The type of credit insurance that landed AIG into trouble in 2008 is called
A) insurance rate swaps.
B) monoline insurance.
C) default insurance.
D) credit default swaps.
When a budget deficit occurs in the United States, the U.S. Treasury finances this
deficit by
A) borrowing.
B) imposing a moratorium of new government spending.
C) increasing the tax rate.
D) printing more dollars.
The type of monetary policy regime that the Federal Reserve has followed From the
1980s up until the time Ben Bernanke became chair of the Federal Reserve in 2006 can
best be described as
A) monetary targeting.
B) inflation targeting.
C) policy with an implicit nominal anchor.
D) exchange-rate targeting.
Which of the following is NOT an advantage of a correctly specified structural model?
A) Structural models may help us to more accurately predict the effect that monetary
policy has on economic activity.
B) A structural model provides more pieces of evidence about monetary policy’s effect
on economic activity.
C) Structural models may allow economists to more accurately predict the impact
institutional changes have on the link between monetary policy and income.
D) A structural model imposes no restrictions on the way monetary policy affects the
economy.
The Dodd-Frank bill created an agency to monitor markets for asset price bubbles and
the buildup of systemic risk. This agency is called the
A) Resolution Trust Authority.
B) Board of Governors.
C) Financial Stability Oversight Council.
D) Macroprudential Supervisory Agency.
A tool for managing interest-rate risk that requires exchange of payment streams is a
A) futures contract.
B) forward contract.
C) swap.
D) micro hedge.
Real business cycle theorists are critical of monetarist reduced-form evidence because
they believe
A) money is the most important cause of changes in aggregate demand.
B) there is reverse causation from the business cycle to money.
C) there is reverse causation from money to the business cycle.
D) business cycles do not exist.
All other things held constant, premiums on call options will increase when the
A) exercise price falls.
B) volatility of the underlying asset falls.
C) term to maturity decreases.
D) futures price increases.
Insurance companies reduce risk exposure in exchange for a portion of their insurance
premiums by obtaining
A) government loan guarantees.
B) federal insurance.
C) reinsurance.
D) bankers acceptances.
If a conflict of interest exists
A) it will always have serious adverse consequences.
B) it may not have a serious adverse consequences if the incentive to take advantage of
the conflict is low.
C) the government needs to step in to pass legislation to remove the conflict.
D) there will not be serious adverse consequences, even if the incentive to take
advantage of the conflict is low.
The ________, the difference between the interest rate on Baa corporate bonds and U.S.
Treasury bonds. rose sharply during the Great Depression.
A) credit boom
B) credit spread
C) adjustable-rate
D) default swap
In a study published in 1963, Milton Friedman and Anna Schwartz found that in every
business cycle they studied over nearly a hundred-year period, the growth rate of the
________ decreased before ________ decreased.
A) money supply; interest rates
B) money supply; output
C) budget deficit; interest rates
D) budget deficit; output
The upward trend in the currency-deposit ratio during 1994-2007 can be explained by
A) the increased holdings of U.S. currency by foreigners.
B) bank panics.
C) a drop in the rate of interest paid on checking deposits.
D) high taxes and illegal activities.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 authorized
investors to bring lawsuits against credit-rating agencies for a reckless failure to get the
facts when providing a credit rating. This is an example of which remedy of conflicts of
interest?
A) regulate for transparency
B) supervisory oversight
C) leave it to the market
D) socialization of information production
Everything else held constant, if income tax rates were lowered, then
A) the interest rate on municipal bonds would fall.
B) the interest rate on Treasury bonds would rise.
C) the interest rate on municipal bonds would rise.
D) the price of Treasury bonds would fall.
One advantage of using swaps to eliminate interest-rate risk is that swaps
A) are less costly than futures.
B) are less costly than rearranging balance sheets.
C) are more liquid than futures.
D) have better accounting treatment than options.