________ in the domestic 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
A ________ pays the owner a fixed coupon payment every year until the maturity date,
when the ________ value is repaid.
A) coupon bond; discount
B) discount bond; discount
C) coupon bond; face
D) discount bond; face
The channels through which monetary policy affects economic activity are called the
________ of monetary policy.
A) transmission mechanisms
B) flow mechanisms
C) distribution mechanisms
D) allocational mechanisms
High interest rates might ________ purchasing a house or car but at the same time high
interest rates might ________ saving.
A) discourage; encourage
B) discourage; discourage
C) encourage; encourage
D) encourage; discourage
Which of the following are NOT assets on the Fed’s balance sheet?
A) discount loans
B) U.S. Treasury deposits
C) cash items in the process of collection
D) U.S. Treasury bills
When secondary market buyers and sellers of securities meet in one central location to
conduct trades the market is called a(n)
A) exchange.
B) over-the-counter market.
C) common market.
D) barter market.
The equation of exchange states that the quantity of money multiplied by the number of
times this money is spent in a given year must equal
A) nominal income.
B) real income.
C) real gross national product.
D) velocity.
When yield curves are downward sloping
A) long-term interest rates are above short-term interest rates.
B) short-term interest rates are above long-term interest rates.
C) short-term interest rates are about the same as long-term interest rates.
D) medium-term interest rates are above both short-term and long-term interest rates.
If the British pound appreciates from $0.50 per pound to $0.75 per pound, the U.S.
dollar depreciates from ________ per dollar to ________ per dollar.
A) £2; £2.5
B) £2; £1.33
C) £2; £1.5
D) £2; £1.25
The interest rate on secondary credit is set ________ basis points ________ the primary
credit rate.
A) 100; above
B) 100; below
C) 50; above
D) 50; below
You would be less willing to purchase U.S. Treasury bonds, other things equal, if
A) you inherit $1 million from your Uncle Harry.
B) you expect interest rates to fall.
C) gold becomes more liquid.
D) stock prices are expected to fall.
When investment banks allocate shares of a popular but underpriced IPO to executives
of other firms in order to attract their business, it is called
A) spinning.
B) a bribe.
C) reputational activities.
D) a kickback.
Everything else held constant, an increase in autonomous planned investment spending
will cause the IS curve to shift to the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Studies of mutual fund performance indicate that mutual funds that outperformed the
market in one time period usually
A) beat the market in the next time period.
B) beat the market in the next two subsequent time periods.
C) beat the market in the next three subsequent time periods.
D) do not beat the market in the next time period.
If peanuts serve as a medium of exchange, a unit of account, and a store of value, then
peanuts are
A) bank deposits.
B) reserves.
C) money.
D) loanable funds.
The first country to adopt inflation targeting was
A) the United Kingdom.
B) Canada.
C) New Zealand.
D) Australia.
To hedge the interest rate risk on $4 million of Treasury bonds with $100,000 futures
contracts, you would need to purchase
A) 4 contracts.
B) 20 contracts.
C) 25 contracts.
D) 40 contracts.
Keynes argued that the precautionary component of the demand for money was
primarily determined by the level of people’s ________, which he believed were
proportional to ________.
A) incomes; wealth
B) incomes; age
C) transactions; income
D) transactions; age
The price of a barrel of oil doubled between 2007 and the middle of 2008. To make
matters worse, a financial crisis hit the U.S. economy starting in August of 2007. Which
of the following is TRUE of the Chinese experience?
A) The worldwide decline in demand led to a collapse of Chinese exports.
B) Instead of relying solely on the economy’s self-correcting mechanism, much more
aggressive fiscal expansions than those of the U.S. (in addition to a substantial
monetary easing) served to shift the AD curve back to general equilibrium relatively
quickly.
C) The Chinese economy was better able than the U.S. economy to weather the
financial crisis with output growth starting to grow earlier and more quickly than that of
the U.S.
D) All of the above.
E) None of the above.
Everything else held constant, if a central bank makes an unsterilized ________ of
foreign assets, then the domestic money supply will ________ and the domestic
currency will appreciate.
A) purchase; increase
B) purchase; decrease
C) sale; increase
D) sale; decrease
Under a fixed exchange rate regime, if the domestic currency is initially undervalued,
that is, above par, the central bank must intervene to sell the ________ currency by
purchasing ________ assets.
A) domestic; foreign
B) domestic; domestic
C) foreign; foreign
D) foreign; domestic
Hedge funds require large minimum investments ranging from ________ to ________
or more.
A) $100,000; $1 million
B) $1000; $10,000
C) $100; $1000
D) $$10,000; $25,000
Everything else held constant, a stronger dollar benefits ________ and hurts ________.
A) American businesses; American consumers
B) American businesses; foreign businesses
C) American consumers; American businesses
D) foreign businesses; American consumers
If there are economies of scale in the transactions demand for money, as income
increases, money demand
A) increases proportionately.
B) increases less than proportionately.
C) increases more than proportionately.
D) does not change.
Compared to commercial banks and thrift institutions, finance companies are
A) heavily regulated.
B) able to attract small depositors.
C) prevented from making relatively small loans.
D) virtually unregulated.
The Federal Reserve Act of 1913 required all ________ banks to become members of
the Federal Reserve System, while ________ banks could choose to become members
of the system.
A) state; national
B) state; municipal
C) national; state
D) national; municipal
One of the criticisms of Basel 2 is that it is procyclical. That means that
A) banks may be required to hold more capital during times when capital is short.
B) banks may become professional at a cyclical response to economic conditions.
C) banks may be required to hold less capital during times when capital is short.
D) banks will not be required to hold capital during an expansion.
Nationwide banking might reduce bank failures due to
A) reduced competition.
B) reduced lending to small businesses.
C) diversification of loan portfolios across state lines.
D) elimination of community banks.
When the price of a bond is ________ the equilibrium price, there is an excess demand
for bonds and price will ________.
A) above; rise
B) above; fall
C) below; fall
D) below; rise
When the ________ interest rate is low, there are greater incentives to ________ and
fewer incentives to ________.
A) nominal; lend; borrow
B) real; lend; borrow
C) real; borrow; lend
D) market; lend; borrow
The Fed can offset the effects of an increase in float by engaging in
A) a repurchase agreement.
B) a matched sale-purchase transaction.
C) an interest rate swap.
D) an open market purchase.
Which of the following instruments are traded in a capital market?
A) corporate bonds
B) U.S. Treasury bills
C) negotiable bank CDs
D) repurchase agreements
Everything else held constant, if a central bank makes an unsterilized ________ of
foreign assets, then the domestic money supply will ________ and the domestic
currency will depreciate.
A) purchase; increase
B) purchase; decrease
C) sale; increase
D) sale; decrease