An increase in interest rates might ________ saving because more can be earned in
interest income.
A) encourage
B) discourage
C) disallow
D) invalidate
In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from
a bank that previously had no excess reserves, deposits in the banking system can
potentially increase by
A) $10.
B) $100.
C) $100 times the reciprocal of the required reserve ratio.
D) $100 times the required reserve ratio.
Which of the following is NOT one of the eight basic puzzles about financial structure?
A) Debt contracts are typically extremely complicated legal documents that place
substantial restrictions on the behavior of the borrower.
B) Indirect finance, which involves the activities of financial intermediaries, is many
times more important than direct finance, in which businesses raise funds directly from
lenders in financial markets.
C) Collateral is a prevalent feature of debt contracts for both households and business.
D) There is very little regulation of the financial system.
A simple deposit multiplier equal to four implies a required reserve ratio equal to
A) 100 percent.
B) 50 percent.
C) 25 percent.
D) 0 percent.
The monetary policy strategy that provides an automatic rule for the conduct of
monetary policy is
A) exchange-rate targeting.
B) monetary targeting.
C) inflation targeting.
D) the implicit nominal anchor.
A feature of debt markets in emerging-market countries is that debt contracts are
typically
A) very short term.
B) long term.
C) intermediate term.
D) perpetual.
The quantity of reserves demanded equals
A) required reserves plus borrowed reserves.
B) excess reserves plus borrowed reserves.
C) required reserves plus excess reserves.
D) total reserves minus excess reserves.
In financial markets an IPO is an
A) investment portfolio option.
B) initial public offering.
C) initial portfolio offering.
D) investment portfolio offering.
________ in the domestic interest rate causes the demand for domestic assets to
decrease and the domestic currency to ________, everything else held constant.
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
One of the problems in conducting a duration gap analysis is that the duration gap is
calculated assuming that interest rates for all maturities are the same. That means that
the yield curve is
A) flat.
B) slightly upward sloping.
C) steeply upward sloping.
D) downward sloping.
Pieces of property that serve as a store of value are called
A) assets.
B) units of account.
C) liabilities.
D) borrowings.
According to the segmented markets theory of the term structure
A) the interest rate on long-term bonds will equal an average of short-term interest rates
that people expect to occur over the life of the long-term bonds.
B) buyers of bonds do not prefer bonds of one maturity over another.
C) interest rates on bonds of different maturities do not move together over time.
D) buyers require an additional incentive to hold long-term bonds.
Everything else held constant, if the sum of the required reserve ratio and the excess
reserve ratio is less than one, an increase in the currency-checkable deposit ratio will
mean
A) an increase in currency in circulation and an increase in the money supply.
B) an increase in money supply but no change in reserves.
C) a decrease in the money supply.
D) an increase in currency in circulation but no change in the money supply.
Because interest rates have substantial fluctuations, the ________ theory of the demand
for money indicates that velocity has substantial fluctuations as well.
A) classical
B) Cambridge
C) liquidity preference
D) Pigouvian
Unemployment resulting from a mismatch of workers’ skills and job requirements is
called
A) frictional unemployment.
B) structural unemployment.
C) seasonal unemployment.
D) cyclical unemployment.
Foreign exchange rate stability is important because a decline in the value of the
domestic currency will ________ the inflation rate, and an increase in the value of the
domestic currency makes domestic industries ________ competitive with competing
foreign industries.
A) increase; more
B) increase; less
C) decrease; more
D) decrease; less
In the figure above, one factor NOT responsible for the decline in the demand for
money is
A) a decline the price level.
B) a decline in income.
C) an increase in income.
D) a decline in the expected inflation rate.
When Americans or foreigners expect the return on ________ assets to be high relative
to the return on ________ assets, there is a higher demand for dollar assets and a
correspondingly lower demand for foreign assets.
A) dollar; dollar
B) dollar; foreign
C) foreign; dollar
D) foreign; foreign
By the standard of low-grade bonds, interest rates were ________ and monetary policy
was ________ during the Great Depression.
A) low; tight
B) low; easy
C) high; tight
D) high; easy
I purchase a 10 percent coupon bond. Based on my purchase price, I calculate a yield to
maturity of 8 percent. If I hold this bond to maturity, then my return on this asset is
A) 10 percent.
B) 8 percent.
C) 12 percent.
D) there is not enough information to determine the return.
The Keynesian theory of money demand predicts that people will increase their money
holdings if they believe that
A) interest rates are about to fall.
B) bond prices are about to rise.
C) expected inflation is about to fall.
D) bond prices are about to fall.
In the figure above, a factor that could cause the demand for bonds to shift to the right
is
A) an increase in the riskiness of bonds relative to other assets.
B) an increase in the expected rate of inflation.
C) expectations of lower interest rates in the future.
D) a decrease in wealth.
Under the European System of Central Banks, the National Central Banks have the
same role as the ________ of the Federal Reserve System.
A) Board of Governors
B) Federal Open Market Committee
C) Federal Reserve Banks
D) Federal Advisory Council
Everything else held constant, an increase in the cost of production ________ aggregate
________.
A) increases; demand
B) decreases; demand
C) increases; supply
D) decreases; supply