An unexpected rise in the LEI should send bond prices __________ and stock prices
__________.
A) up; up
B) up; down
C) down; up
D) down; down
According to Keynes, it is __________ to have __________ holding money.
A) possible; capital gains or losses from
B) impossible; capital gains and losses from
C) possible; a higher opportunity cost of
D) impossible; a lower opportunity cost of
Retail CDs are most likely marketed by
A) people who are comfortable with interest rate calculations.
B) people who are comfortable with movements in the term structure of interest rates.
C) people with strong interpersonal skills.
D) people who interpret monetary policy actions taken by the Federal Reserve.
Rational expectations theory is based on the assumption that when individuals in the
economy are forming expectations, they
A) use all available information.
B) use past evidence only.
C) consistently make the same errors.
D) pay no attention to past information.
Which of the following statements is incorrect?
A) When market rates are changing, the discount rate adjusts immediately.
B) Money market interest rates tend to respond quickly to Federal Reserve open market
operations.
C) The discount rate may be above or below other money market interest rates at a
given point in time.
D) All of the above are true.
The quantity of money demanded increases at every combination of GDP and interest
rate. If the Fed holds to an unchanged interest rate target, the interest rate __________
and GDP __________.
A) rises; falls
B) rises; remains unchanged
C) remains unchanged; remains unchanged
D) remains unchanged; falls
Checking accounts can be offered by
A) pension funds.
B) life insurance companies.
C) consumer finance companies.
D) savings and loan associations.
If the required reserve ratio was 1, the demand deposit expansion multiplier would be
A) 0.
B) 1.
C) 1.2.
D) 5.
The country in which a form of industrial organization in which a group of companies
own stock in each other and has a bank that owns stock in each firm is
A) the United Kingdom.
B) the United States.
C) Japan.
D) Germany.
According to Keynes, the key difference between money and bonds is that
A) money is an asset.
B) bonds are an asset.
C) money is less risky.
D) bonds are tax exempt.
Assume the Treasury borrows $5 billion from the non-bank public and spends it. The
effect on bank reserves is that they will __________ by $5 billion when the Treasury
borrows and then bank reserves will __________ by $5 billion when the Treasury
spends the money.
A) rise; fall
B) fall; rise
C) rise; rise
D) fall; fall
A long put position
A) has a value of zero if the stock price is below the exercise price.
B) has a value equal to the stock price minus the exercise price if the stock price is
above the exercise price.
C) has a value of zero if the stock price at the time of purchase exceeds the expected
stock price at option expiration.
D) has a value equal to the exercise price minus the stock price if the stock price is
below the exercise price.
Traditionally, the largest asset held by savings-and-loan associations has been
A) NOW deposits.
B) business loans.
C) residential mortgages.
D) consumer loans.
As part of the “exchange rate effect of monetary policy,” a lower money supply causes
__________ of the domestic currency and thus __________ net exports.
A) appreciation; rising
B) appreciation; falling
C) depreciation; rising
D) depreciation; falling
The original maturity on U.S. Treasury bills is between
A) three months and six months.
B) one and ten years.
C) six months and three years.
D) ten and thirty years.
The Taylor rule says that the fed funds rate target is a function of all of the following,
except
A) the actual inflation rate.
B) the target inflation rate.
C) the percentage difference between actual and potential real GDP.
D) the level of borrowed reserves.
Which of the following will decrease the natural rate of interest?
A) An increase in taxes
B) An increase in investment spending
C) A decrease in inflationary expectations
D) An increase in the money supply
Under the assumption of rational expectations, an anticipated increase in the money
supply has no effect on
A) nominal GDP.
B) real GDP.
C) the price level.
D) velocity.
If a commercial bank borrows from the Federal Reserve, the price it pays is
A) zero, there is no payment.
B) the prime rate.
C) the federal funds rate.
D) the discount rate.
The IS curve becomes steeper if there is __________ in the interest-sensitivity of
__________ demand.
A) an increase; money
B) an increase; investment
C) a decrease; money
D) a decrease; investment
The greater the number of buyers and sellers with access to securities markets, the
A) higher the true equilibrium price will be.
B) higher the yields on securities will be.
C) lower the yields on securities will be.
D) closer securities prices will be to the true equilibrium price.
The federal funds rate is a better target for the Fed when
A) the link between reserves and spending is strong.
B) there is a lot of variation in the demand for reserves that isn’t related to changes in
spending.
C) changes in interest rates stabilize the economy.
D) bank reserves are very stable.
The problem of “asymmetric information” is that the
A) lender knows more than the borrower.
B) borrower knows more than the lender.
C) borrower and lender have different goals.
D) borrower and lender know the future much less than they do the present.
A lottery winner receives $20 million in equal payments spread out over 20 years. The
present value of the winnings is
A) equal to $20 million.
B) greater than $20 million.
C) less than $20 million.
D) either greater than or less than $20 million, depending on the discount rate used for
the calculation.