________ in the foreign interest rate causes the demand for domestic assets to shift to
the left 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
Mutual funds that allow shares to be redeemed at any time at a price that is tied to the
asset value of the fund are known as
A) close-end funds.
B) open-end funds.
C) asset-value funds.
D) redeemable funds.
Money is defined as
A) bills of exchange.
B) anything that is generally accepted in payment for goods and services or in the
repayment of debt.
C) a risk-free repository of spending power.
D) the unrecognized liability of governments.
All of the following are necessary criteria for a commodity to function as money
EXCEPT
A) it must deteriorate quickly.
B) it must be divisible.
C) it must be easy to carry.
D) it must be widely accepted.
All of the following are examples of coupon bonds EXCEPT
A) corporate bonds.
B) U.S. Treasury bills.
C) U.S. Treasury notes.
D) U.S. Treasury bonds.
During the 1960s, 1970s, and early 1980s, traditional bank profitability declined
because of
A) financial innovation that increased competition from new financial institutions.
B) a decrease in interest rates to fight the inflation problem.
C) a decrease in deposit insurance.
D) increased regulation that prohibited banks from making risky real estate loans.
Economies of scale enable financial institutions to
A) reduce transactions costs.
B) avoid the asymmetric information problem.
C) avoid adverse selection problems.
D) reduce moral hazard.
In 1977, he pioneered the concept of selling new public issues of junk bonds for
companies that had not yet achieved investment-grade status.
A) Michael Milken
B) Roger Milliken
C) Ivan Boesky
D) Carl Icahn
Suppose, at a given federal funds rate, there is an excess demand for reserves in the
federal funds market. If the Fed wants the federal funds rate to stay at that level, then it
should undertake an open market ________ of bonds, everything else held constant. If
the Fed does nothing, however, the federal funds rate will ________.
A) sale; increase
B) purchase; increase
C) sale; decrease
D) purchase; decrease
Equity and debt instruments with maturities greater than one year are called ________
market instruments.
A) capital
B) money
C) federal
D) benchmark
An increase in which of the following leads to a decline in the monetary base?
A) float
B) discount loans
C) foreign deposits at the Fed
D) SDRs
The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $950
next year is
A) -10 percent.
B) -5 percent.
C) 0 percent.
D) 5 percent.
________ in the foreign interest rate causes the demand for domestic assets to shift to
the ________ and the domestic currency to appreciate, everything else held constant.
A) An increase; right
B) An increase; left
C) A decrease; right
D) A decrease; left
________ is creating a marketable capital market instrument by bundling a portfolio of
mortgage or auto loans.
A) Diversification
B) Arbitrage
C) Computerization
D) Securitization
When the economy suffers a temporary negative supply shock, the central bank’s
autonomous monetary policy to keep inflation at the target inflation rate leads to
A) more stable economic activities.
B) a large deviation of output from its potential.
C) divine coincidence.
D) both B and C.
Which of the following $5,000 face-value securities has the highest yield to maturity?
A) a 6 percent coupon bond selling for $5,000
B) a 6 percent coupon bond selling for $5,500
C) a 10 percent coupon bond selling for $5,000
D) a 12 percent coupon bond selling for $4,500
The spread between the interest rates on bonds with default risk and default-free bonds
is called the
A) risk premium.
B) junk margin.
C) bond margin.
D) default premium.
If additional information is not used when forming an optimal forecast because it is not
available at that time, then expectations are
A) obviously formed irrationally.
B) still considered to be formed rationally.
C) formed adaptively.
D) formed equivalently.
Compared to an electronic payments system, a payments system based on checks has
the major drawback that
A) checks are less costly to process.
B) checks take longer to process, meaning that it may take several days before the
depositor can get her cash.
C) fraud may be more difficult to commit when paper receipts are eliminated.
D) legal liability is more clearly defined.
If reserves in the banking system increase by $100, then checkable deposits will
increase by $2,000 in the simple model of deposit creation when the required reserve
ratio is
A) 0.01.
B) 0.05.
C) 0.10.
D) 0.20.
If a financial institution has 50% of its portfolio in a bond with a five-year duration and
50% of its portfolio in a bond with a seven-year duration, what is the duration of the
portfolio?
A) 12 years
B) 7 years
C) 6 years
D) 5 years
As bonds become a riskier asset, the demand for money ________ and, all else
constant, the equilibrium interest rate ________.
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls
The evolution of the payments system from barter to precious metals, then to fiat
money, then to checks can best be understood as a consequence of
A) government regulations designed to improve the efficiency of the payments system.
B) government regulations designed to promote the safety of the payments system.
C) innovations that reduced the costs of exchanging goods and services.
D) competition among firms to make it easier for customers to purchase their products.
The average number of times that a dollar is spent in buying the total amount of final
goods and services produced during a given time period is known as
A) gross national product.
B) the spending multiplier.
C) the money multiplier.
D) velocity.
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio =
75%, and the excess reserve ratio = 156%, an increase in the excess reserve ratio to
200% causes the M1 money multiplier to ________, everything else held constant.
A) increase from 0.15 to 0.33
B) decrease from 0.73 to 0.61
C) increase from 0.54 to 0.67
D) decrease from 1.67 to 1.54
In the early 1990s, M2 growth underwent a dramatic ________, which some
researchers believe ________ be explained by traditional money demand functions.
A) surge; cannot
B) surge; can
C) slowdown; cannot
D) slowdown; can
In rational expectations theory, the term “optimal forecast” is essentially synonymous
with
A) correct forecast.
B) the correct guess.
C) the actual outcome.
D) the best guess.
If fluctuations in interest rates become smaller, then, other things equal, the demand for
stocks ________ and the demand for long-term bonds ________.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
To an economist, ________ is anything that is generally accepted in payment for goods
and services or in the repayment of debt.
A) wealth
B) income
C) money
D) credit
Everything else held constant, in the market for reserves, when the federal funds rate is
3%, increasing the interest rate paid on excess reserves from 1% to 2%
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.