When banks borrow money from the Federal Reserve, these funds are called
A) federal funds.
B) discount loans.
C) federal loans.
D) Treasury funds.
If you expect the inflation rate to be 12 percent next year and a one-year bond has a
yield to maturity of 7 percent, then the real interest rate on this bond is
A) -5 percent.
B) -2 percent.
C) 2 percent.
D) 12 percent.
Assume that you borrow $2000 at 10% annual interest to finance a new business
project. For this loan to be profitable, the minimum amount this project must generate
in annual earnings is
A) $400.
B) $201.
C) $200.
D) $199.
In the one-period valuation model, an increase in the required return on investments in
equity
A) increases the expected sales price of a stock.
B) increases the current price of a stock.
C) reduces the expected sales price of a stock.
D) reduces the current price of a stock.
Banks hold excess and secondary reserves to
A) reduce the interest-rate risk problem.
B) provide for unexpected deposit outflows.
C) satisfy margin requirements.
D) achieve higher earnings than they can with loans.
Automated teller machines
A) are more costly to use than human tellers, so banks discourage their use by charging
more for use of ATMs.
B) cost about the same to use as human tellers in banks, so banks discourage their use
by charging more for use of ATMs.
C) cost less than human tellers, so banks may encourage their use by charging less for
using ATMs.
D) cost nothing to use, so banks provide their services free of charge.
If you purchase a $100,000 interest-rate futures contract for 110, and the price of the
Treasury securities on the expiration date is 106, your ________ is ________.
A) profit; $4000
B) loss; $4000
C) profit; $6000
D) loss; $6000
When it comes to choosing an policy instrument, both the ________ rate and ________
aggregates are measured accurately and are available daily with almost no delay.
A) three-month T-bill; monetary
B) three-month T-bill; reserve
C) federal funds; monetary
D) federal funds; reserve
Irving Fisher took the view that the institutional features of the economy which affect
velocity change ________ over time so that velocity will be fairly ________ in the
short run.
A) rapidly; erratic
B) rapidly; stable
C) slowly; stable
D) slowly; erratic
Crowding out will be more pronounced the closer to vertical is the
A) IS curve.
B) LM curve.
C) consumption function.
D) aggregate demand function.
A temporary negative supply shock ________ real interest rates and ________ output in
the short run, thereby its effect on stock prices is ________.
A) raises; lowers; negative
B) raises; raises; ambiguous
C) lowers; raises; negative
D) lowers; raises; positive
If the interest rate is 7 percent on euro-denominated assets and 5 percent on
dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate,
the expected return on ________-denominated assets in terms of ________ percent.
A) dollar; dollars is 7
B) euro; dollars is 1
C) dollar; euros is 1
D) euro; euros is 7
The equation that represents M2 in the model of the money supply process is
A) M2 = C + D.
B) M2 = C + D + T – MMF.
C) M2 = C + D – T + MMF.
D) M2 = C + D + T + MMF.
When paper currency is decreed by governments as legal tender, legally it must be
A) paper currency backed by gold.
B) a precious metal such as gold or silver.
C) accepted as payment for debts.
D) convertible into an electronic payment.
A tax cut ________ disposable income, ________ consumption expenditure, and shifts
the IS curve to the ________, everything else held constant.
A) increases; increases; right
B) increases; decreases; right
C) decreases; increases; left
D) decreases; decreases; left
The implementation lag is
A) the time it takes for policy makers to obtain data indicating what is happening in the
economy.
B) the time it takes for policy makers to be sure of what the data are signaling about the
future course of the economy.
C) the time it takes to pass legislation to implement a particular policy.
D) the time it takes for policy makers to change policy instruments once they have
decided on the new policy.
E) the time it takes for the policy actually to have an impact on the economy.
On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about
3.33 Romanian new lei. Therefore, one Romanian new lei would have purchased about
________ U.S. dollars.
A) 0.30
B) 1.86
C) 2.86
D) 3.33
Which of the following is NOT one of the eight basic puzzles about financial structure?
A) Stocks are the most important source of finance for American businesses.
B) Issuing marketable securities is not the primary way businesses finance their
operations.
C) Indirect finance, which involves the activities of financial intermediaries, is many
times more important than direct finance, in which businesses raise funds directly from
lenders in financial markets.
D) Banks are the most important source of external funds to finance businesses.
A theory of aggregate economic fluctuations called real business cycle theory holds that
A) changes in the real money supply are the only demand shocks that affect the natural
rate of output.
B) aggregate demand shocks do affect the natural rate of output.
C) aggregate supply shocks do affect the natural rate of output.
D) changes in net exports are the only demand shocks that affect the natural rate of
output.
Evidence from the time period 1960-1980 indicates that inflation in the United States
resulted from
A) an employment target that was set too high.
B) the government’s inability to sell bonds to the Fed.
C) an expansion in the money supply to finance federal government expenditures.
D) the excessive sale of government bonds to the public.
Since Social Security benefits are paid from current contributions, the system is a
A) privatized system.
B) overfunded system.
C) “pay-as-you-go” system.
D) defined contribution system.
Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, one million dollars in required reserves, and faces a required
reserve ratio of ten percent. Given this information, we can say First National Bank has
________ million dollars in excess reserves.
A) one
B) two
C) nine
D) ten
A discount bond is also called a ________ because the owner does not receive periodic
payments.
A) zero-coupon bond
B) municipal bond
C) corporate bond
D) consol
As a store of value, money
A) does not earn interest.
B) cannot be a durable asset.
C) must be currency.
D) is a way of saving for future purchases.
Everything else held constant, a decrease in wealth
A) increases the demand for stocks.
B) increases the demand for bonds.
C) reduces the demand for silver.
D) increases the demand for gold.
A type of investment fund that makes long-term investments in companies that are not
publicly traded is called a
A) private equity fund.
B) hedge fund.
C) sovereign wealth fund.
D) brokerage fund.
After Ben Bernanke became chair of the Fed in 2006, he
A) increased Fed transparency.
B) abandoned inflation targeting.
C) used “just do it” policy.
D) increased the opacity of the policymaking.
Bonds that are sold in a foreign country and are denominated in the country’s currency
in which they are sold are known as
A) foreign bonds.
B) Eurobonds.
C) equity bonds.
D) country bonds.
If you have a very low tolerance for risk, which of the following bonds would you be
least likely to hold in your portfolio?
A) a U.S. Treasury bond
B) a municipal bond
C) a corporate bond with a rating of Aaa
D) a corporate bond with a rating of Baa
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio =
40%, and the excess reserve ratio = 0, a decrease in the required reserve ratio to 5%
causes the M1 money multiplier to ________, everything else held constant.
A) increase from 2.8 to 3.11
B) decrease from 3.11 to 2.8
C) increase from 2 to 2.22
D) decrease from 2.22 to 2
Under a fixed exchange rate regime, if a central bank must intervene to purchase the
________ currency by selling ________ assets, then, like an open market sale, this
action reduces the monetary base and the money supply, causing the interest rate on
domestic assets to rise.
A) domestic; foreign
B) domestic; domestic
C) foreign; foreign
D) foreign; domestic
Total reserves are the sum of ________ and ________.
A) excess reserves; borrowed reserves
B) required reserves; currency in circulation
C) vault cash; excess reserves
D) excess reserves; required reserves
The amount of borrowed reserves is ________ related to the discount rate, and is
________ related to the market interest rate.
A) negatively; negatively
B) negatively; positively
C) positively; negatively
D) positively; positively
In the long-run the ISLM model predicts that ________ can change real output.
A) only monetary policy
B) only fiscal policy
C) both monetary and fiscal policy
D) neither monetary nor fiscal policy
If during the past decade the average rate of monetary growth has been 5% and the
average inflation rate has been 5%, everything else held constant, when the Federal
Reserve announces that the new rate of monetary growth will be 10%, the adaptive
expectation forecast of the inflation rate is
A) 5%.
B) between 5 and 10%.
C) 10%.
D) more than 10%.