In the CAPM, the risk to a stock’s return that is attributable to the fluctuations in the
overall stock market is referred to as
a. idiosyncratic risk.
b. explicit risk.
c. systematic risk.
d. unsystematic risk.
Answer:
A rise in the real interest rate, everything else remaining unchanged, will cause
household investment in housing to
a. decline.
b. not change.
c. rise.
d. rise at first, then decline later.
Answer:
In its role as a lender of last resort, the government lends to banks that are
a. solvent but illiquid.
b. solvent and liquid.
c. insolvent and illiquid.
d. insolvent but liquid.
Answer:
If a bank in the economy has excess reserves of $3 million, and required reserves are 10
percent of transactions accounts under the assumptions of the simple multiplier
formula, then eventually the money supply will increase by
a. −$3 million.
b. $3 million.
c. $10 million.
d. $30 million.
Answer:
A company that takes short term deposits and makes long term loans is a
a. a financial intermediary.
b. a brokerage.
c. an investment bank.
d. a secondary market maker.
Answer:
If the natural rate of unemployment is 5.2 percent and the unemployment gap is -0.8
percent, then the unemployment rate must be
a. 0.8 percent.
b. 1.6 percent.
c. 3.2 percent.
d. 4.4 percent.
Answer:
If the population in a country is 182 million, the working-age population is 134 million,
the number of employed people is 73 million, and the number of unemployed people is
14 million, then the labor-force participation rate in the country is
a. 47.8 percent.
b. 64.9 percent.
c. 73.6 percent.
d. 82.1 percent.
Answer:
A model of stock prices that allows for more sources of risk than just the stock market’s
excess return is the________ theory.
a. excess-return
b. random-walk
c. arbitrage-pricing
d. idiosyncratic-risk
Answer:
The hypothesis that an increase in the expected inflation rate will cause the nominal
interest rate to rise and the real interest rate to remain unchanged is the
a. Fisher hypothesis.
b. rational-expectations theory.
c. Okun’s hypothesis.
d. Keynesian hypothesis.
Answer:
Mobi’s is a new company that manufactures premium apparel for men. It needs fund for
expanding its production units and is planing to issue the first lot of shares. These
shares will be traded in the ______.
a. primary market
b. secondary market
c. tertiary market
d. closed market
Answer:
A situation in which all markets are in equilibrium and all economic agents have made
decisions in their own best interest is called
a. general equilibrium.
b. the liquidity effect.
c. the real wealth effect.
d. dynamic equilibrium.
Answer:
The Dodd-Frank Act requires that the FDIC restore its Deposit Insurance Fund to a
healthy level by the year
a. 2040.
b. 2020.
c. 2018.
d. 2012.
Answer:
If velocity of money is 6, the price level is 1.2, and real output is worth $1,100 billion,
what is the money supply?
a. $65 billion
b. $153 billion
c. $220 billion
d. $5,500 billion
Answer:
In the 1980s, the United States suffered one of its worst financial crises when
______began to fail in large numbers.
a. commercial banks
b. stock brokers
c. money market mutual funds
d. savings and loan institutions
Answer:
Under the assistance method of handling a bank failure, the FDIC
a. takes over the bank and controls its operations.
b. closes the bank, sells off the assets, pays off insured depositors, and then pays off
creditors of the bank if funds remain.
c. keeps the bank open and lends funds to it so that it survives.
d. finds a buyer for the bank, giving the buyer the good assets of the bank, and assumes
the bad loans of the bank.
Answer:
If the working-age population in a country is 215 million, the labor force is 145 million,
and the number of employed people is 137 million, then the labor-force participation
rate in the country is
a. 2.5 percent.
b. 67.4 percent.
c. 45.3 percent.
d. 94.5 percent.
Answer:
To keep large financial firms from behaving recklessly and endangering the rest of the
economy, the Dodd-Frank
Wall Street Reform and Consumer Protection Act created the
a. Financial Stability Oversight Council.
b. Financial Stimulus Oversight Council.
c. Financial Stability Output Council.
d. Financial Crisis Oversight Corporation.
Answer:
A financial intermediary specializes in knowing about people who apply for loans. The
intermediary knows how to evaluate credit histories and the probabilities that borrowers
will repay. These facts are examples of which of the following functions of financial
intermediaries?
a. Gathering information
b. Helping savers diversify
c. Pooling funds
d. Taking short-term deposits in order to make long-term loans
Answer:
Mary bought a bond a debt security for $2,500 with a nominal interest rate of 5 percent.
If the inflation rate is 4 percent and Mary must pay 30 percent of her income in taxes,
her after-tax nominal interest income is .
a. $87.50
b. $22.50
c. $37.50
d. $48.50
Answer:
In the ATM model of the demand for cash, if a person’s daily amount of spending
increases, then
a. the number of days between visits to the ATM falls and the quantity of money
demanded rises.
b. the number of days between visits to the ATM rises and the quantity of money
demanded falls.
c. both the number of days between visits to the ATM and the quantity of money
demanded rises.
d. both the number of days between visits to the ATM and the quantity of money
demanded falls.
Answer:
The price of a stock at the beginning of a year is $50. There is a 70 percent chance of its
price rising to $55 by the end of the year and a 30 percent chance of its price falling to
$45. The stock will pay an amount of $2 at the end of the year. The current yield of the
security is____
a. 4 percent
b. 5 percent
c. 70 percent
d. 30 percent
Answer:
A financial market is
a. a place or a mechanism by which borrowers, savers, and financial intermediaries
trade.
b. an electronic means of transacting.
c. a place where people engage in indirect finance.
d. a secondary market.
Answer:
Which of the following bonds has the greatest interest-rate risk?
a. A one-year bond
b. A five-year bond
c. A ten-year bond
d. A thirty-year bond
Answer:
Suppose, the U.S. has domestic savings of $100 billion, domestic investment of $60
billion, and a government budget surplus of $30 billion. Based on these figures, the
amount of net foreign investment is $ billion.
a. 10
b. 70
c. 130
d. 190
Answer:
A debt security with just one payment at a future date is referred to as a
a. coupon bond.
b. fixed-payment security.
c. discount bond.
d. perpetuity.
Answer:
In which of the following periods was labor productivity growth the fastest in the U.S.
economy?
a. Long boom
b. Economic liftoff period
c. Great Depression
d. Reorganization period
Answer:
Inflation affects money by
a. increasing money’s efficiency as a medium of exchange.
b. limiting money’s role as a store of value.
c. reducing the supply of money.
d. reducing transactions and search costs.
Answer:
Past return refers to the
a. highest annual return that a security has produced in the past.
b. mode of the annual returns that a security has produced in the past.
c. average of the annual returns that a security has produced in the past.
d. median of the annual returns that a security has produced in the past.
Answer:
The unemployment rate minus the natural rate of unemployment is known as the
a. nominal rate of unemployment.
b. ideal unemployment rate.
c. unemployment gap.
d. non-accelerating inflation rate of unemployment (NAIRU).
Answer:
Treasury bills issued by the U.S. government
a. do not have a specific period of maturity.
b. promises to pay dividends to its owners.
c. are long term debt securities.
d. are short term debt securities.
Answer:
Why is there an effectiveness lag for monetary policy?
Answer: