The greatest appeal of U.S. Treasury securities is that
(a) they have high yields.
(b) they have no default risk.
(c) the U.S. Treasury will repurchase them at any time.
(d) their market prices fluctuate very little.
Answer:
Excessive volatility refers to
(a) the unwillingness of financial analysts to consistently recommend the same stocks.
(b) the greater volatility of futures prices compared to the volatility of prices of the
underlying assets.
(c) the tendency for stocks with high rates of returns also to have quite variable returns.
(d) the larger movements in market prices of stock than in their fundamental values.
Answer:
In the new Keynesian view, monetary policy has its main effect on output through the
impact of interest rate changes on aggregate demand. In the new Keynesian view, in
which of the following countries would an increase in interest rates have the greatest
effect on aggregate demand in the short run: (a) Slobovia, which has a large trade sector
and where businesses and firms rely heavily on short-term borrowing; or (b) Outlandia,
which has a small trade sector and where little use is made of short-term borrowing?
Answer:
As of September 1995
(a) states could permit interstate mergers within their own borders.
(b) interstate mergers were banned.
(c) bank holding companies were prohibited from acquiring banks in other states.
(d) interest rates on bank loans were standardized across states.
Answer:
Formerly in Eastern Europe and the Soviet Union, funds were transferred between
savers and borrowers primarily through the
(a) banking system.
(b) stock market.
(c) bond market.
(d) government.
Answer:
Required reserves are
(a) a tax on bank intermediation.
(b) zero on demand deposits.
(c) zero on NOW accounts.
(d) imposed on all deposits at commercial banks.
Answer:
Suppose that neither output nor the money supply has been growing. In the new
Keynesian view, if the Chairman of the Fed announces a 10% increase in the money
supply and then takes actions that cause the money supply to grow by 10%, the result
will be
(a) a 10% increase in the price level, and no change in output.
(b) a 10% increase in the price level, and an increase in output.
(c) a less than 10% increase in the price level, and an increase in output.
(d) a less than 10% increase in the price level, and no change in output.
Answer:
A load fund
(a) charges a commission for purchases or sales.
(b) is not obligated to redeem shares issued.
(c) earns income only from management fees.
(d) issues shares that may sell at a discount to the market value of the underlying assets.
Answer:
One important point on which new Keynesian and new classical economists are in
agreement is
(a) that only unexpected changes in policy can affect output.
(b) the importance of policy credibility for determining the response of output to policy.
(c) the irrelevance of policy as output changes are the result of technology shocks.
(d) the inability of the assumption of rational expectations to explain the reactions of
businesses and consumers to changes in policy.
Answer:
The development of brokered deposits increased the moral hazard problem of deposit
insurance by
(a) attracting risk-loving depositors.
(b) in effect allowing the extension of insurance coverage to deposits above the
$100,000 limit.
(c) scaring cautious small depositors away from thrifts.
(d) making depositors more conscious of the need to carefully monitor the behavior of
thrift managers.
Answer:
Which of the following is NOT a way that hedgers can benefit by participating in
financial futures markets?
(a) They can reduce their tax liabilities.
(b) They can reduce their exposure to price fluctuations.
(c) They can access liquid markets.
(d) They can reduce their information costs by using organized exchanges.
Answer:
Which of the following is an example of a commodity money?
(a) Gold coins
(b) Dollar bills
(c) British pound notes
(d) Japanese yen notes
Answer:
One advantage of using checks to settle transactions is
(a) they are more difficult to use fraudulently than currency or precious metals are.
(b) there is effectively no cost to using them.
(c) they are as liquid as cash.
(d) there is no information cost involved in accepting them.
Answer:
Underwriting involves
(a) insuring the life or health of individuals.
(b) guaranteeing a price for new capital to the issuing firm.
(c) selling stock more cheaply than conventional stockbrokers.
(d) issuing stock and using the proceeds to buy bonds.
Answer:
A swap is
(a) another name for a put option.
(b) another name for a call option.
(c) an agreement between two or more persons to exchange sets of cash flows over
some future period.
(d) the name for the replacement of a futures contract by an options contract.
Answer:
If the U.S. dollar were to cease to be the leading international reserve currency,
(a) U.S. households and businesses would be unaffected.
(b) U.S. households and businesses would be subject to increased exchange rate risk.
(c) interest rates in the U.S. would be lower.
(d) the U.S. monetary base would contract.
Answer:
When was the Free Banking Period?
(a) 17911836
(b) 18361863
(c) 18631914
(d) 19141990
Answer:
If shifts in the money demand relationship occur frequently, targeting the money supply
will lead to
(a) higher interest rates.
(b) lower interest rates.
(c) money supply fluctuations that will destabilize the economy.
(d) interest rate fluctuations that will destabilize the economy.
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:
A rising dollar makes U.S. goods
(a) more expensive abroad and increases the volume of U.S. exports.
(b) less expensive abroad and increases the volume of U.S. exports.
(c) less expensive abroad and decreases the volume of U.S. exports.
(d) more expensive abroad and decreases the volume of U.S. exports.
Answer:
The problem of a double coincidence of wants refers to
(a) the insatiability of wants in a free market economy.
(b) poorly-managed companies producing what consumers want only by coincidence.
(c) the necessity in a barter system of each trading partner wanting what the other has to
trade.
(d) the likelihood that needs will not be the same as wants.
Answer:
Reserve requirements are changed
(a) more frequently than the discount rate is changed but less frequently than open
market operations are conducted.
(b) more frequently than the discount rate is changed and more frequently than open
market operations are conducted.
(c) more frequently than open market operations are conducted but less frequently than
the discount rate is changed.
(d) less frequently than open market operations are conducted and less frequently than
the discount rate is changed.
Answer:
An investor who buys a fifty-year corporate bond
(a) must be expecting to still be alive in 50 years.
(b) is subject to substantial reinvestment risk.
(c) is probably expecting market interest rates to increase in the future.
(d) is probably expecting market interest rates to decrease in the future.
Answer:
If you deposit $5000 in a savings account at an annual interest rate of 10%, how much
will you have in the account at the end of seven years?
(a) $5500
(b) $850
(c) $9744
(d) $10,718
Answer:
The National Monetary Commission
(a) was created by Congress to study setting up a central bank.
(b) authorizes open market operations.
(c) oversees nationally chartered banks.
(d) chooses Federal Reserve district bank presidents.
Answer:
In a move down the IS curve,
(a) saving rises.
(b) output falls.
(c) the real interest rate rises.
(d) the federal budget deficit rises.
Answer:
For much of the postWorld War II period, Japanese firms have depended greatly on
bank loans because
(a) most Japanese firms are owned by banks.
(b) interest on bank loans in Japan is deductible on the corporate income tax, while
interest on corporate bonds is not.
(c) most investors found Japanese stock and bonds too risky.
(d) the Japanese government kept firms from issuing securities abroad or risky debt
instruments at home.
Answer:
Unlike the segmented markets theory, the expectations theory attributes the slope of the
yield curve to
(a) tax considerations.
(b) the fact that short-term bonds are not perfect substitutes for long-term bonds.
(c) market expectations.
(d) the variance in the inflation rates over the business cycle.
Answer:
The common currency in Europe is called the
(a) euro.
(b) pound.
(c) sovereign.
(d) dollar.
Answer:
What fraction of total U.S. bank assets is held by foreign banks?
(a) 1%
(b) 11%
(c) 53%
(d) 77%
Answer:
According to the Ricardian equivalence proposition,
(a) saving equals investment only at full employment.
(b) a decline in the demand for money results in an equivalent increase in the demand
for nonmoney assets.
(c) the increase in current income from a tax cut is offset by higher taxes in the future to
pay off the debt.
(d) government spending is the equivalent of investment spending.
Answer: