Bank holding companies are supervised by
(a) state banking authorities in the state in which the holding company is chartered.
(b) the Office of the Comptroller of the Currency.
(c) the Federal Reserve System.
(d) the Office of Thrift Supervision.
Answer:
Which of the following is NOT an explanation for short-run fluctuations in output in the
real business cycle model?
(a) A temporary shock to productivity
(b) A decline in the availability of oil
(c) An increase in the money supply
(d) A major increase in workplace safety regulations
Answer:
If you have $2 million in a CD at a commercial bank that is a member of the FDIC,
how much of your funds are uninsured?
(a) Zero
(b) $1 million
(c) $1.9 million
(d) $2 million
Answer:
Profits from speculation arise because of
(a) the spread between the bid and ask prices on bonds.
(b) the illiquidity of markets for derivative instruments.
(c) the high information costs in markets for derivative instruments.
(d) disagreements among traders about future prices of a commodity or financial
instrument.
Answer:
In the foreign-exchange market, trading
(a) is restricted to the hours 10 A.M. to 3 P.M. New York time.
(b) may not take place after 5 P.M. London time.
(c) takes place at any hour of the night or day.
(d) takes place at prices set by the U.S. government in consultation with the
governments of other leading countries.
Answer:
If the demand for real money balances were infinitely sensitive to the interest rate,
(a) the money market would never be in equilibrium.
(b) the goods market would never be in equilibrium.
(c) the LM curve would be vertical.
(d) the LM curve would be horizontal.
Answer:
During World War II
(a) the Board of Governors was temporarily disbanded.
(b) the Fed was not allowed to make discount loans.
(c) the Fed agreed to hold interest rates on short-term Treasury securities at low levels.
(d) the Fed agreed not to buy Treasury securities.
Answer:
In a barter system individuals
(a) find it impossible to specialize.
(b) must be entirely self-sufficient.
(c) find it difficult to specialize, but may be able to do so.
(d) will almost invariably specialize.
Answer:
Between 1950 and 1980 the Fed adjusted required reserve ratios
(a) daily.
(b) about once a year.
(c) only once.
(d) only twice.
Answer:
Why has the Federal Reserve chairman often been called the second most important
person in the nation?
(a) Because the Fed chairman has veto power over all federal spending
(b) Because the Fed is in control of monetary policy
(c) Because the Fed chairman draws the second highest salary of any official of the
federal government
(d) Because the Fed has regulatory power over all financial markets
Answer:
During the first Gulf War
(a) the interest rate rose.
(b) current output rose.
(c) the IS curve shifted up to the right.
(d) the IS curve shifted down to the left.
Answer:
NOW accounts were developed in order to
(a) circumvent Regulation Q.
(b) provide banks with a checkable deposit on which they did not have to pay interest.
(c) provide banks with a liquid, interest-earning asset.
(d) provide banks with a means of earning interest on the funds in their reserve accounts
with the Fed.
Answer:
If the rate of growth of U.S. productivity lags behind the rate of growth of productivity
in most other countries,
(a) the prices of U.S. goods will fall relative to foreign goods.
(b) the prices of U.S. goods will rise relative to foreign goods.
(c) the U.S. real exchange rate will appreciate.
(d) the cost of producing U.S. goods will rise more slowly than the cost of producing
foreign goods.
Answer:
Federal deposit insurance
(a) has increased the severity of banking panics.
(b) was never made available to savings-and-loan associations.
(c) was ended by Congress in 1990.
(d) helped cause the crisis in financial institutions during the late 1980s and early
1990s.
Answer:
Economists define liquidity as
(a) the difference between the return on the asset and the return on a long-term U.S.
Treasury bond.
(b) the fraction the asset makes up of an investor’s portfolio.
(c) the ease with which an asset can be exchanged for other assets or for goods and
services.
(d) the difference between the total demand for an asset and the total supply of the
asset.
Answer:
The demand curve for bonds would be shifted to the right by
(a) an increase in expected returns on other assets.
(b) a decrease in the information costs of bonds relative to other assets.
(c) a decrease in wealth.
(d) a decrease in the liquidity of bonds relative to other assets.
Answer:
Why did the value of the euro soar against the dollar beginning on September 22, 2000?
(a) Central banks bought billions of dollars worth of euros.
(b) The inflation rate in the United States rose relative to the inflation rate in Europe.
(c) The rate of productivity growth in the United States fell relative to the rate of
productivity growth in Europe.
(d) Interest rates in the United States fell relative to interest rates in Europe.
Answer:
Foreign central banks
(a) can affect the U.S. money supply, but cannot affect U.S. interest rates.
(b) can affect U.S. interest rates, but cannot affect the U.S. money supply.
(c) cannot affect either U.S. interest rates or the U.S. money supply.
(d) can affect both U.S. interest rates and the U.S. money supply.
Answer:
A specialist is
(a) a securities firm that deals in only one type of security.
(b) an accountant trained in securities law.
(c) a tax lawyer at a securities firm.
(d) a broker-dealer on the floor of the New York Stock Exchange.
Answer:
If pepperoni pizzas sell for $10 in Berkeley, California and £10 in London, England and
the exchange rate is $1.35 = £1,
(a) the law of one price has been violated.
(b) either the British government or the American government must be interfering with
the market determination of the exchange rate.
(c) the value of the dollar versus the pound is likely to rise.
(d) There is no contradiction in the information given because pizza is not a tradeable
good.
Answer:
Economists who back the use of rules by the Fed believe that they would result in
(a) a lower government budget deficit.
(b) increased credibility for Fed actions.
(c) the eventual adoption of price controls.
(d) lower growth rates of aggregate supply.
Answer:
Members of the Board of Governors
(a) must resign when the President who has appointed them leaves office.
(b) may serve no more than three consecutive four-year terms.
(c) serve for life or good behavior.
(d) serve one nonrenewable 14-year term.
Answer:
Which of the following is a correct statement about interpreting an increase risk
premiums?
(a) An increase in risk premiums results only from expectations of greater default risk.
(b) An increase in risk premiums results only from expectations of lower liquidity.
(c) An increase in risk premiums results only from expectations of higher information
costs.
(d) An increase in risk premiums can result from expectations of greater default risk,
lower liquidity, or higher information costs.
Answer:
Why did the Fed cut interest rates in late 1991?
(a) To help reduce the value of the dollar
(b) To help increase the value of the dollar
(c) To stimulate the economy’s recovery from the 19901991 recession
(d) To help fight inflation
Answer:
When did the Federal Reserve Act become law?
(a) 1836
(b) 1913
(c) 1936
(d) 1951
Answer:
An increase in the expected real interest rate will have a
(a) large negative impact on household saving.
(b) large positive impact on household saving.
(c) small positive impact on household saving.
(d) small negative impact on household saving.
Answer:
Which of the following economists has NOT won a Noble Prize in economics for
research on the benefits of diversification?
(a) James Tobin
(b) Harry Markowitz
(c) Milton Friedman
(d) William Sharpe
Answer:
Because of shifts in preferences for domestic or foreign goods and because of the
existence of trade barriers
(a) purchasing power parity’s underlying assumption is not valid.
(b) the nominal exchange rate will fluctuate, but the real exchange rate will not.
(c) purchasing power parity will be accurate in predicting short-run fluctuations in
exchange rates but not in predicting long-run fluctuations.
(d) most national governments believe exchange rates should not be set by the market.
Answer:
An open market purchase
(a) reduces the Fed’s holdings of securities, but an open market sale increases the Fed’s
holdings of securities.
(b) increases the Fed’s holdings of securities, but an open market sale reduces the Fed’s
holdings of securities.
(c) reduces the Fed’s holdings of securities, as does an open market sale.
(d) increases the Fed’s holdings of securities, as does an open market sale.
Answer:
You tell the bank loan officer that you would like to borrow money to purchase a car. In
reality you intend to use the money to pay off your losing bets on the Super Bowl. This
is an example of
(a) the problem of a double coincidence of wants.
(b) the problem of asymmetric information.
(c) high transactions costs.
(d) the use of financial markets for illicit purposes.
Answer: