The Humphrey-Hawkins Act of 1978 resulted from political discontent over
(a) the high unemployment rates of the late 1970s.
(b) the low interest rates of the late 1970s, which were discouraging saving.
(c) the procyclical monetary policy being conducted by the Fed.
(d) the countercyclical monetary policy being conducted by the Fed.
Answer:
A one-year discount bond with a face value of $10,000 that is currently selling for
$8000 has an interest rate of
(a) 2.5%.
(b) 20%.
(c) 25%.
(d) 80%.
Answer:
In a defined contribution pension plan
(a) pension income varies depending on how well the plan’s investments have done.
(b) the employee is promised an assigned benefit based on earnings and years of
service.
(c) if the funds in the pension plan exceed the amount promised, the excess accrues to
the issuing firm or institution.
(d) all earnings are taxable as regular income.
Answer:
If a one-year bond currently yields 5% and is expected to yield 7% next year, the
preferred habitat theory predicts that the yield today on a two-year bond will be
(a) 5%.
(b) less than 6% but more than 5%.
(c) 6%.
(d) more than 6%.
Answer:
What was the source of controversy between the Treasury and the Fed during the years
immediately after World War II?
(a) The Fed wanted the Secretary of the Treasury removed from his position on the
Fed’s Board of Governors.
(b) The Fed wanted out of the agreement that it would peg the interest rate on
short-term Treasury securities.
(c) The Fed wanted the Treasury to increase its contribution to the Fed’s operating
expenses.
(d) The Fed wanted the Treasury to begin paying interest on the Fed’s holdings of
Treasury securities.
Answer:
A recession begins, but Congress and the President take eighteen months to decide the
details of the tax cut that will be used to stimulate the economy. This is an example of
(a) an implementation lag.
(b) an impact lag.
(c) a recognition lag.
(d) a legislative lag.
Answer:
Why did the Fed expand discount lending in the aftermath of the terrorist attacks in the
fall of 2001?
(a) It feared that inflation was going to increase.
(b) To ensure the smooth operation of banks in the affected areas.
(c) It feared the effects on the U.S. economy of rising oil prices.
(d) It was attempting to increase the chances that President Bush would be reelected.
Answer:
In what year did the mutual fund industry in the United States begin?
(a) 1812
(b) 1924
(c) 1974
(d) 1990
Answer:
Which of the following would NOT shift the aggregate demand curve to the left?
(a) An increase in money demand
(b) A cut in federal government spending
(c) An increase in the money supply
(d) A decrease in consumption spending
Answer:
Fluctuations in the market price of a corporate bond
(a) are an example of the risk of owning a financial asset.
(b) happen only very rarely.
(c) indicate that the firm issuing the bond will soon declare bankruptcy.
(d) are generally offset by the yield on the bond being very stable.
Answer:
In 1980, the Depository Institutions Deregulation and Monetary Control Act
(a) gave the Board of Governors authority over reserve requirements.
(b) established that country banks would have lower reserve requirements than urban
banks.
(c) established uniform reserve requirements for all depository institutions.
(d) eliminated reserve requirements on demand deposits at S&Ls.
Answer:
Most of the Fed’s earnings come from
(a) fees charged to financial institutions for check clearing.
(b) interest on the securities it holds.
(c) interest on discount loans.
(d) congressional appropriations.
Answer:
In a large open economy,
(a) domestic lending and borrowing decisions have no impact on the world real interest
rate.
(b) an increase in the domestic supply of loanable funds would lower the world real
interest rate.
(c) the domestic equilibrium real interest rate is determined independently of foreign
borrowing and lending.
(d) an increase in the domestic demand for loanable funds would lower the world real
interest rate.
Answer:
A depreciating nominal exchange rate results from
(a) a depreciating real exchange rate.
(b) a low domestic inflation rate relative to the foreign inflation rate.
(c) an appreciating real exchange rate.
(d) a large government budget deficit.
Answer:
Under FIRREA what are the capital requirements for S&Ls?
(a) 1% of assets
(b) 8% of assets
(c) 15% of net worth
(d) $50,000,000
Answer:
An increase in the price level
(a) decreases real money balances and shifts the LM curve down and to the right.
(b) increases real money balances and shifts the LM curve up and to the left.
(c) decreases real money balances and shifts the LM curve up and to the left.
(d) increases real money balances and shifts the LM curve down and to the right.
Answer:
Default risk arises from the fact that
(a) borrowers differ in their ability to repay in full the principal and interest required by
a loan agreement.
(b) the tax treatment of financial instruments differs.
(c) it is inherently riskier to wait for a capital gain than to receive an immediate interest
payment.
(d) interest rates are far more likely to go up than to go down.
Answer:
Business finance companies
(a) purchase accounts receivable of small firms at a discount.
(b) sell commercial paper and buy long-term corporate bonds.
(c) take in deposits from savers and buy corporate commercial paper.
(d) are strictly regulated by state governments.
Answer:
The existence of lags in the policymaking and implementation process has convinced
new Keynesian economists that stabilization policy should
(a) not be used.
(b) be used only to fine-tune the economy.
(c) be used only to fight major downturns in the economy.
(d) be used to fight inflations but not to fight recessions.
Answer:
Money’s convenience yield is
(a) the nominal interest rate paid on money balances minus the expected inflation rate.
(b) the nominal interest rate paid on money balances plus the expected inflation rate.
(c) the amount of interest sacrificed in exchange for money’s safety, liquidity, and low
information costs.
(d) the interest rate on T-bills minus the interest rate on money.
Answer:
During a banking panic a lender of last resort will
(a) purchase banks that are having XOAXOA but appear sound.
(b) make loans to solvent but illiquid banks.
(c) make loans to insolvent but liquid banks.
(d) make loans to any banks that request them.
Answer:
SEC Rule 415
(a) fixes the fees that may be charged by underwriters.
(b) requires underwriters to invest their own funds in the firms whose securities they are
underwriting.
(c) eliminates the requirement that short-term securities be underwritten.
(d) allows firms to wait as long as two years before selling a newly registered security.
Answer:
If banks become more willing to make loans, the aggregate demand curve will
(a) shift to the left, and the real interest rate will fall.
(b) shift to the left, and the real interest rate will rise.
(c) shift to the right, and the real interest rate will fall.
(d) shift to the right, and the real interest rate will rise.
Answer:
Rising inflation in early 1951 is attributable at least in part to
(a) the Fed’s allowing interest rates to rise.
(b) the Fed’s allowing interest rates to fall.
(c) increased spending by the federal government to fight poverty.
(d) the Fed’s having lost control of the money supply process.
Answer:
Why might Congress benefit from the Fed’s being self-financed?
(a) Self-financing increases Congressional control over the Fed.
(b) Self-financing reduces the Fed’s exposure to external pressures.
(c) Self-financing gives the Fed an incentive to expand the money supply, which
ultimately results in Congress having additional funds to spend.
(d) Congress does not benefit from the Fed’s being self-financed; Congress is obliged
by the Constitution to allow the Fed to be self-financed.
Answer:
The key to the interest rate risk faced by thrifts was
(a) their heavy investments in Treasury bills.
(b) the mismatch between the maturities of their assets and liabilities.
(c) their heavy investments in Treasury bonds.
(d) their investments in very risky projects.
Answer:
Why were foreign-exchange traders surprised in September 2000?
(a) The United States decided to leave the gold standard.
(b) They expected the foreign-exchange value of the dollar to continue to fall, but it
began to rise.
(c) They expected the foreign-exchange value of the dollar to continue to rise, but it
began to fall.
(d) Germany decided to pull out of the European Monetary System.
Answer:
If the federal government decreases its purchases and doesn’t decrease taxes, the bond
supply schedule shifts to the
(a) left and the equilibrium interest rate rises.
(b) left and the equilibrium interest rate falls.
(c) right and the equilibrium interest rate rises.
(d) right and the equilibrium interest rate falls.
Answer:
By providing and communicating information, the financial system
(a) reduces the difference between the return on three-month U.S. Treasury bills and the
return on thirty-year U.S. Treasury bonds.
(b) relieves individual savers from the necessity of searching out individual borrowers.
(c) eliminates the risk in investing in the stock market.
(d) guarantees investors a reasonable return on their money.
Answer:
If everything else is held constant, which of the following would NOT lead to
short-term inflation?
(a) An increase in the growth rate of aggregate supply
(b) An increase in the nominal money supply
(c) An increase in consumer spending
(d) An increase in government spending
Answer:
What is the yield to maturity of a consol with a coupon of $85 and a price of $944.44?
(a) 5.56%
(b) 8.50%
(c) 9.00%
(d) Not enough information has been provided to determine the answer.
Answer:
Until the 1980s, most economists
(a) included only gold and silver coins in their definition of the money supply.
(b) used M1 as the measure of money.
(c) used M2 as the measure of money.
(d) used currency as the measure of money.
Answer:
Which of the following statements is correct?
(a) Open market purchases are expansionary and open market sales are contractionary.
(b) Open market purchases are contractionary and open market sales are expansionary.
(c) Both open market purchases and open market sales are expansionary.
(d) Both open market purchases and open market sales are contractionary.
Answer:
A bank’s equity capital is
(a) the current market value of the bank’s physical assets.
(b) the historical or original value of the bank’s physical assets.
(c) the capital contributed by the bank’s shareholders plus accumulated retained profits.
(d) the sum of the value of the bank’s assets plus the value of the bank’s liabilities.
Answer:
Why might the Community Reinvestment Act of 1977 backfire in its long-run effects
on credit supply?
(a) Its limits on credit card interest rates may lead to banks offering fewer credit cards.
(b) Its requirements for local lending raise the cost of operating banks in urban areas
and may lead to fewer banks entering these communities over time.
(c) Its requirement that banks buy large amounts of local municipal bonds may lead to
reckless spending by local governments.
(d) Its requirement that banks make loans only for investment purposes may reduce the
loans available for consumption purposes.
Answer: