Circuit breakers are
(a) interventions designed to restore orderly markets.
(b) fines levied on noise traders.
(c) fines levied on inside traders.
(d) minimum inventory requirements imposed on specialists on the floor of the New
York Stock Exchange.
Answer:
Between 1981 and 2000
(a) trading in financial futures declined in importance relative to trading in agricultural
and mineral commodities futures.
(b) trading in financial futures increased in importance relative to trading in agricultural
and mineral commodities futures.
(c) trading in agricultural and commodities futures was discontinued.
(d) trading in financial futures was discontinued.
Answer:
The key reason why loans from financial institutions and other forms of borrowing are
not perfect substitutes is that
(a) information problems exist in financial markets.
(b) banks are legally required to offer loans at rates below those prevailing in the bond
market.
(c) the tax treatment of loans from financial institutions is different from the tax
treatment of loans obtained in the bond market.
(d) financial institutions have great XOAXOA in evaluating the creditworthiness of all
but the largest borrowers.
Answer:
Interest on most bonds issued by state governments is
(a) exempt from state and federal income taxes.
(b) exempt from state, but not from federal, income taxes.
(c) exempt from federal, but not from state, income taxes.
(d) subject to both state and federal income taxes.
Answer:
Why has the IMF come in for widespread criticism for its handling of the Asian
financial crisis?
(a) It refused to make loans to any of the countries whose currencies were under
speculative attack.
(b) Its policies did not sufficiently punish speculators with losses, giving rise to moral
hazard.
(c) Its policies led to unsustainably low interest rates in a number of Asian countries.
(d) Its policies failed to lead to sufficient hardship for citizens in a number of Asian
countries, giving rise to moral hazard.
Answer:
Noise traders
(a) pursue trading strategies without superior information.
(b) make use of inside information.
(c) reduce the amount of risk in the market.
(d) help to ensure that asset prices reflect the fundamental values of the securities being
traded.
Answer:
Suppose that Congress passes a law that prohibits mutual funds from holding corporate
bonds. The likely result would be a (an)
(a) shift to the right in the demand curve for bonds.
(b) shift to the left in the supply curve for loanable funds.
(c) increase in the equilibrium interest rate.
(d) decrease in the equilibrium interest rate.
Answer:
Merchant banking refers to
(a) banking services available only to retail merchants.
(b) banking services available to businesses but not to the general public.
(c) investment banks investing their own funds in companies.
(d) banking activities being carried out by companies that are not banks.
Answer:
Standby letters of credit
(a) are a form of swaps.
(b) are a promise by a bank to lend the borrower funds to pay off its maturing
commercial paper.
(c) are a promise by a large depositor to provide additional funds to a bank should the
bank face an unexpectedly large deposit outflow.
(d) represent the unused balance on a bank credit card.
Answer:
Which of the following is the correct expression of the equation of exchange?
(a) MY = PV
(b) MP = VY
(c) M/P = VY
(d) MV = PY
Answer:
Why do CDs have higher interest rates than savings accounts?
(a) CDs are much riskier investments than savings accounts.
(b) Interest on CDs is taxable while interest on savings accounts is not.
(c) CDs provide better hedges against inflation than do savings accounts.
(d) CDs are not as liquid as savings accounts.
Answer:
A futures contract is
(a) an agreement that specifies the delivery of a commodity or financial instrument at
an agreed-upon future date at a currently agreed upon price.
(b) an agreement that specifies the delivery of a commodity or financial instrument at
an agreed-upon future date, with the price to be negotiated at the time of delivery.
(c) an agreement that specifies the delivery of a commodity or financial instrument at a
currently agreed upon price, with date of delivery to be negotiated subsequently.
(d) an agreement that specifies the delivery of a commodity or financial instrument,
with the price and date of delivery to be negotiated subsequently.
Answer:
Banks use repurchase agreements to
(a) ensure that payments on consumer loans are made on time.
(b) borrow funds from business firms or other banks.
(c) guard against price fluctuations on long-term bonds.
(d) ensure that they always have enough funds on hand to meet their federal tax
liabilities.
Answer:
Financing government spending by selling bonds to the nonbank public
(a) will increase the monetary base.
(b) will decrease the monetary base.
(c) will leave the monetary base unaffected.
(d) will increase the monetary base if the bonds are paid for in currency, but will
decrease it if they are paid for by check.
Answer:
During the 1980s, the velocity of M1
(a) was constant.
(b) fluctuated, but within a narrow band.
(c) experienced significant instability.
(d) fell to zero.
Answer:
Which of the following is NOT true of the purchase and assumption method of handling
a bank failure?
(a) This method is used by the Federal Reserve but not by the FDIC.
(b) This method is more common than the payoff method.
(c) The goodwill of the failed bank is preserved.
(d) Another financial institution will take over the failed bank.
Answer:
Ben Bernanke and Alan Blinder were able to document that
(a) peaks in the rate of growth of the money supply actually follow, rather than precede,
peaks in the business cycle.
(b) increases in the federal funds rate cause output to fall.
(c) increases in the federal funds rate cause increases in the inflation rate.
(d) output declines almost immediately in response to a contractionary policy by the
Fed.
Answer:
Which of the following is NOT considered an important determinant of money
demand?
(a) The average personal income tax rate
(b) Real income
(c) Payments system developments
(d) The difference between the nominal interest rate and the yield on money
Answer:
Businesses typically issue bonds to finance
(a) their inventories.
(b) payments to their workers.
(c) spending on new plant and equipment.
(d) dividend payments to their stockholders.
Answer:
Which of the following men has NOT served as Chairman of the Board of Governors?
(a) Milton Friedman
(b) Arthur Burns
(c) Paul Volcker
(d) Alan Greenspan
Answer:
About what percentage of U.S. output was exported to foreigners in 2002?
(a) 1%
(b) 10%
(c) 25%
(d) 50%
Answer:
The decline in the price level following the 1929 stock market crash may have reduced
household spending on durable goods and houses because the decline
(a) resulted in higher nominal interest rates.
(b) led the government to increase its spending, which crowded out spending by
households.
(c) increased the real value of outstanding household debt.
(d) led to an offsetting decline in nominal wages.
Answer:
On the day of delivery
(a) the spot price will equal the futures price.
(b) the spot price will be greater than the futures price by an amount equal to the current
interest rate times the futures price.
(c) the futures price will be greater than the spot price by an amount equal to the current
interest rate times the spot price.
(d) there is no necessary relation between the spot price and the futures price.
Answer:
The effect of a decline in the money supply on the economy differs from the effect of a
decline in the willingness of banks to lend in that a decline in the money supply will
lead to
(a) a decline in output, whereas a decline in the willingness of banks to lend will lead to
an increase in output.
(b) an increase in the price level, whereas a decline in the willingness of banks to lend
will lead to a decrease in the price level.
(c) an increase in the real interest rate, whereas a decline in the willingness of banks to
lend will lead to a decrease in the real interest rate.
(d) a decrease in the price level, whereas a decline in the willingness of banks to lend
will lead to an increase in the price level.
Answer:
As the time of delivery in a futures contract gets closer
(a) the futures price gets closer to the spot price.
(b) the futures price generally rises further above the spot price.
(c) the futures price generally falls further below the spot price.
(d) the futures and spots prices the same as they were when the contract was first
created
Answer:
Banks are exposed to interest rate risk primarily because
(a) interest rates are very difficult to forecast.
(b) the maturities of banks’ assets and liabilities differ.
(c) borrowers from banks are prone to default.
(d) depositors are always searching for a slightly higher interest rate.
Answer:
The Fisher hypothesis holds that
(a) in the long run the nominal interest rate equals the real interest rate.
(b) the yield to maturity equals the real interest rate.
(c) the nominal interest rate equals the coupon rate if the bond is held to maturity.
(d) the nominal interest rate rises or falls point-for-point with expected inflation.
Answer:
Although coordinated changes in monetary policy are likely to affect the exchange rate,
(a) it has proven impossible to achieve such coordination among the world’s central
banks.
(b) sterilized interventions by themselves are unlikely to have a long-term effect on the
exchange rate.
(c) they can do so only at the cost of increasing the worldwide inflation rate.
(d) they can do so only at the cost of significantly increasing the chances of worldwide
recession.
Answer:
When you place your funds in a savings account at a bank, those funds are
(a) an asset to you and a liability to the bank.
(b) a liability to you and an asset to the bank.
(c) an asset both to you and the bank.
(d) a liability both to you and bank.
Answer:
The best way to determine if the assumptions of an economic model are appropriate is
to
(a) examine whether they are consistent with common sense.
(b) determine whether they are similar to assumptions used in other economic models.
(c) test them by comparing the predictions of the model to actual data.
(d) consider whether the assumptions are simple enough to be understood by users of
the model.
Answer:
Trading by managers who own large amounts of a firm’s stock or trading by others who
have privileged information is known as
(a) insider trading.
(b) asymmetric trading.
(c) arbitrage.
(d) reverse repurchase trading.
Answer: