In emerging market countries, the deterioration in bank’s balance sheets has more
________ effects on lending and economic activity than in advanced countries.
A) negative
B) positive
C) affirming
D) advancing
In Keynes’s liquidity preference framework, individuals are assumed to hold their
wealth in two forms
A) real assets and financial assets.
B) stocks and bonds.
C) money and bonds.
D) money and gold.
Everything else held constant, if the tax-exempt status of municipal bonds were
eliminated, then
A) the interest rates on municipal bonds would still be less than the interest rate on
Treasury bonds.
B) the interest rate on municipal bonds would equal the rate on Treasury bonds.
C) the interest rate on municipal bonds would exceed the rate on Treasury bonds.
D) the interest rates on municipal, Treasury, and corporate bonds would all increase.
The sum of the Fed’s monetary liabilities and the U.S. Treasury’s monetary liabilities is
called
A) the money supply.
B) currency in circulation.
C) bank reserves.
D) the monetary base.
At its inception, the Federal Reserve was intended to be
A) the Treasury’s banker.
B) the issuer of government debt.
C) a lender-of-last-resort.
D) a regulator of bank holding companies.
So-called fallen angels differ from junk bonds in that
A) junk bonds refer to newly issued bonds with low credit ratings, whereas fallen
angels refer to previously issued bonds that have had their credit ratings fall below Baa.
B) junk bonds refer to previously issued bonds that have had their credit ratings fall
below Baa, whereas fallen angels refer to newly issued bonds with low credit ratings.
C) junk bonds have ratings below Baa, whereas fallen angels have ratings below C.
D) fallen angels have ratings below Baa, whereas junk bonds have ratings below C.
If the dollar appreciates from 1.5 Brazilian reals per dollar to 2.0 reals per dollar, the
real depreciates from ________ per real to ________ per real.
A) $0.67; $0.50
B) $0.33; $0.50
C) $0.75; $0.50
D) $0.50; $0.67
E) $0.50; $0.75
Exchange-rate targeting allows a central bank to ________, thus this will ________ the
probability of policy developing a time-inconsistency problem.
A) be governed by a policy rule; decrease
B) follow discretionary policy; decrease
C) be governed by a policy rule; increase
D) follow discretionary policy; increase
Because inflation in Germany after World War I sometimes exceeded 1,000 % per
month, one can conclude that the German economy suffered from
A) deflation.
B) disinflation.
C) hyperinflation.
D) superdeflation.
The monetary policy strategy that relies on a stable money-income relationship is
A) exchange-rate targeting.
B) monetary targeting.
C) inflation targeting.
D) the implicit nominal anchor.
A decrease in the quantity of money supplied shifts the money supply curve to the
________, and the LM curve to the ________, everything else held constant.
A) right; left
B) right; right
C) left; left
D) left; right
If the Federal Reserve conducts open market ________, the money supply ________,
shifting the LM curve to the right, everything else held constant.
A) purchases; decreases
B) sales; decreases
C) purchases; increases
D) sales; increases
The amount of deposits that banks must hold in reserve is
A) excess reserves.
B) required reserves.
C) total reserves.
D) vault cash.
Suppose Ford Motor Company issues a 5% bond with a stipulation that if a national
index of SUV sales drops by 10%, then Ford can decrease the coupon rate to 3%. This
security is called a
A) credit option.
B) credit swap.
C) credit-linked note.
D) credit default swap.
Which policy measure requires investment banks to make public their analysts’
recommendations?
A) Sarbanes-Oxley Act of 2002
B) Global Legal Settlement of 2002
C) Gramm-Leach-Bliley Act of 1999
D) Riegle-Neal Act of 1994
An expansionary monetary policy shifts the LM curve to the ________, reducing
________, everything else held constant.
A) left; output and increasing interest rates
B) left; both real output and interest rates
C) right; both interest rates and real output
D) right; interest rates and increasing real output
Everything else held constant, which of the following does NOT cause aggregate
demand to increase?
A) an increase in net exports
B) an increase in government spending
C) an increase in taxes
D) an increase in consumer optimism
________ is the narrowest monetary aggregate that the Fed reports.
A) M0
B) M1
C) M2
D) M3
The majority of members of the Federal Open Market Committee are
A) Federal Reserve Bank presidents.
B) members of the Federal Advisory Council.
C) presidents of member banks.
D) the seven members of the Board of Governors.
When the interest rate on a bond is ________ the equilibrium interest rate, in the bond
market there is excess ________ and the interest rate will ________.
A) above; demand; rise
B) above; demand; fall
C) below; supply; fall
D) above; supply; rise
________ in the foreign interest rate causes the demand for domestic assets to
________ and the domestic currency to depreciate, everything else held constant.
A) An increase; increase
B) An increase; decrease
C) A decrease; increase
D) A decrease; decrease
Activists of the policies believe that
A) the self-correcting mechanism through wage and price adjustment is very slow.
B) wages and prices are sticky.
C) the government needs to pursue active policy to eliminate high unemployment when
it develops.
D) all of the above.
Several features distinguish hedge funds from traditional mutual funds, including
A) mutual funds have a minimum investment requirement of $1,000 or more; hedge
funds have no minimum investment requirement.
B) hedge funds typically charge investors large fees relative to mutual funds.
C) hedge fund investors need not commit their money for more than a few weeks at a
time, explaining why they pay higher fees.
D) hedge funds are significantly less risky relative to mutual funds.
Everything else held constant, when the inflation rate is expected to rise, interest rates
will ________; this result has been termed the ________.
A) fall; Keynes effect
B) fall; Fisher effect
C) rise; Keynes effect
D) rise; Fisher effect
According to the liquidity premium theory, a yield curve that is flat means that
A) bond purchasers expect interest rates to rise in the future.
B) bond purchasers expect interest rates to stay the same.
C) bond purchasers expect interest rates to fall in the future.
D) the yield curve has nothing to do with expectations of bond purchasers.
When an economy grows out of a recession, normally the demand for bonds ________
and the supply of bonds ________, everything else held constant.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
A system of deposit insurance
A) attracts risk-taking entrepreneurs into the banking industry.
B) encourages bank managers to decrease risk.
C) increases the incentives of depositors to monitor the riskiness of their bank’s asset
portfolio.
D) increases the likelihood of bank runs.
The Fed’s policy actions of reacting to higher inflation by raising the real interest rate
during 2004-2006 were
A) upward movements along the monetary policy curve.
B) downward movement along the monetary policy curve.
C) upward shifts of the monetary policy curve.
D) downward shifts of the monetary policy curve.
Financial markets promote greater economic efficiency by channeling funds from
________ to ________.
A) investors; savers
B) borrowers; savers
C) savers; borrowers
D) savers; lenders
Suppose the Bank of China permanently decreases its purchases of U.S. government
bonds and, instead, holds more dollars on deposit at the Federal Reserve. Everything
else held constant, a open market ________ would be the appropriate monetary policy
action for the Fed to take to offset the expected ________ in the monetary base in the
United States.
A) purchase; decrease
B) purchase; increase
C) sale; decrease
D) sale; increase
The theory of bureaucratic behavior suggests that the objective of a bureaucracy is to
maximize
A) the public’s welfare.
B) profits.
C) its own welfare.
D) conflict with the executive and legislative branches of government.
The Keynesian theory of money demand emphasizes the importance of
A) a constant velocity.
B) irrational behavior on the part of some economic agents.
C) interest rates on the demand for money.
D) expectations.
If the central bank targets a monetary aggregate, it is likely to lose control over the
interest rate because
A) of fluctuations in the demand for reserves.
B) of fluctuations in the consumption function.
C) bond values will tend to remain stable.
D) of fluctuations in the business cycle.
In the United States, the government agency requiring that firms that sell securities in
public markets adhere to standard accounting principles and disclose information about
their sales, assets, and earnings is the
A) Federal Communications Commission.
B) Federal Trade Commission.
C) Securities and Exchange Commission.
D) Federal Reserve System.
The yield to maturity for a perpetuity is a useful approximation for the yield to maturity
on long-term coupon bonds. It is called the ________ when approximating the yield for
a coupon bond.
A) current yield
B) discount yield
C) future yield
D) star yield
