The narrowest money measure is
(a) currency plus checking accounts at commercial banks.
(b) currency plus all checking accounts.
(c) currency plus all deposits at financial institutions.
(d) definitive money.
Answer:
An expected change in the money supply will result in a greater shift in the short-run
aggregate supply curve in the new classical approach than in the new Keynesian
approach because
(a) households and businesses have rational expectations in the new classical approach
but not in the new Keynesian approach.
(b) households and businesses have rational expectations in the new Keynesian
approach but not in the new classical approach.
(c) prices are perfectly flexible in the new Keynesian approach, whereas prices are
sticky in the new classical approach.
(d) prices are perfectly flexible in the new classical approach, whereas prices are sticky
in the new Keynesian approach.
Answer:
A chairman of the Board of Governors who is not reappointed
(a) must resign his position on the Board.
(b) typically serves out the remainder of his term on the Board.
(c) need not resign from his position on the Board, but typically does.
(d) will often contest the President’s decision by appealing to Congress.
Answer:
An exception to the law of one price occurs if
(a) the good is not tradeable.
(b) demand for the good is stronger in some countries than in others.
(c) exchange rates are flexible, rather than fixed.
(d) interest rates differ across countries.
Answer:
Which of the following statements is correct?
(a) A devaluation of the British pound would result in more dollars to the pound.
(b) A revaluation of the British pound would raise the prices of U.S. goods in Britain.
(c) A devaluation of the British pound would lower the prices of British goods in the
United States.
(d) Revaluations and devaluations of a country’s currency were not allowed under the
Bretton Woods system.
Answer:
The expected real return to savers equals
(a) expected inflation less the nominal return.
(b) expected inflation plus the nominal return.
(c) the nominal return minus expected inflation.
(d) the nominal return divided by expected inflation.
Answer:
A one-year discount bond with a par value of $10,000 sold today, at issuance, for $9500
has a yield to maturity of
(a) 5.00%.
(b) 5.26%.
(c) 9.50%.
(d) 10.00%.
Answer:
Which of the following is an investment institution?
(a) The New York Stock Exchange
(b) Greater Illinois Savings and Loan
(c) Prudential Insurance Company
(d) Fidelity Magellan Mutual Fund
Answer:
If you deposit $100 in your bank and the required reserve ratio is 20%, your bank will
have
(a) an increase in required reserves of $100.
(b) an increase in required reserves of $80.
(c) an increase in required reserves of $500.
(d) an increase in required reserves of $20 and an increase in excess reserves of $80.
Answer:
Which of the following is NOT a financial instrument?
(a) A share of stock in General Motors
(b) The Chase Manhattan Bank
(c) A car loan
(d) A savings account
Answer:
If a central bank wishes to lower the foreign-exchange value of its currency, it will
(a) buy domestic currency and sell foreign assets.
(b) sell domestic currency and buy foreign assets.
(c) attempt to raise domestic interest rates.
(d) attempt to lower the domestic price level relative to foreign price levels.
Answer:
Which of the following was NOT part of the program of credit controls imposed by the
Fed in March 1980?
(a) Banks were requested to reduce their acquisition of funds from nondeposit sources.
(b) A ceiling was placed on the interest rates paid on Treasury securities.
(c) A surcharge of 3% was placed on some discount borrowing by large banks.
(d) A special reserve requirement of 15% was placed on new money market mutual
fund assets.
Answer:
In an over-the-counter market trading takes place
(a) face-to-face at the front counter of a securities firm.
(b) on the floor of an exchange.
(c) over the telephone or by computer.
(d) at SEC-approved trading locations.
Answer:
An unexpected decrease in oil prices would
(a) shift the FE curve to the right.
(b) shift the IS curve to the left but leave the FE curve unaffected.
(c) shift the FE curve to the left.
(d) shift the IS curve to the right but leave the FE curve unaffected.
Answer:
The use of deductibles and coinsurance are examples of attempts by insurance
companies to deal with the problem of
(a) moral hazard.
(b) adverse selection.
(c) failure of policyholders to keep paying their premiums.
(d) excessive government regulation.
Answer:
The level of full employment output
(a) increases as the real rate of interest decreases.
(b) increases as the real rate of interest increases.
(c) is unaffected by the real rate of interest.
(d) is represented on the IS-LM-FE diagram by a horizontal line at the world real rate of
interest.
Answer:
During the time William McChesney Martin was chair of the Fed, free reserves were
used
(a) as an indicator, but not as a target.
(b) as a target, but not as an indicator.
(c) as both an indicator and as a target.
(d) as neither an indicator nor as a target.
Answer:
A speculator who believes strongly that interest rates will rise would be likely to
(a) buy futures contracts on Treasury bills.
(b) sell futures contracts on Treasury bills.
(c) buy Treasury bonds in the spot market.
(d) increase now the amount of money which he lends.
Answer:
If you have a checking account at a bank, the checking account is
(a) an asset to you as well as an asset to the bank.
(b) an asset to you, but a liability to the bank.
(c) a liability to you, but an asset to the bank.
(d) a liability to you as well as a liability to the bank.
Answer:
The mathematicians and economists who have been hired by Wall Street firms to build
mathematical models to aid the pricing of derivatives are generally referred to as
(a) speculators.
(b) hedgers.
(c) rocket scientists.
(d) market makers.
Answer:
In an options contract, another name for the strike price is the
(a) market price.
(b) exercise price.
(c) equilibrium price.
(d) fixed price.
Answer:
Derivative markets exist in order to
(a) allow for the direct cash sale of common stock.
(b) allow for the direct cash sale of bonds.
(c) reduce the risk of exposure to price fluctuations in cash markets.
(d) overcome some of the information problems involved in trades on the
over-the-counter market.
Answer:
The best explanation for the persistence of geographic restrictions on banks is that
(a) these restrictions have promoted competition among banks.
(b) these restrictions have reduced the exposure of banks to credit risk.
(c) Americans have long distrusted large, big-city banks.
(d) these restrictions have reduced the costs of loans for most borrowers.
Answer:
Using a good as a medium of exchange confers the benefit that
(a) the need to quote so many prices in trade is reduced.
(b) the need for a double coincidence of wants is greatly increased.
(c) the need for specialization is reduced.
(d) transactions costs are increased, but they now may be paid in money terms.
Answer:
Inflation generates an excess burden whenever
(a) it is greater than zero.
(b) income tax brackets are not indexed.
(c) the public’s shoe leather costs exceed the government’s revenue gain from the
inflation tax.
(d) bracket creep exceeds the public’s shoe leather costs.
Answer:
Investors who attempt to reduce their risk of fluctuating market interest rates by holding
only short-term instruments
(a) will succeed as long as the short-term instruments are Treasury Bills.
(b) will fail because short-term instruments are affected more by fluctuations in market
interest rates than are long-term instruments.
(c) will expose themselves to reinvestment risk.
(d) will incur large capital gains.
Answer:
For a bank, net worth is equal to
(a) the value of the capital originally invested in the bank by its owners.
(b) the value of everything the bank owns.
(c) the difference between the value of the bank’s assets and the value of its liabilities.
(d) the value of the buildings and other physical assets the bank owns.
Answer:
Most of the foreign-exchange trading of banks is carried out in order to facilitate
(a) imports of goods and services.
(b) exports of goods and services.
(c) foreign transactions by governments.
(d) cross-border investment and financial transactions.
Answer:
The public interest view of Fed motivation holds that the Fed acts in the interest of
(a) the general public.
(b) banks.
(c) Congress.
(d) itself.
Answer:
Prices of securities
(a) change infrequently.
(b) change frequently to reflect news about changes in the fundamental values of the
securities.
(c) change frequently as evaluations of existing information about the securities change.
(d) are not allowed, under federal securities laws, to change more frequently than once
a month.
Answer: