In the ISLM framework, a declining price level causes
A) interest rates to rise.
B) income to fall.
C) saving to rise.
D) the LM curve to shift to the right.
The Federal Reserve econometric model estimates that it takes __________ for
crowding out to reduce the impact of a 1 percent increase in government spending, with
the money supply held constant, to zero.
A) 2 years
B) 3 years
C) 4 years
D) Crowding out never reduces the impact to zero.
The coupon equivalent yield of a one-year Treasury bill with a $1,000 face value and a
current price of $970 is __________ percent.
A) 3.1
B) 3.0
C) 9.7
D) None of the above.
The coupon equivalent yield on a six-month Treasury bill that has a $1,000 face value
and sells for $960 is
A) 6.5 percent.
B) 8.3 percent.
C) 9.5 percent.
D) 9.8 percent.
Since mid-2000, the Fed’s only operating target has been
A) M2 money supply growth.
B) the discount rate.
C) the consumer price index.
D) the federal funds rate.
In bank regulation in the United States there is a strong emphasis on
A) maximizing depositor returns.
B) limiting depositor returns.
C) maximizing depositor risk.
D) limiting depositor risk.
The difference between a bank’s assets that will be re-priced in less than one year and
the bank’s liabilities that will be re-priced in less than one year expressed as a percent of
total assets is
A) a measure of liquidity risk.
B) called the GAP ratio.
C) earnings at risk ratio.
D) a measure of credit risk.
Financial institutions use futures contracts as a means of
A) risk management.
B) expanding capital.
C) minimizing taxes.
D) increasing assets.
The __________ is equal to the current stock price minus the option exercise price.
A) settlement price
B) discount price
C) intrinsic value
D) mark-to-market settlement
The Glass-Steagall Act forbids banks from owning
A) municipal bonds.
B) corporate stock.
C) home mortgages.
D) bonds issued by foreign governments.
In the Keynesian model, changes in the money supply cause changes in
A) saving.
B) investment.
C) government spending.
D) aggregate supply.
The LM curve shows a series of income-interest rate combinations at which there is
equilibrium in the
A) bond market.
B) goods market.
C) saving-investment market.
D) money market.
Crowding out is least likely to occur when deficit government spending is financed
through
A) taxation.
B) reductions in consumption.
C) monetary expansion.
D) reductions in investment.
In the private placement market the term “due diligence” means
A) an investor finding an honest agent from whom to buy a bond.
B) a borrower finding an honest agent to sell its bonds.
C) conducting a credit analysis of the borrower.
D) an agent tailoring terms of the placement to meet investor needs.
Empirical studies on velocity and money demand have limited usefulness for monetary
policy because they often ignore
A) money supply effects.
B) interest rate effects.
C) inflation effects.
D) lags in monetary policy.
The Federal Open Market Committee directive is a
A) general statement of Federal Reserve policy goals.
B) detailed description of government security purchases to be carried out by the New
York Federal Reserve bank.
C) statement specifying the maximum level of inflation the Federal Reserve will accept.
D) statement specifying the maximum level of unemployment the Federal Reserve will
accept.
The __________ is a regulator of intermediated markets?
A) SEC
B) Commodities Futures Trading Commission
C) National Association of Securities Dealers
D) Comptroller of the Currency
If an individual sells a U.S. Treasury bill and uses the funds to open a money market
deposit account, it is an example of
A) consumption.
B) direct finance.
C) tax avoidance.
D) financial intermediation.
The quantity of money demanded suddenly increases at every combination of GDP and
interest rate. If the Fed holds to an unchanged money supply target, the interest rate
__________ and GDP __________.
A) rises; falls
B) rises; remains unchanged
C) remains unchanged; remains unchanged
D) remains unchanged; falls
__________ make(s) it easy for small savers to diversify their portfolios.
A) Direct finance
B) Traded securities
C) Regulation Q
D) Financial intermediaries
There is __________ “institutionalization” in U.S. financial markets, meaning a greater
relative use of __________ finance.
A) increasing; indirect
B) increasing; direct
C) decreasing; indirect
D) decreasing; direct