To say that stock prices follow a “random walk” is to argue that stock prices
A) rise, then fall, then rise again.
B) rise, then fall in a predictable fashion.
C) tend to follow trends.
D) cannot be predicted based on past trends.
The Resolution Trust Corporation was created by the FIRREA in order to
A) manage and resolve insolvent S&Ls.
B) build up trust in government regulation.
C) regulate the S&L industry.
D) purchase large amounts of government debt.
In the Baumol-Tobin analysis of transactions demand for money, either an increase in
________ or a decrease in ________ increases money demand.
A) income; interest rate
B) interest rates; brokerage fees
C) brokerage fees; income
D) interest rate; income
A decrease in the liquidity of corporate bonds will ________ the yield of corporate
bonds and ________ the yield of Treasury bonds, everything else held constant.
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase
Aggregate output is ________ related to autonomous consumer expenditure, and is
________ related to the level of taxes.
A) negatively; negatively
B) negatively; positively
C) positively; negatively
D) positively; positively
Under the Sarbanes-Oxley Act of 2002, the provision that established the PCAOB to
supervise accounting firms is an example of
A) regulate for transparency.
B) supervisory oversight.
C) separation of functions.
D) socialization of information production.
Suppose a report was released today that showed the Euro-Zone inflation rate is running
above the European Central Bank’s inflation rate target. This leads people to expect that
the European Central Bank will enact contractionary policy in the near future.
Everything else held constant, the release of this report would immediately cause the
demand for U.S. assets to ________ and the U.S. dollar will ________.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
When the federal funds rate equals the interest rate paid on excess reserves
A) the supply curve of reserves is vertical.
B) the supply curve of reserves is horizontal.
C) the demand curve for reserves is vertical.
D) the demand curve for reserves is horizontal.
One problem with conflicts of interest is that they can reduce the ________ in financial
markets, thereby increasing ________.
A) quantity of information; financial institutions’ profits
B) quantity of information; asymmetric information
C) quality of information; asymmetric information
D) quality of information; financial institutions’ profits
Keynes assumed that money has ________ rate of return.
A) a positive
B) a negative
C) a zero
D) an increasing
In the simple deposit expansion model, a decline in checkable deposits of $1,000 when
the required reserve ratio is equal to 10 percent implies that the Fed
A) sold $1,000 in government bonds.
B) sold $100 in government bonds.
C) purchased $1,000 in government bonds.
D) purchased $100 in government bonds.
A decrease in ________ leads to an equal ________ in the monetary base in the short
run.
A) float; increase
B) float; decrease
C) Treasury deposits at the Fed; decrease
D) discount loans; increase
Which of the following monetary policy tools is more effective when the economy
faces the interest rate zero-lower-bound problem?
A) open market operation
B) discount policy
C) required reserve ratio
D) the Fed’s liquidity provision
Early Keynesians concluded that changes in monetary policy had no impact on
aggregate output because early empirical studies found no linkage between movements
in ________ and ________.
A) nominal interest rates; investment spending
B) real interest rates; investment spending
C) money supply; aggregate output
D) investment spending; aggregate output
Discovery of new gold in Alaska will ________ the ________ of gold, ________ its
price, everything else held constant.
A) increase; demand; increasing
B) decrease; demand; decreasing
C) decrease; supply; increasing
D) increase; supply; decreasing
When an investment bank ________ securities, it guarantees a price for a corporation’s
securities and then sells them to the public.
A) underwrites
B) undertakes
C) overwrites
D) overtakes
The Federal Open Market Committee’s “balance of risks” is an assessment of whether,
in the future, its primary concern will be
A) higher exchange rates or higher unemployment.
B) higher inflation or a stronger economy.
C) higher inflation or a weaker economy.
D) lower inflation or a stronger economy.
From 1980 to early 1985 the dollar ________ in value, thereby benefiting American
________.
A) appreciated; consumers
B) appreciated, businesses
C) depreciated; consumers
D) depreciated, businesses
The ________ the returns on two securities move together, the ________ benefit there
is from diversification.
A) less; more
B) less; less
C) more; more
D) more; greater
The demand for Picasso paintings rises (holding everything else equal) when
A) stocks become easier to sell.
B) people expect a boom in real estate prices.
C) Treasury securities become riskier.
D) people expect gold prices to rise.
In the Keynesian cross diagram, a decrease in investment spending because companies
become more pessimistic about investment profitability causes the aggregate demand
function to shift down, the equilibrium level of aggregate output to ________, and the
IS curve to shift to the ________, everything else held constant.
A) rise; left
B) rise; right
C) fall; left
D) fall; right
The rational expectations hypothesis implies that when macroeconomic policy changes
A) the economy will become highly unstable.
B) the way expectations are formed will change.
C) people will be slow to catch on to the change.
D) people will make systematic mistakes.
Which of the following statements concerning Keynesian ISLM analysis is TRUE?
A) For a given change in taxes, the IS curve will shift less than for an equal change in
government spending.
B) Changes in net exports arising from a change in interest rates causes a shift in the IS
curve.
C) A fall in the money supply shifts the LM curve to the right.
D) Expansionary fiscal policy will cause the interest rate to fall.
Not surprisingly, when financial institutions have consolidated more services under one
roof, the amount of conflicts of interest has ________, which has led to ________ in
unethical behavior.
A) increased; an increase
B) increased; a decrease
C) decreased; an increase
D) decreased; a decrease
Everything else held constant, if aggregate output is to the right of the IS curve, then
there is an excess ________ of goods which will cause aggregate output to ________.
A) supply; fall
B) supply; rise
C) demand; fall
D) demand; rise
The Taylor Principle states that central banks raise nominal rates by ________ than any
rise in expected inflation so that real interest rates ________ when there is a rise in
inflation.
A) less; rise
B) more; fall
C) less; fall
D) more; rise
Everything else held constant, in the market for reserves, when the federal funds rate is
3%, raising the discount rate from 5% to 6%
A) lowers the federal funds rate.
B) raises the federal funds rate.
C) has no effect on the federal funds rate.
D) has an indeterminate effect on the federal funds rate.
A mutual fund that is organized as a limited partnership with high minimum
investments is called a
A) hedge fund.
B) investment bank.
C) mutual savings bank.
D) money market mutual fund.
Which of the following are NOT liabilities on the Fed’s balance sheet?
A) discount loans
B) bank deposits
C) deferred availability cash items
D) U.S. Treasury deposits
If the required reserve ratio is one-third, currency in circulation is $300 billion,
checkable deposits are $900 billion, and there is no excess reserve, then the monetary
base is
A) $300 billion.
B) $600 billion.
C) $333 billion.
D) $667 billion.
In a ________ banking system, commercial banks engage in securities underwriting,
but legal subsidiaries conduct the different activities. Also, banking and insurance are
not typically undertaken together in this system.
A) universal
B) British-style universal
C) short-fence
D) compartmentalized