If the federal funds rate is __________ the equilibrium interest rate, banks would try to
__________ in the federal funds market.
A) above; borrow
B) below; lend
C) below; borrow
D) None of the above.
Which of the following groups within the Federal Reserve System is primarily
concerned with open market operations?
A) The Federal Open Market Committee
B) The Federal Advisory Council
C) The Federal Reserve Bank presidents
D) The Board of Governors
An effective medium of exchange must
A) be a good store of value.
B) be a unit of account.
C) exhibit low uncertainty over its value in trade.
D) All of the above.
The problem of getting an accurate reading on current economic developments is
known as the
A) data problem.
B) recognition lag.
C) impact lag.
D) information problem.
Smaller companies typically do not trade on the
A) New York Stock Exchange.
B) American Stock Exchange.
C) Nasdaq.
D) OTC Market.
The supply and demand approach to term structure assumes that securities with
different maturities are
A) close substitutes.
B) independent.
C) inversely related.
D) complements.
Newly-privatized firms in Eastern Europe require __________ investor monitoring,
which suggests the relative desirability of a __________-oriented financial system.
A) heavy; banking
B) heavy; markets
C) little or no; banking
D) little or no; markets
Consumption spending is __________ and investment spending is __________ in the
Keynesian model.
A) autonomous; autonomous
B) autonomous; induced
C) induced; autonomous
D) induced; induced
Crowding out occurs when
A) investment increases as government spending falls.
B) investment increases when government spending rises.
C) investment decreases when government spending falls.
D) investment decreases when government spending rises.
If the marginal propensity to consume is 0.7 and if output increases by $200, then
consumption spending
A) increases by $70.
B) decreases by $70.
C) increases by $140.
D) decreases by $140.
The return on an asset with a purchase price of $940 and a selling price of $900 and
coupon payments of $100 is
A) 6.4 percent.
B) 6.7 percent.
C) 14.9 percent.
D) 15.6 percent.
If the velocity of money is completely insensitive to changes in the rate of interest, the
A) LM curve will be horizontal.
B) LM curve will be vertical.
C) IS curve will be horizontal.
D) IS curve will be vertical.
The Federal Reserve econometric model predicts that a 2 percent increase in the money
supply will increase real GDP after one year by
A) 1 percent.
B) 2.5 percent.
C) 2 percent.
D) 10 percent.
In the LM curve, the __________ the interest-sensitivity of liquidity preference, the
__________ the necessary increase in the rate of interest to restore equilibrium.
A) greater; smaller
B) greater; greater
C) smaller; smaller
D) None of the above.
The stockholder-manager conflict in a large publicly held firm is manifested in all of
the following ways except
A) the managers implement very low-risk strategies that have very low returns.
B) the managers implement strategies that maximize the value of the firm.
C) managers pursue strategies that maximize firm size rather than the value of the firm.
D) the managers attempt to maximize their salaries.
Under the IMF fixed exchange rate system, a nation running a balance of payments
surplus would have an excess __________ its currency in the foreign exchange market
and that nation’s central bank would have to __________ some of its currency.
A) supply of; buy
B) supply of; sell
C) demand for; buy
D) demand for; sell
Suppose a bank has total assets of $3,000,000,000, of which $1,000,000,000 are cash
assets and government securities with a “risk weight” of 0% and $2,000,000,000 are
loans with a risk weight of 50%. The bank has total deposits and other liabilities of
$2,800,000,000. The bank’s risk-based capital ratio is
A) 6.7%.
B) 20.0%.
C) 33.3%.
D) 50%.
Which of the following influences the slope of the LM curve?
A) The interest-sensitivity of money demand
B) The interest-sensitivity of investment
C) The interest-sensitivity of government spending
D) The interest-sensitivity of saving
If you believe that the LM curve is horizontal, what type of policy would you
recommend to stimulate the economy?
A) An increase in government spending
B) A reduction in government spending
C) An increase in the money supply
D) A reduction in the interest rate