Economists believe that the most serious costs of inflation arise from
(a) bracket creep.
(b) menu costs.
(c) redistributions of wealth owing to unexpected inflation.
(d) uncertainty about the rate of inflation.
Answer:
Loanable funds refers to
(a) only those funds loaned from one bank to another.
(b) only those funds loaned to banks by the Federal Reserve.
(c) only those funds loaned by banks to private individuals.
(d) all those funds changing hands between lenders and borrowers in the bond market.
Answer:
An expansionary monetary policy that successfully counteracts a recession has the side
effect of
(a) lower investment spending than if no action had been taken.
(b) a larger government deficit than if no action had been taken.
(c) a higher price level than if no action had been taken.
(d) lower output than if no action had been taken.
Answer:
Experts studying the lending patterns of Japanese and other foreign-owned banks in the
United States have found that these banks
(a) have been lending most of their U.S. deposits abroad.
(b) have accumulated very few assets in the United States.
(c) have lent most of their U.S. deposits in the United States.
(d) have strong influence in some parts of the United States, but very weak influence in
other parts, such as California.
Answer:
What fraction of bank assets were in security holdings in 2003?
(a) 2%
(b) 23%
(c) 56%
(d) 85%
Answer:
According to the theory of purchasing power parity, if the inflation rate in England is
greater than the inflation rate in Japan,
(a) the law of one price has been violated.
(b) the nominal value of the pound will appreciate against the yen.
(c) the nominal value of the yen will appreciate against the pound.
(d) the nominal value of the pound will appreciate against the yen, but only if the two
countries are on the gold standard.
Answer:
Which of the following factors would tend to increase the size of the premium on an
options contract?
(a) The option is near its expiration date.
(b) The current default-risk-free interest rate is high.
(c) The price volatility of the underlying asset is low.
(d) The option is far away from its expiration date.
Answer:
The largest firms in securities markets
(a) act as both brokers and dealers.
(b) act as brokers, but not as dealers.
(c) act as dealers, but not as brokers.
(d) act as neither brokers nor dealers.
Answer:
If you purchase a Treasury bond, the Treasury bond is
(a) an asset to you, as well as an asset to the U.S. government.
(b) an asset to you, but a liability to the U.S. government.
(c) a liability to you, but an asset to the U.S. government.
(d) a liability to you, as well as a liability to the U.S. government.
Answer:
Which of the following is NOT true of the yield curve for U.S. Treasury securities?
(a) Typically, it slopes upward.
(b) It depicts the relationship among yields on securities of different maturities.
(c) Typically, it shifts up or down rather than twists.
(d) Typically, it slopes downward.
Answer:
The man appointed Fed chairman by President Carter in July 1979 to lead the fight
against inflation was
(a) Paul Volcker.
(b) Alan Greenspan.
(c) G. William Miller.
(d) Milton Friedman.
Answer:
Forward transactions
(a) provide substantial liquidity.
(b) entail small information costs.
(c) provide risk sharing.
(d) provide reduced tax payments.
Answer:
A specialist is
(a) a securities firm that deals in only one type of security.
(b) an accountant trained in securities law.
(c) a tax lawyer at a securities firm.
(d) a broker-dealer on the floor of the New York Stock Exchange.
Answer:
The term structure of interest rates
(a) represents the variation in yields for related instruments differing in maturity.
(b) reflects differing tax treatment received by different instruments.
(c) always results in an upward-sloping yield curve.
(d) usually results in a downward-sloping yield curve.
Answer:
In which of the following have pension funds invested the most?
(a) Corporate equities and mutual fund shares
(b) Government securities
(c) Corporate bonds
(d) Mortgages
Answer:
Which of the following is the correct expression for the expected real interest rate?
(a) r = i + pe
(b) r = i pe
(c) r = i/pe
(d) r = ipe
Answer:
What do many analysts see finance companies as having an advantage in?
(a) In purchasing commercial paper
(b) In selling long-term securities
(c) In monitoring the value of collateral
(d) In charging consumers particularly low interest rates
Answer:
The balance in the Gold and SDR certificate account on the Fed’s balance sheet
increases when
(a) the Treasury acquires SDRs.
(b) the Fed buys gold.
(c) the Fed sells gold.
(d) the U.S. mint issues gold coins.
Answer:
According to new Keynesians, which of the following is NOT an important source of
price stickiness?
(a) Imperfect competition among sellers in the goods market
(b) Government wage and price controls
(c) Long-term nominal wage contracts
(d) Long-term nominal price contracts
Answer:
Long-term inflation is principally
(a) the result of chronic federal budget deficits.
(b) the result of the slowdown in the growth rate of aggregate supply since
(c) caused by excess wage demands by unionized workers.
(d) a monetary phenomenon.
Answer:
The best explanation of why the aggregate demand curve has a negative slope is that
(a) at a higher price level households cut back on their spending on goods and services.
(b) at a higher price level business firms wish to produce more goods and services.
(c) a higher price level results in lower real balances and a higher real interest rate.
(d) a higher price level results in less government spending on transfers, such as
unemployment insurance and social security payments.
Answer:
What are substitutes for money in transactions called?
(a) Transactions factors
(b) Substitution factors
(c) Payment system factors
(d) Credit clearing factors
Answer:
Money as a medium of exchange refers only to
(a) currency.
(b) gold coins.
(c) anything that is generally accepted as payment for goods and services.
(d) checks at commercial banks.
Answer:
Interest and capital gains are taxed differently in the United States in that
(a) interest is exempt from state and local taxes.
(b) interest is taxed as paid, but capital gains are taxed only when realized.
(c) interest is taxed as paid, but capital gains are taxed as accrued.
(d) capital gains when realized are exempt from state and local taxes.
Answer:
For the goods market to be in equilibrium in a closed economy, which of the following
must be true?
(a) Y = S + I + G
(b) S + I = C + G
(c) S + G = Y + C
(d) S = I
Answer:
Stabilization policy refers to attempts to
(a) shift the AD curve to smooth short-run fluctuations in output.
(b) shift the SRAS curve to smooth short-run fluctuations in output.
(c) shift the AD curve to keep the price level as low as possible.
(d) shift the SRAS curve to keep the nominal interest rate as low as possible.
Answer:
Which of the following is the lowest rating given to an investment-grade bond by
Standard and Poor’s?
(a) AA
(b) A
(c) BBB
(d) B
Answer:
If an investor is certain that market interest rates will decline in the future, which of the
following will she be most likely to purchase?
(a) A 6-month Treasury Bill.
(b) A 2-year Treasury Note.
(c) A 20-year Treasury Bond.
(d) A 50-year Tennessee Valley Authority bond.
Answer:
The third stage in the regulatory process is
(a) a banking crisis.
(b) response by the financial system.
(c) regulation.
(d) regulatory response.
Answer:
If a business fails to make a profit
(a) it must still pay a dividend.
(b) you would probably be better off holding a bond issued by the business than holding
stock issued by the business.
(c) you would probably be better off holding stock issued by the business than holding a
bond issued by the business.
(d) its shareholders may end up being liable for much more than they have invested in
the business.
Answer:
For a lender of last resort to be effective
(a) it must operate in an economic environment of low interest rates.
(b) its promise to lend to banks during a crisis must be credible and carried out quickly.
(c) the banks it lends to cannot be illiquid.
(d) the economy must not experience periods of recession.
Answer:
If foreign exchange traders become convinced that the value of the yen will rise against
the dollar in the future, the likely result is that
(a) demand for the yen will fall in anticipation.
(b) the current value of the yen against the dollar will rise.
(c) the current value of the yen against the dollar will fall.
(d) nominal interest rates in Japan will fall.
Answer:
Which of the following will NOT result in an asset having a high price today in an
efficient market?
(a) It is expected to have high returns.
(b) It is not very risky.
(c) It has a high interest rate.
(d) It is expected to rise in value in the future.
Answer:
Banks use credit rationing rather than simply raising the interest rate charged borrowers
with higher default risks because
(a) of fear of adverse selection problems.
(b) of interest rate ceilings in many states.
(c) of fear of offending the loan applicants.
(d) use of credit rationing is encouraged by the Federal Reserve.
Answer: