The Competitive Equality Banking Act of 1987
(a) made branching across state lines legal.
(b) forbade the opening of additional nonbank banks.
(c) mandated that banks charge the same interest rate to all customers receiving a
particular type of loan.
(d) made bank holding companies illegal.
Answer:
Which of the following statements is correct?
(a) Both new Keynesian and new classical economists believe money is neutral in the
short run.
(b) New Keynesian economists believe money is neutral in the short run, but new
classical economists do not.
(c) Both new Keynesian and new classical economists believe money is neutral in the
long run.
(d) New classical economists believe money is neutral in the long run, but new
Keynesian economists do not.
Answer:
The McFadden Act of 1927
(a) separated commercial banking from investment banking.
(b) put a tax on the issuance of bank notes by state banks.
(c) prohibited national banks from operating branches outside their home states.
(d) established the Federal Reserve System.
Answer:
The most important reason why economies at an early stage of development tend to
operate inefficiently is that
(a) they tend to be dominated by the agricultural sector, where productivity is usually
low.
(b) they tend to have authoritarian governments that stifle innovation.
(c) they tend to be plagued by superstitious beliefs that stifle innovation.
(d) they tend not to have specialization of labor.
Answer:
Which banks are members of the Federal Reserve System?
(a) Only national banks.
(b) Only state banks.
(c) Both state and national banks.
(d) Only bank holding companies.
Answer:
In a closed economy, if the goods market is in equilibrium, national saving is $2 trillion,
national consumption is $7 trillion, and government purchases are $2.5 trillion, then
GDP equals
(a) $7 trillion.
(b) $9.5 trillion.
(c) $11.5 trillion.
(d) Not enough information has been provided to determine the answer.
Answer:
The key assumption of the preferred habitat theory is that investors
(a) view bonds of different maturities as perfect substitutes.
(b) view bonds of different maturities as completely unsubstitutable.
(c) always choose the bond with the highest expected return, regardless of maturity.
(d) care about both expected returns and maturity.
Answer:
The gold standard probably made the Great Depression more severe in the United
States because
(a) the value of gold declined sharply during those years.
(b) the existence of the gold standard kept prices from falling.
(c) the money supply in the United States increased rapidly as gold flowed into the
country.
(d) the Fed attempted to reduce gold outflows by raising the discount rate.
Answer:
The effect of which of the following on the monetary base could be offset with a
defensive open market purchase?
(a) The Treasury pays for $1 billion in federal government purchases out of its account
at the Fed.
(b) Federal Reserve float declines.
(c) Discount loans increase.
(d) The amount of Treasury coins outstanding increases.
Answer:
We would not expect a Japanese financial asset and a U.S. financial asset with identical
risk, liquidity, and information characteristics to have different expected returns because
(a) the U.S. and Japanese governments have pledged themselves to avoid this outcome.
(b) traders would buy the asset with the higher expected yield and sell the asset with the
lower expected yield until the yields were brought into equality.
(c) traders would sell the asset with the higher expected yield and buy the asset with the
lower expected yield until the yields were brought into equality.
(d) the exchange rate between the dollar and the yen would adjust automatically to
eliminate any difference in yields.
Answer:
States that restrict banks to having a single branch are said to require
(a) mono banking.
(b) nonbank banking.
(c) unit banking.
(d) semi-banking.
Answer:
How does the Open Market Trading Desk conduct its operations?
(a) Directly with government securities dealers on the floor of the New York Stock
Exchange.
(b) Directly with government securities dealers on the floor of the Federal Reserve
Bank of New York.
(c) Over the counter electronically with government securities dealers.
(d) By sending its buy and sell orders to the U.S. Treasury for execution.
Answer:
A one-year discount bond with a face value of $10,000 has an interest rate of 5%. What
is its price?
(a) $9500
(b) $9523.81
(c) $9625.25
(d) $9800
Answer:
Differences in the taxation of returns
(a) only affect the yields of illiquid credit market instruments.
(b) have a negligible effect on the yields of credit market instruments.
(c) only affect the yields of high-information cost credit market instruments.
(d) create differences in yields among credit market instruments.
Answer:
An unsterilized foreign-exchange intervention occurs
(a) whenever a central bank purchases or sells domestic currency.
(b) whenever a central bank purchases or sells foreign currency.
(c) whenever a central bank allows the monetary base to respond to the sale or purchase
of domestic currency.
(d) whenever a central bank fails to reduce its holdings of gold by the amount of a
foreign-exchange purchase.
Answer:
From 1863 to 1914, which banks issued bank notes?
(a) Only state banks
(b) Only national banks
(c) Both state and national banks
(d) Only Federal Reserve banks
Answer:
The economy begins to enter a recession, but it is several months before this is reflected
in the statistics on GDP. This is an example of
(a) a data lag.
(b) an impact lag.
(c) an implementation lag.
(d) a legislative lag.
Answer:
By designating Federal Reserve currency as legal tender, the federal government
(a) has ensured that Federal Reserve currency will serve as money.
(b) has guaranteed that Federal Reserve currency may be exchanged for an equivalent
amount of gold or silver.
(c) has mandated that Federal Reserve currency be accepted in discharge of debts.
(d) has mandated that Federal Reserve currency be accepted by citizens of foreign
countries in exchange for their countries’ currencies.
Answer:
U.S. officials carry out foreign-exchange interventions through
(a) the U.S. Treasury’s Office of Foreign Exchange Management.
(b) the U.S. Treasury’s Exchange Stabilization Fund.
(c) the Fed’s Brussels office.
(d) the International Monetary Fund’s Office of Official Interventions.
Answer:
Trading in money markets involves
(a) debt instruments with maturities of more than one year.
(b) equities.
(c) debt instruments with maturities of less than one year.
(d) debt instruments with maturities of more than one year, but less than ten years.
Answer:
Which of the following is true of the new classical view of stabilization policy?
(a) It is necessary, but it should not be overused.
(b) It is necessary during recessions but not during booms.
(c) It is unnecessary because households and firms make use of all available
information in forming expectations of the price level.
(d) It has been very successful in the period since the Great Depression.
Answer:
Which of the following assets has the highest information costs?
(a) A U.S. Treasury bond
(b) A bond issued by the city of Smallplace, South Dakota
(c) A bond issued by General Motors
(d) A share of stock issued by General Motors
Answer:
According to Sherman Maisel’s experience, the most powerful group in the Fed, apart
from the chairman of the Board of Governors, is
(a) the staff of the Board of Governors and the FOMC.
(b) the other members of the Board.
(c) the Federal Reserve Bank presidents.
(d) the Federal Reserve Bank boards of directors.
Answer:
If the account manager finds that the current level of bank reserves is greater than the
desired level indicated in the most recent directive from the FOMC, he will
(a) order banks to reduce their reserves.
(b) order banks to raise their interest rates in an attempt to get them to loan out more of
their reserves.
(c) conduct an open market purchase.
(d) conduct an open market sale.
Answer:
Which of the following is NOT one of the three largest financial institutions in the
world?
(a) UBS
(b) Mizuho
(c) Citigroup
(d) Bank of America
Answer:
A sterilized intervention will not affect the exchange rate if
(a) capital controls are in place.
(b) domestic and foreign assets are perfect substitutes.
(c) domestic assets are more liquid than foreign assets.
(d) domestic assets are less liquid than foreign assets.
Answer:
In the bank lending channel, an important reason for output increases in the short run
after an expansionary monetary policy is that
(a) the funds directly available for households and firms to spend will increase.
(b) prices will increase, making increased production more profitable for firms.
(c) the increase in government spending from an expansionary monetary policy
increases output through the multiplier effect.
(d) the ability of banks to make loans will increase.
Answer:
When economists state that money is neutral in the long run, they mean that in the long
run
(a) fluctuations in the money supply are equally likely to lead to recessions as to
expansions.
(b) changes in the money supply have the same impact on the rich as they do on the
poor.
(c) the level of output is independent of the nominal money supply.
(d) the price level is independent of the nominal money supply.
Answer:
A transactions tax imposed on financial markets would
(a) increase trading in financial assets.
(b) increase the likelihood of bubbles in stock prices.
(c) reduce market liquidity.
(d) make U.S. financial markets more attractive relative to foreign financial markets.
Answer:
Why are there periodic increases in borrowing in the banking system?
(a) Payments on discount loans are due periodically.
(b) Trading volume on the New York Stock Exchange peaks periodically.
(c) Banks must satisfy reserve requirements periodically.
(d) Banks make their federal tax payments periodically.
Answer:
Savers view the liquidity of financial assets as a benefit because
(a) they want to be able to easily exchange their assets for something else.
(b) the more liquid an asset is, the higher its rate of return, all else being constant.
(c) liquid assets incur fewer tax liabilities than do illiquid assets.
(d) liquid assets are a good means of saving for retirement.
Answer:
The failure of financially healthy banks is particularly likely to hurt
(a) large corporations.
(b) sellers of corporate bonds.
(c) the federal government’s attempts to sell its securities.
(d) households and small and medium-sized businesses.
Answer:
Who had served as a de facto lender of last resort during the 1907 panic?
(a) The U.S. Treasury
(b) J. P. Morgan
(c) Henry Ford
(d) John D. Rockefeller
Answer:
Securities market institutions
(a) include insurance companies and pension funds.
(b) include commercial banks.
(c) include mutual funds.
(d) are not financial intermediaries.
Answer:
The yield to maturity is equal to
(a) the interest rate at which the present value of an asset’s returns is equal to its value
today.
(b) the face value or par value of a coupon bond.
(c) any payments received from an asset at the date the asset matures.
(d) interest rate on the asset minus any taxes owed on the interest received.
Answer: