Which of the following is a correct statement about interpreting an increase in bond
prices?
(a) An increase in bond prices results an increase in the expected inflation rate.
(b) An increase in bond prices results from an increase in default risk.
(c) An increase in bond prices results from an increase in liquidity.
(d) An increase in bond prices results from a lower overall level of interest rates.
Answer:
What is the approximate daily volume of foreign-exchange trading?
(a) $1 billion
(b) $10 billion
(c) $1 trillion
(d) $100 trillion
Answer:
What fraction of bank assets were in loans in 2003?
(a) 2%
(b) 25%
(c) 66%
(d) 95%
Answer:
The interest rate is a measure of
(a) the opportunity cost of holding real money balances.
(b) the inflation rate.
(c) the opportunity cost of holding bonds.
(d) the growth rate of output in the long run.
Answer:
Which of the following statements is correct according to both new classical and new
Keynesian economists?
(a) An unexpected increase in the money supply will increase only prices in the short
run, whereas an unexpected increase in government spending will increase both prices
and output.
(b) An unexpected increase in government spending will increase both prices and
output in the short run.
(c) An unexpected increase in government spending will increase only output in the
short run.
(d) Unexpected increases in the money supply or in government spending will increase
only prices in the short run.
Answer:
In a large open economy the real interest rate does not have to fall by as much in order
to restore equilibrium in the goods market in response to an increase in domestic output
because
(a) the IS curve is steeper.
(b) some of the increase in desired domestic saving flows abroad.
(c) the increase in desired domestic saving is smaller.
(d) foreigners will decrease their demand for domestically produced goods.
Answer:
The threat that savers may withdraw their deposits
(a) is not credible in the current banking situation.
(b) helps to reduce the moral hazard problem in banking.
(c) reduces interest rates banks charge on loans.
(d) increases the volume of cash items in the process of collection.
Answer:
The most common auction markets are
(a) exchanges.
(b) over-the-counter markets.
(c) located in banks or other financial intermediaries.
(d) engaged in indirect finance.
Answer:
Which of the following statements is correct concerning the views of new Keynesians
and new classicals concerning the short-run effects of an unexpected increase in
aggregate demand?
(a) New classical economists believe that unexpected increases in aggregate demand
affect only prices.
(b) New Keynesian economists believe that unexpected increases in aggregate demand
affect only output.
(c) Both new Keynesian and new classical economists believe that unexpected increases
in aggregate demand affect only output.
(d) Both new Keynesian and new classical economists believe that unexpected
increases in aggregate demand affect both output and prices.
Answer:
A hyperinflation is particularly costly to an economy because
(a) the real tax burden imposed on the public increases dramatically.
(b) there is a large redistribution of wealth from borrowers to lenders.
(c) prices no longer indicate value or direct resource allocation.
(d) the demand for real money balances increases significantly.
Answer:
In November 2000, how much larger in total value was M3 than M1?
(a) More than six times as large
(b) More than twenty times as large
(c) More than one hundred times as large
(d) More than one thousand times as large
Answer:
One of the important hindrances to savers placing their funds in foreign financial assets
is
(a) the costliness of gathering information about foreign financial assets.
(b) the higher tax rates levied by the U.S. government on earnings from such assets.
(c) the reluctance of many European countries to allow foreign investment in their
financial assets.
(d) the skill in reading company reports written in a foreign language.
Answer:
In the bank lending channel, an expansionary monetary policy will in the short run
(a) increase the real interest rate.
(b) decrease the real interest rate.
(c) leave the real interest rate unaffected.
(d) have an ambiguous effect on the real interest rate.
Answer:
International financial transactions are most likely to affect the U.S. money supply
when
(a) the United States is in recession.
(b) the United States is experiencing a severe inflation.
(c) the Fed tries to influence the foreign-exchange value of the dollar.
(d) interest rates in the United States are highly variable.
Answer:
Which central bank gained the power to set interest rates independent of the
government in the late 1990s?
(a) Bank of England
(b) Bank of Canada
(c) Bank of China
(d) Federal Reserve Board
Answer:
The LIBOR is the
(a) accounting convention used in Europe to assess the market value of a loan.
(b) European commission that regulates the Eurocurrency market.
(c) ceiling on interest rates that may be charged on Eurodollar loans.
(d) interest rate charged on Eurodollar loans made between banks.
Answer:
Which of the following is a checkable deposit?
(a) A NOW account
(b) A money market deposit account
(c) A certificate of deposit
(d) A savings account
Answer:
Government budget deficits can be inflationary in the long run only if they
(a) occur as a result of large cuts in the personal income tax rate.
(b) occur as a result of large increases in defense spending.
(c) cause a leftward shift in the SRAS curve.
(d) are accompanied by rapid growth in the monetary base.
Answer:
The main reason banks are prohibited from investing deposits in common stocks is that
(a) the federal government does not want banks to provide competition for
stockbrokers.
(b) worrying about fluctuations in stock prices might distract bank managers from their
other activities.
(c) the existence of deposit insurance gives bank managers an incentive to make risky
investments.
(d) common stocks are not very liquid investments.
Answer:
In which of the following years did the Fed move quickly when signs of a credit crunch
appeared?
(a) Only 1991
(b) Only 1991 and 1998
(c) Only 1998 and 2001
(d) 1991, 1998, and 2001
Answer:
Which of the following is NOT a key service provided by the financial system?
(a) Risk sharing
(b) Tax avoidance
(c) Liquidity
(d) Information
Answer:
Forward transactions originated in the market for
(a) common stock.
(b) corporate bonds.
(c) government bonds.
(d) agricultural and other commodities.
Answer:
Which of the following is true?
(a) The demand for real balances increases more than proportionately with real income.
(b) The demand for real balances increases less than proportionately with real income.
(c) The demand for real balances decreases as real income increases.
(d) The demand for real balances is unaffected by changes in real income.
Answer:
Checks are
(a) not acceptable for settling transactions in most industrialized countries.
(b) less important than currency as a means of settling transactions.
(c) promises to pay definitive money on demand.
(d) promises to pay coins minted from precious metals on demand.
Answer:
If banks become less willing to make loans, the aggregate demand curve
(a) will shift to the left, and the money demand curve will shift to the right.
(b) and the money demand curve will both shift to the left.
(c) will shift to the right, and the money demand curve will shift to the left.
(d) and the money demand curve will both shift to the right.
Answer:
If Federal Reserve float increases by $2 billion, the monetary base will increase by
(a) $2 billion.
(b) $2 billion times the money multiplier.
(c) from zero to $2 billion, depending on the fraction of the increase in float that banks
hold as excess reserves.
(d) zero; fluctuations in float have no effect on the base.
Answer:
The largest category of U.S. government lending activities is government lending to
(a) individual home buyers.
(b) students.
(c) large corporations.
(d) farmers.
Answer:
The Garn-St. Germain Act aided savings institutions by
(a) imposing new regulatory burdens on banks.
(b) eliminating all reserve requirements on deposits in savings institutions.
(c) broadening their ability to invest in areas other than mortgages.
(d) eliminating Regulation Q ceilings on deposits in them.
Answer:
The fact that in addition to being a medium of exchange, money serves as a store of
value means that
(a) movements in the interest rate should not affect the demand for money.
(b) movements in the price level should not affect the demand for money.
(c) money competes with other assets in the portfolios of businesses and households.
(d) the demand for real balances should increase more than proportionately with
increases in real income.
Answer:
Which of the following is NOT a financial intermediary?
(a) The New York Stock Exchange
(b) The Prudential Insurance Company
(c) The Chase Manhattan Bank
(d) Fidelity Magellan Mutual Fund
Answer:
Which of the following is an example of a tax-exempt bond?
(a) A bond issued by Acme Widget
(b) A bond issued by the U.S. Treasury
(c) A bond issued by the state of Pennsylvania
(d) No bonds issued in the United States are exempt from taxation.
Answer: