If the Treasury purchases a new computer system and pays the computer vendor with a
check for $100,000 drawn on the Treasury’s account with the Fed,
(a) the reserves of the banking system will fall by $100,000.
(b) the Fed’s assets will increase by $100,000.
(c) the Fed’s liabilities will increase by $100,000.
(d) the monetary base will increase by $100,000.
Answer:
The Fed’s current position towards the existing monetary aggregates is
(a) it is convinced that M1 is the best measure of the money supply.
(b) it is convinced that M3 is the best measure of the money supply.
(c) it is experimenting with new monetary aggregates.
(d) it is reverting to considering currency alone as the best measure of the money
supply.
Answer:
Some economists argue that persistently high unemployment rates in many European
countries in the early 1980s resulted from
(a) the movement to a common currency.
(b) the sharp decline in oil prices.
(c) low inflation rates.
(d) hysteresis.
Answer:
Milton Friedman first proposed his explanation of money demand in
(a) the 1800s.
(b) the early 1900s.
(c) 1956.
(d) 1995.
Answer:
The efficient markets hypothesis
(a) assumes that market participants form their expectations adaptively.
(b) applies rational expectations to the pricing of assets.
(c) applies to the stock market, but not to the bond market.
(d) indicates that the stock market is efficient, but not rational.
Answer:
Which of the following is a correct statement about interpreting an increase in the
upward slope of the term structure?
(a) An increase in the upward slope of the term structure results only from expectations
of lower future real interest rates.
(b) An increase in the upward slope of the term structure results only from expectations
of higher future real interest rates.
(c) An increase in the upward slope of the term structure results only from expectations
of higher inflation.
(d) An increase in the upward slope of the term structure may result either from
expectations of higher real interest rates or expectations of higher inflation.
Answer:
In the new Keynesian view a decline in consumer confidence that leads to a shift left in
the AD curve
(a) will cause output to fall in the short run, but not in the long run.
(b) will cause output to fall in both the short run and the long run.
(c) will not cause output to fall in either the short run or the long run.
(d) will cause output to fall only if prices are fully flexible.
Answer:
An insurance premium is a
(a) payment made by an insurance company to a policyholder after the occurrence of an
insurable event.
(b) payment made by an insurance company to a policyholder following a period in
which the policyholder has filed no claims against the company.
(c) fee paid by policyholders to insurance companies as payment for coverage.
(d) fee paid by policyholders to insurance companies in exchange for special
considerations, such as a particularly large policy.
Answer:
Defensive open market transactions
(a) are aimed at achieving changes in monetary policy.
(b) are used much less frequently than dynamic open market transactions.
(c) are used to offset disturbances to the monetary base.
(d) make it easy to deduce the Fed’s intentions for monetary policy.
Answer:
If recessions in the United States were to increase in frequency, length, and severity, the
likely result would be a (an)
(a) shift to the right in the supply curve for loanable funds.
(b) shift to the right in the demand curve for bonds.
(c) rise in the equilibrium interest rate.
(d) increase in the liquidity of corporate bonds.
Answer:
Term life insurance
(a) is offered only by mutual insurance companies.
(b) may be converted into an annuity when the policyholder reaches retirement age.
(c) pays off only at the death of the policyholder.
(d) receives favorable tax treatment from the U.S. government.
Answer:
The money market includes trade in
(a) only currency.
(b) only checkable deposits.
(c) only currency and checkable deposits.
(d) currency, checkable deposits, and other close substitutes for cash.
Answer:
Member banks
(a) exercise tight control over the Federal Reserve banks.
(b) are not owners of Federal Reserve banks.
(c) in practice receive dividend payments far in excess of the 6% rate specified by law.
(d) have none of the rights typically granted to shareholders of private corporations.
Answer:
Currently
(a) trading futures contracts on agricultural and mineral commodities makes up a
majority of all trading.
(b) trading in financial futures involves more transactions than trading in commodity
futures.
(c) futures trading is allowed only for financial assets.
(d) futures trading is allowed only for commodities.
Answer:
Investment banks
(a) lease machinery and equipment to business firms.
(b) acquire deposits from savers and lend them to borrowers.
(c) assist business firms in raising new capital in primary markets.
(d) aid the government to raise funds to cover the budget deficit.
Answer:
Which sector of the economy was hurt the worst by the Credit Crunch of 1966?
(a) The housing industry
(b) The automobile industry
(c) The vacation industry
(d) Local governments
Answer:
Between 1995 and 2000
(a) the growth in size of foreign banks meant that the United States no longer had any
banks among the 30 largest in the world.
(b) mergers resulted in two U.S. banks becoming among the ten largest in the world.
(c) mergers resulted in the ten largest banks in the world all being U.S. banks.
(d) mergers resulted in the 30 largest banks in the world all being U.S. banks.
Answer:
Why is credit risk in international commerce magnified?
(a) Because of exchange rate fluctuations
(b) Because of the volatility of global interest rates
(c) Because exporters often have limited information about importers
(d) Because of tariffs and quotas on international trade
Answer:
The president of which Federal Reserve bank is always a member of the Federal Open
Market Committee?
(a) Philadelphia
(b) Boston
(c) Chicago
(d) New York
Answer:
According to the new Keynesian approach output fell during the early 1990s because
(a) fiscal policy was sufficiently contractionary to offset an expansionary monetary
policy.
(b) the rightward shift of the AD curve was greater than the leftward shift of SRAS
curve.
(c) consumers and businesses came to expect higher inflation, thereby causing the
SRAS curve to shift to the left.
(d) the Fed decided to initiate a contractionary monetary policy to fight inflation.
Answer:
About what percentage of the goods and services purchased by U.S. consumers,
businesses, and governments in 2002 were produced by foreigners?
(a) 1%
(b) 14%
(c) 25%
(d) 50%
Answer:
In the U.S. balance-of-payments accounts, the statistical discrepancy
(a) equals the capital account balance minus the current account balance.
(b) equals the current account balance minus the capital account balance.
(c) probably reflects hidden capital flows.
(d) must equal zero.
Answer:
The concept of present value
(a) reveals that discount bonds have higher interest rates than coupon bonds.
(b) reveals that fixed payment loans have higher interest rates than discount bonds.
(c) is useful in comparing interest rates for different financial instruments.
(d) shows that it is unlikely that a simple loan will have a lower interest rate than a
discount bond.
Answer:
Insurance companies
(a) hold capital market instruments as assets and issue insurance promises as liabilities.
(b) issue insurance promises as assets and hold capital market instruments as liabilities.
(c) hold capital market instruments as assets and also issue insurance promises as
assets.
(d) hold capital market instruments as liabilities and also issue insurance promises as
liabilities.
Answer:
The Fed can implement open market operations
(a) more rapidly than changes in reserve requirements, but less rapidly than changes in
the discount rate.
(b) more rapidly than changes in the discount rate, but less rapidly than changes in
reserve requirements.
(c) less rapidly than either changes in the discount rate or changes in reserve
requirements.
(d) more rapidly than either changes in the discount rate or changes in reserve
requirements.
Answer:
Which of the following is NOT included in M1?
(a) Currency
(b) Savings account deposits
(c) Checking account deposits
(d) Traveler’s checks
Answer:
Banks are subject to exchange rate risk when
(a) their net worth fluctuates with increases or decreases in exchange rates.
(b) they engage in currency swaps.
(c) they buy foreign-exchange futures contracts.
(d) they sell foreign-exchange futures contracts.
Answer:
All of the following arguments are presented in favor of inflation targeting except
(a) it would draw attention to what the central bank can achieve in practice.
(b) it would provide an anchor for inflationary expectations.
(c) it would promote accountability by providing a yardstick by which policy can be
measured.
(d) it would reduce the lags inherent in monetary policy.
Answer:
A “tombstone” is a
(a) company in danger of bankruptcy.
(b) an advertisement of a new security issue by an investment bank.
(c) a bond that has been defaulted on.
(d) a share of stock in a failed company.
Answer:
A majority of lending from savers to borrowers takes place through
(a) financial intermediaries.
(b) stock and bond markets.
(c) direct lending by the government.
(d) private transactions among friends and relatives.
Answer:
Which of the following is NOT an activity carried out by Federal Reserve district
banks?
(a) Open market operations
(b) Issuing new Federal Reserve Notes
(c) Making discount loans
(d) Examining state member banks
Answer:
Market risk
(a) can be eliminated through diversification.
(b) represents the risk generated through chance events affecting a single company.
(c) cannot be eliminated through diversification.
(d) is another name for idiosyncratic risk.
Answer:
A bank that expects interest rates to fall will
(a) want the duration of its assets to be greater than the duration of its liabilitiesa
positive duration gap.
(b) want the duration of its assets to be less than the duration of its liabilitiesa positive
duration gap.
(c) want the duration of its assets to be greater than the duration of its liabilitiesa
negative duration gap.
(d) want the duration of its assets to be less than the duration of its liabilitiesa negative
duration gap.
Answer:
Which of the following statements concerning the Sarbanes-Oxley Act of 2002 is true?
(a) It strengthened the SEC’s ability to prosecute companies that presented misleading
accounting data to the public.
(b) It cracked down on insider trading.
(c) It established rules for IPOs so average investors would not be at a disadvantage.
(d) It strengthened the standards for companies which plan to go public.
Answer: