At __________ income levels on the LM curve, the interest rate must be __________.
A) higher; lower
B) lower; higher
C) higher; unchanged
D) higher; higher
A bond has a face value of $1,000 and an annual coupon rate of 6 percent. The yield to
maturity of this bond is 5 percent, and the bond has 2 years remaining until maturity.
Based on this information, this bond’s duration is __________ years.
A) 1.9
B) 2.0
C) 1.0
D) 2.2
The five options available to the U.S. Treasury for financing government spending are
as follows: collecting taxes, printing currency, borrowing from the Federal Reserve,
borrowing from the public, and
A) expanding the money supply.
B) devaluing the dollar.
C) borrowing from the banking system.
D) raising bank reserve requirements.
If the inflation rate is expected to be 2 percent and creditors will lend only if the real
interest rate is 3 percent, the nominal interest rate will be
A) 1 percent.
B) 5 percent.
C) 7 percent.
D) 12 percent.
A newly-issued eighteen-year Treasury security can be stripped into __________
separate zero coupon securities.
A) two
B) eighteen
C) thirty-seven
D) seventy-three
“A drop in government expenditures lowered output in the short run, but left output
unaffected in the long run.” This statement implies that the price level __________ in
the long run, causing the interest rate to __________.
A) rose; rise
B) rose; fall
C) fell; rise
D) fell; fall
If people lost confidence in the medium of exchange, the likely result would be
A) inflation.
B) increased barter activity.
C) increased financial intermediation.
D) no more transactions taking place.
The largest item on the asset side of the Federal Reserve balance sheet is
A) Federal Reserve notes.
B) U.S. government securities.
C) gold.
D) U.S. Treasury deposits.
The natural rate of interest rises with a __________ shift of the __________ curve.
A) rightward; IS
B) rightward; LM
C) leftward; IS
D) leftward; LM
A bank can lower its leverage risk by
A) issuing more stock.
B) buying more securities and making fewer loans.
C) more closely matching the average maturity of its assets and liabilities.
D) taking in fewer deposits and relying more in miscellaneous liabilities to raise funds.
In the financial futures quotations, the total number of long positions outstanding is
called
A) settlements.
B) market activity.
C) open interest.
D) arbitrage.
If person A sells a 2003 Treasury bond futures contract to person B, in market
terminology,
A) A is long and B is short.
B) A is short and B is long.
C) A is short and B is the broker.
D) A is long and B is the dealer.
Which of the following is not true with respect to underwriting?
A) Announcements of successful underwritings are called tombstones.
B) Often a number of investments banks band together in a syndicate to market a new
issue.
C) Underwritings of new issues take place on the floor of the New York Stock
Exchange.
D) The investment bank typically guarantees an issuer of securities a price on the new
issue.
Which of the following factors does not affect the long-run supply and demand
conditions of foreign currencies?
A) Relative inflation rates
B) Relative productivity levels
C) Tastes for domestic versus foreign goods
D) All of the above affect the long-run supply and demand conditions of foreign
currencies.
In the Classical model, a decrease in saving will result in saving being __________ than
investment which will cause the interest rate to __________.
A) greater; rise
B) greater; fall
C) less; rise
D) less; fall
As a result of a decline in the expected rate of return on investment, GDP would not
have to fall if the government __________ taxes or __________ government spending.
A) increased; increased
B) increased; decreased
C) decreased; increased
D) decreased; decreased
Excess reserves immediately increase if
A) reserve requirements increase.
B) reserve requirements decrease.
C) the discount rate increases.
D) the discount rate decreases.
An individual pays $4,000 for a $5,000 face value, coupon-bearing bond that pays $400
per year and will be held until it matures in ten years. The current yield on this bond is
A) 10 percent.
B) 8 percent.
C) 6 percent.
D) 5 percent.
If inflationary expectations are based on all available information, they are referred to
as
A) optimal.
B) rational.
C) adaptive.
D) informed.
An unexpected drop in the growth rate of the CPI should send bond prices __________
and stock prices __________.
A) up; up
B) up; down
C) down; up
D) down; down
If policymakers are expected to increase the money supply, Monetarists argue that there
is __________ effect. There is __________ effect that raises prices when the money
supply actually increases.
A) a small liquidity; an income
B) no; an income
C) a small income; a liquidity
D) no; a liquidity
If expectations are formed rationally and wages are flexible, the aggregate supply curve
is
A) upward sloping.
B) horizontal.
C) vertical.
D) relatively flat.
The money supply is certain to increase if the Treasury finances expenditures by
borrowing from the
A) Federal Reserve.
B) banking system.
C) non-bank financial system.
D) general public.
The income effect implies that there is a positive relationship between
A) income and the unemployment rate.
B) the unemployment rate and the inflation rate.
C) aggregate supply and aggregate demand.
D) monetary growth and interest rates.