Which of the following can be described as involving indirect finance?
A) You make a loan to your neighbor.
B) You buy shares in a mutual fund.
C) You buy a U.S. Treasury bill from the U.S. Treasury at Treasury Direct.gov.
D) You purchase shares in an initial public offering by a corporation in the primary
market.
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
money supply is ________ billion.
A) $8000
B) $1200
C) $1200.8
D) $8400
Special Drawing Rights (SDRs) are issued to governments by the ________ to settle
international debts and have replaced ________ in international transactions.
A) Federal Reserve System; gold
B) Federal Reserve System; dollars
C) International Monetary Fund; gold
D) International Monetary Fund; dollars
If the money supply is $20 trillion and velocity is 2, then nominal GDP is
A) $2 trillion.
B) $10 trillion.
C) $20 trillion.
D) $40 trillion.
Which policy measure increased the SEC budget to supervise securities markets?
A) Sarbanes-Oxley Act of 2002
B) Global Legal Settlement of 2002
C) Gramm-Leach-Bliley Act of 1999
D) Riegle-Neal Act of 1994
An advantage to American banks from operating foreign branches is that Eurodollar
deposits in offshore branches are
A) not subject to reserve requirements.
B) insured by the FDIC.
C) subject to extensive regulatory supervision.
D) all demand deposits that pay no interest.
Evidence against market efficiency includes
A) failure of technical analysis to outperform the market.
B) the random walk behavior of stock prices.
C) the inability of mutual fund managers to consistently beat the market.
D) the January effect.
High inflation can spiral out of control when
A) expected inflation increases nominal interest rates, causing the Fed to buy bonds,
increasing the money supply and further increasing inflation.
B) expected inflation decreases nominal interest rates, causing the Fed to buy bonds,
increasing the money supply and further increasing inflation.
C) expected inflation increases nominal interest rates, causing the Fed to sell bonds,
increasing the money supply and further increasing inflation.
D) expected inflation decreases nominal interest rates, causing the Fed to sell bonds,
increasing the money supply and further increasing inflation.
Long-term debt has a maturity that is
A) between one and ten years.
B) less than a year.
C) between five and ten years.
D) ten years or longer.
Since depositors, like any lender, only receive fixed payments while the bank keeps any
surplus profits, they face the ________ problem that banks may take on too ________
risk.
A) adverse selection; little
B) adverse selection; much
C) moral hazard; little
D) moral hazard; much
In the late 1990s, the stock market bubble ________ the value of Tobin’s q, and caused
________ in business equipment.
A) increased; underinvestment
B) increased; overinvestment
C) decreased; underinvestment
D) decreased; overinvestment
The figure above illustrates the effect of an increased rate of money supply growth at
time period T0. From the figure, one can conclude that the
A) liquidity effect is smaller than the expected inflation effect and interest rates adjust
quickly to changes in expected inflation.
B) liquidity effect is larger than the expected inflation effect and interest rates adjust
quickly to changes in expected inflation.
C) liquidity effect is larger than the expected inflation effect and interest rates adjust
slowly to changes in expected inflation.
D) liquidity effect is smaller than the expected inflation effect and interest rates adjust
slowly to changes in expected inflation.
For small investors, the best way to pursue a “buy and hold” strategy is to
A) buy and sell individual stocks frequently.
B) buy no-load mutual funds with high management fees.
C) buy no-load mutual funds with low management fees.
D) buy load mutual funds.
An increase in the domestic interest rate causes the demand for domestic assets to shift
to the ________ and the domestic currency to ________, everything else held constant.
A) right; appreciate
B) right; depreciate
C) left; appreciate
D) left; depreciate
In Irving Fisher’s quantity theory of money, velocity was determined by
A) interest rates.
B) real GDP.
C) the institutions in an economy that affect individuals’ transactions.
D) the price level.
Thrift institutions importance as a source of funds for borrowers
A) has shrunk from around 40 percent of total credit advanced in the late 1970s to
below 30 percent by 2014.
B) has shrunk from over 20 percent of total credit advanced in the late 1970s to around
3 percent by 2014.
C) has expanded dramatically, from around 15 percent of total credit advanced in the
late 1970s to above 25 percent by 2014.
D) has expanded dramatically, from around 15 percent of total credit advanced in the
late 1970s to above 30 percent by 2014.
The difference between merchandise exports and imports is called the ________
balance.
A) current account
B) capital account
C) official reserve transactions
D) trade
Conflicts of interest arising from management advisory services brought down
________ in 2002.
A) Enron
B) WorldComm
C) Arthur Andersen
D) Global Crossing
If a central bank does not want to allow the domestic currency to depreciate, it will
________ international reserves by purchasing its currency, thereby ________ the
monetary base and increasing the risk of higher unemployment.
A) lose; decreasing
B) lose; increasing
C) acquire; decreasing
D) acquire; increasing
A decrease in autonomous planned investment spending, other things equal, shifts the
________ curve to the ________.
A) IS; right
B) IS; left
C) LM; left
D) LM; right
In the figure above, the price of bonds would fall from P2 to P1 if
A) there is a business cycle recession.
B) there is a business cycle expansion.
C) inflation is expected to increase in the future.
D) inflation is expected to decrease in the future.
Banks engage in regulatory arbitrage by
A) keeping high-risk assets on their books while removing low-risk assets with the
same capital requirement.
B) keeping low-risk assets on their books while removing high-risk assets with the
same capital requirement.
C) hiding risky assets from regulators.
D) buying risky assets from arbitragers.
In general, banks would prefer to acquire funds quickly by ________ rather than
________.
A) reducing loans; selling securities
B) reducing loans; borrowing from the Fed
C) borrowing from the Fed; reducing loans
D) “calling in” loans; selling securities
In the loanable funds framework, the ________ curve of bonds is equivalent to the
________ curve of loanable funds.
A) demand; demand
B) demand; supply
C) supply; supply
D) supply; equilibrium
In a closed economy, aggregate demand is the sum of
A) consumer expenditure, actual investment spending, and government spending.
B) consumer expenditure, planned investment spending, and government spending.
C) consumer expenditure, actual investment spending, government spending, and net
exports.
D) consumer expenditure, planned investment spending, government spending, and net
exports.
If stock prices are expected to drop dramatically, then, other things equal, the demand
for stocks will ________ and that of Treasury bills will ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Everything else held constant, if aggregate output is to the ________ of the LM curve,
then there is an excess ________ of money which will cause the interest rate to fall.
A) right; supply
B) right; demand
C) left; supply
D) left; demand
The higher the insurance coverage, the ________ the policyholder can gain from risky
activities that make an insurance payoff ________ likely.
A) more; less
B) more; more
C) less; less
D) less; more
The largest percentage of banks’ holdings of securities consist of
A) Treasury and government agency securities.
B) tax-exempt municipal securities.
C) state and local government securities.
D) corporate securities.
What is the present value of $500.00 to be paid in two years if the interest rate is 5
percent?
A) $453.51
B) $500.00
C) $476.25
D) $550.00