In early 2003, President Bush was considering whether to nominate Alan Greenspan for
(a) a fourth term as Chairman of the Board of Governors of the Federal Reserve
System.
(b) a fifth term as Chairman of the Board of Governors of the Federal Reserve System.
(c) a third term as Chairman of the Board of Governors of the Federal Reserve System.
(d) the position of Secretary of Treasury.
Answer:
Rational expectations involve the assumption that
(a) market participants make use only of information on the past performance of an
asset in determining what they believe its price should be.
(b) market participants rarely change their minds about the correct price of an asset.
(c) financial markets are good at increasing liquidity, but poor at transmitting
information.
(d) market participants makes use of all available information.
Answer:
Suppose that Acme Widget has a return of 10% one-quarter of the time and a return of
0% three-quarters of the time. Your expected return from investing in Acme Widget
would be
(a) 2.5%.
(b) 5.0%.
(c) 7.5%.
(d) 10.0%.
Answer:
Which of the following statements is true of the yield curve?
(a) Typically, it changes its shape without shifting up or down.
(b) Typically, it shifts up or down without changing its shape.
(c) Typically, if it shifts up or down it will also change its shape.
(d) It only rarely shifts up or down or changes its shape.
Answer:
Who is Trichet?
(a) Chairman of the Board of Governors of the Federal Reserve System
(b) Vice-Chairman of the Board of Governors of the Federal Reserve System
(c) President of the European Central Bank
(d) Secretary of the Treasury
Answer:
Which of the following was NOT a major store of U.S. household wealth in 1950?
(a) Mutual funds
(b) Equities
(c) Bank accounts
(d) U.S. government securities
Answer:
If the British pound depreciates against the U.S. dollar,
(a) British businesses gain by an increase in the dollar price of exports to the United
States.
(b) British consumers gain by a decrease in the pound price of U.S. exports to Britain.
(c) British consumers lose by an increase in the pound price of U.S. exports Britain.
(d) U.S. consumers lose by an increase in the dollar price of British exports to the
United States.
Answer:
The Federal Reserve System was created in
(a) 1836.
(b) 1863.
(c) 1913.
(d) 1945.
Answer:
Which of the following is of greatest importance in explaining the rapid growth of
international banking activities by Japanese banks during the 1980s?
(a) The deregulation of deposit rates in Japan
(b) The decline of the United Kingdom as an important international financial power
(c) The need of Japanese firms operating abroad for banking services
(d) The continued weakness of the yen versus the dollar
Answer:
The American economist who developed the quantity theory of money demand in the
early 1900s was
(a) Milton Friedman.
(b) John Maynard Keynes.
(c) Glenn Hubbard.
(d) Irving Fisher.
Answer:
In the new Keynesian view, expected changes in monetary policy can affect output in
the short run because
(a) agents do not have rational expectations.
(b) prices are sticky.
(c) business firms rarely pay attention to policy announcements.
(d) they directly increase the funds available for businesses and consumers to spend.
Answer:
If the demand for real money balances were completely insensitive to the opportunity
cost of holding money,
(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:
The balance sheet channel describes ways in which interest rate changes resulting from
monetary policy affect
(a) the portfolio decisions of households.
(b) the portfolio decisions of businesses.
(c) borrowers’ net worth.
(d) lenders’ net worth.
Answer:
How many prices would there be in a barter economy with 10 goods?
(a) 10
(b) 45
(c) 50
(d) 100
Answer:
$1 received n years from now has a value today of
(a) ($1 + i)/i.
(b) $1/(1 + i).
(c) ($1 + i)n/i.
(d) $1/(1 + i)n.
Answer:
When the interest sensitivity of the demand for real money balances is low,
(a) the LM curve is relatively flat.
(b) the IS curve is relatively steep.
(c) the LM curve is relatively steep.
(d) investment spending will also not be sensitive to the interest rate.
Answer:
The payments system is
(a) the mechanism for conducting economic transactions.
(b) another name for the system of foreign exchange rates.
(c) the phrase used to describe how transactions are carried out in an economy that does
not use money.
(d) the way in which economic transactions are carried out in a government-controlled
economy, such as the former Soviet Union.
Answer:
Which of the following is true of the new Keynesian view of stabilization policy?
(a) It is necessary because shifts in aggregate demand are the main source of
movements in current output.
(b) It is necessary during recessions but not during booms.
(c) It is unnecessary because output fluctuations reflect productivity disturbances.
(d) It is unnecessary because output fluctuations are largely the result of policy mistakes
by the Fed.
Answer:
If the Bank of England’s deposit account with the Fed increases by $1 million, the
monetary base will
(a) increase by $1 million times the dollar/pound exchange rate prevailing on that day.
(b) decrease by $1 million times the dollar/pound exchange rate prevailing on that day.
(c) decrease by $1 million.
(d) increase by $1 million.
Answer:
The members of Federal Reserve district bank boards of directors who are leaders in
industry, commerce, and agriculture are known as Class
(a) A directors.
(b) B directors.
(c) C directors.
(d) D directors.
Answer:
If the Fed chooses M1 as its intermediate target, it will likely choose as its operating
target
(a) a reserve aggregate.
(b) the federal funds rate.
(c) M2.
(d) either a reserve aggregate or the federal funds rate, depending on whether the
economy is in an expansion or a recession.
Answer:
Which of the following is not a leading underwriting firm?
(a) Merrill Lynch
(b) First Boston
(c) Fidelity Magellan Fund
(d) Goldman Sachs
Answer:
Which type of loan has the highest interest rate?
(a) primary credit.
(b) secondary credit.
(c) seasonal credit.
(d) federal funds.
Answer:
Which of the following is true of the U.S. balance of payments?
(a) It includes as receipts all inflows of funds from foreigners to the United States.
(b) It includes as receipts only inflows of funds used to purchase U.S. produced goods
and services.
(c) It includes as receipts inflows of funds used to purchase U.S. goods or services or to
acquire U.S. assets but not funds received as unilateral transfers.
(d) It includes as receipts inflows of funds used to purchase U.S. goods or services and
funds received as unilateral transfers but not inflows of funds used to acquire U.S.
assets.
Answer:
In developing early theories about money demand, economists limited their view of
money to
(a) its function as a medium of exchange.
(b) its function as a store of value.
(c) its function as a means of deferred payment.
(d) gold and silver coins.
Answer:
If a bank decides that it must write off all or part of the value of a loan, what is the
corresponding reduction in a liability entry that the bank makes?
(a) Deposits are reduced by the amount of the loan write off.
(b) Borrowings are reduced by the amount of the loan write off.
(c) Net worth is reduced by the amount of the loan write off.
(d) Cash items in the process of collection are reduced by the amount of the loan write
off.
Answer:
A one-time increase in oil prices will cause a short-run
(a) increase in the price level and in the level of current output.
(b) increase in the price level and a short-run decrease in the level of current output.
(c) decrease in the price level and in the level of current output.
(d) decrease in the price level and a short-run increase in the level of current output.
Answer:
Factoring
(a) involves selling stocks and using the proceeds to buy bonds.
(b) is purchasing accounts receivable at a discount.
(c) is calculating the optimal par values of stocks and bonds.
(d) has been declared illegal under the Factoring Reform Act of 1994.
Answer:
A financial panic will result in
(a) a rightward shift in the SRAS curve.
(b) a leftward shift in the SRAS curve.
(c) a rightward shift in the AD curve.
(d) a leftward shift in the AD curve.
Answer:
If an investment bank underwrites an issue on an “all-or-none” basis,
(a) the issuing company receives nothing unless the investment bank sells the complete
issue at the offering price.
(b) the issuing company receives the guaranteed price even if the investment bank sells
none of the issue.
(c) the investment bank makes no guarantee and is required to sell to investors only as
much of the issue as it can.
(d) the investment bank will raise the indicated funds from an issue that is either all
stock or all bonds.
Answer:
The Fed’s interest in targets emerged
(a) because the Federal Reserve Act mandated that targets be specified.
(b) following its difficulties during the Great Depression.
(c) in the early 1950s following its struggle with the U.S. Treasury for control of
monetary policy.
(d) in an attempt to deal with accelerating inflation during the late 1970s.
Answer:
When economists refer to substitutability in discussing money, they are referring to
(a) the rate at which households substitute work for leisure in exchange for money.
(b) the rate at which one country’s currency can be substituted for another country’s
currency.
(c) the ease with which an asset can be converted into definitive money with no loss of
value.
(d) the ease with which currency can be converted into silver or gold.
Answer:
An increase in government purchases reduces national saving as long as
(a) it causes interest rates to fall.
(b) it causes the inflation rate to fall.
(c) households’ consumption falls less than one for one in response.
(d) taxes are raised to pay for the spending.
Answer: