In a closed economy the goods market is in equilibrium when
(a) Y = S + I + G.
(b) C + S = I + G.
(c) C + I = S + G.
(d) Y = C + I + G.
Answer:
Which of the following statements was NOT true of the Glass-Steagall Act?
(a) It probably resulted in borrowers paying more to issue new securities.
(b) Its elimination may have exposed the FDIC to additional risk.
(c) The Supreme Court ruled that the act applied to the overseas activities of banks.
(d) In 1989 the Fed gave some commercial banks the limited power to underwrite
corporate bonds.
Answer:
Which of the following statements about the Depository Institutions Deregulation and
Monetary Control Act of 1980 is NOT correct?
(a) It required all banks to maintain reserve deposits with the Fed.
(b) It gave member and nonmember banks equivalent access to discount loans.
(c) It halted the decline in Fed membership.
(d) It eliminated restrictions on interstate banking for member banks.
Answer:
An important consequence of regulations that reduce competition among banks is
(a) a sharp reduction in the number of banks.
(b) an incentive for unregulated financial institutions and markets to compete with
banks.
(c) an increase in moral hazard in banks’ behavior.
(d) lower interest rates on bank loans than would otherwise exist.
Answer:
Holding all other factors that affect yields constant, following passage of the Tax
Reform Act of 1986which lowered marginal income tax ratesyields on
(a) municipal bonds should have fallen relative to yields on U.S. Treasury securities.
(b) U.S. Treasury securities should have fallen relative to yields on corporate bonds.
(c) municipal bonds should have risen relative to yields on corporate bonds.
(d) corporate bonds should have risen relative to the yields on U.S. Treasury securities.
Answer:
If there is an excess demand for bonds at a given price of bonds, then
(a) the interest rate will fall.
(b) the interest rate will rise.
(c) the price of bonds will fall.
(d) the interest rate may rise or the interest rate may fall depending upon the reasons for
the excess demand for bonds.
Answer:
In 1992 the Central Bank of Japan resisted implementing an expansionary monetary
policy because
(a) it believed that output had been beyond its full-employment level in Japan during
the late 1980s and early 1990s.
(b) it followed the real business cycle approach.
(c) it believed that the only way to cure Japan’s economic problems was by reducing the
large government budget deficit the country was suffering from.
(d) it believed that the only way to cure Japan’s economic problems was by reducing the
large balance of trade deficit the country was suffering from.
Answer:
The Bank of Credit and Commerce International failed because of
(a) volatile interest rates.
(b) exchange rate fluctuations.
(c) fraud.
(d) overly strict regulation.
Answer:
Who owns the Federal Reserve banks?
(a) The private commercial banks in each district that are members of the Federal
Reserve System
(b) Those households that have purchased stock in the Federal Reserve System
(c) The federal government
(d) The governments of the states in which the banks are located
Answer:
Between 1973 and 2003, the dollar
(a) appreciated against the British pound.
(b) depreciated against the British pound.
(c) maintained the same exchange rate against the British pound.
(d) was not actively traded for the British pound in foreign exchange markets.
Answer:
What is the price of a coupon bond that has annual coupon payments of $85, a par value
of $1000, a yield to maturity of 10%, and a maturity of three years?
(a) $211.38
(b) $898.84
(c) $962.70
(d) $1255.0
Answer:
Why would a saver with $10,000 be more likely to put it into a bank account than to
lend it directly to a borrower?
(a) Direct loans of that sort are not legal in the United States.
(b) Banks pay higher interest rates on deposits than individual borrowers are likely to
pay to individual lenders.
(c) It is easier and less risky to save money in a bank account and allow the bank to
serve as a go-between with potential borrowers.
(d) Interest received from a bank is deductible on the federal income tax, whereas
interest received from an individual borrower is not.
Answer:
Which chairman of the Board of Governors was not reappointed by President Truman
in 1948 as a result of a conflict between the Fed and the Treasury?
(a) Paul Volcker.
(b) Marriner Eccles.
(c) G. William Miller.
(d) Milton Friedman.
Answer:
Suppose that savers become less willing to purchase medium-quality corporate bonds.
The result will be that the prices of medium-quality corporate bonds will
(a) fall relative to the price of U.S. Treasury securities but rise relative to the price of
high-quality corporate bonds.
(b) rise relative to the price of U.S. Treasury securities but fall relative to the price of
high-quality corporate bonds.
(c) rise relative to the prices of U.S. Treasury securities and high-quality corporate
bonds.
(d) fall relative to the prices of U.S. Treasury securities and high-quality corporate
bonds.
Answer:
Some economists have argued that the competitiveness of Germany and Japan has been
improved by
(a) the low interest rates in those economies.
(b) the low tax rates in those economies.
(c) the small government sectors in those countries.
(d) the close relationship between banks and nonfinancial businesses in those countries.
Answer:
If during a particular year, the money supply grows 7%, output grows 2%, and velocity
falls 2%, the inflation rate will be
(a) 3%.
(b) 7%.
(c) 9%.
(d) 11%.
Answer:
“Sallie Mae” was established to encourage lending to
(a) individual home buyers.
(b) students.
(c) large corporations.
(d) farmers.
Answer:
In 1913, Congress and the President did not envision that the Fed would control
(a) the money supply.
(b) discount loans.
(c) lender-of-last-resort activity.
(d) monetary policy.
Answer:
An increase in the price level
(a) shifts the short-run aggregate supply curve up and to the left.
(b) shifts the short-run aggregate supply curve down and to the right.
(c) shifts the long-run aggregate supply curve to the left.
(d) results in a movement along the short-run aggregate supply curve, rather than a shift
in the short-run aggregate supply curve.
Answer:
The Franklin National Bank Crisis had its greatest impact on the market for
(a) commercial paper.
(b) commodity futures.
(c) negotiable certificates of deposit.
(d) Eurodollars.
Answer:
In the new classical view, whether changes in the nominal money supply affect output
in the short run depends on whether
(a) the changes are expected or unexpected.
(b) prices are flexible or inflexible.
(c) the nominal interest rate is affected by changes in the money supply.
(d) the Fed reacts passively or actively to the onset of recessions.
Answer:
Which of the following is NOT true of the Depository Institution Deregulation and
Monetary Control Act of 1980?
(a) Interest rate ceilings were placed on mortgage loans and certain types of commercial
loans.
(b) All banks were given access to the Fed’s check-clearing facilities.
(c) NOW accounts were permitted.
(d) Regulation Q was phased out.
Answer:
Under a 100% reserve system
(a) banks could originate loans, but could not hold them.
(b) the Fed’s control over the money supply would be drastically reduced.
(c) the monetary base would equal M1.
(d) banks could not originate loans, but could hold them.
Answer:
A flight to quality refers to a shift by savers from
(a) bonds and into stocks.
(b) stocks and into gold or other precious metals.
(c) bonds and into real assets, such as real estate.
(d) low-quality bonds and into high-quality bonds.
Answer:
The financial system performs the role of communicating information by
(a) constantly increasing the liquidity of most assets.
(b) constantly reducing the riskiness of most assets.
(c) incorporating all available information into the prices of financial assets.
(d) providing to investors for a nominal charge all government reports available about a
particular company.
Answer:
If the government were to simultaneously cut the personal income tax and the corporate
profits tax,
(a) the equilibrium interest rate would fall.
(b) the equilibrium interest rate would rise.
(c) the equilibrium interest rate would be unaffected.
(d) the equilibrium interest might either rise or fall.
Answer:
In managing its liabilities to deal with liquidity problems, banks trade off
(a) credit risk against interest rate risk.
(b) adverse selection against moral hazard.
(c) the need for available funds to meet deposit outflows against the desire for greater
operating income.
(d) present tax liabilities against future tax liabilities.
Answer:
Forward transactions
(a) provide little risk sharing.
(b) are very liquid.
(c) have information problems.
(d) are widely used by sellers of commodities, but rarely used by buyers of
commodities.
Answer:
About how many banks are Federal Reserve System members?
(a) 500
(b) 1000
(c) 3000
(d) 4000
Answer:
When someone in a country buys an asset abroad, the transaction is recorded
(a) in the current account.
(b) in the official settlements balance.
(c) in the capital account as a capital inflow.
(d) in the capital account as a capital outflow.
Answer:
One consequence of the close relationship between banks and industry in Germany is
that
(a) German industry is inefficient because it has been able to obtain credit so easily.
(b) German banks are much more likely to fail than are U.S. banks.
(c) German securities markets are less well developed than U.S. securities markets.
(d) there are many more banks in Germany than in the United States.
Answer:
Standardization of derivative contracts
(a) increases their liquidity.
(b) is the rule with respect to contracts whose underlying asset is a financial security,
but not for contracts whose underlying asset is a commodity.
(c) is the rule with respect to contracts whose underlying asset is a commodity, but not
for contracts whose underlying asset is a financial asset.
(d) has been proposed many times by financial analysts, but has not yet been carried out
by the SEC.
Answer:
The growth in self-directed retirement accounts (such as IRAs and 401(k) plans)
(a) caused a decline in the total assets of mutual funds.
(b) helped increase the growth in mutual funds.
(c) led to a decline in stock prices relative to bond prices.
(d) went almost entirely unregulated by the federal government.
Answer: