The Federal Reserve System
(a) is in charge of managing the New York Stock Exchange.
(b) is headed by the Secretary of the Treasury.
(c) is the central bank of the United States.
(d) was dissolved in the late 1980s.
Answer:
What did President Bush’s advisers believe should be done about the weakness in the
U.S. economy in the fall of 1991?
(a) They argued in favor of an expansionary fiscal policy.
(b) They argued in favor of waiting for the effects of falling prices.
(c) They argued in favor of an expansionary monetary policy.
(d) They argued in favor of waiting for economic recovery in Japan and Europe to
increase demand for U.S. products.
Answer:
Which of the following is fixed on a coupon bond?
(a) Coupon rate
(b) Current yield
(c) Market price
(d) Yield to maturity
Answer:
Currently, the FDIC insures deposits up to a limit of
(a) $1000.
(b) $2500.
(c) $100,000.
(d) $1,000,000.
Answer:
The portfolios that mutual funds offer to savers are
(a) usually made up of bonds.
(b) usually made up of common stocks.
(c) tax free in most states.
(d) usually more liquid than the underlying assets.
Answer:
The Fed had particular difficulty during the 1970s in attempting to control both the
federal funds rate and monetary aggregates because
(a) of fluctuations in consumer and business spending.
(b) the federal funds rate is inherently unstable.
(c) of the impact of the savings-and-loan crisis.
(d) actions of the nonbank public made the money multiplier very unstable.
Answer:
Which of the following statements is true?
(a) The Fed sets the discount rate, but Congress sets the conditions for the availability
of discount loans.
(b) The Fed sets the discount rate, but the Secretary of the Treasury sets the conditions
for the availability of discount loans.
(c) The Secretary of the Treasury sets both the discount rate and the conditions for the
availability of discount loans.
(d) The Fed sets both the discount rate and the conditions for the availability of discount
loans.
Answer:
An increase in real output causes the demand for real balances
(a) to rise and the interest rate to fall.
(b) to fall and the interest rate to rise.
(c) and the interest rate to fall.
(d) and the interest rate to rise.
Answer:
If the Treasury mints more coins and sends them to the Fed,
(a) the monetary base will rise.
(b) the monetary base will fall.
(c) the monetary base will be unaffected.
(d) the monetary base may rise or fall depending upon whether the public’s demand for
coins has risen or fallen.
Answer:
Which of the following statements concerning the relation among consumption, saving,
and income over the life cycle is INCORRECT?
(a) Individuals who have recently entered the labor force tend to consume more than
they earn.
(b) Individuals who are in their peak earning years tend to have positive savings.
(c) Individuals who are retired tend to finance part of their consumption by borrowing.
(d) Most households attempt to even out the amount they consume over their life
cycles.
Answer:
Financial intermediaries pool the funds of
(a) a few large savers and make loans to many borrowers.
(b) many small savers and make loans to a few large borrowers.
(c) many small savers and make loans to many borrowers.
(d) a few large savers and make loans to a few large borrowers.
Answer:
The attribute that distinguishes money from other assets is that only money
(a) retains its value during times of inflation.
(b) is counted in determining the size of an individual’s wealth.
(c) serves as a medium of exchange.
(d) may be used as collateral for a bank loan.
Answer:
Acme Gold Mining, Inc. discovers a huge vein of gold in the mountains of Iowa. This is
an example of
(a) the high returns that can be expected from investing in companies that mine
minerals.
(b) idiosyncratic risk.
(c) market risk.
(d) systematic risk.
Answer:
Which of the following expressions gives the present value of future dividends for a
company whose current dividend is $5.00 and whose future dividends are expected to
grow at rate g?
(a) [$5.00(1 g)]/(i g)
(b) [$5.00(1 + g)]/(i +g)
(c) [$5.00(1 g)]/(i +g)
(d) [$5.00(1 + g)]/(i g)
Answer:
According to William McChesney Martin, an increase in free reserves indicated
(a) an easing of money market conditions.
(b) a tightening of money market conditions.
(c) that inflation was likely to decline.
(d) that interest rates would be falling.
Answer:
Irving Fisher converted the equation of exchange into a theory of money demand by
assuming that
(a) nominal balances always equal real balances.
(b) velocity is a constant.
(c) inflation is always zero.
(d) short-term interest rates always equal long-term interest rates.
Answer:
A coupon bond involves
(a) interest payments from the borrower to the lender periodically during the life of the
loan and payment by the borrower to the lender of the face value of the loan at maturity.
(b) interest payments from the borrower to the lender periodically during the life of the
loan, but no payment by the borrower to the lender of the face value of the loan at
maturity.
(c) periodic payments by the borrower to the lender that include both principal and
interest.
(d) periodic payments by the borrower to the lender that include principal, but not
interest.
Answer:
The Fed’s goal of interest rate stability
(a) was formally abandoned in 1998.
(b) is motivated by political pressure as well as by a desire for a stable saving and
investment environment.
(c) is undermined by actions the Fed takes to further its goal of stability in financial
markets and institutions.
(d) is undermined by actions the Fed takes to further its goal of price stability.
Answer:
During the years from 1964 to 1969, inflation increased in the United States
(a) when the AD curve shifted up and to the right, even though the SRAS curve
remained stable.
(b) when the SRAS curve shifted up and to the left, even though the AD curve remained
stable.
(c) when the AD curve shifted up and to the right and the SRAS curve shifted up and to
the left.
(d) despite the AD and SRAS curves remaining stable.
Answer:
The inclusion in M1 of interest-bearing substitutes for conventional checkable deposits
in the early 1980s,
(a) increased the demand for M1 at each level of nominal GDP, thereby decreasing
velocity.
(b) decreased the demand for M1 at each level of nominal GDP, thereby increasing
velocity.
(c) increased the demand for M1 at each level of nominal GDP, thereby increasing
velocity.
(d) decreased the demand for M1 at each level of nominal GDP, thereby decreasing
velocity.
Answer:
The expectations theory suggests that
(a) the yield curve should normally be upward sloping.
(b) the yield curve should normally be downward sloping.
(c) the slope of the yield curve depends on the expected future path of short-term rates.
(d) the slope of the yield curve reflects the risk premium incorporated into the yields on
long-term bonds.
Answer:
Why was Russia in the news during late 1998?
(a) Its GDP had become greater than that of the United States.
(b) It had defaulted on its debt.
(c) It had decided to adopt the U.S. dollar as its domestic currency.
(d) It was accepted into the European Economic Union.
Answer:
Real money balances equal
(a) MP.
(b) M/P.
(c) P/M.
(d) nominal money balances.
Answer:
A portfolio consisting of every stock traded on the New York Stock Exchange would
have
(a) diversified away all risk.
(b) diversified away idiosyncratic risk.
(c) diversified away market risk.
(d) much more risk than a portfolio containing only a few stocks.
Answer:
Unlike brokers, dealers
(a) buy and sell both stocks and bonds.
(b) hold inventories of securities.
(c) are unregulated by the federal government.
(d) are taxed by the federal government but not by state and local governments.
Answer:
The lower the amount of deposits covered by insurance,
(a) the greater the extent of moral hazard in the banking system.
(b) the greater is the incentive for depositors to monitor banks.
(c) the greater is the need for government regulation of banking.
(d) the likelier the managers of banks are to make risky investments.
Answer:
A decline in borrower net worth
(a) raises information costs, but increases the ability of households and firms to borrow.
(b) reduces information costs and increases the ability of households and firms to
borrow.
(c) raises information costs and reduces the ability of households and firms to borrow.
(d) reduces information costs and reduces the ability of households and firms to borrow.
Answer:
Other assets are inferior to money in the sense that
(a) they increase in value more slowly than does money.
(b) they have a lower overall return than money.
(c) they are more vulnerable to losing their real value as inflation increases.
(d) they generate transactions costs when they are exchanged for money.
Answer:
Under current Fed practice, changes in policy made by the FOMC
(a) are announced at the time they are made.
(b) are announced six weeks after they are made.
(c) must be approved by the Secretary of the Treasury.
(d) must be approved by a majority of the presidents of the Federal Reserve district
banks.
Answer:
Which of the following is an example of a barter transaction?
(a) An individual pays her electric bill with a check.
(b) An individual pays her electric bill with currency.
(c) An individual provides three light bulbs to her neighbor in exchange for two gallons
of milk.
(d) An individual deposits three twenty-dollar bills in her checking account.
Answer:
The choice between futures and options
(a) depends on whether the underlying instrument is a debt instrument or an equity.
(b) reflects a trade-off between the higher cost of using options and the extra insurance
benefits that options provide.
(c) reflects a trade-off between the higher cost of using futures and the extra insurance
benefits that futures provide.
(d) reflects a trade-off between the greater risk from using options and the extra
insurance benefits that options provide.
Answer:
The bid price for a bond is
(a) the minimum price that you are allowed to bid for a bond that is being auctioned by
the government.
(b) the maximum price that you are allowed to bid for a bond that is being auctioned by
the government.
(c) the price that you will receive from a securities dealer if you sell the bond.
(d) the price that you must pay a securities dealer to purchase a bond.
Answer:
In December 2000, what was the total value of Federal Reserve Notes in circulation?
(a) $12 million
(b) $100 million
(c) $460 billion
(d) $6 trillion
Answer:
Which of the following statements is true about M2?
(a) Its total value is smaller than that of M1.
(b) Apart from those assets also included in M1 it includes no assets that offer
check-writing features.
(c) Its total value is more than three times as large as M1.
(d) It includes large-denomination time deposits.
Answer: