Financial markets serve as the
A) primary source of funds for financial intermediaries.
B) means of converting cash into tangible assets.
C) transmission mechanism between savers and borrowers.
D) economic system’s ultimate source of funds.
Which of the following appears as a liability on the Federal Reserves balance sheet?
A) U.S. government securities owned outright
B) Commercial bank deposits
C) Gold certificates
D) Cash items in the process of collection
If velocity is constant and equal to 5, a $20 billion shift of the LM curve to the right
will be produced by a __________ in the money supply.
A) $100 billion increase
B) $100 billion decrease
C) $4 billion increase
D) $4 billion decrease
A decrease in the money supply will immediately __________ the __________ interest
rate, according to the “liquidity effect.”
A) raise; natural
B) raise; nominal
C) lower; natural
D) lower; nominal
The Great Depression is thought to have been prolonged and made deeper by
A) contraction of the money supply.
B) the stock market crash.
C) speculative behavior of investors.
D) rapid inflation.
The increasing attractiveness of a variety of liquid financial assets has caused the
A) velocity of M1 to rise.
B) demand for M1 to rise.
C) velocity of M1 to decline.
D) supply of M1 to decline.
The smaller the marginal propensity to consume, the
A) flatter the IS curve will be.
B) steeper the IS curve will be.
C) flatter the LM curve will be.
D) steeper the LM curve will be.
For a ten-year $1,000,000-face-value zero-coupon Treasury bond, how does its market
price change when the interest rate goes from 6.84% to 6.92%?
A) A fall of $1192
B) A fall of $3848
C) A fall of $8000
D) A rise of $8000
A business firm that has temporary surplus funds is most likely to buy
A) U.S. Treasury bills.
B) U.S. Treasury bonds.
C) corporate stock.
D) corporate bonds.
During the 1930s, the money supply increased 35 percent while consumer prices
A) rose 70 percent.
B) also rose 35 percent.
C) were virtually unchanged.
D) fell 20 percent.
In a world of certainty, the interest rate reflects
A) the degree of risk.
B) differing time patterns of individuals’ consumption preferences.
C) economic growth.
D) qualifications of borrowers.
Empirical evidence indicates that money demand is determined by
A) interest rates and the level of GDP.
B) the inflation rate and the unemployment rate.
C) interest rates and the money supply.
D) the money supply and the level of GDP.
In the ISLM framework, monetary policy has the greatest impact on equilibrium
income
A) when money demand = money supply.
B) when money supply is infinitely elastic.
C) when the interest rate is high.
D) the less is the interest-sensitivity of money demand.
Because they combine high yield and high risk, junk bonds
A) should never be considered sound investments.
B) may increase the overall yield of a portfolio containing stocks without an undue
increase in risk.
C) should be purchased only by risk lovers.
D) None of the above.
In banking-oriented systems, handling of the manager-stockholder conflict in large
firms is through
A) rating agencies.
B) the potential for takeovers.
C) management ownership of the firm.
D) bank ownership of the firm.
Along an LM curve at lower income levels the transactions demand for money is
__________, so the interest rate must be __________ to equate the demand to the fixed
supply of money.
A) higher; higher
B) higher; lower
C) lower; higher
D) lower; lower