The only case for which the bond price does not react to a change in the yield to
maturity is when
(a) the bond is a U.S. Treasury security.
(b) the bond’s coupon rate equals its current yield.
(c) the bond’s market price equals its par value.
(d) the bond’s holding period is the same as the number of years to maturity.
Answer:
Why did the volume of newly syndicated loans in Euromarkets decline during the
1970s and 1980s?
(a) International regulation of these markets increased.
(b) There were significant defaults on loans to less developed countries.
(c) Interest rate volatility increased.
(d) Inflation increased.
Answer:
The reason why many economists switched from using M1 as the best measure of the
medium of exchange to using M2 is that
(a) during the 1980s new substitutes for checking accounts appeared and were included
in M2.
(b) during the 1980s the country went off the gold standard and began using fiat money
for the first time.
(c) during the 1980s inflation roared out of control and a better measure of the money
supply seemed necessary.
(d) in 1982 the federal government ordered that all income taxes must be paid using
M2.
Answer:
If the dollar is expected to depreciate against the British pound during the next 60 days,
then
(a) the current pound/dollar exchange rate should be higher than the 60-day forward
pound/dollar exchange rate.
(b) the current pound/dollar exchange rate should be lower than the 60-day forward
pound/dollar exchange rate.
(c) buying dollars today with pounds and selling them in 60 days for pounds will yield a
profit.
(d) the pound price of U.S. goods sold in Britain must be expected to rise.
Answer:
At a point below the IS curve
(a) there is an excess supply of goods.
(b) there is an excess demand for goods.
(c) saving exceeds investment.
(d) the real interest rate is above its equilibrium value.
Answer:
The Fed does not have to go through the normal congressional appropriations process
because
(a) its expenses are very small.
(b) it was given enough funds at the time of its founding to provide for its expenses
indefinitely.
(c) its net income is more than $25 billion per year.
(d) it is not part of the legislative branch of the federal government.
Answer:
What fraction of all banks in the United States belong to the Federal Reserve System?
(a) 5%
(b) 33%
(c) 75%
(d) 90%
Answer:
Why are securities market institutions not considered to be financial intermediaries?
(a) Because they have no direct dealings with the general public
(b) Because they don’t acquire funds from savers to invest in borrowers
(c) Because they are not allowed to pay interest on the deposits they receive
(d) Because they fail to provide the services of risk-sharing, liquidity, and information
Answer:
Nobel laureate Milton Friedman is known for his assertion that,
(a) “Inflation is caused solely by government budget deficits.”
(b) “Inflation is always and everywhere a monetary phenomenon.”
(c) “The evils of inflation are greatly overrated.”
(d) “Inflation is the opium of the masses.”
Answer:
What fraction of the mutual fund market is held by money market mutual funds?
(a) 1%
(b) 5%
(c) 38%
(d) 75%
Answer:
According to new classical economists, sustained expected increases in the nominal
money supply will lead to
(a) increases in output in the short run and sustained increases in prices in the long run.
(b) sustained increases in prices, with no short-run increases in output.
(c) short-run increases in prices and output, with a stable price level and no increases in
output in the long run.
(d) sustained increases in both prices and output in the long run.
Answer:
The relative illiquidity of corporate bonds is reflected in their having
(a) higher prices than U.S. government securities.
(b) smaller coupons than U.S. government securities.
(c) higher bid-asked spreads than U.S. government securities.
(d) more active secondary markets than U.S. government securities.
Answer:
Speculators in futures and options markets
(a) reduce the efficiency of these markets.
(b) are acting contrary to U.S. securities laws.
(c) accept risk transferred to them by hedgers.
(d) reduce the liquidity of these markets.
Answer:
As an option nears its expiration date, the size of the premium approaches
(a) zero.
(b) infinity.
(c) its intrinsic value.
(d) an amount that varies depending on prevailing market interest rates on the
expiration date.
Answer:
Which of the following is a correct expression for the monetary base?
(a) B = C +D
(b) B = C +R
(c) B = R +D
(d) B = R +M
Answer:
Discount policy
(a) is the most frequently used of the Fed’s monetary policy tools.
(b) is the oldest of the Fed’s monetary policy tools.
(c) may be implemented more rapidly than open market operations.
(d) affects the monetary base, but does not affect interest rates.
Answer:
The price at which an option may be exercised is called the
(a) market price.
(b) equilibrium price.
(c) strike price.
(d) fixed price.
Answer:
Business cycles typically last
(a) from several months to several years.
(b) less than one year.
(c) more than five years.
(d) more than ten years.
Answer:
During the 1990s the share of international bank loans held by Japanese banks
(a) declined.
(b) increased.
(c) remained unchanged.
(d) Japanese banks are not allowed to engage in foreign lending.
Answer:
In which of the following financial assets in financial intermediaries did U.S.
households have the most invested in 2003?
(a) Bank deposits
(b) Mutual fund shares
(c) Life insurance reserves
(d) Pension fund reserves
Answer:
The bond market is important because
(a) it is the major source of borrowed funds for U.S. business.
(b) it provides a rate of return significantly greater than the stock market.
(c) it provides foreign purchasers of U.S. products a means to exchange their currencies
for U.S. dollars.
(d) it provides a way for businesses and governments to borrow funds from savers and
it is the market that determines interest rates.
Answer:
When did Congress first give the Board of Governors authority over reserve
requirements?
(a) 1913
(b) 1935
(c) 1980
(d) 1998
Answer:
Who organized the Bank of the United States?
(a) Alexander Hamilton
(b) George Washington
(c) Andrew Jackson
(d) Woodrow Wilson
Answer:
When did the charter of the Second Bank of the United States expire?
(a) 1791
(b) 1836
(c) 1863
(d) 1993
Answer:
The segmented markets theory
(a) has XOAXOA explaining why yield curves usually slope up.
(b) has XOAXOA explaining why yield curves usually slope down.
(c) has XOAXOA explaining why yields on instruments of different maturities tend to
move together.
(d) provides a good explanation of why yields on instruments of different maturities
tend to move together.
Answer:
In the new Keynesian view, disinflation is costly primarily because
(a) workers and firms lack rational expectations.
(b) policy announcements are rarely credible.
(c) nominal wages and prices are sticky.
(d) disinflation policy shifts the LRAS curve.
Answer:
When market participants have adaptive expectations
(a) they use all information available to them.
(b) they only slowly adjust their expectations to news that could affect prices or returns.
(c) they are more likely to make accurate forecasts than if they have rational
expectations.
(d) they are able to forecast interest rates more accurately than inflation rates.
Answer:
Which of the following statements is correct?
(a) Monetary expansions precede business cycle peaks, and monetary contractions
precede business cycle troughs.
(b) Monetary expansions precede business cycle troughs, and monetary contractions
precede business cycle peaks.
(c) Monetary expansions precede both business cycle troughs and business cycle peaks.
(d) There is no consistent relationship between monetary expansions and contractions,
and the business cycle.
Answer:
A distinguishing feature of German banking, compared with U.S. and Japanese
banking, is
(a) German banks may operate only a single branch.
(b) the German government closely regulates the interest rate German banks may
charge.
(c) Germany allows universal banking.
(d) German banks may make no investments outside the country.
Answer:
If market participants rely only past stock prices to forecast future stock prices,
(a) they will be better able to forecast future price increases than future price decreases.
(b) they will be better able to forecast future price decreases than future price increases.
(c) they have adaptive expectations.
(d) they have rational expectations.
Answer: