Many economists believe that changes in the money supply
(a) affect the real economy in the short run, but not in the long run.
(b) affect the real economy in the long run, but not in the short run.
(c) affect the real economy in both the long run and the short run.
(d) affect the real economy in neither the long run nor the short run.
Answer:
With respect to the IS curve for a small open economy
(a) higher levels of the real interest rate are consistent with higher levels of real output.
(b) higher levels of the real interest rate are consistent with lower levels of real output.
(c) any value of real output is consistent with the equilibrium real interest rate.
(d) any value of the equilibrium real interest rate is consistent with the equilibrium
value of real output.
Answer:
International capital mobility refers to
(a) the ease with which manufacturing equipment can be transported across countries.
(b) the ease with cash may be transferred from one country to another without having to
be converted into a foreign currency.
(c) the ease with which investors move funds among international financial markets.
(d) the ease with which exchange rates may be adjusted to reflect changes in the relative
economic strengths of countries.
Answer:
Marking to market refers to
(a) the determination of the prices of options contracts by the interaction of demand and
supply.
(b) the determination of the prices of futures contracts by the interaction of demand and
supply.
(c) the settlement of gains and losses on futures contracts each day.
(d) the settlement of gains and losses on forward contracts each day.
Answer:
Property and casualty insurers hold
(a) more short-term assets than do life insurance companies.
(b) fewer short-term assets than do life insurance companies.
(c) roughly the same amount of short-term assets as do life insurance companies.
(d) only long-term assets.
Answer:
An individual with a high income will probably
(a) hold a smaller fraction of her wealth in the form of money than will an individual
with a low income.
(b) hold a larger fraction of her wealth in the form of money than will an individual
with a low income.
(c) hold the same fraction of her wealth in the form of money as will an individual with
a low income.
(d) hold a smaller fraction of her wealth in the form of money than will a large
corporation.
Answer:
Which of the following may an Edge Act Corporation NOT do?
(a) Make commercial loans to U.S. residents
(b) Accept deposits from U.S. residents for use in international trade transactions
(c) Deal in foreign exchange
(d) Make loans to finance overseas trade
Answer:
An “offshore market” is
(a) is any market outside of the United States.
(b) any market in a small foreign country.
(c) a market that has little or no bank regulation and that taxes bank profits at low rates.
(d) a foreign market that uses the U.S. dollar as its domestic currency.
Answer:
The IS curve depicts the relationship between
(a) aggregate demand for current output and the real interest rate.
(b) investment demand and the real interest rate.
(c) investment demand and the level of current output.
(d) national saving and the level of current output.
Answer:
When a borrower issues a debt instrument to a lender,
(a) the lender may receive less than the amount promised, but will not receive more.
(b) the lender may receive more than the amount promised, but will not receive less.
(c) the lender will always receive exactly the amount promised.
(d) the lender may receive more than the amount promised or may receive less than the
amount promised.
Answer:
If the government increases taxes while holding expenditures constant,
(a) the bond supply curve will shift to the left and the equilibrium interest rate will rise.
(b) the bond supply curve will shift to the right and the real interest rate will fall.
(c) government borrowing will be increased.
(d) the government’s deficit will increase.
Answer:
A hyperinflation occurs when
(a) inflation persists for more than two years.
(b) inflation persists for more than five years.
(c) the inflation rate exceeds 1% per month.
(d) the inflation rate exceeds 50% per month.
Answer:
Which of the following statements about the natural rate of unemployment is correct?
(a) In the 1960s economists thought the natural rate was 4%.
(b) Today most economists believe the natural rate is zero.
(c) When unemployment is at its natural rate, then only frictional unemployment
remains.
(d) When unemployment is at its natural rate, then only structural unemployment
remains.
Answer:
Which of the following things do banks do with the funds they acquire from savers?
(a) Invest in corporate stock
(b) Invest in corporate bonds
(c) Make loans to individuals
(d) All of the above
Answer:
Which of the following is an example of a debt instrument?
(a) A checking account at a commercial bank
(b) A share of stock in General Motors
(c) A life insurance policy
(d) A bond issued by General Motors
Answer:
One of the reasons the dollar appreciated against the British pound during the 1970s
and 1980s is that
(a) U.S. productivity growth was greater than British productivity growth.
(b) British productivity growth was greater than U.S. productivity growth.
(c) the British inflation rate was lower than the U.S. inflation rate.
(d) U.S. consumers increased their preference for British goods.
Answer:
The CAMELS rating system
(a) allows bank loan officers to assess the creditworthiness of borrowers.
(b) is part of the means by which regulators deal with moral hazard problems in
banking.
(c) was phased out during the 1980s.
(d) applies to state-chartered banks, but not to federally-chartered banks.
Answer:
Which of the following is NOT one of the three largest financial institutions in the
world?
(a) UBS
(b) Mizuho
(c) Citigroup
(d) Bank of America
Answer:
Swaps are
(a) collateral required on repurchase agreements.
(b) collateral required on loans in the Federal funds market.
(c) required reserves minus excess reserves.
(d) agreements to sell the expected future return from one financial instrument for the
expected future return from another.
Answer:
Monetary neutrality refers to the fact that changes in the money supply
(a) affect output more in the long run than in the short run.
(b) have no effect on output in the long run.
(c) affect only output in the long run.
(d) have a greater effect on prices in the short run than in the long run.
Answer:
Diversification refers to
(a) choosing assets so as to maximize expected return.
(b) choosing assets so as to minimize tax liability.
(c) choosing assets so as to maximize liquidity.
(d) allocating savings among different assets.
Answer:
The issue of Fed independence is most often raised by
(a) disagreement over the role the Fed should play in managing monetary policy.
(b) the Fed’s refusal to carry out the wishes of the President.
(c) the Fed’s refusal to carry out the wishes of the Congress.
(d) the public’s negative reaction to Fed policy.
Answer:
A sale of foreign assets by a central bank has the same effect on the monetary base as
(a) a decrease in the discount rate.
(b) a decrease in the required reserve ratio.
(c) an open market sale of government bonds.
(d) an open market purchase of government bonds.
Answer:
Specialists are
(a) financial analysts who focus on only one company’s securities.
(b) market makers in individual stocks on the floor of the New York Stock Exchange.
(c) purchasers of futures contracts and sellers of options contracts.
(d) sellers of futures contracts and purchasers of options contracts.
Answer:
In the federal funds market diagram, an open market sale by the Fed
(a) shifts the reserve supply curve to the right.
(b) shifts the reserve supply curve to the left.
(c) decreases the federal funds rate.
(d) increases the volume of federal funds traded.
Answer:
Index arbitrage refers to
(a) simultaneous trading in stock index futures and the underlying stocks.
(b) selling futures contracts and buying options contracts on the same stock.
(c) buying futures contracts and selling options contracts on the same stock.
(d) selling futures contracts on stocks and buying equivalent futures contracts on bonds.
Answer:
When the federal government makes a purchase
(a) the Fed writes a check for the amount.
(b) the Treasury writes a check drawn on one of its accounts at commercial banks.
(c) the Treasury writes a check drawn on its account at the Fed.
(d) the Office of the Purchaser General writes a check drawn on its account with the
Treasury.
Answer:
At a point above the IS curve,
(a) saving exceeds investment.
(b) the real interest rate is below its equilibrium level.
(c) there is an excess demand for goods.
(d) there is a federal budget deficit.
Answer:
The euro is
(a) the currency of Italy.
(b) the rate at which the French central bank makes discount loans.
(c) the common European currency.
(d) the name of the European central bank.
Answer:
Business cycles
(a) have existed since the Industrial Revolution, but have been analyzed by economists
only since the nineteenth century.
(b) have existed since the nineteenth century, but have been analyzed by economists
only since World War II.
(c) have existed since World War II, but have been analyzed by economists only since
1980.
(d) have existed since the Middle Ages, but have been analyzed by economists only
since the Industrial Revolution.
Answer:
The collapse of economic systems in Eastern Europe during the late 1980s reveals that
(a) a barter system will not work.
(b) a barter system will work only in an advanced industrial country.
(c) government allocation of goods and services is not a successful replacement for the
market system.
(d) the market system will work well only in an advanced industrial country.
Answer:
Forward contracts are often illiquid because
(a) any capital gains on them are heavily taxed, making investors reluctant to sell them.
(b) government regulation has not provided for a secondary market in them.
(c) they generally contain terms specific to the particular buyer and seller.
(d) the brokerage fees involved in buying and selling them are very high.
Answer:
Which of the following is NOT included in the current account balance?
(a) Exports and imports of services
(b) Capital inflows and outflows
(c) Net investment income
(d) Unilateral transfers
Answer:
The law of one price states that
(a) most countries require that all entering goods have the same price.
(b) most countries require that all exported goods have the same price.
(c) identical goods should have the same price anywhere in the world.
(d) most countries require that the price of a good not be changed once it is already in a
store and available for sale.
Answer: