A one-year discount bond with a face value of $10,000 that is currently selling for
$9000 has an interest rate of
(a) 9%.
(b) 10%.
(c) 11.11%.
(d) 90%.
Answer:
Cold turkey disinflation
(a) is very costly in terms of lost output in both the new classical and new Keynesian
views.
(b) is virtually costless in terms of lost output in both the new classical and new
Keynesian views.
(c) is very costly in terms of lost output in the new classical view, but virtually costless
in the new Keynesian view.
(d) is very costly in terms of lost output in the new Keynesian view, but virtually
costless in the new classical view.
Answer:
As wealth increases, savers choose
(a) more necessity assets and fewer luxury assets.
(b) more luxury assets and fewer necessity assets.
(c) more of both luxury assets and necessity assets.
(d) fewer of both luxury assets and necessity assets.
Answer:
When did Regulation Q finally disappear?
(a) 1934
(b) 1945
(c) 1986
(d) 2000
Answer:
On a bank’s balance sheet, “borrowings” are
(a) loans to households.
(b) loans to businesses.
(c) nondeposit liabilities.
(d) U.S. Treasury securities.
Answer:
When financial markets and institutions are not efficient in matching savers and
borrowers,
(a) interest rates fall, which discourages saving even further.
(b) interest rates fall, which discourages investment even further.
(c) resources are lost.
(d) investment rises.
Answer:
The world real interest rate is
(a) set annually by a special commission at the United Nations.
(b) set annually by a special commission at the International Monetary Fund.
(c) determined in the international capital market.
(d) determined daily on the New York Stock Exchange.
Answer:
Fundamentally, to reap the benefits of specialization, an economy must
(a) be heavily industrial.
(b) be heavily agricultural.
(c) have an extensive system of higher education.
(d) develop ways for individuals to trade goods with one another.
Answer:
The expectations theory
(a) has been explaining why U.S. Treasury securities have lower yields than corporate
bonds.
(b) has been explaining why yields on bonds of different maturities move together.
(c) has been explaining why yield curves usually slope upward.
(d) accounts well for the fact that yield curves usually slope upward.
Answer:
The political business cycle theory predicts that
(a) the Fed acts to promote the interests of the general public.
(b) the Fed acts to stimulate economic activity before an election.
(c) the President’s appointments to the Board of Governors will usually be politicians.
(d) political factors over which the Fed has no control are most important in explaining
the business cycle.
Answer:
In an efficient market, the market price of an asset
(a) reflects the returns the asset has been earning previously.
(b) is fixed by federal regulators after a thorough consideration of all available
information.
(c) equals the present value of expected future returns.
(d) is largely determined on the demand side, because the supply of assets in such
markets is generally fixed.
Answer:
If there is a recession in Europe
(a) the aggregate demand curve in the United States will shift right.
(b) the aggregate demand curve in the United States will shift left.
(c) the aggregate demand curve in the United States will become steeper.
(d) the aggregate demand curve in the United States will be unaffected.
Answer:
The default of the Penn Central Railroad in the early 1970s
(a) led indirectly to a fall in the price of U.S. Treasury securities.
(b) strongly affected the market for municipal bonds.
(c) resulted from the lack of liquidity in the U.S. Treasury bill market.
(d) resulted in an increase in the default-risk premium in the commercial paper market.
Answer:
Which of the following is NOT true of membership in the FDIC?
(a) All commercial banks are members of the FDIC.
(b) All national banks are members of the FDIC.
(c) Most large state banks are members of the FDIC.
(d) Some state banks are not members of the FDIC.
Answer:
About what fraction of the federal budget deficits of the 1980s and early 1990s did the
Fed monetize?
(a) 0%
(b) 10%
(c) 75%
(d) 100%
Answer:
Bond ratings
(a) are published annually by the federal government and are based largely on
information contained in corporate tax returns.
(b) are published annually by the federal government and are based on publicly
available information.
(c) are published monthly by the federal government and are based on publicly
available information.
(d) are published by private bond-rating agencies.
Answer:
Borrowers generally demand funds through the financial system in order to
(a) purchase consumer durables, houses, or business plant and equipment.
(b) pay taxes or other obligations to the government.
(c) purchase food, clothing, or other nondurables.
(d) meet business payrolls or other short-term business obligations.
Answer:
Diversification reduces the riskiness of a financial portfolio provided
(a) the portfolio does not contain too many different assets.
(b) the returns on the assets in the portfolio do not vary in the same way.
(c) interest rates are stable.
(d) at least some tax-free assets are included.
Answer:
Which of the following is NOT a government financial institution?
(a) Social Security Administration.
(b) Federal National Mortgage Association.
(c) Federal Land Banks.
(d) Student Loan Market Association.
Answer:
About what fraction of U.S. banks have less than $100 million in assets?
(a) 10%
(b) 25%
(c) 54%
(d) 98%
Answer:
The greatest XOAXOA with federal loan guarantees is that
(a) they interfere with the smooth working of the market system.
(b) they have largely driven out private lending in the mortgage market.
(c) they have largely driven out private lending in the market for small business loans.
(d) moral hazard problems have led to excessive defaults.
Answer:
As a result of the Korean War and the Fed’s pegging of the interest rate on Treasury
securities
(a) the monetary base contracted.
(b) the monetary base expanded.
(c) the prices of short-term Treasury securities rose.
(d) the inflation rate declined.
Answer:
Japan’s very low market interest rates in the early 2000s reflected
(a) expected deflation.
(b) an increasing budget deficit.
(c) an increasing budget surplus.
(d) an increase in corporate profits.
Answer:
In the balance sheet channel, when households have high levels of liquid assets relative
to their liabilities, they are more willing to invest in consumer durable goods or housing
because
(a) they estimate the likelihood of financial distress to be low.
(b) they are able to borrow at lower interest rates.
(c) they can make these purchases without having to borrow.
(d) they are likely to be middle-aged, when most purchases of consumer durable goods
and houses are made.
Answer:
The FE line would be shifted to the right by
(a) a decline in the productivity of labor.
(b) a decline in the productivity of capital.
(c) an increase in the productivity of labor.
(d) a decline in the real interest rate.
Answer:
The equation of exchange is an identity because
(a) it has been shown empirically to hold in many different times and places.
(b) it defines the money supply to be equal to currency plus checkable deposits.
(c) of the way velocity is defined.
(d) the price level is assumed to be constant.
Answer:
Ordinarily if the Fed chooses an interest rate as an intermediate target
(a) it is worried about inflation.
(b) it is worried about unemployment.
(c) it will choose a monetary aggregate as an operating target.
(d) it will choose an interest rate as an operating target.
Answer:
Which of the following would NOT be an example of a financial market transaction?
(a) You purchase a U.S. government bond.
(b) You purchase a bond issued by a large corporation.
(c) You deposit $100 in your bank checking account.
(d) You give your broker $2000 to purchase shares of stock in General Motors.
Answer:
The greatest difficulty with federal loan guarantees is that
(a) they interfere with the smooth working of the market system.
(b) they have largely driven out private lending in the mortgage market.
(c) they have largely driven out private lending in the market for small business loans.
(d) moral hazard problems have led to excessive defaults.
Answer:
Edge Act Corporations are
(a) legally prohibited from owning banks.
(b) banks that may accept deposits, but that may not make loans.
(c) special subsidiaries of U.S. banks that conduct only international banking services.
(d) U.S. branches of banks headquartered outside of the United States.
Answer:
On a bank’s balance sheet, liabilities are
(a) the uses of acquired assets.
(b) the sources of acquired funds.
(c) all those items of value owned by the bank.
(d) by definition equal to the bank’s assets.
Answer:
U.S. Treasury securities
(a) are considered risk free because their prices never change.
(b) have been defaulted on several time in U.S. history.
(c) are considered default-risk-free instruments.
(d) have a large default risk premium.
Answer:
As a result of the McFadden Act
(a) deposits in state chartered banks receive federal deposit insurance protection.
(b) there are a larger number of banking firms in the U.S. than there would have been
otherwise.
(c) only state chartered banks are allowed to offer demand deposits.
(d) bank credit card interest rates are regulated at the federal level.
Answer:
International coordination of minimum capital requirements for commercial banks
began in
(a) 1914.
(b) 1944.
(c) 1961.
(d) 1987.
Answer: