During the 1980s and 1990s, the number of domestically chartered commercial banks in
the United States
(a) declined by more than one-third.
(b) more than doubled.
(c) more than tripled.
(d) declined by about 90%.
Answer:
Which of the following will NOT shift the aggregate demand curve to the right?
(a) A decline in the price level
(b) An increase in government expenditures
(c) A decline in money demand
(d) An increase in the money supply
Answer:
Holding everything else constant, the increased use of credit cards in recent years
probably
(a) increased M1 velocity.
(b) decreased M1 velocity.
(c) did not affect M1 velocity.
(d) caused nominal balances to rise more slowly than real balances.
Answer:
In the new Keynesian view, which of the following expressions correctly states the
relationship between the price that an individual firm with sticky prices charges and the
aggregate price level?
(a) p = Pe+ b(Ye Y*e)
(b) Pe= p + b(Ye Y*e)
(c) p = Pe+ b(Ye+ Y*e)
(d) p = Pe+ b(Y*e Ye)
Answer:
The period over which a call or put option exists is
(a) determined by its delivery date.
(b) determined by its expiration date.
(c) determined by whether the contract is written for a commodity or for a financial
instrument.
(d) indeterminate; options contracts continue in existence until either the buyer or the
seller desires to discontinue it.
Answer:
If investors are willing to pay more than the par value for a bond, you can be sure that
(a) the tax rate on the bond must be very low.
(b) the coupon rate on the bond must be higher than on other similar bonds.
(c) the coupon rate on the bond must be lower than on other similar bonds.
(d) the par value for the bond must be very low.
Answer:
During the past three decades net worth has been about what percentage of total funds
raised by banks?
(a) 2%
(b) 8%
(c) 20%
(d) 35%
Answer:
Generally,
(a) countries with the most independent central banks have the lowest inflation rates.
(b) countries with the least independent central banks have the lowest inflation rates.
(c) countries without central banks have the lowest inflation rates.
(d) the degree of independence of a country’s central banks has little to do with its
inflation rate.
Answer:
If the account manager does not use a Federal Reserve repurchase agreement or a
matched sale-purchase transaction in carrying out open market operations, he will use
(a) an outright purchase or sale.
(b) a limited-duration purchase or sale.
(c) an indirect purchase or sale.
(d) a reverse duration purchase or sale.
Answer:
Inflation places a tax on real money balances
(a) by increasing the public’s demand for real money balances.
(b) when those balances pay less than the market rate of interest.
(c) because nominal interest payments are deductible on the personal tax, whereas real
interest payments are not.
(d) whenever the actual inflation rate is less than the expected inflation rate.
Answer:
The small-firm effect
(a) shows that investments in the stocks of small firms would have earned a
below-normal return during the period beginning in the mid-1920s.
(b) may be the result of the low liquidity and high information costs of small-firm
stock.
(c) was stronger during the 1980s than in previous decades.
(d) existed only during the 1970s and 1980s.
Answer:
A load fund
(a) charges a commission for purchases or sales.
(b) is not obligated to redeem shares issued.
(c) earns income only from management fees.
(d) issues shares that may sell at a discount to the market value of the underlying assets.
Answer:
A system of barter has substantial transactions costs because
(a) taxes under such a system are generally a large fraction of the value of output.
(b) traders must spend considerable time searching for trading partners.
(c) the uncertainties of trade result in high legal fees being incurred to draw up binding
contracts.
(d) the uncertainties of trade result in high insurance premiums.
Answer:
As the federal funds rate rises,
(a) the reserve tax increases.
(b) banks prefer to hold more reserves.
(c) the opportunity cost of holding excess reserves falls.
(d) the reserve tax falls.
Answer:
A key problem with the basic quantity theory of money is that it
(a) did not apply to money in its role as a medium of exchange.
(b) failed to explain completely actual changes in real money balances.
(c) assumed that prices did not change.
(d) assumed that the stock of money did not change.
Answer:
According to the real business cycle model, the correlation between changes in the
money supply and changes in output over the business cycle results from
(a) changes in money causing changes in output.
(b) changes in output causing changes in the demand for money, which leads the Fed to
make changes in the money supply.
(c) increases and decreases in the federal budget deficit, causing both the changes in
money and the changes in output.
(d) chance; the real business cycle model offers no other explanation for it.
Answer:
After 1987, the Fed
(a) stopped targeting M1 growth, but continued to target M2 growth.
(b) stopped targeting M2 growth, but continued to target M1 growth.
(c) stopped targeting either M1 or M2 growth.
(d) continued to target both M1 and M2 growth.
Answer:
If a company’s sales begin to fall off so that it is now more likely to default on its bonds
than financial markets had previously believed, the yields on the company’s bonds will
(a) rise to compensate investors for this greater risk.
(b) fall because the company will no longer be able to afford to pay as much interest.
(c) fall as investors insist on higher prices for the bonds to compensate them for the
greater risk.
(d) be unchanged; once issued yields on bonds do not change.
Answer:
Which of the following statements is correct?
(a) The Fed has XOAXOA covering its normal expenses, but is reluctant to ask
Congress for money.
(b) The Fed is dependent on the annual appropriations it receives from Congress.
(c) The Fed’s profits are substantial, even when compared to the largest U.S.
corporations.
(d) At one time the Fed made substantial profits, but falling interest rates have greatly
reduced them.
Answer:
In the context of the evaluation of the efficient markets hypothesis, pricing anomalies
refer to
(a) the existence of trading strategies that appear to have offered above-normal returns.
(b) the gap between actual and expected prices.
(c) the spread between the price at which a broker will purchase stock from an investor
and the price at which the broker will sell stock to an investor.
(d) the diff in practice of computing stock prices on the basis of expectations of future
dividends.
Answer:
If participants in financial markets come to believe that dividends paid by the company
in
Question 38 will grow at a rate of 4% rather than 3%, what will be the percentage
change in the price of the company’s stock?
(a) 4.0%
(b) 17.8%
(c) 25.0%
(d) 33.3%
Answer:
The buyer of a futures contract
(a) assumes the short position.
(b) has the obligation to deliver the underlying financial instrument at the specified
date.
(c) has the obligation to receive the underlying financial instrument at the specified
future date.
(d) may, at his or her option, deliver or receive the underlying financial instrument at
the specified date.
Answer:
In an efficient market with rational expectations, the actual price of an asset
(a) will equal its expected price.
(b) will often be below its expected price.
(c) will often be above its expected price.
(d) equals its expected price plus a random error term.
Answer:
Inflation occurs whenever
(a) there is a one-time increase in the money supply.
(b) there is a one-time increase in government spending.
(c) the growth rate of nominal aggregate demand exceeds the growth rate of aggregate
supply over sustained periods of time.
(d) the growth rate of nominal aggregate supply exceeds the growth rate of aggregate
demand over sustained periods of time.
Answer:
Securities issued by state and local governments generally are
(a) not subject to taxation.
(b) taxed at the federal level, but not at the state and local levels.
(c) taxed at the state and local levels, but not at the federal level.
(d) taxed at the local, state, and federal levels.
Answer:
When prices rise, the purchasing power of money
(a) rises.
(b) falls.
(c) is unaffected.
(d) may rise, fall, or be unaffected depending upon circumstances.
Answer:
Most economists believe that changes in the price level have
(a) no effect on the quantity of output supplied in either the short run or the long run.
(b) an effect on the quantity of output supplied in the short run, but not in the long run.
(c) an effect on the quantity of output supplied in the long run, but not in the short run.
(d) an effect on the quantity of output supplied in both the short run and the long run.
Answer:
If the price level in Japan increases more rapidly than the price level in Britain, we
would expect
(a) interest rates in Japan to lower than interest rates in Britain.
(b) the Japanese yen to depreciate against the British pound.
(c) the British pound to depreciate against the Japanese yen.
(d) Japanese productivity to have increased more rapidly than British productivity.
Answer:
If there is an excess supply of bonds at a given price of bonds, then
(a) the interest rate will fall.
(b) the interest rate will rise.
(c) the price of bonds will fall.
(d) the interest rate may rise or the interest rate may fall depending upon the reasons for
the excess demand for bonds.
Answer:
The average investor must weigh the benefits of liquidity against
(a) the high taxes generally levied on liquid assets.
(b) the lower returns on liquid assets.
(c) the high transactions costs involved in disposing of liquid assets.
(d) the greater variability in the nominal returns on liquid assets.
Answer:
Disintermediation involves
(a) an increase in regulatory restrictions on bank lending.
(b) a shift by depositors from bank deposits to other investments.
(c) an increase in borrowing from banks at the expense of alternative sources of funds.
(d) a decrease in interest rates following an expansion in the money supply.
Answer:
A U.S. bank has £50 million in deposits and makes a loan of £100 million when the
exchange rate is $1 = £1. 5. If the exchange rate changes to $1 = £2, then the bank’s net
worth will change by
(a) +$8.33 million.
(b) +$16.67 million.
(c) $8.33 million.
(d) $16.67 million.
Answer: