A bank failure is less likely to occur when
A) a bank holds less U.S. government securities.
B) a bank suffers large deposit outflows.
C) a bank holds fewer excess reserves.
D) a bank has more bank capital.
The Fed’s open market operations normally involve only the purchase of government
securities, particularly those that are short-term. However, during the crisis, the Fed
started new programs to purchase
A) mortgage-backed securities and long-term Treasuries.
B) mortgage-backed securities and Treasury bills.
C) commercial papers and short-term Treasuries.
D) Treasury bills and Treasury notes.
The most common type of discount lending that the Fed extends to banks is called
A) seasonal credit.
B) secondary credit.
C) primary credit.
D) installment credit.
Purchases and sales of government securities by the Federal Reserve are called
A) discount loans.
B) federal fund transfers.
C) open market operations.
D) swap transactions.
If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the
excess reserves-checkable deposit ratio is
A) 0.001.
B) 0.10.
C) 0.01.
D) 0.05.
When short-term interest rates are expected to fall sharply in the future, the yield curve
will
A) slope up.
B) be flat.
C) be inverted.
D) be an inverted U shape.
If the current account balance shows a surplus, and the capital account also shows a
surplus, then the official reserve transactions balance
A) must be positive.
B) must be negative.
C) must be zero.
D) can either be positive, negative, or zero.
The ________ of the term structure states the following: the interest rate on a long-term
bond will equal an average of short-term interest rates expected to occur over the life of
the long-term bond plus a term premium that responds to supply and demand conditions
for that bond.
A) segmented markets theory
B) expectations theory
C) liquidity premium theory
D) separable markets theory
If the FDIC decides that a bank is too big to fail, it will use the ________ method,
effectively ensuring that ________ depositors will suffer losses.
A) payoff; large
B) payoff; no
C) purchase and assumption; large
D) purchase and assumption; no
The Chairman of the Board of Governors is chosen from among the seven governors
and serves a ________, renewable term.
A) one-year
B) two-year
C) four-year
D) eight-year
Reinsurance allows ________ to reduce the risks of exposure by allocating a portion of
the risk to ________ in exchange for a portion of the premium.
A) insurance companies; another insurance company
B) insurance companies; the insured
C) the insured; the insurance company
D) the insured; a bank
The ________ of a coupon bond and the yield to maturity are inversely related.
A) price
B) par value
C) maturity date
D) term
A rise in stock prices ________ the net worth of firms and so leads to ________
investment spending because of the reduction in moral hazard.
A) raises; higher
B) raises; lower
C) reduces; higher
D) reduces; lower
The total amount of reserves in the banking system is equal to the ________ required
reserves and excess reserves.
A) sum of
B) difference between
C) product of
D) ratio between
A positive supply shock causes ________ to ________.
A) aggregate demand; increase
B) aggregate demand; decrease
C) short-run aggregate supply; decrease
D) short-run aggregate supply; increase
If workers do not believe that policymakers are serious about fighting inflation, they are
most likely to push for higher wages, which will ________ aggregate ________ and
lead to unemployment or inflation or both, everything else held constant.
A) decrease; demand
B) increase; demand
C) decrease; supply
D) increase; supply
Everything else held constant, an expansionary ________ policy will cause the interest
rate to rise, while an expansionary ________ policy will cause the interest rate to fall.
A) monetary; monetary
B) monetary; fiscal
C) fiscal; monetary
D) fiscal; fiscal
The ability of a central bank to set monetary policy instruments is
A) political independence.
B) goal independence.
C) policy independence.
D) instrument independence.
Models describing the determination of the money supply and the Fed’s role in this
process normally focus on ________ rather than ________, since Fed actions have a
more predictable effect on the former.
A) reserves; the monetary base
B) reserves; high-powered money
C) the monetary base; high-powered money
D) the monetary base; reserves
If the interest rate on euro-denominated assets is 13 percent and it is 15 percent on
peso-denominated assets, and if the euro is expected to appreciate at a 4 percent rate,
for Manuel the Mexican the expected rate of return on euro-denominated assets is
A) 11 percent.
B) 13 percent.
C) 17 percent.
D) 19 percent.
A balance of payments deficit is associated with a ________ of international reserves,
while a balance of payments surplus is associated with a ________.
A) loss; loss
B) loss; gain
C) gain; loss
D) gain; gain
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio =
75%, and the excess reserve ratio = 156%, an increase in the required reserve ratio to
15% causes the M1 money multiplier to ________, everything else held constant.
A) increase from 0.15 to 0.33
B) increase from 0.54 to 0.67
C) decrease from 0.73 to 0.71
D) decrease from 1.67 to 1.54
If a firm must pay for goods it has ordered with foreign currency, it can hedge its
foreign exchange-rate risk by ________ foreign exchange futures ________.
A) selling; short
B) buying; long
C) buying; short
D) selling; long
In both New Zealand and Canada, what has happened to the unemployment rate since
the countries adopted inflation targeting?
A) The unemployment rate increased sharply.
B) The unemployment rate remained constant.
C) The unemployment rate has declined substantially after a sharp increase.
D) The unemployment rate declined sharply immediately after the inflation targets were
adopted.
Of the three players in the money supply process, most observers agree that the most
important player is
A) the United States Treasury.
B) the Federal Reserve System.
C) the FDIC.
D) the Office of Thrift Supervision.
If an economy has aggregate output of $20 trillion, then aggregate income is
A) $10 trillion.
B) $20 trillion.
C) $30 trillion.
D) $40 trillion.
In the long-run ISLM model and with everything else held constant, an increase in the
money supply leaves the level of output and interest rates unchanged, an outcome
called
A) interest rate overshooting.
B) long-run money neutrality.
C) long-run crowding out.
D) the long-run Phillips curve.
Hedging risk for a long position is accomplished by
A) taking another long position.
B) taking a short position.
C) taking additional long and short positions in equal amounts.
D) taking a neutral position.
If the required reserve ratio is 10 percent, the simple deposit multiplier is
A) 5.0.
B) 2.5.
C) 100.0.
D) 10.0
Under the Basel Accord, assets and off-balance sheet activities were sorted according to
________ categories with each category assigned a different weight to reflect the
amount of ________.
A) 2; adverse selection
B) 2; credit risk
C) 4; adverse selection
D) 4; credit risk
A decline in autonomous planned investment spending causes the equilibrium level of
aggregate output to ________ and shifts the ________ curve to the ________,
everything else held constant.
A) rise; LM; right
B) rise; IS; right
C) fall; IS; left
D) fall; LM; left
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 of reserves and causes the federal funds interest rate to ________,
everything else held constant.
A) decreases; fall
B) increases; fall
C) increases; rise
D) decreases; rise
When the economy suffers a permanent negative supply shock and the central bank
does not respond by changing the autonomous component of monetary policy, then
A) inflation will be lower.
B) output will be at its potential.
C) output will be lower.
D) inflation will not change.
E) both A and B.