The revenue a government gains from issuing money is
A) interest.
B) rent.
C) seignorage.
D) the national dividend.
E) the inflation tax.
Bankers’ concerns regarding the optimal mix of excess reserves, secondary reserves,
borrowings from the Fed, and borrowings from other banks to deal with deposit
outflows is an example of
A) liability management.
B) liquidity management.
C) managing interest rate risk.
D) managing credit risk.
When Jane Brown writes a $100 check to her nephew and he cashes the check, Ms.
Brown’s bank ________ assets of $100 and ________ liabilities of $100.
A) gains; gains
B) gains; loses
C) loses; gains
D) loses; loses
The negative relation between investment spending and the interest rate is what gives
the ________ curve its ________ slope.
A) IS; upward
B) IS; downward
C) LM; downward
D) LM; upward
In the basic closed-economy ISLM model, the money demand is a function of
A) output.
B) money supply.
C) interest rates.
D) both A and C.
When the financial crisis started in August 2007, inflation was rising and the Fed began
an aggressive easing lowering of the federal funds rate, which indicated that
A) the Fed pursued an autonomous monetary policy tightening.
B) the Fed pursued an autonomous monetary policy easing.
C) the Fed had an automatic negative response to inflation based on the Taylor rule.
D) the Fed had an automatic positive response to inflation based on the Taylor rule.
Sometimes one observes that the price of a company’s stock falls after the
announcement of favorable earnings. This phenomenon is
A) clearly inconsistent with the efficient markets hypothesis.
B) consistent with the efficient markets hypothesis if the earnings were not as high as
anticipated.
C) consistent with the efficient markets hypothesis if the earnings were not as low as
anticipated.
D) consistent with the efficient markets hypothesis if the favorable earnings were
expected.
In the Gordon Growth Model, the growth rate is assumed to be ________ the required
return on equity.
A) greater than
B) equal to
C) less than
D) proportional to
Contractual savings institutions include
A) mutual savings banks.
B) money market mutual funds.
C) commercial banks.
D) life insurance companies.
Everything else held constant, in the market for reserves, when the federal funds rate is
1%, increasing the interest rate paid on excess reserves from 1% to 2%
A) lowers the federal funds rate.
B) raises the federal funds rate.
C) has no effect on the federal funds rate.
D) has an indeterminate effect on the federal funds rate.
Although the subprime mortgage market problem began in the United States, the first
indication of the seriousness of the crisis began in
A) Europe.
B) Australia.
C) China.
D) South America.
Which of the following are reported as assets on a bank’s balance sheet?
A) borrowings
B) reserves
C) savings deposits
D) bank capital
Everything else held constant, if aggregate output is to the ________ of the IS curve,
then there is an excess demand of goods which will cause aggregate output to
________.
A) right; fall
B) right; rise
C) left; fall
D) left; rise
Deposit insurance is only one type of government safety net. All of the following are
types of government support for troubled financial institutions EXCEPT
A) forgiving tax debt.
B) lending from the central bank.
C) lending directly from the government’s treasury department.
D) nationalizing and guaranteeing that all creditors will be repaid their loans in full.
Newly-issued high-yield bonds rated below investment grade by the bond-rating
agencies are frequently referred to as
A) municipal bonds.
B) Yankee bonds.
C) “fallen angels.”
D) junk bonds.
Brokers, in contrast to security dealers
A) hold inventories of securities.
B) make their income through commissions.
C) make their living on the spread between the bid price and the asked price.
D) buy and sell securities at given prices.
The most important category of assets on a bank’s balance sheet is
A) other assets.
B) securities.
C) loans.
D) cash items in the process of collection.
Suppose the U.S. economy is producing at the natural rate of output. A depreciation of
the U.S. dollar will cause ________ in real GDP in the short run and ________ in
inflation in the short run, everything else held constant. (Assume the depreciation
causes no effects in the supply side of the economy.)
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
In the simple deposit expansion model, an expansion in checkable deposits of $1,000
when the required reserve ratio is equal to 10 percent implies that the Fed
A) sold $1,000 in government bonds.
B) sold $100 in government bonds.
C) purchased $1000 in government bonds.
D) purchased $100 in government bonds.
The yield to maturity for a one-year discount bond equals the increase in price over the
year, divided by the
A) initial price.
B) face value.
C) interest rate.
D) coupon rate.
The demand curve for bonds has the usual downward slope, indicating that at ________
prices of the bond, everything else equal, the ________ is higher.
A) higher; demand
B) higher; quantity demanded
C) lower; demand
D) lower; quantity demanded
Both France and the United Kingdom successfully used exchange-rate targeting to
lower inflation in the late 1980s and early 1990s by tying the value of their currencies
to the
A) U.S. dollar.
B) German mark.
C) Swiss franc.
D) Euro.
If the Brazilian demand for American exports rises at the same time that U.S.
productivity rises relative to Brazilian productivity, then, in the long run, ________,
everything else held constant.
A) the Brazilian real will appreciate relative to the U.S. dollar
B) the Brazilian real will depreciate relative to the U.S. dollar
C) the Brazilian real will either appreciate, depreciate, or remain constant relative to the
U.S. dollar
D) there is no effect on the Brazilian real relative to the U.S. dollar
Measuring the sensitivity of bank profits to changes in interest rates by multiplying the
gap times the change in the interest rate is called
A) basic duration analysis.
B) basic gap analysis.
C) interest-exposure analysis.
D) gap-exposure analysis.
When asset prices rise above their fundamental economic values, a(n) ________ occurs.
A) asset-price bubble
B) liability war
C) decline in lending
D) decrease in moral hazard
Factors that can cause the supply curve for bonds to shift to the right include
A) an expansion in overall economic activity.
B) a decrease in expected inflation.
C) a decrease in government deficits.
D) a business cycle recession.
When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the
bank chooses not to make any loans but to hold excess reserves instead, then, in the
bank’s final balance sheet
A) the assets at the bank increase by $1 million.
B) the liabilities of the bank decrease by $1 million.
C) reserves increase by $200,000.
D) liabilities increase by $200,000.
According to the Taylor Principle, when the inflation rate rises, the nominal interest rate
should be ________ by ________ than the inflation rate increase.
A) increased; more
B) increased; less
C) decreased; more
D) decreased; less
If the amount payable in two years is $2420 for a simple loan at 10 percent interest, the
loan amount is
A) $1000.
B) $1210.
C) $2000.
D) $2200.
Everything else held constant, an increase in the required reserve ratio will result in
________ in M1 and ________ in M2.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
The financial intermediaries that the average person interacts with most frequently are
A) exchanges.
B) over-the-counter markets.
C) finance companies.
D) banks.
In the Keynesian framework, as long as output is ________ the equilibrium level,
unplanned inventory investment will remain negative and firms will continue to
________ production.
A) below; lower
B) above; lower
C) below; raise
D) above; raise
If the interest rate is 7 percent on euro-denominated assets and 5 percent on
dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate,
the expected return on ________-denominated assets in terms of ________ percent.
A) dollar; euros is 3
B) euro; dollars is 1
C) dollar; euros is 9
D) euro; dollars is 11