All else equal, the ________ the coupon rate on a bond, the ________ the bond’s
duration.
A) higher; longer
B) higher; shorter
C) lower; shorter
D) greater; longer
In the long-run ISLM model and with everything else held constant, as long as the level
of output ________ the natural rate level, the price level will continue to ________,
shifting the LM curve to the ________, until finally output is back at the natural rate
level.
A) exceeds; rise; right
B) exceeds; fall; left
C) remains below; fall; right
D) remains below; rise; left
The rate of output at which the price level has no tendency to rise or fall is called the
A) natural rate of output.
B) potential level of income.
C) bliss point.
D) efficient level of output.
Banks are important to the study of money and the economy because they
A) channel funds from investors to savers.
B) have been a source of rapid financial innovation.
C) are the only important financial institution in the U.S. economy.
D) create inflation.
When the effects of the global financial crisis started to spread more quickly throughout
the rest of the world, the U.S. dollar ________ because demand for U.S. assets
________.
A) appreciated; increased
B) depreciated; increased
C) appreciated; decreased
D) depreciated; decreased
The condition that states that the domestic interest rate equals the foreign interest rate
minus the expected appreciation of the domestic currency is called
A) the purchasing power parity condition.
B) the interest parity condition.
C) money neutrality.
D) the theory of foreign capital mobility.
Which of the following instruments are traded in a money market?
A) state and local government bonds
B) U.S. Treasury bills
C) corporate bonds
D) U.S. government agency securities
In the simple deposit expansion model, a decline in checkable deposits of $500 when
the required reserve ratio is equal to 20 percent implies that the Fed
A) sold $250 in government bonds.
B) sold $100 in government bonds.
C) sold $50 in government bonds.
D) purchased $100 in government bonds.
When the total value of final goods and services is calculated using current prices, the
resulting measure is referred to as
A) real GDP.
B) the GDP deflator.
C) nominal GDP.
D) the index of leading indicators.
The political business cycle refers to the phenomenon that just before elections,
politicians enact ________ policies. After the elections, the bad effects of these policies
(for example, ________ ) have to be counteracted with ________ policies.
A) expansionary; higher unemployment; contractionary
B) expansionary; a higher inflation rate; contractionary
C) contractionary; higher unemployment; expansionary
D) contractionary; a higher inflation rate; expansionary
If the interest rate on euro-denominated assets is 13 percent and it is 15 percent on
peso-denominated assets, and if the euro is expected to appreciate at a 4 percent rate,
for Francois the Frenchman the expected rate of return on peso-denominated assets is
A) 11 percent.
B) 15 percent.
C) 17 percent.
D) 19 percent.
An option that can be exercised at any time up to maturity is called
A) a swap.
B) a stock option.
C) an European option.
D) an American option.
Risk premiums on corporate bonds tend to ________ during business cycle expansions
and ________ during recessions, everything else held constant.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
When output is below potential and the policy rate has hit the floor of zero, if
policymakers do nothing, output will ________ and inflation will ________.
A) rise; fall
B) fall; fall
C) fall; rise
D) rise; rise
Other things being equal, a decrease in the default risk of corporate bonds shifts the
demand curve for corporate bonds to the ________ and the demand curve for Treasury
bonds to the ________.
A) right; right
B) right; left
C) left; right
D) left; left
A firm that sells goods to foreign countries on a regular basis can avoid exchange-rate
risk by
A) buying stock options.
B) selling puts on financial futures.
C) using a foreign exchange swap.
D) buying swaptions.
Using the one-period valuation model, assuming a year-end dividend of $1.00, an
expected sales price of $100, and a required rate of return of 5%, the current price of the
stock would be
A) $110.00.
B) $101.00.
C) $100.00.
D) $96.19.
In the Keynesian model the quantity of money demanded is ________ related to income
and ________ related to the interest rate.
A) positively; positively
B) positively; negatively
C) negatively; negatively
D) negatively; positively
An increase in the interest rate
A) increases the demand for money.
B) increases the quantity of money demanded.
C) decreases the demand for money.
D) decreases the quantity of money demanded.
If the incentive to take advantage of a conflict of interest is high
A) removing the economies of scope that created the conflict may induce higher costs
because of the decrease in the flow of reliable information.
B) then the government must step in to remove the conflict.
C) the costs of non-action in removing the conflict will always be higher than the cost
of removing the conflict.
D) firms will always step in and work to remove the conflict.
Instrument independence is the ability of ________ to set monetary policy ________.
A) the central bank; goals
B) Congress; goals
C) Congress; instruments
D) the central bank; instruments
The percentage of deposits that banks must hold in reserve is the
A) excess reserve ratio.
B) required reserve ratio.
C) total reserve ratio.
D) currency ratio.
A decrease in the expected future domestic exchange rate causes the demand for
domestic assets to ________ and the domestic currency to ________, everything else
held constant.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
When the Fed decreases the money stock, the money supply curve shifts to the
________ and the interest rate ________, everything else held constant.
A) right; rises
B) right; falls
C) left; falls
D) left; rises
Banks acquire the funds that they use to purchase income-earning assets from such
sources as
A) cash items in the process of collection.
B) savings accounts.
C) reserves.
D) deposits at other banks.
Large-denomination CDs are ________, so that like a bond they can be resold in a
________ market before they mature.
A) nonnegotiable; secondary
B) nonnegotiable; primary
C) negotiable; secondary
D) negotiable; primary
Dennis notices that jackets are on sale for $99. In this case money is functioning as a
A) medium of exchange.
B) unit of account.
C) store of value.
D) payments-system ruler.
American companies can borrow funds
A) only in U.S. financial markets.
B) only in foreign financial markets.
C) in both U.S. and foreign financial markets.
D) only from the U.S. government.
A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when
the reserve requirement is 20 percent. If the reserve requirement is lowered to 10
percent, the bank’s excess reserves will be
A) $1,000.
B) $8,000.
C) $9,000.
D) $17,000.
During the Great Depression, real interest rates
A) rose to unprecedentedly high levels.
B) rose only slightly above the long-run trend.
C) fell to unprecedentedly low levels.
D) fell only slightly below the long-run trend.
The theory of PPP suggests that if one country’s price level falls relative to another’s, its
currency should
A) depreciate.
B) appreciate.
C) float.
D) do none of the above.
If Microsoft sells a bond in London and it is denominated in dollars, the bond is a
A) Eurobond.
B) foreign bond.
C) British bond.
D) currency bond.
If the maturity of a debt instrument is less than one year, the debt is called
A) short-term.
B) intermediate-term.
C) long-term.
D) prima-term.
The declining trend in the currency-deposit ratio during 2007-2014 can be explained by
A) the increased holdings of U.S. currency by foreigners.
B) bank panics.
C) a drop in the rate of interest paid on checking deposits.
D) the increasing use of debit cards.