In the basic closed-economy ISLM model, the IS curve can be described by an equation
where
A) output is a function of consumption.
B) money is a function of interest rates.
C) output is a function of money.
D) output is a function of interest rates.
Periods of price deflation, such as the Great Depression, are characterized by
A) low nominal rates but high real rates of interest.
B) low nominal and real interest rates.
C) real rates of interest lower than the nominal rate of interest.
D) high nominal and real rates of interest.
A long contract requires that the investor
A) sell securities in the future.
B) buy securities in the future.
C) hedge in the future.
D) close out his position in the future.
If a bank has $10 million of checkable deposits, a required reserve ratio of 10 percent,
and it holds $2 million in reserves, then it will not have enough reserves to support a
deposit outflow of
A) $1.2 million.
B) $1.1 million.
C) $1 million.
D) $900,000.
According to the segmented markets theory of the term structure
A) the interest rate on long-term bonds will equal an average of short-term interest rates
that people expect to occur over the life of the long-term bonds.
B) buyers of bonds do not prefer bonds of one maturity over another.
C) interest rates on bonds of different maturities do not move together over time.
D) buyers require an additional incentive to hold long-term bonds.
Banks
A) provide a channel for linking those who want to save with those who want to invest.
B) produce nothing of value and are therefore a drain on society’s resources.
C) are the only financial institutions allowed to give loans.
D) hold very little of the average American’s wealth.
Methods of financing government spending are described by an expression called the
government budget constraint, which states the following
A) DEFICIT = (G – T) = MB + BONDS.
B) DEFICIT = (G – T) = MB – BONDS.
C) DEFICIT = (G – T) = BONDS – MB.
D) DEFICIT = (G – T) = MB/ BONDS.
Everything else held constant, if total consumption increases from $600 to $800
because of an increase of disposable income of $400, then the mpc is equal to
A) 0.2.
B) 0.4.
C) 0.5.
D) 0.6.
If the British pound appreciates from $0.50 per pound to $0.75 per pound, the U.S.
dollar depreciates from ________ per dollar to ________ per dollar.
A) 2; 2.5
B) 2; 1.33
C) 2; 1.5
D) 2; 1.25
If, for a $1000 premium, you buy a $100,000 put option on bond futures with a strike
price of 110, and at the expiration date the price is 114, your ________ is ________.
A) profit; $1000
B) loss; $1000
C) profit; $3000
D) loss; $3000
Which of the following statements is an example of the Fed’s conditional commitment
policy?
A) “In these circumstances, the Committee believes that policy accommodation can be
maintained for a considerable period.”
B) “The Committee anticipates that weak economic conditions are likely to warrant
exceptionally low levels of the federal funds rate for some time.”
C) “Policy accommodation can be removed at a pace that is likely to be measured.”
D) “The exceptionally low range for the federal funds rate will be appropriate at least as
long as the
unemployment rate remains above 6-1/2 percent, and inflation between one and two
years ahead is projected to be no more than a half percentage point above the
Committee’s 2 percent longer-run goal.”
Suppose that the short-run aggregate supply curve is: €= 2 + 1.5 (Y-10), where € is
inflation and Y is output; and the aggregate demand curve is Y= 11 – 0.5€. The
equilibrium output is ________ and the equilibrium inflation rate is ________ %.
A) 10; 2
B) 17.5; 2
C) 2; 10
D) 10; 7.5
The collapse of the subprime mortgage market
A) did not affect the corporate bond market.
B) increased the perceived riskiness of Treasury securities.
C) reduced the Baa-Aaa spread.
D) increased the Baa-Aaa spread.
If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $1000 billion, and excess reserves total $1 billion, then the
excess reserves-checkable deposit ratio is
A) 0.01.
B) 0.10.
C) 0.001.
D) 0.05.
The amount paid for an option is the
A) strike price.
B) premium.
C) discount.
D) yield.
The payoffs for financial derivatives are linked to
A) securities that will be issued in the future.
B) the volatility of interest rates.
C) previously issued securities.
D) government regulations specifying allowable rates of return.
Hedge funds require large minimum investments ranging from ________ to ________
or more.
A) $100,000; $1 million
B) $1000; $10,000
C) $100; $1000
D) $$10,000; $25,000
In the basic closed-economy ISLM model, the money market can be described by the
A) money demand function.
B) money supply.
C) money market equilibrium condition.
D) all of the above.