According to Classical interest rate theory, which of the following will increase the
equilibrium interest rate?
A) An increase in investment
B) An increase in saving
C) An increase in real output
D) A decrease in real output
If an asset has a 0.7 probability of yielding 10 percent and a 0.3 probability of yielding
20 percent, the expected yield of the asset is
A) 30 percent.
B) 20 percent.
C) 13 percent.
D) 10 percent.
Which of the following U.S. government securities are nonmarketable?
A) Treasury bills
B) Treasury notes
C) Treasury bonds
D) Savings bonds
Which of the following statements is not true?
A) Without financial intermediaries, small savers and small borrowers would often face
expensive transaction costs.
B) Banks and other financial intermediaries reduce transaction costs.
C) The existence of financial intermediaries can be attributed to market imperfections.
D) Because of financial intermediaries, securities in financial markets are infinitely
divisible.
Vault cash is part of a commercial bank’s
A) demand deposits.
B) capital.
C) reserves.
D) liabilities.
An employee who retains earned pension benefits after leaving a job has a pension plan
that is
A) whole life.
B) guaranteed.
C) vested.
D) funded.
Suppose a new employee is promised a pension payment of $8000 in the twenty-fourth
year after joining the firm. The current pension contribution is $2000 a year. Assuming
a six percent rate of return, this pension plan is said to be
A) fully funded.
B) partly funded.
C) unfunded.
D) fully vested.
The fixed rate in a swap contract is
A) a certain short rate in the market when the contract is signed.
B) a certain long rate in the market when the contract is signed.
C) negotiated by the parties in the contract.
D) the difference between stated long and short rates when the contract is signed.
A put option gives the owner the
A) right to sell the underlying asset at a fixed price.
B) right to buy the underlying asset at a fixed price.
C) obligation to sell the underlying asset at a fixed price.
D) obligation to buy the underlying asset at a fixed price.
When federal government expenditures exceed tax receipts, the Treasury must
A) expand the money supply.
B) raise taxes.
C) reduce spending.
D) sell bonds.
If the Treasury finances an expenditure by borrowing from the banking system, the
money supply will not be affected if the banks
A) borrowed from the discount window to buy the government bonds.
B) had no excess reserves when they bought the bonds.
C) were not members of the Federal Reserve System.
D) had no other government securities in their portfolios.
In the Classical system, the interest rate is determined by all of the following except
A) the thriftiness of the public.
B) the money supply.
C) the productivity of capital.
D) investment.
The IS curve has a positive slope because a(n) __________ in the interest rate leads to
a(n) __________ in desired investment and this leads to a decrease in GDP.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Currency in circulation is currency that meets all of the following criteria except for
currency
A) outside the Treasury.
B) outside the Federal Reserve.
C) held as vault cash in banks.
D) held by the non-bank public.
The velocity of money can be computed by
A) multiplying real GDP by the price level.
B) multiplying the price level by the money supply.
C) dividing GDP by the price level.
D) dividing GDP by the money supply.
“Reciprocity pacts” started springing up in the
A) 1920s.
B) 1950s.
C) 1960s.
D) 1980s.
A bank that maintains high NSF fees might also have relatively __________ loan rates,
both part of a strategy to attract __________-than-average borrowers.
A) low; safer
B) low; riskier
C) high; safer
D) high; riskier
If the consumption function can be described as C = 200 + .80Y, the marginal
propensity to save is equal to
A) -0.80.
B) 0.80.
C) 0.20.
D) 200.
Newly issued stocks and bonds are bought and sold in
A) primary markets.
B) auction markets.
C) futures markets.
D) commodity markets.
According to Keynes,
A) prices decline as inventories increase.
B) prices increase as inventories increase.
C) prices decrease as inventories decrease.
D) prices are sticky and will probably not respond to a change in inventories.
If the aggregate supply curve is vertical, an increase in aggregate demand will
A) increase both real and nominal GDP by the full multiplier effect.
B) increase real GDP but not nominal GDP.
C) increase the price level but not real GDP.
D) increase real GDP by less than the full multiplier effect because of rising prices.
If wages and prices are flexible, an anticipated change in the money supply has no
effect on
A) money demand.
B) nominal interest rates.
C) real GDP.
D) the inflation rate.