Which of the following securities is likely to have the highest yield to maturity?
a. A corporate bond with a Baa rating
b. A corporate bond with AAA rating
c. A government bond exempted from federal income tax
d. A certificate of deposit with a three months to maturity
Answer:
A period when output, income, and employment are rising is known as
a. a recession.
b. an expansion.
c. a deflationary period.
d. a trough.
Answer:
If a dollar of money is used 5 times in transactions in an economy over the course of a
year and the supply of money is $120 billion, what is the volume of total spending in
the economy?
a. $5 billion
b. $600 billion
c. $240 billion
d. $20 billion
Answer:
The misery index is the sum of the
a. unemployment rate and the output gap.
b. unemployment gap and the output gap.
c. unemployment gap and the inflation gap.
d. unemployment rate and the inflation rate.
Answer:
Consider a two-year coupon bond that has a present value of $10,000. If the annual rate
of discount is 3 percent, and the payment made at the end of each year is $250, the
principal amount to be repaid at the end of two years is
a. $10,101.50.
b. $10,300.00.
c. $13,333.33.
d. $13,583.33.
Answer:
A statistical model that assumes that the value of a variable at any date depends on its
own past values, plus the past values of other variables, plus an error term is known as a
a. vector autoregression (VAR) model.
b. univariate time-series model.
c. structural VAR model.
d. structural equilibrium model.
Answer:
The Glass-Steagall Act was passed into law in the year
a. 1999.
b. 1913.
c. 1933.
d. 1980.
Answer:
The set of mechanisms used for making transactions is called the
a. outside money mechanism.
b. payments system.
c. inside money system.
d. standard of deferred payments.
Answer:
In the liquidity-preference model, an increase in people’s incomes causes the
a. money supply curve to shift to the right.
b. money supply curve to shift to the left.
c. money demand curve to shift to the left.
d. money demand curve to shift to the right.
Answer:
Term spread is the interest rate on a long-term debt security___________security.
a. minus
b. plus
c. times
d. divided by the interest rate on a short-term debt
Answer:
If the money supply is $300 billion, the price level is 1.3, and the real output is 1,300
billion, what is the velocity of money?
a. 0.33
b. 3
c. 5.63
d. 300,000
Answer:
A country has a working population of 85 million. Out of the 85 million people, 51
million are employed and 17 million are unemployed. The labor-force participation rate
of the country is
a. 80 percent
b. 60 percent
c. 20 percent
d. 75 percent
Answer:
In 2001, the number of unemployed people in a country increased from 7 million to 3
million, while the labor force increased from 5 million to 3 million. By how much did
the unemployment rate increase?
a. 1.8 percentage points
b. 2.6 percentage points
c. 3.25 percentage points
d. 5.8 percentage points
Answer:
Which of the following is true of an equity?
a. Equity securities can be bought and sold.
b. The periodic payment on an equity security is called the interest.
c. An equity promises to pay a fixed amount periodically.
d. An equity security has a specific date of maturity.
Answer:
The analysis of the term structure of interest rates assumes that
a. there is uncertainty about future interest rates.
b. there is no risk involved in the purchase and sale of longterm securities.
c. shortterm and longterm securities offer the same rate of interest.
d. there are no transaction costs.
Answer:
In the CAPM, a stock has a beta coefficient of 0.5. The average returns to all stocks in
the market is 8%. If the interest rate on three-month T-bills is at around 3 percent, what
is the expected return to this stock? Assume that unsystematic risk is zero.
a. 2.5 percent
b. 3.5 percent
c. 5.5 percent
d. 7.0 percent
Answer:
The Community Reinvestment Act attempts to prevent a banking practice known as
a. redlining.
b. credit scoring.
c. credit diving.
d. term intermediation.
Answer:
If a stock’s price is $20 at the beginning of a year and $17 at the end of the year, and it
pays a dividend of $2 during the year, then the stock’s capital-gains yield is ___percent.
a. −15
b. −5
c. 5
d. 15
Answer:
In the United States, the average annual real return on stocks from 1960 to 2012 has
been approximately
a. 1 percent.
b. 2 percent.
c. 7 percent.
d. 10 percent.
Answer:
Suppose you bought an inflation-indexed security for $12,000 in January 2013 which
pays an annual interest of 4 percent. If the value of the inflation index in January 2013
was 106 and its value in January 2014 was 105, what is the value of the
inflation-adjusted principal?
a. $12,114.29
b. $11,342.58
c. $8,000.60
d. $13,126.41
Answer:
In the aggregate demand-aggregate supply model, a decrease in the expected price
level, everything else remaining unchanged, causes to in the short run.
a. output; increase
b. output; decline
c. output; remain unchanged
d. inflation; increase
Answer:
Suppose, the U.S. has domestic savings of $10 billion, domestic investment of $160
billion, and a government budget deficit of $250 billion. Based on these figures, the
amount of net foreign investment is $ billion.
a. 400
b. 80
c. −80
d. −400
Answer:
Under absolute purchasing-power parity,
a. the exchange rate equals 1 if both the countries have equal price indices.
b. interest-rate parity holds.
c. relative purchasing-power parity cannot hold.
d. a currency depreciates relative to another currency by the amount by which the
inflation rate is lower in the first country than in the second country.
Answer:
Open-market operations are purchases and sales of
a. government securities in the secondary market.
b. government securities in the primary market.
c. corporate bonds in the secondary market.
d. corporate bonds in the primary market.
Answer:
The present value of a security is
a. directly related to the discount rate.
b. inversely related to the time until maturity.
c. directly related to the principal amount.
d. is not related to the discount rate.
Answer:
When a central bank is not independent, the main economic variable that is affected is
a. unemployment.
b. output growth.
c. inflation.
d. consumption spending.
Answer:
The cost of going to an ATM is $2 in an economy. If the nominal interest rate in the
economy is 1 percent, what is the total cost associated with holding cash for an
individual who spends $15 daily and has a 9 percent probability of having his cash lost
or stolen? Assume that he visits the ATM once in every T days.
a. (365/T) + (0.75 × T)
b. (730/T) + (0.75 × T)
c. (730/T) + (1.5 × T)
d. (365/T) + (1.5 × T)
Answer:
During the period when Ben Bernanke was the Fed’s Chairman, the inflation rate
averaged at about 7%. In comparison to other periods when the Fed was headed over by
other chairmen, this inflation rate can be considered to be
a. average.
b. the highest.
c. the lowest.
d. above average but not the highest.
Answer:
In the aggregate demand-aggregate supply model, an increase in the expected price
level, everything else remaining unchanged, causes the curve to shift .
a. short-run aggregate supply; right
b. short-run aggregate supply; left
c. aggregate-demand; left
d. aggregate-demand; right
Answer:
An investor buys stock for $10,000 at the beginning of the year. She earns dividends of
$300 during the course of the year. At the end of the year, the stock is worth
$10,800.The tax rate on dividends and capital gains is 15 percent.
The inflation rate is 3 percent. What is the investor’s after tax real return if she sells the
stock at the end of the year?
a. 6.35 percent.
b. 6.95 percent.
c. 7.55 percent.
d. 8.15 percent.
Answer:
Suppose the economy is thought to be 2 percent above potential (i.e., the output gap is 2
percent), when potential output grows 4 percent per year. Suppose the Fed is following
the Taylor rule, with an inflation rate of 2 percent
over the past year. The federal funds rate is currently 3 percent. The equilibrium real fed
funds rate is 3 percent and the weights on the output gap and inflation gap are 5 each.
The inflation target is 1 percent.
a. Is the fed funds rate currently too high or too low ? By how much ? Show your work.
Suppose a year has gone by, output is now just 1 percent above potential, and inflation
rate
b. was 5 percent over the year. What federal funds rate should the Fed now set
(assuming the inflation target does not change)?
Answer:
A bank offers credit cards with a 24 percent interest rate, when its competitors’ cards
have just a 18 percent interest rate. What do you predict will happen? Will the bank
profit from its offer?
Answer:
Suppose ATM costs increased because of additional security required to prevent
electronic fraud. Explain how this would affect money demand, aggregate demand,
output, and the price level in the short run and the long run.
Answer:
Explain how a shock in one country can be transmitted to other countries. List three
ways this can happen and give an example of each.
Answer:
Describe the moral hazard problem of deposit insurance.
Answer:
Explain why the correlation of output growth between the U.S. and Europe declined in
the late 1980s and 1990s, even though the countries became more economically
interdependent. What do you expect will happen to the correlation in the future?
Answer:
In order to analyze the competitiveness of the banks affected by mergers, the Fed found
out that in____out of the 49 banking markets, in which both Wells Fargo and Wachovia
had operations, the merger will not violate any guidelines based on HHI or other
guidelines.
a. 32
b. 40
c. 48
d. 37
Answer:
Prior to the passage of the McFadden Act in 1927, what characterized a national bank?
Answer:
In the country of Aargh, in the equation for TFP,Y= A× Ka× L1−a,the coefficient is a= 2.
The capital stock is growing 6 percent per year, employment is growing 1 percent per
year, and output is growing 4 percent per year. In the country of Blargh, the coefficient
is a= 25, the capital stock is growing 10 percent per year, employment is growing 2
percent per year, and output is growing 5 percent per year. In which country is
TFPgrowing the fastest? In which country is output per worker growing the fastest?
Explain your answer and show all your calculations.
Answer:
Why isn’t the right to vote at FOMC meetings considered to be very important within
the Fed?
Answer:
Describe what monetary policymakers should do if they want to keep the price level in
an economy permanently
low.
Answer:
In a recent year, a bank earned $36 million in interest on its assets of $523 million, it
paid out $9 million in interest on its liabilities (excluding capital) of $470 million, and it
paid its workers $21.5 million in total compensation. Calculate the bank’s spread and its
return on equity.
Answer:
For every dollar’s worth of goods and services bought at an earlier date, the amount of
money it would take now tobuy the same amount of goods and services after N years of
inflation at rate p is called the ______ inflation discount factor.
a. future
b. realized
c. expected
d. past
Answer:
Why do monetarists favor the use of a nonactivist rule for monetary policy?
Answer:
What do steep upward-sloping yield curves indicate about the business cycle?
Answer:
What are the five major costs of anticipated inflation?
Answer: