According to the efficient markets hypothesis, who should earn the highest
risk-adjusted return on stocks?
A) a financial expert who can devote considerable time to research
B) the average investor who doesn’t do too much research
C) someone throwing darts at possible stock picks
D) all of the above should earn the same average return
Answer:
Suppose a company expects prices in general to rise by 5%, but the price of its product
rises by 2%. How will the company respond to the price change?
A) It will increase production since it’s getting a higher price for the product.
B) It will increase production more slowly since it’s price is rising more slowly than
average.
C) It will reduce production since it perceives a relative decline in the demand for its
product.
D) It will stop production and shut down until prices rise more quickly.
Answer:
Simple loans and discount bonds differ from coupon bonds and fixed-payment loans in
that
A) interest on simple loans and discount bonds is taxable, while interest on coupon
bonds and fixed-payment loans is not.
B) interest on coupon bonds and fixed-payment loans is taxable, while interest on
simple loans and discount bonds is not.
C) interest rates on simple loans and discount bonds are generally higher than interest
rates on comparable coupon bonds and fixed-payment loans.
D) interest on simple loans and discount bonds is paid in a single payment, while
issuers of coupon bonds and fixed-payment loans make multiple payments of interest
and principal.
Answer:
What happened to consumer prices as measured by the CPI between 1929 and 1933?
A) rose by more than 20%
B) didn’t change
C) declined by about 25%
D) declined by about 80%
Answer:
At an interest rate of 3%, what is the present value of $1000 to be received five years
from now?
A) $863
B) $1,667
C) $1,159
D) $850
Answer:
If a large open economy, like the United States, reduces its budget deficit, what impact
would this have on a small open economy?
A) higher savings
B) increased investment
C) increased net savings
D) no change in interest rates
Answer:
Which of the following represented the largest liability on the balance sheet of U.S.
commercial banks in 2012?
A) checkable deposits
B) loans
C) nontransaction deposits
D) borrowings
Answer:
According to the new classical view, when the actual price level is greater than the
expected price level
A) aggregate output is above the full employment level.
B) aggregate output is below the full employment level.
C) the aggregate supply curve will slope downward.
D) the coefficient a is equal to zero.
Answer:
All of the following tends to occur when unemployment is above the natural rate
EXCEPT:
A) wage increases will be limited
B) inflation will rise
C) increases in the cost of production will be limited
D) there is slack in the labor market
Answer:
Suppose there’s an 80% chance of a stock rising by 20% and a 20% chance of it falling
by 40%. Which type of investor would prefer an investment with a guaranteed return of
5%?
A) risk loving investor
B) risk neutral investor
C) risk averse investor
D) risk is not relevant in this example
Answer:
A firm’s agents are its
A) shareholders.
B) management.
C) marketing department.
D) customers.
Answer:
Which of the following is a checkable deposit?
A) a NOW account
B) a money market deposit account
C) a certificate of deposit
D) a savings account
Answer:
In a closed economy, the total quantity of goods demanded equals the sum of
A) consumption spending, investment spending, and government spending.
B) consumption spending, national saving, and taxes.
C) consumption spending, government spending, and taxes.
D) investment spending, national saving, and taxes.
Answer:
If the price of a futures contract increases, then
A) the exchange will collect the amount of the increase from the seller of the contract
and transfer it to the account of the buyer of the contract.
B) the exchange will collect the amount of the increase from the buyer of the contract
and transfer it to the account of the seller of the contract.
C) the exchange will collect the amount of the increase from both the buyer and the
seller and place it in escrow until the delivery date.
D) the additional funds will be required from either the buyer or the seller until the
delivery date.
Answer:
During the years from 1964 to 1969, inflation increased in the United States
A) when the AD curve shifted up and to the right, even though the SRAS curve
remained stable.
B) when the SRAS curve shifted up and to the left, even though the AD curve remained
stable.
C) when the AD curve shifted up and to the right and the SRAS curve shifted up and to
the left.
D) despite the AD and SRAS curves remaining stable.
Answer:
Which of the following is NOT an example of a monopolistically competitive market?
A) high fashion clothing
B) medical care
C) wheat
D) automobiles
Answer:
If the Fed desired to reduce the federal funds rate,
A) it would conduct an open market sale, reducing reserve supply.
B) it would conduct an open market purchase, increasing reserve supply.
C) it would conduct an open market sale, increasing reserve demand.
D) it would conduct an open market purchase, reducing reserve demand.
Answer:
If the Fed purchases $50,000 in T-bills from a bank, by how much will the bank’s
excess reserves increase?
A) by $50,000
B) by $50,000 times the required reserve ratio
C) by $50,000 divided by the required reserve ratio
D) Not enough information has been provided to answer the question.
Answer:
When the yield curve is downward-sloping,
A) short-term yields are higher than long-term yields.
B) long-term yields are higher than short-term yields.
C) the bond market is anticipating the U.S. Treasury may default on its obligations.
D) the inflation rate is expected to rise.
Answer:
The Fed does not have to go through the normal congressional appropriations process
because
A) its expenses are very small.
B) it was given enough funds at the time of its founding to provide for its expenses
indefinitely.
C) it is self financing.
D) it is not part of the legislative branch of the federal government.
Answer:
Economists who are skeptical of hysteresis in Europe during the 1980s and 1990s cite
all of the following as reasons for persistently high unemployment in Europe EXCEPT
A) generous unemployment benefits.
B) restrictions on firms’ ability to hire and fire workers.
C) the existence of an ongoing recession.
D) high tax rates.
Answer:
Analysts have attempted to model the impact of monetary policy on net worth by
emphasizing
A) the impact of lower interest rates on business spending on fixed investment.
B) the impact of lower interest rates on household spending on housing and durable
goods.
C) the liquidity of balance sheet positions as a determinant of business and household
spending.
D) the greater variability of business spending compared to household spending.
Answer:
In an open economy, desired domestic lending
A) must equal desired domestic borrowing.
B) must equal desired domestic borrowing plus the amount of international lending.
C) is always greater than desired domestic borrowing.
D) is always less than desired domestic borrowing.
Answer:
The development of new financial securities or investment strategies using
sophisticated models is known as
A) underwriting.
B) factoring.
C) financial engineering.
D) hedging.
Answer:
Which of the following forms the largest share of household holdings of financial
assets?
A) corporate equities
B) bank deposits
C) pension funds reserves
D) life insurance
Answer:
Which of the following statements regarding futures is true?
A) trading futures contracts on agricultural and mineral commodities makes up a
majority of all trading.
B) trading in financial futures involves more transactions than trading in commodity
futures.
C) futures trading is allowed only for financial assets.
D) futures trading is allowed only for commodities.
Answer:
All of the following accurately describes China’s currency peg EXCEPT
A) pegging against the dollar ensured that Chinese exporters faced stable prices on
exports to the U.S.
B) some U.S. firms complained that the peg gave Chinese firms an unfair advantage
over U.S. firms.
C) the Chinese currency was allowed to depreciate moderately in the years preceding
the financial crisis.
D) many economists argued that the Chinese currency was undervalued.
Answer:
By 2012, what share of U.S. assets were held by the 10 largest banks in the United
States?
A) 10%
B) 29%
C) 55%
D) 68%
Answer:
A flight to quality refers to a shift by savers from
A) bonds and into stocks.
B) stocks and into gold or other precious metals.
C) bonds and into real assets, such as real estate.
D) low-quality bonds and into high-quality bonds.
Answer:
The MP curve represents
A) the Fed’s monetary policy actions in setting a target for the federal funds rate.
B) the relationship between the money supply and the price level.
C) a relationship between the real interest rate and manufacturing production.
D) the relationship between real interest rates and potential GDP.
Answer:
On the day of delivery
A) the spot price will equal the futures price.
B) the spot price will be greater than the futures price by an amount equal to the current
interest rate times the futures price.
C) the futures price will be greater than the spot price by an amount equal to the current
interest rate times the spot price.
D) there is no necessary relation between the spot price and the futures price.
Answer:
Which of the following is NOT considered a receipt in the balance of payments?
A) exports of goods
B) capital inflows
C) import of services
D) unilateral transfers to U.S. citizens
Answer:
Which of the following statements is true of rational expectations?
A) Rational expectations forecasts are always correct.
B) For a trader with rational expectations, the expectation of an asset’s price equals the
optimal price forecast.
C) If traders have rational expectations, any announcement by a company will have an
effect on its stock price, even if the market was already aware of the facts being
announced.
D) If a trader really has rational expectations, he or she was always earn a greater than
normal return on his or her financial portfolio.
Answer: