The theory of PPP suggests that if one country’s price level rises relative to another’s, its
currency should
A) depreciate in the long run.
B) appreciate in the long run.
C) depreciate in the short run.
D) appreciate in the short run.
Aggregate demand in an economy with no government or foreign trade is
A) consumer expenditure plus actual investment.
B) consumer expenditure plus planned investment.
C) consumer expenditure plus inventory investment.
D) consumer expenditure plus fixed investment.
The problem faced by the lender that the borrower may take on additional risk after
receiving the loan is called
A) adverse selection.
B) moral hazard.
C) transactions costs.
D) diversification.
When the Fed supplies the banking system with an extra dollar of reserves, deposits
increase by more than one dollar—a process called
A) extra deposit creation.
B) multiple deposit creation.
C) expansionary deposit creation.
D) stimulative deposit creation.
The two most important categories of assets on the Fed’s balance sheet are ________
and ________ because they earn interest.
A) discount loans; coins
B) securities; discount loans
C) gold; coins
D) cash items in the process of collection; SDR certificate accounts
The reason that economists are so interested in the stability of velocity is because if the
demand for money is not stable, then steady growth of the money supply
A) is going to promote price stability at the expense of low unemployment.
B) is going to promote low unemployment at the expense of price stability.
C) is an ineffective way to conduct monetary policy.
D) can still be used to conduct monetary policy if the goal is price stability.
When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the
bank chooses not to hold any excess reserves but makes loans instead, then, in the
bank’s final balance sheet
A) the assets at the bank increase by $800,000.
B) the liabilities of the bank increase by $1,000,000.
C) the liabilities of the bank increase by $800,000.
D) reserves increase by $160,000.
The most liquid securities traded in the capital market are
A) corporate bonds.
B) municipal bonds.
C) U.S. Treasury bonds.
D) mortgage-backed securities.
Potential weaknesses of nominal GDP targeting include
A) it requires accurate estimates of potential GDP growth, which are not easy to
achieve.
B) real GDP growth that is below potential or inflation that is below the inflation
objective will encourage more expansionary monetary policy.
C) it is more complicated to explain to the public than inflation targeting and thus the
public might be confused about the objectives of the central bank.
D) both A and C.
________ in the foreign interest rate causes the demand for domestic assets to
________ and the domestic currency to appreciate, everything else held constant.
A) An increase; increase
B) An increase; decrease
C) A decrease; increase
D) A decrease; decrease
If workers demand and receive higher real wages (a successful wage push), the cost of
production ________ and the short-run aggregate supply curve shifts ________.
A) rises; leftward
B) rises; rightward
C) falls; leftward
D) falls; rightward
Everything else held constant, if consumption expenditure increases by 65 for a 100
increase in disposable income, the mpc is
A) 0.
B) 0.5.
C) 0.65.
D) 1.
The process of indirect finance using financial intermediaries is called
A) direct lending.
B) financial intermediation.
C) resource allocation.
D) financial liquidation.
A defined-benefit pension
A) determines benefits by contributions and their earnings.
B) fixes benefits in advance.
C) links benefits to investment performance.
D) fixes benefits paid out for a limited number of years.
If real GDP in 2002 is $10 trillion, and in 2003 real GDP is $9.5 trillion, then real GDP
growth from 2002 to 2003 is
A) 0.5%.
B) 5%.
C) 0%.
D) -5%.
By taking the short position on a futures contract of $100,000 at a price of 96 you are
agreeing to ________ a ________ face value security for ________.
A) sell; $100,000; $96,000.
B) sell; $96,000; $100,000.
C) buy; $100,000; $96,000.
D) buy; $96,000; $100,000.
If you default on your auto loan, your car will be repossessed because it has been
pledged as ________ for the loan.
A) interest
B) collateral
C) dividend
D) commodity
A bank has excess reserves of $4,000 and demand deposit liabilities of $100,000 when
the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the
bank’s excess reserves will be
A) -$5,000.
B) -$1,000.
C) $1,000.
D) $5,000.
If aggregated demand is less than actual output, unplanned inventory ________ will
cause output to ________.
A) accumulation; rise
B) depletion; fall
C) depletion; rise
D) accumulation; fall
Which of the following statements about financial markets and securities is TRUE?
A) Many common stocks are traded over-the-counter, although the largest corporations
usually have their shares traded at organized stock exchanges such as the New York
Stock Exchange.
B) As a corporation gets a share of the broker’s commission, a corporation acquires new
funds whenever its securities are sold.
C) Capital market securities are usually more widely traded than shorter-term securities
and so tend to be more liquid.
D) Prices of capital market securities are usually more stable than prices of money
market securities, and so are often used to hold temporary surplus funds of
corporations.
Which of the following do NOT provide charters?
A) the Office of the Comptroller of the Currency
B) the Federal Reserve System
C) the National Credit Union Administration
D) state banking and insurance commissions
High interest rates might cause a corporation to ________ building a new plant that
would provide more jobs.
A) complete
B) consider
C) postpone
D) contemplate
The finance of government spending through a Treasury sale of bonds which are then
purchased by the Fed
A) causes both reserves and the monetary base to rise.
B) causes both reserves and the monetary base to decline.
C) causes reserves to rise, but the monetary base to decline.
D) has no net effect on the monetary base.
Adjustable rate mortgages
A) reduce the interest-rate risk for financial institutions.
B) benefit homeowners when interest rates rise.
C) generally have higher initial interest rates than conventional fixed-rate mortgages.
D) allow borrowers to avoid paying interest on portions of their mortgage loans.
When the Fed extends a $100 discount loan to the First National Bank, reserves in the
banking system
A) increase by $100.
B) increase by more than $100.
C) decrease by $100.
D) decrease by more than $100.
The yield to maturity is ________ than the ________ rate when the bond price is
________ its face value.
A) greater; coupon; above
B) greater; coupon; below
C) greater; perpetuity; above
D) less; perpetuity; below
A short-term debt instrument issued by well-known corporations is called
A) commercial paper.
B) corporate bonds.
C) municipal bonds.
D) commercial mortgages.
Which of the following types of information most likely allows the exploitation of a
profit opportunity?
A) financial analysts’ published recommendations
B) technical analysis
C) hot tips from a stockbroker
D) insider information
Assuming that the average duration of its assets is five years, while the average duration
of its liabilities is three years, then a 5 percentage point increase in interest rates will
cause the net worth of First National to decline by ________ of the total original asset
value.
A) 5 percent
B) 10 percent
C) 15 percent
D) 25 percent
An important function of secondary markets is to
A) make it easier to sell financial instruments to raise funds.
B) raise funds for corporations through the sale of securities.
C) make it easier for governments to raise taxes.
D) create a market for newly constructed houses.
Bank loans from the Federal Reserve are called ________ and represent a ________ of
funds.
A) discount loans; use
B) discount loans; source
C) fed funds; use
D) fed funds; source
In contrast to the CAPM, the APT assumes that there can be several sources of
________ that cannot be eliminated through diversification.
A) nonsystematic risk
B) systematic risk
C) credit risk
D) arbitrary risk