Businesses hold substantial balances in demand deposits for all of the following reasons
EXCEPT:
A) they cannot hold NOW accounts
B) the existence of low transaction costs
C) to maintain liquidity
D) relatively high interest rates
Answer:
The demand curve for loanable funds slopes down because
A) at lower bond prices more loanable funds will be supplied.
B) lower interest rates reduce the inflation rate.
C) an increase in the interest rate makes borrowers more willing and able to demand
more funds.
D) a decrease in the interest rate makes borrowers more willing and able to demand
more funds.
Answer:
When a nation is said to be running a balance of payments surplus, this means its
A) official settlements balance is positive.
B) trade balance is positive.
C) net financial account balance is positive.
D) current account is positive.
Answer:
The main role of financial intermediaries is to
A) provide funds to the federal government to cover the budget deficit.
B) borrow funds from savers and lend them to borrowers.
C) provide advice to consumers on how they should handle their finances.
D) help ensure that there is enough money in circulation.
Answer:
Forward contracts
A) are highly liquid.
B) entail small information costs.
C) provide little risk sharing.
D) are subject to default risk.
Answer:
How does the Open Market Trading Desk conduct its operations?
A) directly with private securities dealers on the floor of the New York Stock Exchange
B) directly with private securities dealers on the floor of the Federal Reserve Bank of
New York
C) over-the-counter electronically with private securities dealers
D) by sending its buy and sell orders to the U.S. Treasury for execution
Answer:
One reaction of firms to the adverse selection problem is to
A) rely on internal funds to finance investment.
B) use the stock market rather than the bond market to raise funds.
C) use the bond market rather than the stock market to raise funds.
D) borrow long-term rather than short-term.
Answer:
International capital mobility refers to
A) the ease with which manufacturing equipment can be transported across countries.
B) the ease with cash may be transferred from one country to another without having to
be converted into a foreign currency.
C) the ease with which investors move funds among international financial markets.
D) the ease with which exchange rates may be adjusted to reflect changes in the relative
economic strengths of countries.
Answer:
If money is declared to be legal tender, it must be
A) minted from a precious metal.
B) acceptable to citizens of foreign countries.
C) possible to exchange it for an equivalent amount of precious metal.
D) accepted to settle private transactions and it must be used in paying taxes.
Answer:
The total payment to a lender for a one-period simple loan is
A) (P + i)n.
B) P + i.
C) i(1 + i).
D) P(1 + i).
Answer:
The aggregate M1 consists of
A) currency plus all deposits in financial institutions.
B) currency plus all deposits in all institutions.
C) currency plus checkable deposits in financial institutions.
D) currency plus all checkable deposits.
Answer:
If the interest rate in the United States rises
A) investors increase their demand for dollars and the U.S. exchange rate appreciates.
B) investors increase their demand for dollars and the U.S. exchange rate depreciates.
C) investors decrease their demand for dollars and the U.S. exchange rate appreciates.
D) investors decrease their demand for dollars and the U.S. exchange rate depreciates.
Answer:
The ways in which monetary policy affect output and prices are known as:
A) channels
B) stations
C) vehicles
D) means
Answer:
What regulatory change did Congress approve in 2010 to reduce counterparty risk in
the shadow banking system?
A) push more trading of derivatives onto exchanges
B) required investment banks to follow the same rules on leverage as commercial banks
C) require increased collateral for those trading derivatives
D) banned trading of mortgage-backed securities
Answer:
When economists refer to the role of money as a standard of deferred payment, they
mean that
A) payments by checks are usually deferred until the checks clear the bank.
B) money earns interest while loan payments are deferred.
C) money provides a standard for payments that will occur in the future.
D) money today is worth less than money tomorrow.
Answer:
Which of the following assigns widely-followed bond ratings?
A) Standard & Poor’s Corporation
B) Securities and Exchange Commission
C) Federal Reserve
D) IBM
Answer:
Which government agency regulates futures markets?
A) SEC
B) Commodity Futures Trading Commission
C) Board of Trade
D) the Federal Futures Agency
Answer:
The bond supply curve slopes up because
A) interest rates rise as bond prices rise.
B) when bond prices are high, inflation is high.
C) the lender is willing and able to offer more bonds when the price of the bond is low.
D) the borrower is willing and able to offer more bonds when the price of the bond is
high.
Answer:
If the federal government decreases its spending and doesn’t decrease taxes, the bond
supply shifts to the
A) left and the equilibrium interest rate rises.
B) left and the equilibrium interest rate falls.
C) right and the equilibrium interest rate rises.
D) right and the equilibrium interest rate falls.
Answer:
The new classical explanation of aggregate supply is also known as
A) Monetarism.
B) Keynesianism.
C) the misperception theory.
D) the adaptive expectations theory.
Answer:
How does an increase in the short-term interest rate affect peoples’ desire to hold real
money balances?
A) People will hold more money to compensate for the higher interest rate.
B) People will hold more money in anticipation of higher inflation.
C) People will hold less money since they would be sacrificing more interest by holding
money.
D) People will hold less money since it is not worth as much.
Answer:
The leading federal regulatory body for financial markets in the United States is the
A) Federal Bureau of Investigation.
B) Securities and Exchange Commission.
C) Federal Financial Market Bureau.
D) Investors Protection Agency.
Answer:
The interest rate on unsecured loans between banks is called the
A) discount rate.
B) repurchase rate.
C) T-bill rate.
D) federal funds rate.
Answer:
Which of the following most accurately describes the behavior of the U.S. economy
during the 2001 recession?
A) Aggregate demand fell as business investment declined while aggregate supply rose
as a result of continued productivity growth.
B) Aggregate demand fell primarily as a result of reduced consumption while aggregate
supply increased due to continued growth in productivity.
C) Aggregate demand fell due to a reduction in business investment while aggregate
supply declined due to a reduction in productivity.
D) Aggregate demand fell due to the bursting of the housing bubble while aggregate
supply fell due to slower productivity growth.
Answer:
An option buyer
A) has a greater insurance benefit than the purchaser of a futures contract.
B) bears the risk of unfavorable price movements.
C) is purchasing a naked option if he or she does not also own the underlying asset.
D) generally will incur a lower cost than will the purchaser of a futures contract.
Answer:
Which best describes the Federal Reserve district banks?
A) They are private ventures.
B) They are government ventures.
C) Some are private while others are government.
D) They are private-government joint ventures.
Answer:
Which of the following countries does NOT use the euro?
A) Estonia
B) Belgium
C) Finland
D) United Kingdom
Answer:
In 2012, net worth was about what percentage of total funds raised by banks?
A) 2%
B) 7%
C) 13%
D) 35%
Answer:
Which of the following would NOT cause the IS curve to shift to the left?
A) a decrease in government purchases
B) an increase in consumer confidence
C) a decrease in foreign demand for domestic products
D) a decrease in the expected future profitability of capital
Answer:
A nation with an official settlements balance of -$100 billion is likely to experience a:
A) balance of payments surplus and accumulate $100 billion in international reserves
B) balance of payments deficit and accumulate $100 billion in international reserves
C) balance of payments surplus and a decline of $100 billion in international reserves
D) balance of payments deficit and a decline of $100 billion in international reserves
Answer:
Which of the following is an example of a commodity money?
A) gold coins
B) dollar bills
C) British pound notes
D) Japanese yen notes
Answer:
Automatic teller machines and debit cards are examples of
A) electronic funds transfer systems.
B) commodity monies.
C) legal tender in the United States.
D) modern barter systems.
Answer:
About what percentage of the goods and services purchased by U.S. consumers,
businesses, and governments in 2012 were produced by foreigners?
A) 5%
B) 14%
C) 18%
D) 40%
Answer:
If the interest rate on a U.S. one-year bond is 2%, the interest rate on a Brazilian
one-year bond is 8%, and the currency premium on reals (Brazilian currency) is 3%,
what is the expected rate of appreciation of the U.S. dollar according to interest-rate
parity?
A) -3%
B) 3%
C) 5%
D) 6%
Answer:
Inflation is an economic problem because it
A) leads inevitably to unemployment.
B) makes prices less useful as signals for resource allocation.
C) leads to recession.
D) results in rapid increases in the money supply.
Answer: