Since 1987, the Fed
(a) has placed greater emphasis on hitting its target for M1 growth.
(b) has pegged the federal funds rate.
(c) no longer announces targets for M1 growth.
(d) has concentrated on the T-bill rate as its intermediate target.
Answer:
What is the yield on a discount basis for a U.S. Treasury bill that has a face value of
$10,000, has a price of $9500, and will mature in 180 days?
(a) 5.00%
(b) 5.25%
(c) 10.00%
(d) 10.67%
Answer:
An investor will generally find that hiring an investment firm to actively manage his or
her portfolio will
(a) result in a higher return than would be received from a mutual fund.
(b) be less expensive than simply placing money in a mutual fund.
(c) result in a higher return, but will be more expensive than placing money in a mutual
fund.
(d) result in the about the same return, but be more expensive than placing money in a
mutual fund.
Answer:
About what fraction of the financial assets of U.S. households are in mutual funds?
(a) 1%
(b) 2%
(c) 11%
(d) 50%
Answer:
Which of the following statements is true?
(a) Only about 10% of reserves are held as deposits with the Fed.
(b) About 90% of banks meet their reserve requirements with vault cash.
(c) Large banks may not use vault cash to meet their reserve requirements.
(d) All banks must keep at least half of their required reserves on deposit at a Federal
Reserve bank.
Answer:
Which of the following statements is NOT true?
(a) Each Federal Reserve bank maintains its own discount window.
(b) Before 1980 the Fed rarely made loans to banks that were not members of the
Federal Reserve System.
(c) Since 1980 all depository institutions have had access to the discount window.
(d) An increase in the volume of discount loans reduces the monetary base.
Answer:
Which of the following is NOT a financial intermediary?
(a) Salomon Brothers
(b) Chase Manhattan Bank
(c) Aetna Insurance Company
(d) California State Teachers Pension Fund
Answer:
A risk-neutral saver
(a) can eliminate the market risk in his or her portfolio through diversification.
(b) gains nothing from diversification.
(c) benefits from diversification more than does the risk-averse saver.
(d) actually increases the risk in his or her portfolio by diversification.
Answer:
According to many economists, the equity premium
(a) is mainly attributable to tax considerations.
(b) reflects investors’ fears of future inflation.
(c) is probably zero.
(d) is too large to be explained by risk considerations alone.
Answer:
Mutual funds
(a) take in deposits from savers and make loans to borrowers.
(b) sell shares to savers and purchase assets with the funds.
(c) take in deposits from savers and purchase assets with the funds.
(d) bring together small savers and small borrowers.
Answer:
The LM curve slopes upward to the right because
(a) the demand for money plus the demand for nonmoney assets must equal the supply
of money plus the supply of nonmoney assets.
(b) a higher real interest rate is associated with a higher level of output in money market
equilibrium.
(c) a higher real interest rate is associated with a higher level of saving in goods market
equilibrium.
(d) in equilibrium the actual real interest rate must increase one for one with expected
real interest rate.
Answer:
Which of the following statements is correct?
(a) The Fed completely controls the volume of discount loans.
(b) Although the Fed does not completely control the volume of discount loans, it
influences the amount by setting the discount rate.
(c) Although the Fed does not completely control the volume of discount loans, it
influences the amount through open market operations.
(d) The volume of discount loans the Fed makes each year is a constant amount fixed
under terms of the Federal Reserve Act.
Answer:
Speculators are primarily interested in
(a) betting on anticipated changes in prices.
(b) reducing their exposure to the risk of price fluctuations.
(c) increasing market liquidity.
(d) reducing the spread between bid and ask prices on bonds.
Answer:
If you sell a futures contract for U.S. Treasury bills and on the delivery date the interest
rate of T-bills is higher than you expected, you will have
(a) lost money on your long position.
(b) gained money on your long position.
(c) lost money on your short position.
(d) gained money on your short position.
Answer:
Savers who take advantage of the service of transfer risk offered by the financial system
(a) often end up paying higher taxes.
(b) do so by engaging in diversification.
(c) will incur the cost of a lower return than if they had not taken advantage of the
service.
(d) do so exclusively through the banking system.
Answer:
Suppose you hold a portfolio consisting of a single stock. About how many more stocks
would you need to add to your portfolio in order to reduce its average annual variability
to about the level of average annual variability you would experience if you held a
portfolio consisting of every stock listed on the New York Stock Exchange?
(a) 1
(b) 20
(c) 1000
(d) 10,000
Answer:
Why did fewer state banks choose to become or remain members of the Federal
Reserve System during the 1960s and 1970s?
(a) Nominal interest rates rose
(b) The required reserve ratio rose
(c) The discount rate rose
(d) Open market operations declined
Answer:
The Fed decides to stimulate the economy by driving down the real interest rate.
Months pass, however, before new factories and houses begin to be built in response.
This is an example of
(a) a data lag.
(b) an impact lag.
(c) a recognition lag.
(d) an implementation lag.
Answer:
Before World War II
(a) the U.S. was basically a closed economy.
(b) the U.S. economy was more open than it is today.
(c) New York was the leading center of international finance.
(d) international banking was of great importance to U.S. banks, savers, and borrowers.
Answer:
Which of the following is true of an agency office of a foreign bank?
(a) It can make loans in the United States.
(b) It may not transfer funds in to the United States.
(c) It may accept deposits from U.S. residents.
(d) They are subject to the requirements for FDIC insurance.
Answer:
International reserves are
(a) assets denominated in a foreign currency and used in international transactions.
(b) reserves the Fed requires banks to hold against Eurodollar deposits.
(c) reserves the International Monetary Fund requires banks to hold if they wish to
participate in the market for foreign exchange.
(d) central bank holdings of gold.
Answer:
Economists define money as
(a) cash in circulation.
(b) deposits in commercial banks.
(c) anything that people are willing to accept in payment for goods and services or to
pay off debts.
(d) bonds issued by large corporations.
Answer:
Periods of contraction in the business cycle are known as
(a) expansions.
(b) inflations.
(c) recessions.
(d) down ticks.
Answer:
Finance companies
(a) issue stock and use the proceeds to purchase bonds.
(b) raise funds in financial markets to lend to households and firms.
(c) raise funds from banks to lend to households and firms.
(d) issue bonds and use the proceeds to purchase stock.
Answer:
Economists believe that as a saver’s wealth increases the saver will generally
(a) increase his or her holdings of all assets proportionately.
(b) increase the fraction of wealth held as cash.
(c) increase the fraction of wealth held as common stock.
(d) decrease the fraction held as corporate bonds.
Answer:
Through the early 1970s the largest borrowers on Euromarkets were
(a) U.S. banks.
(b) foreign banks.
(c) governments and state-owned enterprises.
(d) multinational corporations.
Answer:
Unless ratified by policymakers, cost-push inflation will result in
(a) persistent long-run inflation.
(b) hyperinflation.
(c) output beyond the full-employment level.
(d) a recession.
Answer:
Despite its costs, governments typically resist eliminating inflation because
(a) doing so would result in lost output and jobs when the economy is near full
employment.
(b) the increase in menu costs because of inflation increases the governments’ tax
revenues.
(c) as net lenders, governments benefit from inflation.
(d) governments lack the knowledge of how to eliminate inflation.
Answer:
Eurocurrency deposits are
(a) time deposits denominated in a currency other than that of the issuing bank.
(b) deposits denominated in the new universal European currency.
(c) dollars used as currency in Eastern European countries with unreliable currencies.
(d) the most popular European version of traveler’s checks.
Answer:
As a result of the Treasury-Federal Reserve Accord,
(a) the Fed was no longer required to maintain the interest rate on short-term Treasury
securities.
(b) the Fed agreed to maintain the interest rate on short-term Treasury securities.
(c) the Treasury was given a larger role in the formulation of monetary policy.
(d) the Fed was given a larger role in the formulation of fiscal policy.
Answer:
Available evidence suggests that
(a) only expected changes in the money supply affect output.
(b) only unexpected changes in the money supply affect output.
(c) both expected and unexpected changes in the money supply affect output.
(d) neither expected nor unexpected changes in the money supply affect output.
Answer:
During the 1980s banks lost loan business to
(a) the corporate bond market.
(b) the commercial paper market.
(c) the savings-and-loan industry.
(d) the Eurodollar market.
Answer:
When market participants have rational expectations
(a) the information they use contains only past experiences.
(b) the information they use contains not only past experiences, but also their
expectations for the future.
(c) the information they use contains only their expectations for the future.
(d) their forecasts are always correct.
Answer: