The European Central Bank (ECB) pursues a hybrid monetary policy strategy that has
elements in common with the -targeting strategy previously used by the Bundesbank
but also includes some elements of targeting.
A) monetary; inflation
B) inflation; monetary
C) monetary; exchange rate
D) monetary; nominal GDP
Everything else held constant, when bonds become less widely traded, and as a
consequence the market becomes less liquid, the demand curve for bonds shifts to the
________ and the interest rate ________.
A) right; rises
B) right; falls
C) left; falls
D) left; rises
As default risk increases, the expected return on corporate bonds ________, and the
return becomes ________ uncertain, everything else held constant.
A) increases; less
B) increases; more
C) decreases; less
D) decreases; more
Which of the following are bank assets?
A) the building owned by the bank
B) a discount loan
C) a negotiable CD
D) a customer’s checking account
If the expected path of 1-year interest rates over the next five years is 2 percent, 4
percent, 1 percent, 4 percent, and 3 percent, the expectations theory predicts that the
bond with the lowest interest rate today is the one with a maturity of
A) one year.
B) two years.
C) three years.
D) four years.
Both ________ and ________ were financial innovations that occurred because of
interest rate volatility.
A) adjustable-rate mortgages; commercial paper
B) adjustable-rate mortgages; financial derivatives
C) sweep accounts; financial derivatives
D) sweep accounts; commercial paper
If a central bank does not want to allow the domestic currency to appreciate, it will
________ international reserves by selling its currency, thereby ________ the monetary
base and increasing the risk of higher inflation.
A) lose; decreasing
B) lose; increasing
C) acquire; decreasing
D) acquire; increasing
The risk premium on corporate bonds reflects the fact that corporate bonds have a
higher default risk and are ________ U.S. Treasury bonds.
A) less liquid than
B) less speculative than
C) tax-exempt unlike
D) lower-yielding than
Probably the most significant factor explaining the drastic drop in the number of bank
failures since the Great Depression has been
A) the creation of the FDIC.
B) rapid economic growth since 1941.
C) the employment of new procedures by the Federal Reserve.
D) better bank management.
The process in which people seeking higher yielding securities take their funds out of
the banking system thus restricting the amount of funds banks can lend is called
A) capital mobility.
B) loophole mining.
C) disintermediation.
D) deposit jumping.
The mandate for the monetary policy goals that has been given to the Federal Reserve
System is an example of a ________ mandate.
A) primary
B) dual
C) secondary
D) hierarchical
Another name for a consol is a ________ because it is a bond with no maturity date.
The owner receives fixed coupon payments forever.
A) perpetuity
B) discount bond
C) municipality
D) high-yield bond
Under a fixed exchange rate regime, if the domestic currency is initially ________, that
is, ________ par, the central bank must intervene to purchase the domestic currency by
selling foreign assets.
A) overvalued; below
B) overvalued; above
C) undervalued; below
D) undervalued; above
Suppose on any given day there is an excess demand of reserves in the federal funds
market. If the Federal Reserve wishes to keep the federal funds rate at its current level,
then the appropriate action for the Federal Reserve to take is a ________ open market
________, everything else held constant.
A) defensive; sale
B) defensive; purchase
C) dynamic; sale
D) dynamic; purchase
If borrowers with the most risky investment projects seek bank loans in higher
proportion to those borrowers with the safest investment projects, banks are said to face
the problem of
A) adverse credit risk.
B) adverse selection.
C) moral hazard.
D) lemon lenders.
Critics of nationwide banking fear
A) an elimination of community banks.
B) increased lending to small businesses.
C) cutthroat competition.
D) banks with economies of scale problems.
Everything else held constant, if the expected return on RST stock declines from 12 to 9
percent and the expected return on XYZ stock declines from 8 to 7 percent, then the
expected return of holding RST stock ________ relative to XYZ stock and demand for
XYZ stock ________.
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls
If the Fed pursues a strategy of targeting an interest rate when fluctuations in money
demand are prevalent
A) fluctuations of nonborrowed reserves will be small.
B) fluctuations of nonborrowed reserves will be large.
C) the Fed will probably quickly abandon this policy, as it did in the 1960s.
D) the Fed will probably quickly abandon this policy, as it did in the 1950s.
What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for
$900 next year?
A) 5 percent
B) 10 percent
C) -5 percent
D) -10 percent
Everything else held constant, if the expected return on U.S. Treasury bonds falls from
8 to 7 percent and the expected return on corporate bonds falls from 10 to 8 percent,
then the expected return of corporate bonds ________ relative to U.S. Treasury bonds
and the demand for corporate bonds ________.
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls
Under the Bretton Woods system, the organization assigned the task of making loans to
countries that were experiencing balance of payments difficulties is known as the
A) World Bank.
B) International Development Association.
C) International Monetary Fund.
D) Federal Reserve System.
________ in the domestic interest rate causes the demand for domestic assets to shift to
the right 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
The organization responsible for the conduct of monetary policy in the United States is
the
A) Comptroller of the Currency.
B) U.S. Treasury.
C) Federal Reserve System.
D) Bureau of Monetary Affairs.
As the payments system evolves from barter to a monetary system,
A) commodity money is likely to precede the use of paper currency.
B) transaction costs increase.
C) the number of prices that need to be calculated increase rather dramatically.
D) specialization decreases.
Arguments for discretionary policies include
A) policy rules can be too rigid because they cannot foresee every contingency.
B) policy rules do not easily incorporate the use of judgment.
C) discretion avoids the straightjacket that would lock in the wrong policy if the model
that was used to derive the policy rule proved to be incorrect.
D) discretion enables policy makers to change policy settings when an economy
undergoes structural changes.
E) all of the above.
With the creation of the Federal Deposit Insurance Corporation
A) member banks of the Federal Reserve System were given the option to purchase
FDIC insurance for their depositors, while non-member commercial banks were
required to buy deposit insurance.
B) member banks of the Federal Reserve System were required to purchase FDIC
insurance for their depositors, while non-member commercial banks could choose to
buy deposit insurance.
C) both member and non-member banks of the Federal Reserve System were required
to purchase FDIC insurance for their depositors.
D) both member and non-member banks of the Federal Reserve System could choose,
but were not required, to purchase FDIC insurance for their depositors.
Members of the Board of Governors are
A) chosen by the Federal Reserve Bank presidents.
B) appointed by the newly elected president of the United States, as are cabinet
positions.
C) appointed by the president of the United States and confirmed by the Senate.
D) never allowed to serve more than 7-year terms.
If aggregate output is below the natural rate level, nonactivists of policies would
recommend that the government
A) do nothing.
B) try to eliminate the high unemployment by attempting to shift the aggregate supply
curve to the right.
C) try to eliminate the high unemployment by attempting to shift the aggregate demand
curve to the right.
D) try to eliminate the high unemployment by attempting to shift the aggregate demand
curve to the left.
As the banking system in the United States evolves, it is expected that
A) the number and importance of small banks will increase.
B) the number and importance of large banks will decrease.
C) small banks will grow at the expense of large banks.
D) the number and importance of large banks will increase.
________ are the most important monetary policy tool because they are the primary
determinant of changes in the ________, the main source of fluctuations in the money
supply.
A) Open market operations; monetary base
B) Open market operations; money multiplier
C) Changes in reserve requirements; monetary base
D) Changes in reserve requirements; money multiplier
The interest rate on a consol equals the
A) price times the coupon payment.
B) price divided by the coupon payment.
C) coupon payment plus the price.
D) coupon payment divided by the price.
Financial institutions that accept deposits and make loans are called ________
institutions.
A) investment
B) contractual savings
C) depository
D) underwriting
Theoretically, one can distinguish a demand-pull inflation from a cost-push inflation by
comparing
A) how fast prices rise relative to wages.
B) the unemployment rate with its natural rate level.
C) when prices rise relative to wages.
D) government debt to real GDP.
When the IS and LM curves are combined in the same diagram, the intersection of the
two curves determines the equilibrium level of ________ as well as the ________.
A) aggregate output; price level
B) aggregate output; interest rate
C) money supply; price level
D) consumer expenditures; interest rate