on the importance of investment spending, but new Keynesians believe that
government spending is more important.
(d) believe that the aggregate supply curve is horizontal, even in the short run, but new
Keynesians believe that the aggregate supply curve slopes upward in the short run.
Answer:
The most important service provided by underwriters is
(a) lowering of information costs.
(b) dealing with problems of moral hazard.
(c) insuring firms against loss from fire.
(d) insuring firms against loss from employee theft.
Answer:
Primary credit is only backup source of funds for health banks since
(a) the primary credit is set 1% above the federal funds rate.
(b) restrictions as to its use limit its benefits.
(c) the secondary credit rate pays 0.5% more.
(d) banks must seek funds from other sources prior to requesting a discount loan.
Answer:
Unsystematic risk is another name for
(a) liquidity.
(b) market risk.
(c) idiosyncratic risk.
(d) diversification.
Answer:
The thrift industry began to face serious problems following the rise in interest rates in
(a) 1929.
(b) 1941.
(c) 1979.
(d) 1990.
Answer:
In the Japanese economy the link between keiretsu, or industry groups, and their main
banks
(a) probably resulted in group firms growing more slowly than nongroup firms.
(b) resulted in group firms paying higher loan interest rates than they would have in
bond markets.
(c) was finally declared illegal by the Japanese government in the early 1980s.
(d) was abolished by international agreement in 1992.
Answer:
Sustained inflation will be caused by a sustained growth in the nominal money supply
at a rate faster than the growth rate of velocity and the growth rate of output according
to
(a) new Keynesian economists but not according to new classical economists.
(b) new classical economists but not according to new Keynesian economists.
(c) both new classical and new Keynesian economists.
(d) neither new classical nor new Keynesian economists.
Answer:
According to the efficient markets hypothesis,
(a) the equilibrium price of an asset equals the optimal forecast of fundamental value
based on available information.
(b) the actual and expected prices of an asset will be equal.
(c) the actual price of an asset reflects only information on past returns on the asset.
(d) the expected price of an asset incorporates only information on past returns on the
asset.
Answer:
The payments system refers to
(a) the means of clearing and settling transactions in the economy.
(b) the means by which the government collects taxes.
(c) the system that credit card companies use to collect their payments.
(d) the type of medium of exchange used in the economy.
Answer:
Universal banking refers to
(a) banks with branches in every state.
(b) banks involved in nonfinancial activities.
(c) banks with branches in foreign countries.
(d) banks that underwrite financial securities.
Answer:
Policy makers are particularly concerned about the financial soundness of financial
intermediaries because
(a) most financial assets are held by intermediaries.
(b) troubles of intermediaries always receive the most publicity in the media.
(c) the workings of intermediaries are easier for Congress to understand than are the
workings of financial markets.
(d) federal law applies to intermediaries but does not currently apply to financial
markets.
Answer:
Bank lending channel advocates are skeptical of Milton Friedman and Anna Schwartz’s
explanation of the role of banking panics in explaining the Great Depression, because
they believe Friedman and Schwartz failed to take into account the effect of the banking
panics on
(a) the supply of money.
(b) interest rates.
(c) the availability of bank loans.
(d) consumer confidence.
Answer:
What share of U.S. assets is held by the largest banks in the United States?
(a) 0.9%
(b) 20%
(c) 60%
(d) 68%
Answer:
Historically, the leading official reserve asset was
(a) gold.
(b) the U.S. dollar.
(c) the British pound.
(d) the German mark.
Answer:
The Foreign Bank Supervision Enhancement Act of 1991
(a) removed the Federal Reserve from a role in regulating foreign banks in the United
States.
(b) removed the Office of the Comptroller of the Currency from a role in regulating
foreign banks in the United States.
(c) was intended to equalize operating standards for domestic and foreign banks.
(d) removed state bank regulators from a role in regulating foreign banks in the United
States.
Answer:
Most of the collapse in M2 growth during the early 1990s can be explained by
(a) high inflation rates.
(b) the drop in the amount of small time deposits.
(c) a movement out of currency and into checking account deposits.
(d) a movement out of checking account deposits and into currency.
Answer:
During the 1980s countries like Argentina and Israel experienced
(a) high average rates of inflation and rapid average rates of growth of the nominal
money supply.
(b) low average rates of inflation and rapid average rates of growth of the nominal
money supply.
(c) high average rates of inflation and slow average rates of growth of the nominal
money supply.
(d) low average rates of inflation and slow average rates of growth of the nominal
money supply.
Answer:
When a country’s real exchange rate depreciates
(a) its nominal exchange rate must have appreciated.
(b) its nominal exchange rate must also have depreciated.
(c) it can trade its goods for fewer units of foreign goods.
(d) it can trade its goods for more units of foreign goods.
Answer:
The original Federal Reserve Act
(a) specified open market operations as the Fed’s main policy tool.
(b) specified open market operations as one of several Fed policy tools.
(c) specified that open market operations be employed by the Fed only in circumstances
where discount loans were ineffective.
(d) did not specifically mention open market operations.
Answer:
If the central bank buys foreign assets,
(a) the expected rate of return on domestic assets will fall relative to the expected rate
of return on foreign assets.
(b) the expected rate of return on domestic assets will rise relative to the expected rate
of return on foreign assets.
(c) the domestic monetary base will decline.
(d) the foreign-exchange value of the domestic currency will rise.
Answer: