Bonds with relatively low risk of default are called ________ securities and have a
rating of Baa (or BBB) and above; bonds with ratings below Baa (or BBB) have a
higher default risk and are called ________.
A) investment grade; lower grade
B) investment grade; junk bonds
C) high quality; lower grade
D) high quality; junk bonds
Economists consider the ________ to be the most accurate measure of interest rates.
A) simple interest rate.
B) current yield.
C) yield to maturity.
D) real interest rate.
An autonomous rise in ________ shifts the LM curve to the ________, everything else
held constant.
A) net exports; right
B) net exports; left
C) money demand; right
D) money demand; left
All of the following are nontransaction deposits EXCEPT
A) savings accounts.
B) small-denomination time deposits.
C) checkable deposits.
D) certificates of deposit.
Junk bonds, bonds with a low bond rating, are also known as
A) high-yield bonds.
B) investment grade bonds.
C) high quality bonds.
D) zero-coupon bonds.
If nominal GDP is $10 trillion, and the money supply is $2 trillion, velocity is
A) 0.2.
B) 5.
C) 10.
D) 20.
The monetary base consists of
A) currency in circulation and Federal Reserve notes.
B) currency in circulation and the U.S. Treasury’s monetary liabilities.
C) currency in circulation and reserves.
D) reserves and Federal Reserve Notes.
One reason financial systems in developing and transition countries are underdeveloped
is
A) they have weak links to their governments.
B) they make loans only to nonprofit entities.
C) the legal system may be poor making it difficult to enforce restrictive covenants.
D) the accounting standards are too stringent for the banks to meet.
Everything else held constant, if total consumption increases from $600 to $800
because of an increase of disposable income of $400, then the mpc is equal to
A) 0.2.
B) 0.4.
C) 0.5.
D) 0.6.
Both ________ and ________ are monetary liabilities of the Fed.
A) securities; loans to financial institutions
B) currency in circulation; reserves
C) securities; reserves
D) currency in circulation; loans to financial institutions
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio =
75%, and the excess reserve ratio = 156%, an increase in the currency-deposit ratio to
150% causes the M1 money multiplier to ________, everything else held constant.
A) increase from 0.73 to 0.78
B) decrease from 0.73 to 0.61
C) increase from 1.54 to 1.67
D) decrease from 1.67 to 1.54
Funds held in ________ are subject to reserve requirements.
A) all checkable deposits
B) all checkable and time deposits
C) all checkable, time, and money market fund deposits
D) all time deposits
When the value of the dollar changes from £0.75 to £0.5, then the British pound has
________ and the U.S. dollar has ________.
A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated
Which of the following can be described as direct finance?
A) You take out a mortgage from your local bank.
B) You borrow $2500 from a friend.
C) You buy shares of common stock in the secondary market.
D) You buy shares in a mutual fund.
Which of the following statements about the characteristics of debt and equities is
TRUE?
A) They can both be long-term financial instruments.
B) Bond holders are residual claimants.
C) The income from bonds is typically more variable than that from equities.
D) Bonds pay dividends.
If the interest rate on a bond is above the equilibrium interest rate, there is an excess
________ for bonds and the bond price will ________.
A) demand; rise
B) demand; fall
C) supply; rise
D) supply; fall
A decrease in the domestic interest rate causes the demand for domestic assets to shift
to the ________ and the domestic currency to ________, everything else held constant.
A) right; appreciate
B) right; depreciate
C) left; appreciate
D) left; depreciate
A person who agrees to buy an asset at a future date is going
A) long.
B) short.
C) back.
D) ahead.
If a central bank does not want to see its currency ________ in value, it may pursue
expansionary monetary policy to lower the domestic interest rate, thereby ________ its
currency.
A) fall; strengthening
B) fall; weakening
C) rise; strengthening
D) rise; weakening
The aggregate supply curve shows the relationship between
A) the level of inputs and aggregate output.
B) the inflation rate and the level of inputs.
C) the wage rate and the level of employment.
D) the inflation rate and the level of aggregate output supplied.
When the inflation rate is expected to increase, the ________ for bonds falls, while the
________ curve shifts to the right, everything else held constant.
A) demand; demand
B) demand; supply
C) supply; demand
D) supply; supply
Excess reserves are equal to
A) total reserves minus discount loans.
B) vault cash plus deposits with Federal Reserve banks minus required reserves.
C) vault cash minus required reserves.
D) deposits with the Fed minus vault cash plus required reserves.
A decrease in unplanned inventory investment for the entire economy equals the excess
of
A) output over aggregate supply.
B) output over aggregate demand.
C) aggregate supply over output.
D) aggregate demand over output.
Which of the following is least likely to lead to inflationary monetary policy?
A) rising unemployment
B) expanding federal budget deficits
C) declining oil prices
D) conflict in the Middle East
Clauses in life insurance policies that eliminate death benefits if the insured person
commits suicide is an example of a
A) restrictive provision.
B) restrictive covenant.
C) anti-fraud exclusion.
D) risk-based deductible.
From 2004 to 2007, the growth rates of M1 and M2
A) were identical.
B) both increased but at different rates.
C) both decreased but at different rates.
D) moved in opposite directions.
Everything else held constant, if interest rates are expected to fall in the future, the
demand for long-term bonds today ________ and the demand curve shifts to the
________.
A) rises; right
B) rises; left
C) falls; right
D) falls; left
All else the same, when the Fed calls in a $100 discount loan previously extended to the
First National Bank, reserves in the banking system
A) increase by $100.
B) increase by more than $100.
C) decrease by $100.
D) decrease by more than $100.
________ theory relates the quantity of money and monetary policy to changes in
aggregate economic activity and inflation.
A) Monetary
B) Fiscal
C) Financial
D) Systemic
If 1-year interest rates for the next five years are expected to be 4, 2, 5, 4, and 5 percent,
and the 5-year term premium is 1 percent, than the 5-year bond rate will be
A) 2 percent.
B) 3 percent.
C) 4 percent.
D) 5 percent.
The Federal Reserve entity that makes decisions regarding the conduct of open market
operations is the
A) Board of Governors.
B) chairman of the Board of Governors.
C) Federal Open Market Committee.
D) Open Market Advisory Council
Eurodollars are
A) dollar-dominated deposits held in banks outside the United States.
B) deposits held by U.S. banks in Europe.
C) deposits held by U.S. banks in foreign countries.
D) dollar-dominated deposits held in U.S. banks by Europeans.
Open market purchases raise the ________ thereby raising the ________.
A) money multiplier; money supply
B) money multiplier; monetary base
C) monetary base; money supply
D) monetary base; money multiplier
The M1 measure of money includes
A) small denomination time deposits.
B) traveler’s checks.
C) money market deposit accounts.
D) money market mutual fund shares.