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The automatic mechanism can best be described as:
A) the process of the economy adjusting back to potential GDP without any action
taken by the government
B) the result of monetary policy implemented by the Fed restoring full employment
C) how fiscal policy is used to return the economy to its potential
D) using rule-based policies to stabilize the economy
Answer:
Economists who have studied the Phillips curve have concluded that it can shift due to
all of the following EXCEPT
A) demand shocks.
B) supply shocks.
C) changes in household expectations of inflation.
D) changes in firms' expectations of inflation.
Answer:
If bond investors think they lack enough details to evaluate the likelihood of defaults on
certain bonds, this will result in higher:
A) expected return
B) liquidity
C) information costs
D) expected inflation
Answer:
Sales finance companies
A) purchase accounts receivable of small firms at a discount.
B) sell commercial paper and buy long-term corporate bonds.
C) take in deposits from savers and buy corporate commercial paper.
D) are affiliated with companies which manufacture or sell goods.
Answer:
According to the Efficient Markets Hypothesis, prices of securities
A) change infrequently.
B) change frequently to reflect news about changes in the fundamental values of the
securities.
C) change frequently as evaluations of existing information about the securities change.
D) are not allowed, under federal securities laws, to change more frequently than once a
month.
Answer:
A bank that expects interest rates to fall will
A) want the duration of its assets to be greater than the duration of its liabilitiesa
positive duration gap.
B) want the duration of its assets to be less than the duration of its liabilitiesa positive
duration gap.
C) want the duration of its assets to be greater than the duration of its liabilitiesa
negative duration gap.
D) want the duration of its assets to be less than the duration of its liabilitiesa negative
duration gap.
Answer:
When did Regulation Q finally disappear?
A) 1934
B) 1945
C) 1986
D) 2000
Answer:
Speculators who think the euro is likely to decline over the next year can take all of the
following actions EXCEPT
A) buying put options on euros.
B) sell euro futures contracts.
C) sell euro forward contracts.
D) buying call options on euros.
Answer:
Suppose that savers become much more willing to purchase a certain type of municipal
bond. The result will be that the bond's price will
A) fall relative to the price of U.S. Treasury securities but rise relative to the price of
corporate bonds.
B) rise relative to the price of U.S. Treasury securities but fall relative to the price of
corporate bonds.
C) rise relative to the prices of U.S. Treasury securities and corporate bonds.
D) fall relative to the prices of U.S. Treasury securities and corporate bonds.
Answer:
Under which circumstance is the Fed most likely to carry out a defensive open market
operation?
A) to prevent an increase in inflation
B) if a snowstorm results in a delay in check clearing, resulting in an increase in the
Federal Reserve float
C) to defend the value of the U.S. dollar on the foreign exchange market
D) to prevent the negative impact of a demand shock
Answer:
The original Federal Reserve Act
A) specified open market operations as the Fed's main policy tool.
B) specified open market operations as one of several Fed policy tools.
C) specified that open market operations be employed by the Fed only in circumstances
where discount loans were ineffective.
D) did not specifically mention open market operations.
Answer:
Which of the following involves payment of part of the face value or principal prior to
maturity?
A) fixed-payment loan
B) coupon bond
C) discount bond
D) simple loan
Answer:
When prices of new houses rise significantly faster than rent prices, this is evidence of
a:
A) debt-deflation process
B) bubble
C) financial crisis
D) sovereign debt crisis
Answer:
The largest financial market in the world is the:
A) stock market
B) bond market
C) options market
D) foreign exchange market
Answer:
Bank capital is
A) the current market value of the bank's physical assets.
B) the historical or original value of the bank's physical assets.
C) the capital contributed by the bank's shareholders plus accumulated retained profits.
D) the sum of the value of the bank's assets plus the value of the bank's liabilities.
Answer:
Banks who held mortgage-backed securities "took a bath" during the financial crisis of
2007-2009 due to:
A) rising yields in secondary markets which led to a decline in the price of
mortgage-backed securities.
B) falling yields in secondary markets which led to a decline in the price of
mortgage-backed securities.
C) their inability to issue new mortgages.
D) more rapid pre-payment of mortgages.
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:
Which combination of assets represents the most diversification?
A) holding corporate and Treasury bonds
B) holding shares of Google and Yahoo
C) holding shares of Google and Microsoft
D) holding shares of Google along with Treasury bonds
Answer:
Suppose that a small economy that had previously been closed becomes open. If its real
interest rate had previously been below the world real interest rate, we would expect
that
A) the country's real interest rate would remain below the world level.
B) the country would become a net lender abroad.
C) the country would become a new borrower abroad.
D) the amount of loanable funds supplied in the country would decline.
Answer:
Commodity money can best be described as
A) money used to purchase agricultural products
B) a good used as money that also has value independent of its use as money
C) standardized goods like gold that trade in a financial market
D) the form of money used in a barter system
Answer:
The law of one price states that
A) most countries require that all entering goods have the same price.
B) most countries require that all exported goods have the same price.
C) identical goods should have the same price anywhere in the world.
D) most countries require that the price of a good not be changed once it is already in a
store and available for sale.
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:
The demand for bonds is
A) equivalent to the demand for loanable funds.
B) equivalent to the supply of loanable funds.
C) represented by an upward-sloping line when the price of bonds is on the vertical axis
and the quantity of bonds demanded is on the horizontal axis.
D) represented by a downward-sloping line when the interest rate is on the vertical axis
and the quantity of bonds demanded is on the horizontal axis.
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 difficulty in practice of computing stock prices on the basis of expectations of
future dividends.
Answer:
An investor who desired the ability to have quick and easy access to cash would prefer
to hold which type of asset?
A) risky
B) liquid
C) tax free
D) any form of bond
Answer:
One difference between futures and options contracts is
A) funds change hands daily in the case of options but not with futures.
B) funds change hands daily in the case of futures, but not with options.
C) in the case of futures funds only change hands when they are exercised.
D) futures are designed to reduce risk while options are not.
Answer:
In 1971 money market mutual funds were introduced as an alternative to
A) commercial paper.
B) Treasury bills.
C) repurchase agreements.
D) bank deposits.
Answer:
The aggregate expenditure line is upward sloping since as GDP increases,
A) consumption increases
B) investment increases
C) government purchases increase
D) net exports increase
Answer:
Money market deposit accounts are included in
A) only M1.
B) only M2.
C) M1 and M2.
D) neither M1 nor M2.
Answer:
What was the purpose of the stress test administered by the Treasury in 2009?
A) Evaluate potential losses of Fannie Mae and Freddie Mac.
B) Assess the viability of AIG.
C) Gauge how well the largest financial firms would fare if the recession deepened.
D) Evaluate the solvency of the major investment banks.
Answer:
The assumption of asymmetric information means that
A) borrowers and lenders have the same information.
B) borrowers and lenders have perfect information.
C) borrowers know more than lenders.
D) lenders know more than borrowers.
Answer:
Which of the following is NOT covered by federal deposit insurance?
A) savings account
B) money market mutual funds
C) checking account
D) money market deposit account
Answer:
In a move up the IS curve,
A) investment rises.
B) output falls.
C) the real interest rate falls.
D) saving rises.
Answer:
An increase in the price level
A) shifts the short-run aggregate supply curve up and to the left.
B) shifts the short-run aggregate supply curve down and to the right.
C) shifts the long-run aggregate supply curve to the left.
D) results in a movement along the short-run aggregate supply curve, rather than a shift
in the short-run aggregate supply curve.
Answer:
