A decline in real output causes the demand for real balances
(a) to rise and the interest rate to fall.
(b) to fall and the interest rate to rise.
(c) and the interest rate to fall.
(d) and the interest rate to rise.
Answer:
The Humphrey-Hawkins Act
(a) requires the Fed to keep the inflation rate below 4%.
(b) requires the Fed to explain how its monetary growth targets are consistent with the
President’s economic objectives.
(c) gives the Board of Governors a majority on the FOMC.
(d) allows the Fed to set the required reserve ratio.
Answer:
When output exceeds its full-employment level,
(a) the short-run aggregate supply function shifts up.
(b) wages fall.
(c) the short-run aggregate supply function shifts down.
(d) aggregate supply exceeds aggregate demand.
Answer:
Securitization refers to
(a) changing the mix in a financial portfolio away from stocks and toward bonds.
(b) selling directly to investors loans or securities that were formerly held by financial
intermediaries.
(c) banks insisting that collateral be supplied on previously unsecured loans.
(d) reducing the exposure of a bank’s portfolio to interest rate risk.
Answer:
During the recession of the early 1980s the prices of U.S. Treasury securities
(a) rose relative to the prices of corporate bonds.
(b) fell relative to the prices of corporate bonds.
(c) remained in the same relative position to the prices of corporate bonds.
(d) were frozen by order of the federal government.
Answer:
An ATS account
(a) converts a corporation’s checking account balance at the end of the day into an
overnight RP.
(b) is the name given to NOW accounts outside of New England.
(c) are negotiable certificates of deposit of less than $100,000.
(d) were used during the Great Depression by depositors who had lost faith in
conventional checking accounts.
Answer:
The crisis involving the Hunt brothers had its greatest impact on the market for
(a) commercial paper.
(b) commodity futures.
(c) negotiable certificates of deposit.
(d) Eurodollars.
Answer:
Under a rules strategy for monetary policy, the Fed would
(a) follow specific and publicly announced guidelines for policy.
(b) adjust monetary policy as it sees fit.
(c) target the growth rate of M1 but not the growth rate of M2.
(d) target the growth rate of M2 but not the growth rate of M1.
Answer:
The aggregate supply curve represents levels of output that producers are willing to sell
at
(a) each level of the real interest rate.
(b) each level of real GDP.
(c) each price level.
(d) each inflation rate.
Answer:
At an interest rate of 6%, what is the present value of $10,000 to be received five years
from now?
(a) $5000
(b) $7473
(c) $10,000
(d) $13,382
Answer:
What is the name of the entity, composed of Federal Reserve district bankers, that
consults on monetary policy?
(a) The Federal Open Market Committee
(b) The Federal Advisory Council
(c) The Monetary Policy Council
(d) The District Bank Committee
Answer:
The members of Federal Reserve district bank boards of directors who represent the
public interest are known as Class
(a) A directors.
(b) B directors.
(c) C directors.
(d) D directors.
Answer:
Rank the following assets from least liquid to most liquid: U.S. Treasury bonds;
Municipal bonds issued by Tinytown, Montana; General Motors corporate bonds.
(a) General Motors, Tinytown, U.S. Treasury
(b) Tinytown, General Motors, U.S. Treasury
(c) Tinytown, U.S. Treasury, General Motors
(d) General Motors, U.S. Treasury, Tinytown
Answer:
A key dificulty that banks encounter in lending to foreign governments is that
(a) governments insist on paying below-market interest rates.
(b) governments raise most of their money in financial markets and are rarely interested
in taking out bank loans.
(c) governments prefer to borrow from domestic banks.
(d) the credit risk involved is higher than with private lending.
Answer:
When households and businesses substitute Treasury bills, commercial paper, and
repurchase agreements for short-term bank deposits in their portfolios, they are
(a) sacrificing liquidity for return.
(b) sacrificing return for liquidity.
(c) increasing both their liquidity and return.
(d) decreasing both their liquidity and return.
Answer:
Under the expectations theory if market participants expect that future short-term rates
will be higher than current short-term rates, the yield curve will
(a) slope upward.
(b) slope downward.
(c) be flat.
(d) slope upward, downward, or be flat depending on risk, liquidity, cost of information,
and tax considerations.
Answer:
The yield on commercial paper minus the yield on U.S. Treasury bills
(a) rises when financial markets believe that a recession is imminent.
(b) falls when financial markets believe that a recession is imminent.
(c) is an unreliable indicator of future economic activity.
(d) is strongly affected by marginal federal income tax rates.
Answer:
The Fed’s monetary policy tools
(a) have proven to be of little value in helping the Fed to achieve its monetary policy
goals.
(b) have allowed the Fed to achieve its monetary policy goals directly.
(c) have allowed the Fed to achieve its monetary policy goals indirectly.
(d) are no longer as effective in achieving its monetary policy goals, due to restrictive
legislation passed by Congress in the 1990s.
Answer:
If the Fed is targeting interest rates, during an economic downturn it will
(a) use open market purchases to lower interest rates.
(b) use open market sales to raise interest rates.
(c) avoid open market operations so as not to interfere with the adjustment of interest
rates.
(d) impose limitations on the interest rates banks may charge on credit cards.
Answer:
A debt instrument represents
(a) an ownership claim by the purchaser on the issuer.
(b) a promise by a borrower to repay principal plus interest to a lender.
(c) an attempt by a borrower in default to restore his or her credit.
(d) a nontaxable asset, owned primarily by large corporations.
Answer:
The most commonly used claim in financial markets is
(a) debt, which is a claim to share in the profits and assets of a firm.
(b) debt, which requires the borrower to repay the principal of the loan plus interest.
(c) equity, which is a claim to share in the profits and assets of a firm.
(d) equity, which requires the borrower to repay the principal of the loan plus interest.
Answer:
Evidence from the U.S. economy following the stock market crash of 1987 indicates
that
(a) eliminating program trading has greatly decreased the volatility of the market.
(b) the crash had little impact on consumption or investment spending.
(c) specialists should no longer be allowed to control stock trading on the New York
Stock Exchange.
(d) futures trading significantly destabilizes the economy.
Answer:
If U.S. consumers greatly increase their demand for Canadian moose burgers, then,
holding everything else constant,
(a) the U.S. dollar will appreciate relative to the Canadian dollar.
(b) the U.S. dollar will depreciate relative to the Canadian dollar.
(c) the real exchange rate between the Canadian dollar and the U.S. dollar will be
affected, but the nominal exchange rate will be unaffected.
(d) the nominal exchange rate between the Canadian dollar and the U.S. dollar will be
affected, but the real exchange rate will be unaffected.
Answer:
The futures hedge
(a) eliminates all risk from price movements.
(b) is most valuable for protecting against anticipated price changes.
(c) is most valuable for protecting against unanticipated price changes.
(d) is most valuable for protecting against price increases.
Answer:
If market participants believe that the wheat crop is likely to be unusually small,
(a) the spot price of wheat is likely to be above the futures price of wheat.
(b) the spot price of wheat is likely to be below the futures price of wheat.
(c) it will not be possible to find a seller of a futures contract in wheat.
(d) it will not be possible to find a buyer of a futures contract in wheat.
Answer:
By 2000, total lending in the commercial paper market accounted for about what
fraction of short-term business financing?
(a) 1%
(b) 15%
(c) 50%
(d) 90%
Answer:
Which of the following represented the largest liability on the balance sheet of U.S.
commercial banks in 2003?
(a) Checkable deposits
(b) Loans
(c) Nontransaction deposits
(d) Borrowings
Answer:
The main reason that savers must assess the impact of inflation on returns is
(a) an increase in inflation will lower the nominal return on an asset.
(b) changes in the value of money will affect the real value of returns.
(c) inflation has a larger impact on the returns on luxury assets than on the returns on
necessity assets.
(d) real after-tax returns generally rise during periods of inflation.
Answer:
When market participants have rational expectations, the deviation of the expected
price from the actual future price is
(a) zero.
(b) predictable, provided all relevant information is made use of.
(c) not predictable.
(d) predictable under certain circumstances, but not under others.
Answer:
If the demand for nonmoney assets exceeds the supply of nonmoney assets, the demand
for money
(a) must exceed the supply of money.
(b) must equal the supply of money.
(c) must be less than the supply of money.
(d) may be greater than, less than, or equal to the supply of money, depending on
prevailing interest rates.
Answer:
In a defined contribution pension plan
(a) pension income varies depending on how well the plan’s investments have done.
(b) the employee is promised an assigned benefit based on earnings and years of
service.
(c) if the funds in the pension plan exceed the amount promised, the excess accrues to
the issuing firm or institution.
(d) all earnings are taxable as regular income.
Answer:
If the forward exchange rate of the yen in terms of dollars is greater than the spot
exchange rate,
(a) Japanese interest rates must be higher than U.S. interest rates.
(b) U.S. interest rates must be higher than Japanese interest rates.
(c) market participants must be expecting the dollar to appreciate against the yen.
(d) market participants must be expecting the dollar to depreciate against the yen.
Answer:
The yield to maturity on a one-year discount bond equals
(a) (F D)/D.
(b) (D F)/D.
(c) (F D)/F.
(d) (D F)/F.
Answer: