Which of the following $1,000 face-value securities has the highest yield to maturity?
A) a 5 percent coupon bond selling for $1,000
B) a 10 percent coupon bond selling for $1,000
C) a 12 percent coupon bond selling for $1,000
D) a 12 percent coupon bond selling for $1,100
The Fed does not tightly control the monetary base because it does NOT completely
control
A) open market purchases.
B) open market sales.
C) borrowed reserves.
D) the discount rate.
Keynes’s liquidity preference theory indicates that the demand for money is ________
related to ________.
A) negatively; interest rates
B) positively; interest rates
C) negatively; income
D) negatively; wealth
If real GDP grows from $10 trillion in 2002 to $10.5 trillion in 2003, the growth rate for
real GDP is
A) 5%.
B) 10%.
C) 50%.
D) 0.5%.
Which of the following are short-term financial instruments?
A) a repurchase agreement
B) a share of Walt Disney Corporation stock
C) a Treasury note with a maturity of four years
D) a residential mortgage
Everything else held constant, if a factor decreases the demand for ________ goods
relative to ________ goods, the domestic currency will depreciate.
A) foreign; domestic
B) foreign; foreign
C) domestic; domestic
D) domestic; foreign
To be considered well capitalized, a bank’s leverage ratio must exceed
A) 10%.
B) 8%.
C) 5%.
D) 3%.
According to the expectations theory of the term structure, the interest rate on a
long-term bond will equal the ________ of the short-term interest rates that people
expect to occur over the life of the long-term bond.
A) average
B) sum
C) difference
D) multiple
The money multiplier is
A) negatively related to high-powered money.
B) positively related to the excess reserves ratio.
C) negatively related to the required reserve ratio.
D) positively related to holdings of excess reserves.
Because these securities are more liquid and generally have smaller price fluctuations,
corporations and banks use the ________ securities to earn interest on temporary
surplus funds.
A) money market
B) capital market
C) bond market
D) stock market
Which of the followings is NOT a current duty of the Board of Governors of the
Federal Reserve System?
A) setting margin requirements, the fraction of the purchase price of the securities that
has to be paid for with cash
B) setting the maximum interest rates payable on certain types of time deposits under
Regulation Q
C) approving the discount rate “established” by the Federal Reserve banks
D) voting on the conduct of open market operations
Nominal GDP is output measured in ________ prices while real GDP is output
measured in ________ prices.
A) current; current
B) current; fixed
C) fixed; fixed
D) fixed; current
If the money supply is $600 and nominal income is $3,600, the velocity of money is
A) 1/60.
B) 1/6.
C) 6.
D) 60.
When I purchase ________, I own a portion of a firm and have the right to vote on
issues important to the firm and to elect its directors.
A) bonds
B) bills
C) notes
D) stock
All of the following are common to banking crises in different countries EXCEPT
A) financial liberalization or innovation.
B) weak bank regulatory systems.
C) a government safety net.
D) a dual banking system.
Which of the following is NOT a government-sponsored enterprise?
A) Fannie Mae.
B) Freddie Mac.
C) Federal Home Loan Banks.
D) Ginnie Mae.
In the liquidity preference framework, a one-time increase in the money supply results
in a price level effect. The maximum impact of the price level effect on interest rates
occurs
A) at the moment the price level hits its peak (stops rising) because both the price level
and expected inflation effects are at work.
B) immediately after the price level begins to rise, because both the price level and
expected inflation effects are at work.
C) at the moment the expected inflation rate hits its peak.
D) at the moment the inflation rate hits it peak.
Under a fixed exchange rate regime, a country that depletes its international reserves in
an attempt to keep its currency from ________ will be forced to ________ its currency.
A) depreciating; revalue
B) depreciating; devalue
C) appreciating; revalue
D) appreciating; devalue
Everything else held constant, an increase in the excess reserve ratio will mean
________ in the M1 money multiplier and ________ in the M2 money multiplier.
A) an increase; an increase
B) no change; an increase
C) a decrease; a decrease
D) no change; a decrease
Off-balance sheet activities involving guarantees of securities and back-up credit lines
A) have no impact on the risk a bank faces.
B) greatly reduce the risk a bank faces.
C) increase the risk a bank faces.
D) slightly reduce the risk a bank faces.
Which of the following statements is an example of the Fed’s conditional commitment
policy?
A) “In these circumstances, the Committee believes that policy accommodation can be
maintained for a considerable period.”
B) “The Committee anticipates that weak economic conditions are likely to warrant
exceptionally low levels of the federal funds rate for some time.”
C) “Policy accommodation can be removed at a pace that is likely to be measured.”
D) “The exceptionally low range for the federal funds rate will be appropriate at least as
long as the
unemployment rate remains above 6-1/2 percent, and inflation between one and two
years ahead is projected to be no more than a half percentage point above the
Committee’s 2 percent longer-run goal.”
If the price level increases, everything else held constant, the ________ curve shifts to
the ________.
A) IS; right
B) IS; left
C) LM; left
D) LM; right
If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $1000 billion, and excess reserves total $1 billion, then the
money supply is ________ billion.
A) $10,000
B) $4000
C) $1400
D) $10,400
Overseeing who operates banks and how they are operated is called
A) prudential supervision.
B) hazard insurance.
C) regulatory interference.
D) loan loss reserves.
The economist who proposed that, “Inflation is always and everywhere a monetary
phenomenon” was
A) John Maynard Keynes.
B) John R. Hicks.
C) Milton Friedman.
D) Franco Modigliani.
An inverted yield curve predicts that short-term interest rates
A) are expected to rise in the future.
B) will rise and then fall in the future.
C) will remain unchanged in the future.
D) will fall in the future.
If the money supply is $600 and nominal income is $3,000, the velocity of money is
A) 1/50.
B) 1/5.
C) 5.
D) 50.
When gold prices become more volatile, the ________ curve for gold shifts to the
________; ________ the price of gold.
A) supply; right; increasing
B) supply; left; increasing
C) demand; right; decreasing
D) demand; left; decreasing
When the value of loans begins to drop, the net worth of financial institutions falls
causing them to cut back on lending in a process called
A) deleveraging.
B) releveraging.
C) capitulation.
D) deflation.
An increase in unplanned inventory investment for the entire economy equals the
excess of
A) output over aggregate supply.
B) output over aggregate demand.
C) aggregate supply over output.
D) aggregate demand over output.