Prices and returns for ________ bonds are more volatile than those for ________
bonds, everything else held constant.
A) long-term; long-term
B) long-term; short-term
C) short-term; long-term
D) short-term; short-term
Monetarists contend that the channels of monetary influence in Keynesian structural
models are too ________ defined, ________ the importance of monetary policy.
A) broadly; exaggerating
B) broadly; understating
C) narrowly; understating
D) narrowly; exaggerating
Which of the following statements are TRUE?
A) A bank’s assets are its sources of funds.
B) A bank’s liabilities are its uses of funds.
C) A bank’s balance sheet shows that total assets equal total liabilities plus equity
capital.
D) A bank’s balance sheet indicates whether or not the bank is profitable.
Insurance companies reduce risk exposure in exchange for a portion of their insurance
premiums by obtaining
A) government loan guarantees.
B) federal insurance.
C) reinsurance.
D) bankers acceptances.
The practice of keeping high-risk assets on a bank’s books while removing low-risk
assets with the same capital requirement is known as
A) competition in laxity.
B) depositor supervision.
C) regulatory arbitrage.
D) a dual banking system.
In the market for reserves, if the federal funds rate is between the discount rate and the
interest rate paid on excess reserves, an increase in the reserve requirement ________
the demand for reserves, ________ the federal funds rate, everything else held constant.
A) decreases; lowering
B) increases; lowering
C) increases; raising
D) decreases; raising
Tobin’s model of the speculative demand for money improves on Keynes’s analysis by
showing that
A) the speculative demand for money is interest insensitive.
B) the transactions demand for money is interest insensitive.
C) people will hold a diversified portfolio.
D) people will hold money or bonds but not both.
High unemployment is undesirable because it
A) results in a loss of output.
B) always increases inflation.
C) always increases interest rates.
D) reduces idle resources.
An option that gives the owner the right to sell a financial instrument at the exercise
price within a specified period of time is a
A) call option.
B) put option.
C) American option.
D) European option.
________ in the foreign interest rate causes the demand for domestic assets to decrease
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
When the economy is hit by a negative demand shock and the central bank pursues
policies to increase aggregate demand to its initial level, then
A) inflation will be lower.
B) output will be at its potential.
C) output will be lower.
D) inflation will be unchanged.
E) both B and D.
Conditions that likely contributed to a credit crunch during the global financial crisis
include
A) capital shortfalls caused in part by falling real estate prices.
B) regulated hikes in bank capital requirements.
C) falling interest rates that raised interest rate risk, causing banks to choose to hold
more capital.
D) increases in reserve requirements.
Assuming the economy is starting at the natural rate of output and everything else held
constant, the effect of ________ in aggregate ________ is a rise in both inflation and
output in the short-run, but in the long-run the only effect is a rise in inflation.
A) a decrease; supply
B) a decrease; demand
C) an increase; supply
D) an increase; demand
Adverse selection occurs when those ________ likely to get ________ insurance
payoffs are the ones who want to purchase insurance the most.
A) least; large
B) least; small
C) most; large
D) most; small
Suppose you are currently in the long position of a long-term bond. In this case, to
hedge against a capital loss, you would enter into a ________ contract to ________ a
long-term bond in the future.
A) interest-rate forward; sell
B) interest-rate forward; buy
C) exchange-rate forward; buy
D) exchange-rate forward; sell
The ability to use the too-big-to-fail policy was curtailed by the passage of the FDICIA.
To use this action today, the FDIC must get approval of a two-thirds majority of both
the Board of Governors of the Federal Reserve and the directors of the FDIC and also
the approval of the
A) Secretary of the Treasury.
B) Senate Finance Committee Chairperson.
C) President of the United States.
D) governor of the state in which the failed bank is located.
For the classical economists, the quantity theory of money provided an explanation of
movements in the price level. Changes in the price level result
A) from proportional changes in the quantity of money.
B) primarily from changes in the quantity of money.
C) only partially from changes in the quantity of money.
D) from changes in factors other than the quantity of money.
The quantity theory of money is a theory of how
A) the money supply is determined.
B) interest rates are determined.
C) the nominal value of aggregate income is determined.
D) the real value of aggregate income is determined.
Budget deficits are important because deficits
A) cause bank failures.
B) always cause interest rates to fall.
C) can result in higher rates of monetary growth.
D) always cause prices to fall.
When bad storms slow the check-clearing process, float tends to ________ causing the
Fed to initiate ________ open market ________.
A) decrease; defensive; sales
B) decrease; dynamic; purchases
C) increase; defensive; sales
D) increase; dynamic; purchases
Prior to 1863, all commercial banks in the United States
A) were chartered by the U.S. Treasury Department.
B) were chartered by the banking commission of the state in which they operated.
C) were regulated by the Federal Reserve.
D) were regulated by the central bank.
ATMs were developed because of breakthroughs in technology and as a
A) means of avoiding restrictive branching regulations.
B) means of avoiding paying interest to corporate customers.
C) way of concealing transactions from the SEC.
D) increasing the competition from foreign banks.
A tax cut initially
A) increases consumption expenditure by an amount greater than the tax cut.
B) increases consumption expenditure by an amount equal to the tax cut.
C) increases consumption expenditure by an amount that is less than the value of the tax
cut.
D) has no effect on consumption expenditure.
E) reduces consumption expenditure by an amount that is less than the value of the tax
cut.
Under a fixed exchange rate regime, if a country has an ________ exchange rate, then
its central bank’s attempt to keep its currency from appreciating will result in a
________ of international reserves.
A) undervalued; gain
B) undervalued; loss
C) overvalued; gain
D) overvalued; loss
An autonomous tightening of monetary policy
A) causes an upward movement along the monetary policy curve.
B) causes a downward movement along the monetary policy curve.
C) shifts the monetary policy curve upward.
D) shifts the monetary policy curve downward.
Suppose the U.S. economy is producing at the natural rate of output. An appreciation of
the U.S. dollar will cause ________ in real GDP in the short run and ________ in
inflation in the long run, everything else held constant. (Assume the appreciation causes
no effects in the supply side of the economy.)
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
Introduction of checks into the payments system reduced the costs of exchanging goods
and services. Another advantage of checks is that
A) they provide convenient receipts for purchases.
B) they can never be stolen.
C) they are more widely accepted than currency.
D) the funds from a deposited check are available for use immediately.
In a study published in 1963, Milton Friedman and Anna Schwartz found that in every
business cycle they studied over nearly a hundred-year period, the growth rate of the
________ decreased before ________ decreased.
A) money supply; interest rates
B) money supply; output
C) budget deficit; interest rates
D) budget deficit; output
A permanent negative supply shock causes stock prices to ________ than they would if
the
supply shock were temporary.
A) fall more
B) fall less
C) rise more
D) rise less
If the interest rate falls, other things being equal, investment spending will
A) fall.
B) rise.
C) either rise, fall, or remain unchanged.
D) not be affected.
An increase in the liquidity of corporate bonds, other things being equal, shifts the
demand curve for corporate bonds to the ________ and the demand curve for Treasury
bonds shifts to the ________.
A) right; right
B) right; left
C) left; left
D) left; right