An inflation forecast developed in a Monetarist framework is likely to focus on
A) Federal Reserve policy.
B) interest rate movements.
C) household and business spending decisions.
D) the velocity of money.
Moral hazard is a problem
A) peculiar to direct finance.
B) peculiar to mutual funds.
C) arising before a transaction is consummated.
D) arising after a transaction is consummated.
When the supply of a security __________, the yield on the security __________.
A) increases; rises
B) decreases; rises
C) increases; falls
D) None of the above.
The slope of the LM is not influenced by
A) the gap between money demand and supply.
B) the interest rate sensitivity of money supply.
C) the interest rate sensitivity of money demand.
D) The slope of the LM curve is influenced by all of the above.
Open market operations that represent an attempt to offset short-term fluctuations in
bank reserves are known as
A) defensive open market operations.
B) dynamic open market operations.
C) temporary open market operations.
D) equilibrating open market operations.
Which of the following is untrue?
A) New issues of commercial paper can be sold directly to buyers or through dealers
B) State and local governments buy commercial paper
C) Individuals are major purchasers of commercial paper
D) Nonfinancial firms buy commercial paper
The New York Stock Exchange is an auction market in which the role of auctioneers is
played by
A) brokers.
B) traders.
C) specialists.
D) agents.
If the problem of asymmetric information is so serious that a lender chooses not to lend
to any potential small business borrower, then the problem is
A) moral hazard.
B) adverse selection.
C) market failure.
D) disintermediation.
If the equation of exchange holds, and if the velocity of money and total output are
fixed, then, if the money supply doubles,
A) the price level will increase by half.
B) the price level will decrease by half.
C) the price level will double.
D) the price level will decrease by 25 percent.
Assume that you are a policy adviser who believes that money demand is highly
interest-sensitive but investment is not. Asked your advice on how to pull the economy
out of a recession, you are likely to emphasize
A) contractionary monetary policy.
B) expansionary monetary policy.
C) contractionary fiscal policy.
D) expansionary fiscal policy.
If velocity is constant and equal to 2, a $10 billion shift of the LM curve to the left will
be produced by a __________ in the money supply.
A) $5 billion increase
B) $5 billion decrease
C) $20 billion increase
D) $20 billion decrease
The Financial Services Modernization Act
A) effectively repealed the Glass-Steagall Act of 1933.
B) increased restrictions on cross-ownership of different types of financial institutions.
C) allowed mergers between commercial banks and investment banks, but not between
commercial banks and insurance companies.
D) All of the above.
A bank’s net interest margin can be adversely affected by all of the following except
A) credit risk.
B) interest rate risk.
C) leverage risk.
D) stock market risk.
Of the two conflicts, __________ get(s) more severe the larger the firm.
A) the stockholder-lender conflict
B) manager-stockholder conflict
C) both
D) neither
The over-the-counter (OTC) market is an example of a(n)
A) dealer market.
B) brokered market.
C) auction market.
D) equilibrium market.
Which of the following is classified as an asset for a commercial bank customer?
A) A car loan
B) A commercial loan
C) Demand deposits
D) Deposits with the Federal Reserve
The most popular and widely followed stock index is the
A) New York Stock Exchange Composite Index.
B) S&P 500 Index.
C) Dow Jones Industrial Average.
D) Nasdaq Composite Index.
Asymmetric information problems are worse the __________ the borrowing firm, since
there is __________ publicly available information about those firms.
A) larger; more
B) larger; less
C) smaller; more
D) smaller; less
The supply-demand approach to explaining the term structure of interest rates assumes
that
A) bond prices and yields are positively related.
B) the yield curve is horizontal.
C) the yield curve is upward sloping.
D) each maturity class is independent.
The reason computers have not yet replaced trading floors can be attributed to
A) lack of sellers.
B) lack of buyers.
C) lack of liquidity.
D) lack of technology.