The reason why people are putting more funds in checking and savings account rather
than in time deposits is that
a. checking and savings account accept fiat money, while time deposits do not.
b. long-term interest rates have declined in recent years, relative to short term interest
rates.
c. liquidity of money held in checking and savings accounts is less than that of money
held in time deposits.
d. only a few banks accept time deposits, while most banks accept checking and savings
accounts.
Answer:
In a structural VAR, a restriction that describes the impact of the current-period value of
one variable on the value of another variable in the distant future is known as a______
restriction.
a. contemporaneous
b. long-run
c. short-run
d. structural
Answer:
During the time that the Glass-Steagall Act was in effect, which banking authority
wanted to allow banks to be able to engage in more nonbanking activities through
operating subsidiaries?
a. The Federal Reserve
b. The Office of Comptroller of the Currency
c. The U.S. Treasury Department
d. The Federal Deposit Insurance Corporation
Answer:
The liquidity-preference model assumes that the amount people spend depends on
a. their real incomes and the incomes of other people around them.
b. the cost of withdrawing money from an ATM.
c. the probability of theft and loss of money.
d. their real incomes and prices of goods and services.
Answer:
A Federal Reserve policymaker voting to keep the federal funds rate unchanged is most
likely voting for option
a. A.
b. B.
c. C.
d. D.
Answer:
The U.S. government borrows by auctioning its bonds in the______
a. primary market.
b. stock market.
c. secondary market.
d. derivative market.
Answer:
Which of the following statements is true of banks?
a. Small banks do not face the same competitive pressure as large banks do.
b. Location of banks does not determine the level of competition among them.
c. Bank spreads are large for large banks.
d. Returns on equity are large for small banks.
Answer:
An equation that summarizes the total cost to the economy when output differs from
potential and inflation rate differs from the ideal inflation rate is referred to as the
a. cost of disinflation.
b. Fed’s objective function.
c. Sharpe ratio.
d. Phillips curve.
Answer:
If the excess reserves held by banks increase, the money multiplier is likely to
a. rise.
b. fall.
c. remain unchanged.
d. rise at first, then decline later.
Answer:
The equity-premium puzzle refers to the surprising result that
a. stock prices are inversely related to interest rates.
b. the transactions costs for buying stocks may be as high as 5 percent of the total value
of those stocks, greatly reducing the net returns to stocks.
c. equity prices are much too high when compared with the fundamental value of the
stock market, as determined by using the present-value formula.
d. people will not pay to avoid risk in everyday situations, but when it comes to the
stock market, people are willing to give up large potential returns to stocks in order to
buy safer Treasury securities.
Answer:
Suppose the economy is thought to be 1 percent below its potential output (i.e., the
output gap is −1 percent). The potential output is growing at 4% a year. Suppose the
Fed is following the Taylor rule, with an inflation rate of 4 percent over the past year.
The equilibrium real fed funds rate is 3 percent, the weight on the output gap is 0.75
and the weigh on the inflation gap is 0.25. The inflation target is 1 percent. What should
the federal funds rate be?
a. 7 percent
b. 8 percent
c. 9 percent
d. 10 percent
Answer:
In the CAPM,
a. larger the value of β for a stock, larger is the unsystematic risk involved in investing
in the stock.
b. larger the value of β for a stock, smaller is the unsystematic risk involved in investing
in the stock.
c. larger the value of β for a stock, larger is the systematic risk involved in investing in
the stock.
d. larger the value of β for a stock, smaller is the systematic risk involved in investing in
the stock.
Answer:
The lag that arises because policymakers may not immediately get up-to-date statistics
on economic variables is known as the____ lag.
a. implementation
b. recognition
c. data
d. decision
Answer:
When people or firms that are worse than average risks are most likely to enter a
contract that is offered to everyone, the problem is called
a. irrational expectations.
b. adverse selection.
c. opportunity cost.
d. moral hazard.
Answer:
The situation when the issuer of a security fails to make the payment promised is
referred to as
a. default.
b. deviation.
c. failure.
d. defect.
Answer:
In the ATM model, the demand for money depends on
a. the nominal interest rate and the money supply.
b. the nominal interest rate and the ongoing rate of inflation.
c. the nominal interest rate, the cost of obtaining cash, the probability of loss or theft,
and the money supply.
d. the nominal interest rate, the cost of obtaining cash, the probability of loss or theft,
and the amount of
spending.
Answer:
The Fed undertakes defensive open-market operations
a. when it wants to change fiscal policy.
b. because of seasonal effects or to offset a temporary change in money demand.
c. to offset a permanent change in money demand.
d. when it wants to change monetary policy.
Answer:
Under which of the following situations can fiscal policy affect people’s expectations?
a. If the interest rate on borrowing is higher than the interest rate on lending
b. If the interest rate on lending is more than the interest rate on borrowing
c. If the interest rate on borrowing and lending are the same
d. If the interest rate on lending changes more than a change in the interest rate on
borrowing
Answer:
Investment in foreign countries that occurs by purchasing financial securities is referred
to as
a. directed capital.
b. direct investment.
c. capital investiture.
d. portfolio investment.
Answer:
Mary used her savings to buy some stocks of a company in the secondary market while
Jane sold some stocks she owned through a stock broker. George invested his savings in
a bank while Tom bought treasury bills of the U.S. government. Who among the
following is using direct finance?
a. Mary
b. Jane
c. George
d. Tom
Answer:
Which of the following statements correctly differentiates between commodity money
and fiat money?
a. Commodity money is created by the government while fiat money is created in the
private sector.
b. Fiat money is created by the government while commodity money is created by the
government.
c. Commodity money can be used for transactions in the international market, while fiat
money cannot be used for transactions in the international market.
d. Fiat money has value decreed by the government, while commodity money is valued
because of the material it is made of.
Answer:
A contract that makes the owner of a security a part owner of the company that issued
the security is known as
a. a debt security.
b. an equity security.
c. a bond.
d. an option.
Answer:
One year ago, you bought a bond for $40,000. Today, you received the $40,000
principal back plus an interest of $2,000. If the inflation rate over the last year was 3
percent, calculate your real return (Round off your answer to the nearest percentage
point).
a. 2 percent
b. 3 percent
c. 4 percent
d. 5 percent
Answer:
An example of inside money is
a. Fedwire.
b. silver.
c. a traveler’s check.
d. $100 bills.
Answer:
Credit risk means the same thing as
a. withdrawal risk.
b. default risk.
c. interest-rate risk.
d. foreign-exchange risk.
Answer:
Research by Laurence Ball showed that
a. the coefficients of money demand were smaller by half than what previous
researchers had found.
b. nominal interest rates fell with an increase in money demand.
c. earlier researchers had estimated the money-demand function very precisely and their
results held up when additional data was available.
d. increase in money supply can accelerate inflation.
Answer:
In the United States, the biggest issuers of securities are
a. households.
b. business firms.
c. governments.
d. financial intermediaries.
Answer:
Which of the following is likely to happen according to monetarists if money supply in
an economy decreases suddenly?
a. Output and employment falls
b. The interest rate falls
c. Investment rises
d. Consumption rises
Answer:
Which of the following happens when the expected inflation rate rises?
a. Both the demand and supply curve for bonds shift upward.
b. The demand curve for bonds shift to the left.
c. The supply curve for bonds shift to the right.
d. The expected real interest rate rises.
Answer:
An investor buys a stock for $10,000 and earns dividends of $250 during the course of
the year. At the end of the year, the stock is worth $9,300. The dividend yield for the
year is
a. −2.5 percent.
b. 5 percent.
c. 5 percent.
d. −7.0 percent.
Answer:
Fedwire is called a(n) payment system.
a. real-time
b. real-good
c. inside
d. fiat
Answer:
Which of the following happens after an economy reaches a peak?
a. Output begins to decline.
b. The growth rate of population begins to rise.
c. Income begins to rise.
d. Unemployment begins to fall.
Answer:
An index of thirty major U.S. industrial companies is the
a. NASDAQ index.
b. NYSE index.
c. Dow Jones Industrial Average.
d. S&P
Answer: