Any decrease in autonomous spending will
A) shift the IS curve to the left.
B) shift the IS curve to the right.
C) cause a movement down along an IS curve.
D) cause a movement up along an IS curve.
As part of the “exchange rate effect of monetary policy,” a lower money supply causes a
__________ interest rate and thus __________ of the domestic currency.
A) higher; appreciation
B) higher; depreciation
C) lower; appreciation
D) lower; depreciation
Which of the following is not true with respect to money market mutual funds?
A) They allow small savers to pool their funds to buy a diversified portfolio of money
market instruments.
B) They often include securities such as Treasury bills, Treasury bonds, commercial
paper, and negotiable CDs.
C) They charge a small management fee.
D) Most funds offer limited withdrawal by check.
The Federal Reserve econometric model emphasizes the impact of the wealth effect on
A) consumption.
B) government spending.
C) business investment.
D) exports.
An example of a financial instrument in the money market is a
A) residential mortgage.
B) corporate bond.
C) negotiable bank CD.
D) U.S. government agency security.
Leading economic indicators are economic indicators that __________ changes in
economic activity
A) change after
B) change at the same time as
C) change before
D) None of the above.
Suppose the yield on government bonds rises. This should cause __________ in the
discount factor in the stock price valuation formula and __________ in stock prices.
A) a fall; a rise
B) a rise; a fall
C) a fall; a fall
D) no change; no change
The M1 definition of money does not include
A) demand deposits.
B) negotiable order of withdrawal accounts.
C) money market deposit accounts.
D) checking accounts with savings and loan associations.
The supply of a particular security appears to influence the term structure only
A) during recessions.
B) during inflationary periods.
C) in the short run.
D) in the long run.
Which of these forms of financing is generally not employed by very large firms?
A) commercial paper
B) medium-term notes
C) public debt
D) mezzanine funds
The Federal Reserve econometric model estimates that a 1 percent increase in the
money supply will
A) increase real GDP by 1 percent after 3 years.
B) increase real GDP by 2 percent in 3 years.
C) increase real GDP by 3 percent 3 years.
D) have no effect on real GDP after 2 years.
The monetary base is equal to
A) Fed liabilities plus currency outstanding.
B) Fed liabilities minus loans to commercial banks.
C) bank reserves plus currency held by the non-bank public.
D) the M1 money supply minus Fed loans to commercial banks.
A rise in the money supply __________ the natural rate of interest.
A) lowers
B) raises
C) has no effect on
D) has an uncertain effect on
Assume that an investor pays $900 for a bond with a face value of $1,000. If the bond
pays 10 percent interest annually, the current yield is equal to
A) 9.5 percent.
B) 9.1 percent.
C) 10.0 percent.
D) 11.1 percent.
The total amount of interest collected after two years from a $6,000 loan with an annual
interest rate of 6 percent compounded annually is equal to $__________.
A) 720.00
B) 741.60
C) 360.00
D) 6,720.00
Because most asset yields are affected in a systematic way by economic conditions,
most securities in portfolios
A) have a covariance greater than zero.
B) have negative yields.
C) have covariance greater than one.
D) increase in risk as new assets are added.
Reserve requirements apply to
A) FDIC-insured banks only.
B) nationally chartered banks only.
C) Federal Reserve member banks only.
D) all commercial banks.
A bank has total assets of $2,000,000 and capital of $150,000. The bank’s leverage ratio
is
A) 20%.
B) 15%.
C) 7.5%.
D) None of the above.
The decline in the relative importance of transactions deposits as a source of bank funds
between 1970 and 1997 can be attributed to
A) the general increase in interest rates on other types of assets.
B) movements of transactions deposits to thrifts.
C) the extension of unlimited check writing privileges to many non-transactions
deposits.
D) the increase in large-sized negotiable CDs as sources of bank funds.
If participants in securities markets believe that an announced decrease in the money
supply will reduce the rate of inflation, the likely result will be
A) higher real interest rates.
B) higher nominal interest rates.
C) lower real interest rates.
D) lower nominal interest rates.
Assume that a security has equally possible outcomes of yielding 8 percent and 4
percent. The standard deviation of the probability distribution of returns for this security
is
A) 6 percent.
B) 4 percent.
C) 3 percent.
D) 2 percent.
A mid-size firm may have a “__________” line of credit, meaning all or part of it can
be converted into an intermediate-term loan.
A) revolving
B) secured
C) guaranteed
D) mezzanine
Most borrower-spenders in the financial system are
A) businesses and governments.
B) banks and thrift institutions.
C) households and foreigners.
D) governments and financial institutions.