Money market mutual funds
(a) hold portfolios of stocks.
(b) hold portfolios of short-term assets.
(c) are always load funds.
(d) hold only U.S. Treasury securities.
Answer:
The new classical approach to the aggregate supply curve assumes that businesses are
(a) better informed about the general price level than they are about prices in their own
markets.
(b) better informed about prices in their own markets than they are about the general
price level.
(c) equally well informed about prices in their own markets and the general price level.
(d) reluctant to engage in investment spending because of a lack of information
concerning future prices.
Answer:
Which of the following assets has become significantly more liquid during the past two
decades?
(a) U.S. currency
(b) U.S. government bonds
(c) Mortgage loans
(d) Bonds issued by large corporations
Answer:
Which of the following was an important consequence of the regulatory reforms that
followed the deposit insurance crisis of the 1980s and early 1990s?
(a) An unprecedented consolidation of the U.S. banking industry
(b) A series of bank panics
(c) Unprecedentedly high interest rates
(d) New restrictions on interstate banking
Answer:
In July 1993, Alan Greenspan informed the Congress that the Fed would
(a) attempt to fight inflation by narrowing the bands within which it allowed M1 and
M2 to fluctuate.
(b) cease its emphasis on using M1 or M2 targets to guide the conduct of monetary
policy.
(c) shift its emphasis from fighting inflation to fighting unemployment.
(d) concentrate on increasing the value of the dollar, particularly with respect to the yen
and the mark.
Answer:
The obligations of state and local governments
(a) are taxed at the federal level, but not at the state and local levels.
(b) are taxed at the state and local levels, but not at the federal level.
(c) are taxed at the state, local, and federal levels.
(d) are called municipal bonds.
Answer:
The role of the Commodity Futures Trading Commission is to
(a) set the prices of futures contracts.
(b) operate the Chicago Mercantile Exchange.
(c) operate the Chicago Board of Trade.
(d) monitor potential price manipulation in futures trading.
Answer:
Apart from the United States, in countries where central bank board members serve
fixed terms of office,
(a) none have terms as long as 14 years.
(b) many serve for life or good behavior.
(c) all have terms longer than 14 years.
(d) the head of the central bank rarely has a term longer than one year.
Answer:
If traders in a market have rational expectations, then
(a) the price of an asset equals its fundamental value.
(b) prices of riskier assets are higher than prices of less risky assets.
(c) past prices of assets do not effect market participants’ expectations of future asset
prices.
(d) they make use of less information than they would if they had adaptive expectations.
Answer:
Luxury assets are assets
(a) with wealth elasticities of less than 1.
(b) held by savers for investment.
(c) used by savers to conduct regular transactions.
(d) not subject to federal income tax.
Answer:
Treasury STRIPS came into existence because
(a) investors demanded a tax-free long-term bond.
(b) the Treasury wished to shift from long-term borrowing to short-term borrowing.
(c) high inflation rates led to an increased demand for high-yield bonds.
(d) investors demanded long-term discount bonds.
Answer:
When all workers who want jobs have them and the demand for and supply of labor are
in equilibrium,
(a) the unemployment rate will be zero.
(b) unemployment is at its natural rate.
(c) the economy will be experiencing high rates of inflation.
(d) frictional unemployment will be zero.
Answer:
A defined benefits plan
(a) is always fully funded.
(b) may be underfunded but cannot be overfunded.
(c) may be overfunded but cannot be underfunded.
(d) may be either underfunded or overfunded.
Answer:
The discount window is
(a) another name for the discount rate.
(b) the means by which the Fed makes discount loans to banks.
(c) the spread between the discount rate and the T-bill rate.
(d) the period each month during which banks are allowed to apply for discount loans.
Answer:
The reserve tax refers to
(a) the tax nonmember banks must pay to the Fed on their reserves.
(b) the tax member banks must pay to the Fed on their reserves.
(c) the tax member banks must pay to the Fed on their vault cash.
(d) the interest earnings banks forgo on their reserve accounts at the Fed.
Answer:
During an economic recession,
(a) the bond demand and supply curves both shift to the left and the equilibrium interest
rate usually falls.
(b) the bond demand and supply curves both shift to the right and the equilibrium
interest rate usually rises.
(c) the bond demand curve shifts to the right, the bond supply curve shifts to the left,
and the equilibrium interest rate usually falls.
(d) the bond demand curve shifts to the left, the bond supply curve shifts to the right,
and the equilibrium interest rate usually rises.
Answer:
What was the “big bang?”
(a) The stock market crash of October 1987
(b) The deregulation of financial markets in England in 1986
(c) The Wall Street insider trading scandal of 1989
(d) The explosion of short-term interest rates in 1981
Answer:
The usual response of the banking system to new government regulations is
(a) evasion through whatever means are necessary.
(b) strict compliance.
(c) an attempt to circumvent the regulations through financial innovation.
(d) bankruptcy.
Answer:
Which of the following is considered a goal of monetary policy?
(a) A low federal budget deficit
(b) Fair wages
(c) Interest rate stability
(d) An end to poverty
Answer:
From 1959 to 1989, M2 velocity
(a) declined sharply.
(b) increased sharply.
(c) declined during the 1960s and then increased during the 1970s and 1980s.
(d) was stable.
Answer:
A credit crunch
(a) is an increase by consumers in the default rate on loans.
(b) is a decline in either the ability or the willingness of banks to lend at any particular
interest rate.
(c) is a reduction in the money supply by the Fed.
(d) is an increase in the discount rate by the Fed.
Answer:
If the Fed purchases $100 million worth of euros, the monetary base will
(a) decrease by $100 million.
(b) increase by $100 million.
(c) decrease by $100 million times the money multiplier.
(d) remain unchanged.
Answer:
During the early 1980s Paul Volcker argued that the Fed could not
(a) decrease money supply growth until interest rates were higher.
(b) increase money supply growth until the Treasury’s borrowing increased.
(c) decrease money supply growth until the federal budget deficit was reduced.
(d) increase money supply growth until the federal budget deficit was reduced.
Answer:
Which of the following is a capital market asset?
(a) Commercial paper
(b) Bankers’ acceptances
(c) Corporate bonds
(d) Eurodollars
Answer:
The underlying problem that may lead to runs on solvent banks is
(a) irresponsible reporting by the news media.
(b) excessive regulation of banks by the government.
(c) excessive gullibility on the part of the public.
(d) private information about banks’ loan portfolios.
Answer:
Savings institutions, such as savings-and-loan associations,
(a) have traditionally made most of their loans in the form of long-term mortgages.
(b) were greatly helped by the increase in market interest rates during the 1970s and
1980s.
(c) were spared the difficulties encountered by commercial banks during the 1980s.
(d) were not included in the deregulation of the financial system during the 1970s and
1980s.
Answer:
An unsterilized intervention in which the central bank sells foreign assets to purchase
domestic currency will result in
(a) higher domestic interest rates.
(b) lower domestic interest rates.
(c) an increase in the money supply.
(d) lower domestic interest rates and an increase in the money supply.
Answer:
An insurance premium is a
(a) payment made by an insurance company to a policyholder after the occurrence of an
insurable event.
(b) payment made by an insurance company to a policyholder following a period in
which the policyholder has filed no claims against the company.
(c) fee paid by policyholders to insurance companies as payment for coverage.
(d) fee paid by policyholders to insurance companies in exchange for special
considerations, such as a particularly large policy.
Answer:
During the early to mid-1980s thrifts in which parts of the country were particularly
hard hit?
(a) Those in the industrial areas of the northeast
(b) Those in the industrial areas of the midwest
(c) Those in areas dependent on the tourist trade, such as California and Florida
(d) Those in areas dependent on farming or energy, such as Texas
Answer:
George is trying to forecast the future price of IBM’s common stock. To do so he makes
use only of past prices of IBM stock. George
(a) has adaptive expectations.
(b) has rational expectations.
(c) is likely to rapidly adjust his forecast to news affecting the future profitability of
IBM.
(d) is likely to make forecasts that reflect closely IBM stock’s fundamental value.
Answer: