Research has shown that the countries that suffered a banking crisis during the early
1930s
(a) had smaller declines in the money supply than did countries that did not suffer a
banking crisis.
(b) had larger declines in output and employment than did countries that did not suffer a
banking crisis.
(c) had smaller declines in output and employment than did countries that did not suffer
a banking crisis.
(d) were located exclusively in Europe.
Answer:
A disinflation policy that lacks credibility
(a) results in a leftward shift of the AD curve.
(b) will increase the lost output and jobs that result from the policy.
(c) will work only if the economy is experiencing a hyperinflation.
(d) will have no effect on inflation.
Answer:
The risk involved in owning a financial asset is best thought of as
(a) equal to the interest received from ownership of the asset.
(b) the chance that the value of the asset will rise or fall relative to what you expect.
(c) equal in most instances to the liquidity of the asset.
(d) the difference between the return on the asset after taxes and the return on a similar
tax-free asset.
Answer:
Financial markets
(a) generally deal only with the purchase and sale of government securities.
(b) directly issue claims on individual borrowers to savers.
(c) act as intermediaries between borrowers and savers.
(d) have largely eliminated the risk to savers from holding the bonds of large
corporations.
Answer:
Governors of the Fed often do not serve their full 14-year terms because
(a) they are removed by the President.
(b) they are removed by Congress.
(c) a new President takes office and they are compelled to resign.
(d) they can earn higher incomes in private business.
Answer:
Necessity assets are assets
(a) with wealth elasticities of less than 1.
(b) with wealth elasticities of greater than 1.
(c) held by savers for investment.
(d) not subject to federal income tax.
Answer:
If Treasury currency outstanding decreases, the monetary base will
(a) be unaffected.
(b) increase.
(c) decrease.
(d) decrease, provided that the decline in currency represents a net decrease in the
public’s holdings.
Answer:
In the aggregate demand-aggregate supply model, if entrepreneurs become convinced
that future profitability of capital has increased,
(a) current output will fall, but the price level will rise.
(b) current output will rise, but the price level will fall.
(c) current output and the price level will both rise.
(d) current output and the price level will both fall.
Answer:
The promise that was to hold the Bretton Woods system together was the agreement
that
(a) no industrial country would allow high rates of inflation.
(b) foreign central banks would be able to convert U.S. dollars into gold at a fixed price.
(c) no country would raise tariffs on the products of other countries.
(d) all countries would be willing to redeem their paper currencies for gold.
Answer:
The key in answering the question: “Would you be better off financing your new home
with a 15-year mortgage at 9% or by borrowing for five years at 8% and refinancing
thereafter?” is that
(a) housing prices are very erratic.
(b) the tax deductibility of mortgage interest payments has changed over time.
(c) dollars paid in different periods are not in the same units.
(d) 15-year mortgages are fixed-payment loans while 5-year mortgages are simple
loans.
Answer:
When a central bank buys foreign assets,
(a) its holdings of foreign assets rises by the amount of the purchase, but the monetary
base is unaffected.
(b) its holdings of foreign assets and the monetary base rise by the amount of the
purchase.
(c) its holdings of foreign assets rise by the amount of the purchase, and the monetary
base rises by the amount of the purchase times the money multiplier.
(d) the monetary base falls by the amount of the purchase.
Answer:
In comparing money to shares of General Motors stock, we can say that
(a) money is a store of value, but shares of General Motors stock are not.
(b) shares of General Motors stock are a store of value, but money is not.
(c) both money and shares of General Motors stock are stores of value.
(d) neither money nor shares of General Motors stock are stores of value.
Answer:
Which of the following had the largest percentage of total assets of financial
intermediaries in the United States?
(a) Money market mutual funds
(b) Life insurance companies
(c) Private pension funds
(d) Commercial banks
Answer:
If the Fed sterilizes the purchase of foreign assets,
(a) the monetary base is left unchanged.
(b) the monetary base rises by the amount of the purchase.
(c) the monetary base falls by the amount of the purchase.
(d) the monetary base may rise, fall, or remain unchanged depending on the reaction of
domestic interest rates to the purchase.
Answer:
The movement to set up a central bank in the United States was spurred by the financial
panic that occurred in
(a) 1816.
(b) 1907.
(c) 1929.
(d) 1987.
Answer:
The neutrality of money refers to
(a) the inability of changes in the money supply to affect the nominal interest rate, even
in the long run.c
(b) the inability of changes in the money supply to affect the price level, even in the
long run.
(c) the fact that in the long run any percentage increase in the money supply leads to an
equal percentage increase in the price level.
(d) the fact that in the long run any percentage increase in the money supply leads to an
equal percentage increase in the nominal interest rate.
Answer:
The hypothesis that large negative shifts in aggregate demand reduce the
full-employment level of output is known as
(a) the real balance effect.
(b) the perverse employment syndrome.
(c) the real business cycle effect.
(d) hysteresis.
Answer:
Unlike brokers, dealers
(a) buy and sell both stocks and bonds.
(b) hold inventories of securities.
(c) are unregulated by the federal government.
(d) are taxed by the federal government but not by state and local governments.
Answer:
According to the National Bureau of Economic Research an increase in risk premiums
is
(a) a leading indicator of the business cycle.
(b) a lagging indicator of the business cycle.
(c) a coincident indicator of the business cycle.
(d) unrelated to the business cycle.
Answer:
Which of the following is true of mutual insurance companies?
(a) Most life insurance companies are mutual insurance companies.
(b) The largest life insurance companies are mutual insurance companies.
(c) They are owned by their shareholders.
(d) They only grant group policies to large corporations.
Answer:
Keynes believed that people would hold less of their wealth in money when interest
rates were high because
(a) the opportunity cost of holding money would be low.
(b) they would expect a capital gain from holding bonds.
(c) they would expect a capital loss from holding bonds.
(d) when interest rates are high they tend to rise even higher.
Answer:
Because savers are generally risk-averse
(a) the long-run return on corporate bonds is greater than the long-run return on
corporate stocks.
(b) they are more concerned about expected returns than about the variability of those
returns.
(c) yields incorporate an extra premium for bearing default risk.
(d) they prefer higher returns to lower returns, holding default risk constant.
Answer:
In the new Keynesian approach, an increase in the nominal money supply affects output
by
(a) directly increasing the wealth of consumers and, therefore, their spending.
(b) reducing the real interest rate, thereby stimulating consumption, investment, and net
exports.
(c) allowing the government to increase its expenditures.
(d) increasing the funds available for saving, thereby stimulating investment spending.
Answer:
The January effect
(a) is sometimes argued to be tax motivated.
(b) refers to the gap between futures prices and the prices of the underlying securities
that occurs each January.
(c) was stronger during the 1980s than during previous decades.
(d) reflects the effects of the Christmas season on the stock of department store chains.
Answer:
Securities dealers make most of their income from
(a) commissions charged to buyers.
(b) the spread between the bid and the asked price on securities.
(c) reports they sell investors containing information on the securities they handle.
(d) underwriting.
Answer:
The Treasury typically
(a) deposits receipts from taxes in its accounts in commercial banks.
(b) deposits receipts from taxes in its account at the Fed.
(c) pays for its expenditures from its accounts at commercial banks.
(d) borrows from the Fed to finance its expenditures.
Answer:
A portfolio made of all the stocks listed on the New York Stock Exchange would
(a) have a higher expected return than the expected return on any individual stock.
(b) face no idiosyncratic risk, only systematic risk.
(c) face no systematic risk, only idiosyncratic risk.
(d) face neither systematic nor idiosyncratic risk.
Answer:
Business finance companies
(a) purchase accounts receivable of small firms at a discount.
(b) sell commercial paper and buy long-term corporate bonds.
(c) take in deposits from savers and buy corporate commercial paper.
(d) are strictly regulated by state governments.
Answer:
Which of the following was NOT a provision of FIRREA?
(a) The Office of the Comptroller of the Currency was created to supervise and examine
thrifts.
(b) The FSLIC was abolished.
(c) The FHLBB was abolished.
(d) The Resolution Trust Corporation was created to handle the liquidation of assets of
failed thrifts.
Answer:
The nominal interest rate parity condition states that
(a) domestic and foreign assets must have nominal returns that are identical,
irrespective of the characteristics of the assets.
(b) when domestic and foreign assets have identical risk, liquidity, and information
characteristics, their nominal returns must also be identical.
(c) while nominal returns are equalized across all foreign and domestic assets, real
returns may vary widely.
(d) while real returns are equalized across all foreign and domestic assets, nominal
returns may vary widely.
Answer: