__________ occurs because firm owners have an incentive to understate their true
riskiness to borrow on a more favorable basis.
A) Moral hazard
B) Adverse selection
C) Manager-stockholder conflict
D) Manager-lender conflict
Suppose that during a given month 500,000 persons quit their job to become
self-employed. This might give __________ bias to the __________ indicator.
A) an optimistic; unemployment rate
B) a pessimistic; unemployment rate
C) an optimistic; payroll employment
D) a pessimistic; payroll employment
If two risky assets, A and B, have negative correlation, then when A’s yield increases
A) B’s yield increases.
B) B’s yield decreases.
C) B’s yield can increase or decrease.
D) There is not enough information to determine what B’s yield will do.
If you believe that the LM curve is vertical, what type of policy would you recommend
to stimulate the economy?
A) An increase in government spending
B) A reduction in government spending
C) An increase in the money supply
D) A reduction in the interest rate
Which of the following statements is incorrect?
A) The flow of spending depends on the supply of money and the velocity of money.
B) A higher level of GDP can be caused by higher prices or by increased production.
C) The determinants of the velocity of money are well-known and can be easily
influenced by the Fed.
D) The Fed’s main job is to regulate the flow of spending.
Holding a group of assets reduces risk relative to holding a single asset as long as the
assets
A) are dependent on each other.
B) are positively correlated.
C) are uncorrelated.
D) do not have precisely the same pattern of returns.
Historical evidence shows that the relationship between interest rates and investment is
A) indeterminable.
B) positive.
C) negative.
D) None of the above.
In consumer lending, asymmetric information
A) happens only with securitization.
B) cannot be dealt with using the same techniques as in business lending.
C) can be partly offset using the same techniques as in business lending.
D) may be virtually eliminated as a problem by just a collateral requirement.
As part of the “wealth channel of monetary policy,” a higher money supply __________
interest rates and thus __________ bond prices.
A) raises; raises
B) raises; lowers
C) lowers; raises
D) lowers; lowers
In a recession, an increase in the money supply is likely to cause
A) some increase in interest rates.
B) some increase in output.
C) some increase in velocity.
D) an equal increase in inflation.
Which of the following is a permanent member of the Federal Open Market
Committee?
A) President of the New York Federal Reserve Bank
B) President of the Washington, D.C. Federal Reserve Bank
C) Comptroller of the Currency
D) Secretary of the Treasury
The ISLM model can be used to derive
A) aggregate demand.
B) aggregate supply.
C) the money multiplier.
D) the long-run economic growth rate.
The wealth effect on consumer spending is
A) about the same as the effect on plant and equipment expenditure.
B) about the same as the effect on residential construction.
C) less than the effect on plant and equipment expenditure.
D) larger than the effect on residential construction.
The dollar amount of interest is largest for a four-year loan if the interest is
compounded
A) daily.
B) monthly.
C) annually.
D) once every two years.
The trend in the mortgage-backed securities (MBS) market in the early 2000s was
toward more
A) subprime mortgages.
B) prime mortgages.
C) bubble mortgages.
D) low-risk mortgages.
In the aggregate demand and supply framework, an increase in the money supply will
shift the aggregate
A) demand curve to the right.
B) demand curve to the left.
C) supply curve to the left.
D) supply curve to the right.
In an economy without government or a foreign sector the equilibrium level of output
occurs when
A) actual saving equals actual investment.
B) actual saving equals desired investment.
C) desired saving equals desired investment.
D) desired saving equals actual investment.
With a rise in government expenditure we
A) move up along an aggregate demand curve.
B) move down along an aggregate demand curve.
C) shift the aggregate demand curve to the right.
D) shift the aggregate demand curve to the left.
Starting from equilibrium and using the ISLM framework, an increase in investment
leads to
A) lower interest rates and higher income.
B) higher interest rates and higher income.
C) lower interest rates and lower income.
D) higher interest rates and lower income.
For S&Ls in the early 1980s the __________ cost of short-term deposits turned their
net interest margin __________.
A) increasing; positive
B) increasing; negative
C) decreasing; positive
D) decreasing; negative
Starting from full employment output, fiscal policy will be completely crowded out in
real terms, even with __________ LM curve, so long as prices are __________.
A) a vertical; flexible
B) a vertical; fixed
C) an upward-sloping; flexible
D) an upward-sloping; fixed
It is not surprising to see a rather __________ volume of mergers and acquisitions in
Japan given its __________-oriented financial system.
A) high; banking
B) high; markets
C) low; banking
D) low; markets
Which of the following is an accurate statement regarding the evolution of the Federal
Reserve System?
A) The independence of the Federal Reserve has been systematically eroded by
legislation.
B) The Federal Reserve has shifted from an agency controlled by the states to a
federally controlled agency.
C) The Federal Reserve has shifted from a fiscal policy agency to a monetary policy
agency.
D) The Federal Reserve has shifted from a regional service agency to a national
policy-making institution.
Adverse selection is a problem
A) unique to direct finance.
B) unique to indirect finance.
C) arising before a transaction is consummated.
D) arising after a transaction is consummated.
The net asset value of an open-end mutual fund is equal to the
A) profits of the fund.
B) dividends paid out by the fund.
C) market value of the securities held by the fund.
D) price-earnings ratio of the fund.