Because many emerging market countries have not developed the political or monetary
institutions that allow the successful use of discretionary monetary policy
A) they have little to gain from pegging their exchange rate to an anchor country like
the U.S. or Germany.
B) they have little to gain from using a nominal anchor, because it would mean a
monetary policy that is overly expansionary.
C) they have very little to gain from an independent monetary policy, but a lot to lose.
D) they would be better off giving their central bankers the independence to use
discretion, rather than take their discretion away through any nominal anchor.
The driving force behind the securitization of mortgages and automobile loans has been
A) the rising regulatory constraints on substitute financial instruments.
B) the desire of mortgage and auto lenders to exit this field of lending.
C) the improvement in information technology.
D) the relaxation of regulatory restrictions on credit card operations.
A swap that involves the exchange of a set of payments in one currency for a set of
payments in another currency is
A) an interest-rate swap.
B) a currency swap.
C) a swaption.
D) an international swap.
If unplanned investment is positive, firms will ________ production and output will
________.
A) cut; rise
B) cut; fall
C) increase; rise
D) increase; fall
Foreign banks may engage in banking activities in the United States by opening all of
the following EXCEPT
A) an agency office of the foreign bank.
B) a subsidiary U.S. bank.
C) a branch of the foreign bank.
D) a McFadden Corporation.
When the yield curve is flat or downward-sloping, it suggest that the economy is more
likely to enter
A) a recession.
B) an expansion.
C) a boom time.
D) a period of increasing output.
Measuring the sensitivity of bank profits to changes in interest rates by multiplying the
gap for several maturity subintervals times the change in the interest rate is called
A) basic gap analysis.
B) the maturity bucket approach to gap analysis.
C) the segmented maturity approach to gap analysis.
D) the segmented maturity approach to interest-exposure analysis.
Everything else held constant, a decrease in planned investment expenditure ________
aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
The price specified on an option at which the holder can buy or sell the underlying asset
is called the
A) premium.
B) call.
C) strike price.
D) put.
A nominal anchor promotes price stability by
A) outlawing inflation.
B) stabilizing interest rates.
C) keeping inflation expectations low.
D) keeping economic growth low.
According to the liquidity premium theory of the term structure
A) because buyers of bonds may prefer bonds of one maturity over another, interest
rates on bonds of different maturities do not move together over time.
B) the interest rate on long-term bonds will equal an average of short-term interest rates
that people expect to occur over the life of the long-term bonds plus a term premium.
C) because of the positive term premium, the yield curve will not be observed to be
downward sloping.
D) the interest rate for each maturity bond is determined by supply and demand for that
maturity bond.
Duration analysis involves comparing the average duration of the bank’s ________ to
the average duration of its ________.
A) securities portfolio; non-deposit liabilities
B) assets; liabilities
C) loan portfolio; deposit liabilities
D) assets; deposit liabilities
The monetary policy strategy that directly ties down the price of internationally traded
goods is
A) exchange-rate targeting.
B) monetary targeting.
C) inflation targeting.
D) the implicit nominal anchor.
________ means people are more unhappy when they suffer losses than they are happy
when they achieve gains.
A) Loss fundamentals
B) Loss aversion
C) Loss leader
D) Loss cycle
An increase in the money supply, other things equal, shifts the ________ curve to the
________.
A) IS; right
B) IS; left
C) LM; left
D) LM; right
Periods of price deflation, such as the Great Depression, are characterized by
A) low nominal rates but high real rates of interest.
B) low nominal and real interest rates.
C) real rates of interest lower than the nominal rate of interest.
D) high nominal and real rates of interest.
Keynes’s model of the demand for money suggests that velocity is
A) constant.
B) positively related to interest rates.
C) negatively related to interest rates.
D) positively related to bond values.
Because prices are slow to move in the short-run, when the Federal Reserve lowers the
federal funds rate
A) nominal interest rates rise.
B) real interest rates fall.
C) inflation falls.
D) real interest rates rise.
The M2 monetary aggregate contains everything that is in M1 plus other assets that are
highly ________ (can be turned into cash quickly at very little cost).
A) liquid
B) stable
C) consistent
D) efficient
If a central bank does not want to see its currency ________ in value, it may pursue
contractionary monetary policy to raise the domestic interest rate, thereby ________ its
currency.
A) fall; strengthening
B) fall; weakening
C) rise; strengthening
D) rise; weakening
The argument that econometric policy evaluation is likely to be misleading if
policymakers assume stable economic relationships is known as
A) the monetarist revolution.
B) the Lucas critique.
C) public choice theory.
D) new Keynesian theory.
With a 10% reserve requirement ratio, a $100 deposit into New Bank means that the
maximum amount New Bank could lend is
A) $90.
B) $100.
C) $10.
D) $110.
All of the following might create problems from financial liberalization in emerging
countries EXCEPT
A) ineffective screening of borrowers.
B) limits on risk-taking.
C) lax government supervision of banks.
D) lenders failure to monitor borrowers.
Everything else held constant, a decrease in government spending ________ aggregate
________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
The Baumol-Tobin analysis suggests that a decrease in the brokerage fee for buying and
selling bonds will cause the demand for money to ________ and the demand for bonds
to ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
In which of the following situations would you prefer to be the borrower?
A) The interest rate is 9 percent and the expected inflation rate is 7 percent.
B) The interest rate is 4 percent and the expected inflation rate is 1 percent.
C) The interest rate is 13 percent and the expected inflation rate is 15 percent.
D) The interest rate is 25 percent and the expected inflation rate is 50 percent.
Bonds issued by state and local governments are called ________ bonds.
A) corporate
B) Treasury
C) municipal
D) commercial
Bonds that are sold in a foreign country and are denominated in a currency other than
that of the country in which it is sold are known as
A) foreign bonds.
B) Eurobonds.
C) equity bonds.
D) country bonds.
In the long-run ISLM model and with everything else held constant, as long as the level
of output ________ the natural rate level, the price level will continue to ________,
shifting the LM curve to the ________, until finally output is back at the natural rate
level.
A) exceeds; rise; right
B) exceeds; rise; left
C) remains below; fall; left
D) remains below; rise; right
Evidence in support of the efficient markets hypothesis includes
A) the failure of technical analysis to outperform the market.
B) the small-firm effect.
C) the January effect.
D) excessive volatility.
Complete Milton Friedman’s famous proposition: “Inflation is always and everywhere a
________ phenomenon.”
A) monetary
B) political
C) policy
D) budgetary