Other things being equal, an increase in the default risk of corporate bonds shifts the
demand curve for corporate bonds to the ________ and the demand curve for Treasury
bonds to the ________.
A) right; right
B) right; left
C) left; right
D) left; left
Which of the followings does NOT describe the goods market in the ISLM model?
A) consumption function
B) investment function
C) government spending and tax
D) money supply
Which of the following is a part of the Global Legal Settlement of 2002?
A) The establishment of a Public Company Accounting Oversight Board (PCAOB) to
supervise accounting firms and thus insure that audits are independent and controlled
for quality.
B) Increased penalties for white-collar crime and obstruction of official investigations.
C) Requires a CEO and CFO to certify that periodic financial statements and disclosure
of the firm are accurate.
D) Requires investment banks to make public their analysts’ recommendations.
The most important source of the changes in supply conditions that stimulate financial
innovation has been the
A) deregulation of financial institutions.
B) dramatic increase in the volatility of interest rates.
C) improvement in information technology.
D) dramatic increase in competition from foreign banks.
Although reserve requirements and the discount rate are not actually set by the
________, decisions concerning these policy tools are effectively made there.
A) Federal Reserve Bank of New York
B) Board of Governors
C) Federal Open Market Committee
D) Federal Reserve Banks
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio =
75%, and the excess reserve ratio = 156%, an increase in the currency-deposit ratio to
150% causes the M1 money multiplier to ________, everything else held constant.
A) increase from 0.73 to 0.78
B) decrease from 0.73 to 0.61
C) increase from 1.54 to 1.67
D) decrease from 1.67 to 1.54
The segmented markets theory can explain
A) why yield curves usually tend to slope upward.
B) why interest rates on bonds of different maturities tend to move together.
C) why yield curves tend to slope upward when short-term interest rates are low and to
be inverted when short-term interest rates are high.
D) why yield curves have been used to forecast business cycles.
Of the following financial intermediaries, which holds the least liquid assets?
A) property and casualty insurance companies
B) life insurance companies
C) money market mutual funds
D) commercial banks
Everything else held constant, if consumption expenditure falls by 160 when disposable
income falls by 200, the mpc is
A) 0.
B) 0.2.
C) 0.4.
D) 0.8.
If the expected path of 1-year interest rates over the next five years is 1 percent, 2
percent, 3 percent, 4 percent, and 5 percent, the expectations theory predicts that the
bond with the highest interest rate today is the one with a maturity of
A) two years.
B) three years.
C) four years.
D) five years.
A contract requiring payment of an annual premium in exchange for the payment of a
future stream of payments beginning at a specified age and continuing until death is
A) whole life insurance.
B) an annuity.
C) term life insurance.
D) variable life insurance.
E) universal life insurance.
The term structure of interest rates is
A) the relationship among interest rates of different bonds with the same maturity.
B) the structure of how interest rates move over time.
C) the relationship among the term to maturity of different bonds.
D) the relationship among interest rates on bonds with different maturities.
Which of the following is not a financial derivative?
A) stock
B) futures
C) options
D) forward contracts
Potential advantages of nominal GDP targeting include
A) it implies that the central bank will respond to slowdowns in the real economy even
if inflation is not falling.
B) real GDP growth that is below potential or inflation that is below the inflation
objective will encourage more expansionary monetary policy.
C) it focuses not only on controlling inflation but also explicitly on stabilizing real
GDP.
D) all of the above.
An important source of short-term funds for commercial banks are ________ which can
be resold on the secondary market.
A) negotiable CDs
B) commercial paper
C) mortgage-backed securities
D) municipal bonds
If the yield curve slope is flat for short maturities and then slopes steeply upward for
longer maturities, 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) constant short-term interest rates in the near future and a decline further out in the
future.
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
Because of the weak systems of property rights in many developing and transition
economies, the financial system is unable to use collateral effectively worsening the
________ problem.
A) adverse selection
B) moral hazard
C) principal/agent
D) diversification