Hedging by buying an option
A) limits gains.
B) limits losses.
C) limits gains and losses.
D) has no limit on option premiums.
Everything else held constant, in the market for reserves, when the supply for federal
funds intersects the reserve demand curve on the downward sloping section, decreasing
the interest rate paid on excess reserves
A) increases the federal funds rate.
B) lowers the federal funds rate.
C) has no effect on the federal funds rate.
D) has an indeterminate effect on the federal funds rate.
Financial intermediaries provide customers with liquidity services. Liquidity services
A) make it easier for customers to conduct transactions.
B) allow customers to have a cup of coffee while waiting in the lobby.
C) are a result of the asymmetric information problem.
D) are another term for asset transformation.
Banks earn profits from off-balance sheet loan sales
A) by foreclosing on delinquent accounts.
B) by selling the loans at discounted prices.
C) by selling existing loans for more than the original loan amount.
D) by calling-in loans before the maturity date.
The central bank which is generally regarded as the most independent in the world
because its charter cannot be changed by legislation is the
A) Bank of England.
B) Bank of Canada.
C) European Central Bank.
D) Bank of Japan.
If the relationship between the monetary aggregate and the goal variable is weak, then
A) monetary aggregate targeting is superior to exchange-rate targeting.
B) monetary aggregate targeting is superior to inflation targeting.
C) inflation targeting is superior to exchange-rate targeting.
D) monetary aggregate targeting will not work.
In the generalized dividend model, the current stock price is the sum of
A) the actual value of the future dividend stream.
B) the present value of the future dividend stream.
C) the present value of the future dividend stream plus the actual future sales price.
D) the present value of the future sales price.
The recognition lag is
A) the time it takes for policy makers to obtain data indicating what is happening in the
economy.
B) the time it takes for policy makers to be sure of what the data are signaling about the
future course of the economy.
C) the time it takes to pass legislation to implement a particular policy.
D) the time it takes for policy makers to change policy instruments once they have
decided on the new policy.
E) the time it takes for the policy actually to have an impact on the economy.
Agency problems in the subprime mortgage market included all of the following
EXCEPT
A) homeowners could refinance their houses with larger loans when their homes
appreciated in value.
B) mortgage originators had little incentives to make sure that the mortgagee is a good
credit risk.
C) underwriters of mortgage-backed securities had weak incentives to make sure that
the holders of the securities would be paid back.
D) the evaluators of securities, the credit rating agencies, were subject to conflicts of
interest.
Everything else held constant, when a country’s currency depreciates, its goods abroad
become ________ expensive while foreign goods in that country become ________
expensive.
A) more; less
B) more; more
C) less; less
D) less; more
Everything else held constant, the vertical section of the supply curve of reserves is
shortened when the
A) discount rate increases.
B) discount rate decreases.
C) federal funds rate rises.
D) federal funds rate falls.
Regular bank examinations and restrictions on asset holdings help to indirectly reduce
the ________ problem because, given fewer opportunities to take on risk, risk-prone
entrepreneurs will be discouraged from entering the banking industry.
A) moral hazard
B) adverse selection
C) ex post shirking
D) post-contractual opportunism
Decisions by depositors to increase their holdings of ________, or of banks to hold
________ will result in a smaller expansion of deposits than the simple model predicts.
A) deposits; required reserves
B) deposits; excess reserves
C) currency; required reserves
D) currency; excess reserves
A type of ________ problem that occurs when a person or institution has multiple
objectives that conflict with each other is called ________.
A) moral hazard; conflicts of interest
B) adverse selection; conflicts of interest
C) moral hazard; spinning
D) adverse selection; spinning
Everything else held constant, an increase in autonomous consumer spending will cause
the IS curve to shift to the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
The government institution that has responsibility for the amount of money and credit
supplied in the economy as a whole is the
A) central bank.
B) commercial bank.
C) bank of settlement.
D) monetary fund.
Lower tariffs and quotas cause a country’s currency to ________ in the ________ run,
everything else held constant.
A) depreciate; short
B) appreciate; short
C) depreciate; long
D) appreciate; long
The policy tool of changing reserve requirements is
A) the most widely used.
B) the preferred tool from the bank’s perspective.
C) no longer used.
D) still used, even with its disadvantages.
________ money could be used for some other purpose other than as a medium of
exchange, for example, gold coins could be melted down and turned into gold jewelry.
A) Commodity
B) Fiat
C) Paper
D) Electronic
Holding everything else constant
A) if asset A’s risk rises relative to that of alternative assets, the demand will increase
for asset A.
B) the more liquid is asset A, relative to alternative assets, the greater will be the
demand for asset A.
C) the lower the expected return to asset A relative to alternative assets, the greater will
be the demand for asset A.
D) if wealth increases, demand for asset A increases and demand for alternative assets
decreases.
Suppose the economy is producing at the natural rate of output. An open market
purchase of bonds by the Fed will cause ________ in real GDP in the long run and
________ in inflation in the long run, everything else held constant.
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
Which of the following policy measures required the SEC to prevent issuers of
asset-backed securities from choosing the credit-rating agencies that will give them the
highest rating and supported earlier initiatives by the SEC?
A) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
B) Sarbanes-Oxley Act of 2002
C) Global Legal Settlement of 2002
D) Gramm-Leach-Bliley Act of 1999
E) Riegle-Neal Act of 1994
If reserves in the banking system increase by $100, then checkable deposits will
increase by $100 in the simple model of deposit creation when the required reserve
ratio is
A) 0.01.
B) 0.10.
C) 0.20.
D) 1.00.
Which of the following can be described as involving direct finance?
A) A corporation issues new shares of stock.
B) People buy shares in a mutual fund.
C) A pension fund manager buys a short-term corporate security in the secondary
market.
D) An insurance company buys shares of common stock in the over-the-counter
markets.
A decrease in the foreign interest rate causes the demand for domestic assets to shift to
the ________ and the domestic currency to ________, everything else held constant.
A) right; appreciate
B) right; depreciate
C) left; appreciate
D) left; depreciate
In the market for reserves, a lower discount rate
A) decreases the supply of reserves.
B) increases the supply of reserves.
C) lengthens the vertical section of the supply curve of reserves.
D) shortens the vertical section of the supply curve of reserves.
A stock’s price will fall if there is
A) a decrease in perceived risk.
B) an increase in the required rate of return.
C) an increase in the future sales price.
D) current dividends are high.
A decrease in autonomous consumer expenditure causes the equilibrium level of
aggregate output to ________ at any given interest rate and shifts the ________ curve
to the ________, everything else held constant.
A) rise; LM; right
B) rise; IS; right
C) fall; IS; left
D) fall; LM; left
Typically, borrowers have superior information relative to lenders about the potential
returns and risks associated with an investment project. The difference in information is
called
A) moral selection.
B) risk sharing.
C) asymmetric information.
D) adverse hazard.
During World War II, whenever interest rates would ________ and the price of bonds
would begin to ________, the Fed would make open market purchases.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall