________ assist in the initial sale of securities in the primary market; ________ assist
in the trading of securities in the secondary markets.
A) Investment banks; mutual funds
B) Commercial banks; mutual funds
C) Investment banks; securities brokers and dealers
D) Commercial banks; securities brokers and dealers
Which of the following can be described as involving indirect finance?
A) You make a loan to your neighbor.
B) A corporation buys a share of common stock issued by another corporation in the
primary market.
C) You buy a U.S. Treasury bill from the U.S. Treasury at TreasuryDirect.gov.
D) You make a deposit at a bank.
Mortgage-backed securities are similar to ________ but the interest and principal
payments are backed by the individual mortgages within the security.
A) bonds
B) stock
C) repurchase agreements
D) negotiable CDs
In the basic closed-economy ISLM model, the LM curve can be described by an
equation where
A) output is a function of consumption.
B) money is a function of interest rates.
C) output is a function of money.
D) interest rate is a function of output.
A decrease in the riskiness of corporate bonds will ________ the price of corporate
bonds and ________ the price of Treasury bonds, everything else held constant.
A) increase; increase
B) reduce; reduce
C) reduce; increase
D) increase; reduce
Assume a closed economy. Suppose that autonomous consumption equals $400,
planned investment equals $500, government expenditure equals $200, net taxes equals
$50, and the mpc equals 0.9.
Using the information in situation 20-2, if government spending increases by $100, then
the equilibrium aggregate output will change by
A) -$1,000.
B) -$100.
C) $100.
D) $1,000.
When asset prices rise above their fundamental economic values, a(n) ________ occurs.
A) asset-price bubble
B) liability war
C) decline in lending
D) decrease in moral hazard
The U-shaped yield curve in the figure above indicates that the inflation rate is expected
to
A) remain constant in the near-term and fall later on.
B) fall sharply in the near-term and rise later on.
C) rise moderately in the near-term and fall later on.
D) remain constant in the near-term and rise later on.
A type of investment fund that makes long-term investments in companies that are not
publicly traded is called a
A) private equity fund.
B) hedge fund.
C) sovereign wealth fund.
D) brokerage fund.
To say that the forward market lacks liquidity means that
A) forward contracts usually result in losses.
B) forward contracts cannot be turned into cash.
C) it may be difficult to make the transaction.
D) forward contracts cannot be sold for cash.
If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1
money multiplier is
A) 2.5.
B) 1.67.
C) 2.0.
D) 0.601.
The government passed the Economic Recovery Act in October 2008 to prevent the
financial crisis from continuing to worsen. A controversial component of this act was
the
A) temporary decrease in the federal deposit insurance limit.
B) sale of new subprime mortgage assets.
C) borrowing of $150 million from AIG.
D) Troubled Asset Relief Program (TARP).
After Ben Bernanke became chair of the Fed in 2006, he
A) increased Fed transparency.
B) abandoned inflation targeting.
C) used “just do it” policy.
D) increased the opacity of the policymaking.
If the real exchange rate between the United States and Japan is ________, then it is
cheaper to buy goods in Japan than in the United States.
A) greater than 1.0
B) greater than 0.5
C) less than 0.5
D) less than 1.0
If one party pays a fixed fee on a regular basis in return for a contingent payment that is
triggered by a downgrading of a firm’s credit rating, that is called a
A) credit option.
B) credit swap.
C) credit-linked note.
D) credit default swap.