The figure above illustrates the effect of an increased rate of money supply growth at
time period T0. From the figure, one can conclude that the
A) Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to
changes in expected inflation.
B) liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to
changes in expected inflation.
C) liquidity effect is dominated by the Fisher effect and interest rates adjust quickly to
changes in expected inflation.
D) Fisher effect is smaller than the expected inflation effect and interest rates adjust
quickly to changes in expected inflation.
Mutual savings banks are primarily regulated by
A) the states in which they are located.
B) the Federal Reserve.
C) the FDIC.
D) the National Credit Union Administration.
Monetary aggregates are
A) measures of the money supply reported by the Federal Reserve.
B) measures of the wealth of individuals.
C) never redefined since “money” never changes.
D) reported by the Treasury Department annually.
A corporation acquires new funds only when its securities are sold in the
A) primary market by an investment bank.
B) primary market by a stock exchange broker.
C) secondary market by a securities dealer.
D) secondary market by a commercial bank.
In the Keynesian framework, as long as output is ________ the equilibrium level,
unplanned inventory investment will remain ________, firms will continue to lower
production, and output will continue to fall.
A) below; negative
B) above; negative
C) below; positive
D) above; positive
An important factor in producing the global financial crisis was
A) lax consumer protection regulation.
B) onerous rules placed on mortgage originators.
C) weak incentives for mortgage brokers to use complicated mortgage products.
D) strong incentives for the mortgage brokers to verify income information.
Parties who have sold a futures contract and thereby agreed to ________ (deliver) the
bonds are said to have taken a ________ position.
A) sell; short
B) buy; short
C) sell; long
D) buy; long
Banks and other financial institutions engage in financial intermediation, which
A) can hurt the performance of the economy.
B) can benefit economic performance.
C) has no effect on economic performance.
D) involves borrowing from investors and lending to savers.
If bonds with different maturities are perfect substitutes, then the ________ on these
bonds must be equal.
A) expected return
B) surprise return
C) surplus return
D) excess return
If the U.S. dollar appreciates from 1.25 Swiss franc per U.S. dollar to 1.5 francs per
dollar, then the franc depreciates from ________ U.S. dollars per franc to ________
U.S. dollars per franc.
A) 0.80; 0.67
B) 0.67; 0.80
C) 0.50; 0.33
D) 0.33; 0.50
An instrument developed to help investors and institutions hedge interest-rate risk is
A) a debit card.
B) a credit card.
C) a financial derivative.
D) a junk bond.
Banks may borrow from or lend to another bank in the Federal Funds market. A loan of
excess reserves from one bank to another bank is recorded as a(n) ________ for the
borrowing bank and a(n) ________ for the lending bank.
A) asset; asset
B) asset; liability
C) liability; liability
D) liability; asset
Financial crises generally develop along two basic paths
A) mismanagement of financial liberalization/globalization and severe fiscal
imbalances.
B) stock market declines and severe fiscal imbalances.
C) mismanagement of financial liberalization/globalization and stock market declines.
D) stock market declines and unanticipated declines in the value of the domestic
currency.
Of the following, the largest is
A) money market deposit accounts.
B) demand deposits.
C) M1.
D) M2.
Starting in 1974, the conventional M1 money demand function began to severely
________ the demand for money. Stephen Goldfeld labeled this phenomenon “the case
of the missing ________.”
A) underpredict; velocity
B) overpredict; velocity
C) underpredict; money
D) overpredict; money
Of the following, the one that appears in the current account of the balance of payments
is
A) an Italian investor’s purchase of IBM stock.
B) income earned by U.S. subsidiaries of Barclay’s Bank of London.
C) a loan by a Swiss bank to an American corporation.
D) a purchase of a British Treasury bond by the Fed.
According to the liquidity premium theory of the term structure, a downward sloping
yield curve indicates that short-term interest rates are expected to
A) rise in the future.
B) remain unchanged in the future.
C) decline moderately in the future.
D) decline sharply in the future.
A bank is insolvent when
A) its liabilities exceed its assets.
B) its assets exceed its liabilities.
C) its capital exceeds its liabilities.
D) its assets increase in value.
Prior to almost all recessions since 1950, there has been a drop in
A) inflation.
B) the money stock.
C) the growth rate of the money stock.
D) interest rates.
A central bank ________ of domestic currency and corresponding ________ of foreign
assets in the foreign exchange market leads to an equal increase in its international
reserves and the monetary base, everything else held constant.
A) sale; purchase
B) sale; sale
C) purchase; sale
D) purchase; purchase
The bond supply curve is ________ sloping, indicating a(n) ________ relationship
between the price and quantity supplied of bonds, everything else equal.
A) downward; inverse
B) downward; direct
C) upward; inverse
D) upward; direct
Assume you are holding Treasury securities and have sold futures to hedge against
interest-rate risk. If interest rates fall
A) the increase in the value of the securities equals the decrease in the value of the
futures contracts.
B) the decrease in the value of the securities equals the increase in the value of the
futures contracts.
C) both the securities and the futures contracts decrease in value.
D) both the securities and the futures contracts increase in value.
If Treasury deposits at the Fed are predicted to ________, the manager of the trading
desk at the New York Fed bank will likely conduct ________ open market operations to
________ reserves.
A) increase; defensive; inject
B) decrease; defensive; inject
C) increase; dynamic; inject
D) decrease; dynamic; drain
The high growth rate in China in the last twenty years has similarities to the high
growth rate of ________ during the 1950s and 1960s.
A) the United States
B) the Soviet Union
C) Brazil
D) Mexico
Even if the Fed could completely control the money supply, monetary policy would
have critics because
A) the Fed is asked to achieve many goals, some of which are incompatible with others.
B) the Fed’s goals do not include high employment, making labor unions a critic of the
Fed.
C) the Fed’s primary goal is exchange rate stability, causing it to ignore domestic
economic conditions.
D) it is required to keep Treasury security prices high.
If a bank has ________ rate-sensitive assets than liabilities, then ________ in interest
rates will increase bank profits.
A) more; a decline
B) more; an increase
C) fewer; an increase
D) fewer; a surge
Everything else held constant, when the current value of the domestic currency
increases, the ________ domestic assets ________.
A) demand for; increases
B) quantity demanded of; increases
C) demand for; decreases
D) quantity demanded of; decreases
The time it takes to pass legislation to implement a particular policy is called
A) the data lag.
B) the recognition lag.
C) the legislative lag.
D) the implementation lag.
E) the effectiveness lag.
Because of the abuses by state banks and the clear need for a central bank to help the
federal government raise funds during the War of 1812, Congress created the
A) Bank of United States in 1812.
B) Bank of North America in 1814.
C) Second Bank of the United States in 1816.
D) Second Bank of North America in 1815.
Of the remedies for conflicts of interest, which one is the most intrusive?
A) regulate for transparency
B) separation of functions
C) supervisory oversight
D) socialization of information production
When the Fed buys $100 worth of bonds from a primary dealer, reserves in the banking
system
A) increase by $100.
B) increase by more than $100.
C) decrease by $100.
D) decrease by more than $100.