In the Keynesian model, a decline in interest rates will cause investment to
A) increase.
B) decline.
C) remain unchanged.
D) move erratically, depending on the interest rate effect on saving.
In a liquidity trap, expansionary monetary policy has __________ effect on output, and
expansionary fiscal policy has __________ effect on output.
A) no; no
B) no; a strong
C) a strong; no
D) a strong; strong
A bank can safely lend an amount equal to its
A) excess reserves.
B) required reserves.
C) vault cash.
D) total reserves.
An asset that derives its value from some other underlying asset is a
A) stock.
B) bond.
C) derivative.
D) CD.
With a deficit in our balance of payments, there is an excess __________ dollars in the
foreign exchange market, causing the dollar to __________.
A) demand for; appreciate
B) demand for; depreciate
C) supply of; appreciate
D) supply of; depreciate
A nation running a persistent balance of payments deficit while part of a fixed exchange
rate system would have to __________ international reserves in an effort to prevent its
currency from __________.
A) amass; appreciating
B) amass; depreciating
C) pay out; appreciating
D) pay out; depreciating
In the 1960s, banks started issuing negotiable CDs in order to
A) offer higher interest rates than they were allowed to on deposits.
B) lower information costs.
C) appeal more to the small borrower.
D) lend in the direct finance market.
Which of the following statements is inconsistent with Say’s Law?
A) The economy has flexible wages and prices.
B) The economy will produces at the full employment level of output.
C) The economy has an environment of “laissez faire.”
D) The economy’s level of saving depends solely on the level of income.
The most prominent secondary financial market is
A) the New York Stock Exchange.
B) the American Stock Exchange.
C) the Nasdaq.
D) the over-the-counter market.
The largest type of depository institution in the United States is
A) savings-and-loans.
B) commercial banks.
C) credit unions.
D) mutual funds.
A rightward shift in the supply of loanable funds curve could be caused by
A) an easing of monetary policy.
B) a tightening of monetary policy.
C) increased government borrowing.
D) decreased government borrowing.
In the stock valuation formula “good news” affects both the numerator and
denominator. Conventional wisdom on Wall Street is that the effect on the __________
is __________ the effect on the __________.
A) numerator; less than; denominator
B) numerator; greater than; denominator
C) numerator; the same as; denominator
D) None of the above.
Compared with a U.S. Treasury note, a corporate bond is likely to have a
A) wider bid-asked spread.
B) narrower bid-asked spread.
C) higher bid price.
D) higher asked price.
A municipal bond issued by the state of Colorado to construct a new toll highway is a
__________ bond.
A) revenue
B) collateralized
C) general obligation
D) Treasury
At any point above the current LM curve, there is an
A) excess demand for money.
B) excess supply of money.
C) excess demand for goods.
D) excess supply of goods.
Which of the following features is not associated with a commercial bank loan?
A) Convertibility
B) Covenants
C) Collateral requirements
D) Guarantees
If an investor holds two risky assets with a perfect negative correlation, then risk
A) falls to zero.
B) is increased.
C) is unaffected.
D) is reduced by 50 percent.
The LM curve becomes steeper if there is __________ in the interest-sensitivity of
__________ demand.
A) an increase; money
B) an increase; investment
C) a decrease; money
D) a decrease; investment
Monetarists argue that stability in the economy is maintained by fluctuations in
A) velocity.
B) money demand.
C) money supply.
D) the price level.
Which of these does not qualify as a “miscellaneous liability” of a bank?
A) borrowings from the Federal Reserve
B) repurchase agreements
C) borrowing from foreign branches
D) large-sized negotiable CDs
Assume that consumption spending is equal to $600, government spending is $100
billion, and GDP is $800 billion. If net exports are equal to zero, investment spending
must be
A) $700 billion.
B) $600 billion.
C) $500 billion.
D) $100 billion.
“Subordinated” debt is one form of __________ debt.
A) mezzanine
B) uncollateralized
C) zero-coupon
D) risk-free
Assume an economy with a single bank, no excess reserves, no savings accounts, and
no currency held by the public. With a required reserve ratio of .4, the demand deposit
expansion multiplier is
A) 20.
B) 10.
C) 4.
D) 2.5.