What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for
$1,200 next year?
A) 5 percent
B) 10 percent
C) -5 percent
D) 25 percent
The Fed operating procedures employed between 1979 and 1982 resulted in ________
swings in the federal funds rate and ________ swings in the M1 growth rate.
A) increased; increased
B) increased; decreased
C) decreased; decreased
D) decreased; increased
Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine
million dollars in excess reserves. Given this information, we can say First National
Bank has ________ million dollars in required reserves.
A) one
B) two
C) eight
D) ten
The excess reserves ratio is ________ related to expected deposit outflows, and is
________ related to the market interest rate.
A) negatively; negatively
B) negatively; positively
C) positively; negatively
D) positively; positively
During the boom years of the 1920s, bank failures were quite
A) uncommon, averaging less than 30 per year.
B) uncommon, averaging less than 100 per year.
C) common, averaging about 600 per year.
D) common, averaging about 1000 per year.
In Keynes’s liquidity preference framework, as the expected return on bonds increases
(holding everything else unchanged), the expected return on money ________, causing
the demand for ________ to fall.
A) falls; bonds
B) falls; money
C) rises; bonds
D) rises; money
A financial market in which only short-term debt instruments are traded is called the
________ market.
A) bond
B) money
C) capital
D) stock
The experience of disintermediation in the banking industry illustrates that
A) more regulation of financial markets may avoid such problems in the future.
B) banks are unable to remain competitive with other financial intermediaries.
C) consumers no longer desire the services that banks provide.
D) markets invent alternatives to costly regulations.
If float is predicted to decrease because of good weather, the manager of the trading
desk at the New York Fed bank will likely conduct ________ open market operations to
________ reserves.
A) defensive; inject
B) defensive; drain
C) dynamic; inject
D) dynamic; drain
An increase in the monetary base that goes into currency is ________, while an increase
that goes into deposits is ________.
A) multiplied; multiplied
B) not multiplied; multiplied
C) multiplied; not multiplied
D) not multiplied; not multiplied
If market participants notice that a variable behaves differently now than in the past,
then, according to rational expectations theory, we can expect market participants to
A) change the way they form expectations about future values of the variable.
B) begin to make systematic mistakes.
C) no longer pay close attention to movements in this variable.
D) give up trying to forecast this variable.
Suppose that from a new checkable deposit, First National Bank holds eight million
dollars on deposit with the Federal Reserve, nine million dollars in excess reserves, and
faces a required reserve ratio of ten percent. Given this information, we can say First
National Bank has ________ million dollars in vault cash.
A) one
B) two
C) nine
D) ten
There are ________ members of the Board of Governors of the Federal Reserve
System.
A) 5
B) 7
C) 12
D) 19
________ of a foreign bank operates in the U.S. but cannot accept deposits from
domestic residents.
A) An agency office
B) A universal corporation
C) A McFadden corporation
D) A Basel branch
________ policy involves decisions about government spending and taxation.
A) Monetary
B) Fiscal
C) Financial
D) Systemic
In the model of the money supply process, the bank’s role in influencing the money
supply process is represented by
A) the excess reserve.
B) both the excess reserve and the market interest rate.
C) the currency ratio.
D) only borrowed reserves.
The time it takes for policy makers to change policy instruments once they have
decided on the new policy is called
A) the data lag.
B) the recognition lag.
C) the legislative lag.
D) the implementation lag.
E) the effectiveness lag.
If the required reserve ratio is 10 percent, currency in circulation is $1,200 billion,
checkable deposits are $1,600 billion, and excess reserves total $2,500 billion, then the
excess reserves-checkable deposit ratio is
A) 1.56.
B) 0.48.
C) 0.72.
D) 0.56.
Since they require less monitoring of firms, ________ contracts are used more
frequently than ________ contracts to raise capital.
A) debt; equity
B) equity; debt
C) debt; loan
D) equity; stock
All ________ are required to be members of the Fed.
A) state chartered banks
B) national banks chartered by the Office of the Comptroller of the Currency
C) banks with assets less than $100 million
D) banks with assets less than $500 million
Which of the following policy measures forced credit-rating agencies to provide reports
to the SEC when their employees go to work for a company that has been rated by them
in the last twelve months?
A) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
B) Sarbanes-Oxley Act of 2002
C) Global Legal Settlement of 2002
D) Gramm-Leach-Bliley Act of 1999
E) Riegle-Neal Act of 1994
An increase in Treasury deposits at the Fed causes
A) the monetary base to increase.
B) the monetary base to decrease.
C) Fed assets to increase but has no effect on the monetary base.
D) Fed assets to decrease but has no effect on the monetary base.
Everything else held constant, a decrease in holdings of excess reserves will mean
A) a decrease in the money supply.
B) an increase in the money supply.
C) a decrease in checkable deposits.
D) an increase in discount loans.
Everything else held constant, a weaker dollar will likely hurt
A) textile exporters in South Carolina.
B) wheat farmers in Montana that sell domestically.
C) automobile manufacturers in Michigan that use domestically produced inputs.
D) furniture importers in California.
Traders working for banks are subject to the
A) principal-agent problem.
B) free-rider problem.
C) double-jeopardy problem.
D) exchange-risk problem.
Fed policy since the early 1990s indicates that it is pursuing a policy of targeting the
A) monetary base.
B) money supply.
C) federal funds interest rate.
D) exchange rate.
If the liquidity effect is smaller than the other effects, and the adjustment to expected
inflation is immediate, then the
A) interest rate will fall.
B) interest rate will rise.
C) interest rate will fall immediately below the initial level when the money supply
grows.
D) interest rate will rise immediately above the initial level when the money supply
grows.
Which of the following is a TRUE statement concerning bank holding companies?
A) Bank holding companies own few large banks.
B) Bank holding companies have experienced dramatic growth in the past three
decades.
C) The McFadden Act has prevented bank holding companies from establishing branch
banks.
D) Bank holding companies can own only banks.
If mortgage brokers do not make a strong effort to evaluate whether the borrower can
pay off a loan, this creates a
A) severe adverse selection problem.
B) decline in mortgage applications.
C) call to deregulate the industry.
D) decrease in the demand for houses.
Since 1980, ________ are subject to reserve requirements.
A) only commercial banks
B) only the member institutions of the Federal Reserve
C) only nationally chartered depository institutions
D) all depository institutions
If reserves in the banking system increase by $100, then checkable deposits will
increase by $500 in the simple model of deposit creation when the required reserve
ratio is
A) 0.01.
B) 0.10.
C) 0.05.
D) 0.20
Everything else held constant, a decrease 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
A permanent negative supply shock leads to ________ real interest rates ________.
A) higher; in both the short and long runs
B) higher; in the short run but not in the long run
C) lower; in both the short and long runs
D) lower; in the short run but not in the long run
Explain the similarities and differences between the European System of Central Banks
and the Federal Reserve System.
Explain the problems that necessitate insurance management, and three methods
insurance companies use to address these problems. Identify the problem that each
practice addresses.
How do regulators help to ensure the soundness of financial intermediaries?
Why are most of the U.S. dollars held outside of the United States?
What is arbitrage? Explain why arbitrage drives the contract price of futures to the price
of the underlying asset on the expiration date, for prices above and below the asset
price.
What is a stock? How do stocks affect the economy?
Your best friend calls and gives you the latest stock market “hot tip” that he heard at the
health club. Should you act on this information? Why or why not?
You believe that a corporation’s dividends will grow 5% on average into the foreseeable
future. If the company’s last dividend payment was $5 what should be the current price
of the stock assuming a 12% required return?
Why is it important to understand the bond market?
Explain how the market can reduce the incentive for credit-rating firms to take
advantage of conflicts of interest.
What crucial role do financial intermediaries perform in an economy?
What is the impact on interest rates when the Federal Reserve decreases the money
supply by selling bonds to the public?
How did the increase in the interest rates in the early 80s contribute to the S&L crisis?
Explain dynamic and defensive open market operations. What is the purpose of each
type? Describe two situations when defensive open market operations are used. How
are defensive open market operations typically conducted?
Corporations receive funds when their stock is sold in the primary market. Why do
corporations pay attention to what is happening to their stock in the secondary market?
Why does the Federal Reserve Bank of New York play a special role within the Federal
Reserve System?
