Small-denomination time deposits refer to certificates of deposit with a denomination of
less than
A) $1,000.
B) $10,000.
C) $100,000.
D) $1,000,000.
At the time of the South Korean financial crisis, the merchant banks were
A) almost virtually unregulated.
B) subject to heavy government regulation.
C) engaged in long-term lending to the corporate sector.
D) restricted to long-term foreign borrowing.
The too-big-to-fail policy
A) reduces moral hazard problems.
B) puts large banks at a competitive disadvantage in attracting large deposits.
C) treats large depositors of small banks inequitably when compared to depositors of
large banks.
D) allows small banks to take on more risk than large banks.
When the prices of rare coins become volatile, the ________ curve for bonds shifts to
the ________, everything else held constant.
A) demand; right
B) demand; left
C) supply; right
D) supply; left
Economists have focused more attention on the formation of expectations in recent
years. This increase in interest can probably best be explained by the recognition that
A) expectations influence the behavior of participants in the economy and thus have a
major impact on economic activity.
B) expectations influence only a few individuals, have little impact on the overall
economy, but can have important effects on a few markets.
C) expectations influence many individuals, have little impact on the overall economy,
but can have distributional effects.
D) models that ignore expectations have little predictive power, even in the short run.
Monetary policy is considered time-inconsistent because
A) of the lag times associated with the implementation of monetary policy and its effect
on the economy.
B) policymakers are tempted to pursue discretionary policy that is more contractionary
in the short run.
C) policymakers are tempted to pursue discretionary policy that is more expansionary
in the short run.
D) of the lag times associated with the recognition of a potential economic problem and
the implementation of monetary policy.
Whatever a society uses as money, the distinguishing characteristic is that it must
A) be completely inflation proof.
B) be generally acceptable as payment for goods and services or in the repayment of
debt.
C) contain gold.
D) be produced by the government.
If the yield curve has a mild upward slope, the liquidity premium theory (assuming a
mild preference for shorter-term bonds) indicates that the market is predicting
A) a rise in short-term interest rates in the near future and a decline further out in the
future.
B) constant short-term interest rates in the near future and further out in the future.
C) a decline in short-term interest rates in the near future and a rise further out in the
future.
D) a decline in short-term interest rates in the near future and an even steeper decline
further out in the future.
In the market for reserves, if the federal funds rate is above the interest rate paid on
excess reserves, then an open market ________ the supply of reserves, raising the
federal funds interest rate, everything else held constant.
A) sale decreases
B) sale increases
C) purchase increases
D) purchase decreases
A phenomenon closely related to market overreaction is
A) the random walk.
B) the small-firm effect.
C) the January effect.
D) excessive volatility.
In the one-period valuation model, the value of a share of stock today depends upon
A) the present value of both the dividends and the expected sales price.
B) only the present value of the future dividends.
C) the actual value of the dividends and expected sales price received in one year.
D) the future value of dividends and the actual sales price.
A decrease in default risk on corporate bonds ________ the demand for these bonds,
and ________ the demand for default-free bonds, everything else held constant.
A) increases; lowers
B) lowers; increases
C) does not change; greatly increases
D) moderately lowers; does not change
________ examines whether one variable has an effect on another by simply looking
directly at the relationship between the two variables.
A) Reduced-form evidence
B) Organizational-model evidence
C) Direct-model evidence
D) Structural-model evidence
Financial markets quickly eliminate unexploited profit opportunities through changes in
A) dividend payments.
B) tax laws.
C) asset prices.
D) monetary policy.
According to Tobin’s q theory, when q is ________, firms will not purchase new
investment goods because the market value of firms is ________ relative to the cost of
capital.
A) low; low
B) low; high
C) high; low
D) high; high
Adverse selection is a problem associated with equity and debt contracts arising from
A) the lender’s relative lack of information about the borrower’s potential returns and
risks of his investment activities.
B) the lender’s inability to legally require sufficient collateral to cover a 100% loss if
the borrower defaults.
C) the borrower’s lack of incentive to seek a loan for highly risky investments.
D) the lender’s inability to restrict the borrower from changing his behavior once given
a loan.
IPOs have become very important in the U.S. economy because they are a major source
of financing for
A) so-called “blue-chip” companies.
B) hedge funds.
C) internet companies.
D) mutual funds.
Irving Fisher’s view that velocity is fairly constant in the short run transforms the
equation of exchange into the
A) Friedman’s theory of income determination.
B) quantity theory of money.
C) Keynesian theory of income determination.
D) monetary theory of income determination.
In the simple Keynesian framework, declines in planned investment spending that
produce high unemployment can be offset by raising
A) taxes.
B) government spending.
C) consumer confidence.
D) business confidence.
Regarding central bank independence
A) the Fed is more independent than the European Central Bank.
B) the European Central Bank is more independent than the Fed.
C) the trend in industrialized nations has been to reduce central bank independence.
D) the Bank of England has the longest tradition of independence of any central bank in
the world.
In the Keynesian cross diagram, an increase in autonomous consumer expenditure
causes the aggregate demand function to shift ________, the equilibrium level of
aggregate output to rise, and the IS curve to shift to the ________, everything else held
constant.
A) up; left
B) up; right
C) down; left
D) down; right
Suppose on any given day the prevailing equilibrium federal funds rate is below the
Federal Reserve’s federal funds target rate. If the Federal Reserve wishes for the federal
funds rate to be at their target level, then the appropriate action for the Federal Reserve
to take is a ________ open market ________, everything else held constant.
A) defensive; sale
B) defensive; purchase
C) dynamic; sale
D) dynamic; purchase
Of all commercial banks, about ________ belong to the Federal Reserve System.
A) 10%
B) one half
C) one third
D) 90%
Whether one views the discretionary policies of the 1960s and 1970s as destabilizing or
believes the economy would have been less stable without these policies, most
economists agree that
A) stabilization policies proved more difficult in practice than many economists had
expected.
B) stabilization policies proved not to be inflationary.
C) the nondiscretionary policymakers were right in believing that the private economy
is inherently stable.
D) the discretionary policymakers were right in believing that the private economy is
inherently stable.
In its earliest years, the Federal Reserve’s guiding principle for the conduct of monetary
policy was known as the
A) real bills doctrine.
B) liberal liquidity doctrine.
C) free reserves doctrine.
D) quantity theory of money.
Using the Gordon growth model, a stock’s current price will increase if
A) the dividend growth rate increases.
B) the growth rate of dividends falls.
C) the required rate of return on equity rises.
D) the expected sales price rises.
Which of the following is NOT included in the measure of M1?
A) NOW accounts
B) demand deposits
C) currency
D) savings deposits
The effectiveness lag is
A) the time it takes for policy makers to obtain data indicating what is happening in the
economy.
B) the time it takes for policy makers to be sure of what the data are signaling about the
future course of the economy.
C) the time it takes to pass legislation to implement a particular policy.
D) the time it takes for policy makers to change policy instruments once they have
decided on the new policy.
E) the time it takes for the policy actually to have an impact on the economy.
Which of the following is NOT included in the monetary aggregate M2?
A) currency
B) savings bonds
C) traveler’s checks
D) checking deposits
In which of the following situations would you prefer to be the lender?
A) The interest rate is 9 percent and the expected inflation rate is 7 percent.
B) The interest rate is 4 percent and the expected inflation rate is 1 percent.
C) The interest rate is 13 percent and the expected inflation rate is 15 percent.
D) The interest rate is 25 percent and the expected inflation rate is 50 percent.
A shift in tastes toward American goods ________ net exports in the U.S. and causes
the quantity of aggregate output demanded to ________ in the U.S., everything else
held constant.
A) decreases; rise
B) decreases; fall
C) increases; rise
D) increases; fall
The classical economists’ contention that prices double when the money supply doubles
is predicated on the belief that in the short run velocity is ________ and real GDP is
________.
A) constant; constant
B) constant; variable
C) variable; variable
D) variable; constant
Banks are required to file ________ usually quarterly that list information on the bank’s
assets and liabilities, income and dividends, and so forth.
A) call reports
B) balance reports
C) regulatory sheets
D) examiner updates
If young business professionals in America suddenly decide that driving German-made
cars is an important status symbol, net exports will tend to ________ causing aggregate
demand to ________, everything else held constant.
A) fall; fall
B) fall; rise
C) rise; fall
D) rise; rise