Which of the following is an example of fiat money?
A) a cowry shell used as money on a South Pacific island
B) a gold coin used as money in nineteenth century England
C) a Federal Reserve Note used as money in the twenty-first century United States
D) a pound of salt used as money in medieval France
Answer:
Loanable funds refers to
A) only those funds loaned from one bank to another.
B) only those funds loaned to banks by the Federal Reserve.
C) only those funds loaned by banks to private individuals.
D) all those funds changing hands between lenders and borrowers in the bond market.
Answer:
If a $10 billion increase in investment leads to a $20 billion increase in GDP, the
multiplier is
A) 0.5
B) 2
C) 10
D) 30
Answer:
A bank’s revenue comes from all of the following EXCEPT
A) interest earned on vault cash.
B) fees for services provided.
C) interest on loans.
D) interest on securities.
Answer:
If AE > Y, which of the following will NOT occur?
A) inventories will decline
B) actual investment will be more than planned investment
C) employment will increase
D) GDP will increase
Answer:
Why are many economists skeptical of the Fed’s ability to fine tune the economy?
A) Monetary policy only affects output in the long run.
B) Lags in policy make it difficult to properly time policy.
C) Fiscal policy can be implemented more quickly than monetary policy.
D) Monetary policy does not have any effect on output.
Answer:
The financial system provides risk sharing by allowing
A) borrowers to obtain funds either directly or indirectly.
B) savers to earn interest tax-free.
C) borrowers to convert liabilities into assets.
D) savers to hold many assets.
Answer:
If the annual interest rate is 8%, what would you expect to pay for a bond paying a
lump sum of $10,000 in ten years?
A) $4,632
B) $9,259
C) $10,000
D) $21,589
Answer:
In the spot foreign exchange market,
A) only dollars, yen, and pounds may be traded.
B) only dollars and yen may be traded.
C) currencies or bank deposits are exchanged immediately.
D) currencies or bank deposits are exchanged at a fixed date (or spot) in the future.
Answer:
Which of the following will lead to a higher interest rate on a loan?
A) lower inflation
B) lower opportunity cost
C) increased perceived risk of default
D) reduced likelihood of borrower not paying the loan
Answer:
Which of the following bonds will have the highest yield-to-maturity if all three bonds
appear identical to investors in terms of risk, liquidity, information costs, tax treatment?
A) one with a coupon of $50
B) one with a coupon of $100
C) one with a coupon of $200
D) none of the above
Answer:
Which of the following did NOT play a role in keeping Greece from defaulting between
2010 and 2012?
A) International Monetary Fund
B) United Nations
C) European Union
D) European Central Bank
Answer:
Economists define risk as
A) the difference between the interest rate borrowers pay and the interest rate lenders
receive.
B) the chance that the value of financial assets will change from what you expect.
C) the ease with which an asset can be exchanged for other assets or for goods and
services.
D) the difference between the return on common stock and the return on corporate
bonds.
Answer:
Businesses typically issue bonds to finance
A) their inventories.
B) payments to their workers.
C) spending on new plant and equipment.
D) dividend payments to their stockholders.
Answer:
During an economic recession,
A) the demand and supply curves for loanable funds both shift to the right and the
equilibrium interest rate usually rises.
B) the demand and supply curves for loanable funds both shift to the left and the
equilibrium interest rate usually falls.
C) the demand curve for loanable funds shifts to the right, the supply curve for loanable
funds shifts to the left, and the equilibrium interest rate usually falls.
D) the demand curve for loanable funds shifts to the left, the supply curve for loanable
funds shifts to the right, and the equilibrium interest rate usually rises.
Answer:
Though Treasury bonds may have little default risk, what type of risk exists when
current interest rates are low?
A) price risk
B) refinancing risk
C) interest-rate risk
D) present value risk
Answer:
According to AD-AS model, the primary long-run effect of increases in the money
supply is
A) higher price level.
B) higher GDP.
C) lower price level.
D) lower GDP.
Answer:
Vault cash is a(an)
A) liability of the Fed and is counted as reserves.
B) asset of the Fed and is counted as reserves.
C) liability of the Fed and is not counted as reserves.
D) asset of the Fed and is not counted as reserves.
Answer:
Which of the following interest rates tends to fluctuate the most?
A) interest rate on corporate bonds
B) interest rate on 10-year Treasury bonds
C) mortgage interest rate
D) federal funds rate
Answer:
All of the following are reasons for caution when considering investing in emerging
markets EXCEPT:
A) in rapidly growing economies, expectations of future growth are already reflected in
stock prices.
B) economies experiencing rapid growth typically experience a dilution effect.
C) fees for investing in funds that specialize in emerging markets tend to be higher than
other funds.
D) most economists expect the economies of emerging markets to grow more slowly
than that of more advanced economies.
Answer:
The presence of information and transactions cost result in all of the following
EXCEPT:
A) reduced efficiency of financial markets.
B) higher returns for savers
C) some funds not being lent at all
D) borrowers need to pay more for funds
Answer:
In what sense do self-fulfilling expectations determine the acceptability of a medium of
exchange?
A) People like to do what the government expects them to do.
B) People value something as money only if they believe others will accept it from
them as payment.
C) People expect that money will never lose its value.
D) People expect that eventually every country will use the same medium of exchange.
Answer:
Which of the following is NOT an activity carried out by Federal Reserve district
banks?
A) open market operations
B) issuing new Federal Reserve Notes
C) making discount loans
D) examining state member banks
Answer:
As a result of an open market purchase, bank reserves
A) rise and interest rates fall.
B) fall and interest rates rise.
C) and interest rates both rise.
D) and interest rates both fall.
Answer:
In the market for loanable funds the price of the funds exchanged is
A) the price of bonds.
B) the volume of bonds purchased.
C) the volume of bonds sold.
D) the interest rate.
Answer:
Any reserves beyond what is required are called
A) required reserves.
B) excess reserves.
C) secondary reserves.
D) bank capital.
Answer:
High employment spurs economic growth because high employment
A) usually reduces inflation.
B) discourages foreign imports.
C) often leads to a high birth rate.
D) often leads to high rates of investment.
Answer:
Using forward transactions allows
A) holders of common stock to lock in future dividend payments.
B) the federal government to stabilize fluctuations in tax receipts.
C) corporations to reduce problems arising from future fluctuations in their dividend
payments.
D) both buyers and sellers to reduce risks associated with price fluctuations.
Answer:
Monetary policy refers to the government’s
A) decisions on how much money to spend.
B) decisions on how much money to collect in taxes.
C) plans for retiring the national debt.
D) management of the money supply and interest rates to achieve macroeconomic
objectives.
Answer:
An increase in all of the following will increase aggregate demand EXCEPT
A) investment.
B) savings.
C) exports.
D) government spending.
Answer:
Research has shown that nations with highly independent central banks tend to have
low
A) inflation.
B) interest rates.
C) economic growth.
D) unemployment.
Answer:
Which of the following statements is correct?
A) The Fed is fully insulated from external pressures due to the long terms that
members of the Board of Governors serve.
B) The Fed is fully insulated from external pressures because it does not need to go
through the normal congressional appropriations process.
C) The Fed is fully insulated from external pressures because it has a constitutional
mandate.
D) The Fed is only partially insulated from external pressures.
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 financial account as a capital inflow.
D) in the financial account as a capital outflow.
Answer:
The series of induced changes in consumption spending that result from an initial
change in autonomous expenditure is called the
A) induced effect.
B) autonomous effect.
C) multiplier effect.
D) consumption effect
Answer: