Because of securitization, a new class of residential mortgages offered to borrowers
with less-than-stellar credit records developed. These mortgages are known as
A) risk-enhanced mortgages.
B) subprime mortgages.
C) bundled mortgages.
D) adjustable-rate mortgages.
According to this theory of the term structure, bonds of different maturities are not
substitutes for one another.
A) segmented markets theory
B) expectations theory
C) liquidity premium theory
D) separable markets theory
If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the
money supply is ________ billion.
A) $8000
B) $1200
C) $1200.8
D) $8400
With the policy rate set at zero, the rise in expected inflation will lead to a ________ in
the real interest
rate, which will cause investment spending and aggregate output to ________.
A) fall; rise
B) fall; fall
C) rise; rise
D) rise; fall
A call option gives the owner the
A) right to sell the underlying security.
B) obligation to sell the underlying security.
C) right to buy the underlying security.
D) obligation to buy the underlying security.
The FOMC “Statement on Long-Run Goals and Monetary Policy Strategy”made it clear
that the Federal Reserve would be pursuing ________, consistent with its dual mandate.
A) a flexible form of inflation targeting
B) a strict form of inflation targeting
C) a zero inflation targeting
D) an implicit inflation targeting
In the case of an insurance policy, ________ occurs when the existence of insurance
encourages the insured party to take risks that increase the likelihood of an insurance
payoff; ________ occurs when those most likely to get large insurance payoffs are the
ones who want to purchase insurance the most.
A) moral hazard; insurance market discrimination
B) moral hazard; insurance segregation
C) moral hazard; adverse selection
D) adverse selection; moral hazard
Options on individual stocks are referred to as
A) stock options.
B) futures options.
C) American options.
D) individual options.
If a corporation begins to suffer large losses, then the default risk on the corporate bond
will
A) increase and the bond’s return will become more uncertain, meaning the expected
return on the corporate bond will fall.
B) increase and the bond’s return will become less uncertain, meaning the expected
return on the corporate bond will fall.
C) decrease and the bond’s return will become less uncertain, meaning the expected
return on the corporate bond will fall.
D) decrease and the bond’s return will become less uncertain, meaning the expected
return on the corporate bond will rise.
A permanent negative supply shock leads to ________ output ________.
A) higher; in both the short and long runs
B) higher; in the short run but not in the long run
C) lower; in both the short and long runs
D) lower; in the short run but not in the long run
The interest rate on Baa corporate bonds is ________, on average, than interest rates on
Treasuries, and the spread between these rates became ________ in the 1970s.
A) lower; smaller
B) lower; larger
C) higher; smaller
D) higher; larger
Under the Sarbanes-Oxley Act of 2002, the provision that gives more funding to the
SEC is an example of
A) regulate for transparency.
B) supervisory oversight.
C) separation of functions.
D) socialization of information production.