The price the United States and the United Kingdom pay for having rather liquid
securities markets is
A) fluctuations in securities prices.
B) unresolved stockholder-lender and manager-stockholder conflicts.
C) allowing banks to hold substantial ownership shares in large firms.
D) shutting large firms out of those securities markets.
Which of the following is an ultimate objective of the Federal Reserve?
A) Real GDP growth
B) M1 growth
C) M2 growth
D) Low interest rates
If a banker lacks enough information to determine exactly which applicants for a loan
are good risks and which are bad risks, then he faces a(n) __________ problem.
A) moral hazard
B) adverse selection
C) market failure
D) disintermediation
The LM curve automatically shifts to the right when the intersection point of the IS and
LM curves occurs at a point
A) beyond full-employment income.
B) in the liquidity trap.
C) less than full-employment income.
D) where planned saving is less than planned investment.
Which of the following securities is least likely to be guaranteed by the full faith and
credit of the federal government?
A) A bond issued by a Federal Land Bank
B) A bond issued by the United States Postal Service
C) A note issued by the Federal National Mortgage Association
D) A security issued by a Federal Home Loan Bank
Which of the following types of insurance do men pay lower premiums than do
women?
A) life insurance
B) health insurance
C) auto insurance
D) There are no legally allowed differences.
Assume a money multiplier of 4 and a government expenditure of $20 million. If the
Treasury borrows $20 million from the banking system while the banks have excess
reserves, the money supply will
A) rise by $5 million.
B) rise by $20 million.
C) rise by $80 million.
D) not be affected.
Over time, overall responsibility for formulating monetary policy has become
increasingly concentrated in the
A) Federal Reserve Bank of New York.
B) Council of Economic Advisors.
C) Federal Deposit Insurance Corporation.
D) Federal Reserve Board of Governors.
In the context of portfolio diversification,
A) investors are compensated for diversifiable risk in the portfolio.
B) prudent investors should hold about three to five stocks in their portfolio.
C) a stock index mutual fund is a financial intermediary that offers small investors a
way to participate in the performance of the stock market as a whole.
D) financial intermediaries make it more difficult to be diversified.
If the following securities are of equal maturity, which will have the lowest yield at a
given point in time?
A) A consumer loan
B) A municipal bond rated Aaa
C) An Aaa-rated corporate bond
D) A Baa-rated corporate bond
Which of the following is not a reference to “banking” in “money, banking, and
financial markets?”
A) Commercial banks
B) Savings banks
C) Financial intermediaries
D) Markets in which financial assets can be traded
Which of the following is least likely to issue commercial paper?
A) General Motors Acceptance Corporation
B) A large bank holding company
C) General Electric
D) The U.S. Treasury
Money neutrality implies that changes in the money supply have an impact on
A) the unemployment rate.
B) interest rates.
C) the price level.
D) real GDP.
Because women have a longer average life span than men, they are paid
A) higher monthly retirement benefits by a defined benefit pension plan.
B) lower monthly retirement benefits by a defined benefit pension plan.
C) the same monthly retirement benefits by a defined benefit pension plan.
D) the amount of monthly benefits paid to men and women by a defined benefit plan is
determined by each company.
Which of the following appears as a liability on the Federal Reserves balance sheet?
A) U.S. Treasury deposits
B) Special drawing rights
C) U.S. government securities held under repurchase agreements
D) Loans to commercial banks
Assume that excess reserves are $10 million, demand deposits are $500 million, and
total reserves are $135 million. The required reserve ratio is
A) .05.
B) .1.
C) .2.
D) .25.
If the interest rate rose above the equilibrium rate, people would attempt to __________
bonds. Bond prices would __________ and the interest rate would __________.
A) sell; rise; fall
B) buy; rise; fall
C) sell; fall; rise
D) buy; rise; rise
Classical economists and modern monetarists agree that the best way to examine the
economy is through the use of
A) aggregate supply and demand.
B) the multiplier.
C) the quantity theory.
D) the GNP account.
Large companies with good credit ratings tend to rely on __________ for short-term
financing.
A) the commercial paper market
B) private placements
C) finance companies
D) equity
Risk-based deposit insurance premiums have recently been __________ and this is
expected to __________ the moral hazard problem of deposit insurance.
A) abolished; alleviate
B) abolished; worsen
C) established; alleviate
D) established; worsen
The equilibrium interest rate rises when
A) inflationary expectations increase.
B) the economy enters a recession.
C) the supply of credit increases.
D) the demand for credit decreases.
Speculators absorb additional risk in futures markets as a result of the actions taken by
A) longs.
B) hedgers.
C) brokers.
D) shorts.