The collapse of the subprime mortgage market
A) did not affect the corporate bond market.
B) increased the perceived riskiness of Treasury securities.
C) reduced the Baa-Aaa spread.
D) increased the Baa-Aaa spread.
Everything else held constant, a decrease in net taxes ________ aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
The Basel Accord requires banks to hold as capital an amount that is at least ________
of their risk-weighted assets.
A) 10%
B) 8%
C) 5%
D) 3%
If you sell twenty-five $100,000 futures contracts to hedge holdings of a Treasury
security, the value of the Treasury securities you are holding is
A) $250,000.
B) $1,000,000.
C) $2,500,000.
D) $5,000,000.
Because central banks have not been willing to give up their option of intervening in the
foreign exchange market, the current international financial system can best be
described as a
A) variable-pegged exchange rate system.
B) moving-pegged exchange rate system.
C) hybrid of a fixed exchange rate and flexible exchange rate system.
D) flexible-exchange, dollar-pegged exchange rate system.
There are two types of investment: ________ investment—the spending by business
firms on equipment and structures, and planned spending on residential houses—and
________ investment—spending by business firms on additional holdings of raw
materials, parts, and finished goods.
A) planned; gross
B) planned; inventory
C) fixed; gross
D) fixed; inventory
When output is below potential and the policy rate has hit the floor of zero, the resulting
fall in inflation leads to ________ real interest rates, which ________ output further,
which causes inflation to fall further.
A) lower; increase
B) higher; depress
C) higher; increase
D) lower; depress
According to PPP, the real exchange rate between two countries will always equal
A) 0.0.
B) 0.5.
C) 1.0.
D) 1.5.
An increase in the money ________ shifts the LM curve to the ________, causing the
interest rate to fall and output to rise, everything else held constant.
A) demand; right
B) demand; left
C) supply; right
D) supply; left
Examples of off-balance-sheet activities include
A) trading activities.
B) extending loans to depositors.
C) borrowing from other banks.
D) selling negotiable CDs.
In Keynes’s liquidity preference framework
A) the demand for bonds must equal the supply of money.
B) the demand for money must equal the supply of bonds.
C) an excess demand of bonds implies an excess demand for money.
D) an excess supply of bonds implies an excess demand for money.
The Argentine banking crisis of 2001 resulted from Argentina’s banks being required to
A) purchase large amounts of government debt.
B) pay back the value of failed loans.
C) make risky real estate loans.
D) make loans to only state-owned businesses.
Which of the following is NOT a disadvantage of controls on capital outflows?
A) The controls may lead to excessive risk taking by the domestic banks.
B) They are seldom effective during a crisis.
C) Capital flight may increase after they are put in place.
D) Controls often lead to an increase in government corruption.
One reason for the extraordinary growth of foreign financial markets is
A) decreased trade.
B) increases in the pool of savings in foreign countries.
C) the recent introduction of the foreign bond.
D) slower technological innovation in foreign markets.
Which of the following is not a disadvantage of of the Fed’s “just do it” approach to
monetary policy?
A) There is low transparency of policy.
B) There is low accountability for central bankers.
C) This type of policy make the Fed more susceptible to the time-inconsistency
problem.
D) It relies on a stable money-inflation relationship.
The Baumol-Tobin analysis suggests that an increase in the brokerage fee for buying
and selling bonds will cause the demand for money to ________ and the demand for
bonds to ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Keough plans and IRAs are
A) individual pension plans.
B) government pension plans.
C) corporate pension plans.
D) public pension plans.
An appreciation of the U.S. dollar makes foreign goods cheaper relative to American
goods, resulting in a ________ in net exports in the U.S. and a ________ shift of the IS
curve in the U.S., everything else held constant.
A) fall; leftward
B) rise; leftward
C) fall; rightward
D) rise; rightward
A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield
to maturity of
A) 3 percent.
B) 20 percent.
C) 25 percent.
D) 33.3 percent.
Which of the following has NOT resulted from more active liability management on the
part of banks?
A) increased bank holdings of cash items
B) aggressive targeting of goals for asset growth by banks
C) increased use of negotiable CDs to raise funds
D) an increased proportion of bank assets held in loans
In the figure above, the factor responsible for the decline in the interest rate is
A) a decline the price level.
B) a decline in income.
C) an increase in the money supply.
D) a decline in the expected inflation rate.
If a market participant believes that a stock price is irrationally high, they may try to
borrow stock from brokers to sell in the market and then make a profit by buying the
stock back again after the stock falls in price. This practice is called
A) short selling.
B) double dealing.
C) undermining.
D) long marketing.
Suppose that from a new checkable deposit, First National Bank holds eight million
dollars on deposit with the Federal Reserve, one million dollars in required reserves,
and faces a required reserve ratio of ten percent. Given this information, we can say
First National Bank has ________ million dollars in excess reserves.
A) two
B) eight
C) nine
D) ten
One suggested method of reducing excessive risk-taking by SIFIs is to require them to
hold ________ capital when credit is expanding rapidly and ________ capital when
credit is contracting.
A) less; more
B) more; no
C) more; less
D) less; no
The modern commercial banking system began in America when the
A) Bank of United States was chartered in New York in 1801.
B) Bank of North America was chartered in Philadelphia in 1782.
C) Bank of United States was chartered in Philadelphia in 1801.
D) Bank of North America was chartered in New York in 1782.
Because of the adverse selection problem
A) good credit risks are more likely to seek loans causing lenders to make a
disproportionate amount of loans to good credit risks.
B) lenders may refuse loans to individuals with high net worth, because of their greater
proclivity to “skip town.”
C) lenders are reluctant to make loans that are not secured by collateral.
D) lenders will write debt contracts that restrict certain activities of borrowers.
The Federal Deposit Insurance Corporation Improvement Act of 1991
A) increased the FDIC’s ability to borrow from the Treasury to deal with failed banks.
B) increased the FDIC’s ability to use the too-big-to-fail doctrine.
C) eliminated governmentally-administered deposit insurance.
D) eliminated restrictions on nationwide banking.
The portfolio theories of money demand state that the demand for real money balances
is ________ related to income and ________ related to the nominal interest rate.
A) positively; negatively
B) positively; positively
C) negatively; negatively
D) negatively; positively
In financial markets, when a firm issues stock for the first time it is called an
A) investment portfolio option.
B) initial public offering.
C) initial portfolio offering.
D) investment portfolio offering.
________ are the time and resources spent trying to exchange goods and services.
A) Bargaining costs
B) Transaction costs
C) Contracting costs
D) Barter costs