When a primary dealer buys a government bond from the Federal Reserve, reserves in
the banking system ________ and the monetary base ________, everything else held
constant.
A) increase; increases
B) increase; decreases
C) decrease; increases
D) decrease; decreases
Which of the following is true of life insurance companies?
A) Typically the type of assets that life insurance companies hold are corporate bonds,
commercial mortgages, and corporate stock.
B) The two typical forms of life insurance polices that are held can be classified as
whole and variable life policies.
C) The major risk that life insurance companies face is that payouts to policy holders
are very hard to predict.
D) Life insurance companies have suffered from wide spread failures.
The actual execution of open market operations is done at
A) the Board of Governors in Washington, D.C.
B) the Federal Reserve Bank of New York.
C) the Federal Reserve Bank of Philadelphia.
D) the Federal Reserve Bank of Boston.
If the interest rate on a bond is below the equilibrium interest rate, there is an excess
________ of bonds and the bond price will ________.
A) demand; rise
B) demand; fall
C) supply; rise
D) supply; fall
Keynes was especially concerned with explaining the ________ level of output and
employment during the ________.
A) low; 1920s
B) low; 1930s
C) high; 1920s
D) high; 1930s
A corporation acquires new funds only when its securities are sold in the
A) secondary market by an investment bank.
B) primary market by an investment bank.
C) secondary market by a stock exchange broker.
D) secondary market by a commercial bank.
Privatization of the Social Security system is being considered due to
A) the desire to reduce taxes.
B) demands to reduce the retirement age.
C) reduced life expectancy.
D) underfunding of the system.
High-powered money minus currency in circulation equals
A) reserves.
B) the borrowed base.
C) the nonborrowed base.
D) discount loans.
According to Edward Kane, because the banking industry is one of the most ________
industries in America, it is an industry in which ________ is especially likely to occur.
A) competitive; loophole mining
B) competitive; innovation
C) regulated; loophole mining
D) regulated; innovation
An international lender of last resort creates a serious moral hazard problem because
________ and other ________ of banking institutions expect that they will be protected
if a crisis occurs.
A) depositors; debtors
B) depositors; creditors
C) borrowers; debtors
D) borrowers; creditors
A policy in which the money supply is kept growing at a constant rate regardless of the
state of the economy is
A) a Taylor rule.
B) a discretionary policy.
C) a policy rule advocated by monetarists.
D) advocated by activists.
A ________ in market interest rates relative to the discount rate will cause discount
borrowing to_______.
A) fall; increase
B) rise; decrease
C) rise; increase
D) fall; remain unchanged
Each governor on the Board of Governors can serve
A) only one nonrenewable fourteen-year term.
B) one full nonrenewable fourteen-year term plus part of another term.
C) only one nonrenewable eight-year term.
D) one full nonrenewable eight-year term plus part of another term.
The price of gold should be ________ to the expected inflation rate.
A) positively related
B) negatively related
C) inversely related
D) unrelated
If a bank has excess reserves of $5,000 and demand deposit liabilities of $80,000, and if
the reserve requirement is 20 percent, then the bank has actual reserves of
A) $11,000.
B) $20,000.
C) $21,000.
D) $26,000.
Everything else held constant, during a business cycle expansion, the supply of bonds
shifts to the ________ as businesses perceive more profitable investment opportunities,
while the demand for bonds shifts to the ________ as a result of the increase in wealth
generated by the economic expansion.
A) right; left
B) right; right
C) left; left
D) left; right
Complete Milton Friedman’s famous statement, “Inflation is always and everywhere a
________ phenomenon.”
A) recessionary
B) discretionary
C) repressionary
D) monetary
If the inflation rate in the United States is higher than that in Mexico and productivity is
growing at a slower rate in the United States than in Mexico, then, in the long run,
________, everything else held constant.
A) the Mexican peso will appreciate relative to the U.S. dollar
B) the Mexican peso will depreciate relative to the U.S. dollar
C) the Mexican peso will either appreciate, depreciate, or remain constant relative to the
U.S. dollar
D) there will be no effect on the Mexican peso relative to the U.S. dollar
An increase in ________ reduces the money supply since it causes the ________ to fall.
A) reserve requirements; monetary base
B) reserve requirements; money multiplier
C) margin requirements; monetary base
D) margin requirements; money multiplier
The Governing Council usually meets ________ times a year.
A) four
B) six
C) eight
D) twelve
Under the European System of Central Banks, the Executive Board is similar in
structure to the ________ of the Federal Reserve System.
A) Board of Governors
B) Federal Open Market Committee
C) Federal Reserve Banks
D) Federal Advisory Council
When the economy suffers a temporary negative supply shock and the monetary policy
makers try to stabilize economic activity in the short run, then
A) aggregate demand curve shifts rightward.
B) output will be at its potential.
C) inflation rate will be higher.
D) all of the above.
E) both A and B.
An increase in U.S. Treasury deposits at the Fed reduces both ________ and the
________.
A) reserves; monetary base
B) Fed liabilities; money multiplier
C) Fed assets; monetary base
D) Fed assets; money multiplier
In the long-run ISLM model and with everything else held constant, the long-run effect
of a fall in net exports is to ________ real output and ________ the interest rate.
A) increase; increase
B) increase; not change
C) not change; increase
D) not change; decrease
The small-firm effect refers to the
A) negative returns earned by small firms.
B) returns equal to large firms earned by small firms.
C) abnormally high returns earned by small firms.
D) low returns after adjusting for risk earned by small firms.
Which of the following is NOT a secondary market?
A) foreign exchange market
B) futures market
C) options market
D) IPO market
Everything else held constant, if income tax rates were lowered, then
A) the interest rate on municipal bonds would fall.
B) the interest rate on Treasury bonds would rise.
C) the interest rate on municipal bonds would rise.
D) the price of Treasury bonds would fall.
If a $1000 face value coupon bond has a coupon rate of 3.75 percent, then the coupon
payment every year is
A) $37.50.
B) $3.75.
C) $375.00.
D) $13.75
Member commercial banks have purchased stock in their district Fed banks; the
dividend paid by that stock is limited by law to ________ percent annually.
A) four
B) five
C) six
D) eight
Holding many risky assets and thus reducing the overall risk an investor faces is called
A) diversification.
B) foolishness.
C) risk acceptance.
D) capitalization.
A fully amortized loan is another name for
A) a simple loan.
B) a fixed-payment loan.
C) a commercial loan.
D) an unsecured loan.
Psychologists have found that people tend to be ________ in their own judgments.
A) underconfident
B) overconfident
C) indecisive
D) insecure
The problem with spinning is that it may ________ the cost of capital to a firm and thus
________ the efficiency of the capital market.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease