As of 2012, the bank portion of TARP:
A) earned a profit of $21 billion
B) earned a profit of $245 billion
C) cost $266 billion
D) cost $700 billion
Answer:
The situation in which investors choose to put their funds in a safe asset during
uncertain times is known as
A) hedging.
B) speculation.
C) flight to quality.
D) arbitrage.
Answer:
Which of the following is NOT an example of off-balance-sheet lending?
A) a swap
B) a standby letter of credit
C) a loan commitment
D) a loan sale
Answer:
In a closed economy, if the goods market is in equilibrium, national saving is $2 trillion,
national consumption is $7 trillion, and government purchases are $2.5 trillion, then
GDP equals
A) $7 trillion.
B) $9.5 trillion.
C) $11.5 trillion.
D) Not enough information has been provided to determine the answer.
Answer:
Most economists believe that changes in the price level have
A) no effect on the quantity of output supplied in either the short run or the long run.
B) an effect on the quantity of output supplied in the short run, but not in the long run.
C) an effect on the quantity of output supplied in the long run, but not in the short run.
D) an effect on the quantity of output supplied in both the short run and the long run.
Answer:
Suppose an investment bank has a leverage ratio of 10 and the value of its securities
decline by 10%. What happens to its return on equity investment?
A) declines by 1%
B) increases by 1%
C) declines by 100%
D) increases by 100%
Answer:
Which of the following is the largest component of M1?
A) traveler’s checks
B) savings deposits
C) checking deposits
D) currency
Answer:
Assuming a required reserve ratio of 10% and the Fed purchased $1 million worth of
mortgage-backed securities, make use of the simple deposit multiplier to determine how
much checking deposits would change.
A) increase by $1 million
B) increase by $10 million
C) decrease by $1 million
D) decrease by $10 million
Answer:
As a result of low interest rates on CDs and the perceived riskiness of alternative
investments following the financial crisis of 2007-2009, the bond market was affected
in all of the following ways EXCEPT:
A) higher demand for bonds
B) higher real interest rates
C) lower nominal interest rates
D) higher price of bonds
Answer:
When a country’s real exchange rate depreciates,
A) its nominal exchange rate must have appreciated.
B) its nominal exchange rate must also have depreciated.
C) it can trade its goods for fewer units of foreign goods.
D) it can trade its goods for more units of foreign goods.
Answer:
Which of the following expressions gives the present value of future dividends for a
company whose current dividend is $5.00 and whose future dividends are expected to
grow at rate g?
A) [$5.00(1 – g)]/(i – g)
B) [$5.00(1 + g)]/(i + g)
C) [$5.00(1 – g)]/(i + g)
D) [$5.00(1 + g)]/(i – g)
Answer:
Which of the following is NOT a regulation applying to swap dealers as a result of the
Dodd-Frank Act?
A) Swaps must be traded through a clearinghouse.
B) The value of swap contracts are limited to no more than $8 billion.
C) Dealers are required to deposit a fraction of the value of the contract with the
clearinghouse.
D) Data on trades must be publicly available.
Answer:
The average investor must weigh the benefits of liquidity against
A) the high taxes generally levied on liquid assets.
B) the lower returns on liquid assets.
C) the high transactions costs involved in disposing of liquid assets.
D) the greater variability in the nominal returns on liquid assets.
Answer:
Under the gold standard, if the demand for U.S. goods increased, which of the
following would happen?
A) Gold would flow into the United States.
B) The U.S. monetary base would decline.
C) Prices in the United States would fall.
D) The United States would experience a balance of trade deficit.
Answer:
Which of the following best describes a “bubble”?
A) when the price of an asset reaches a new high
B) an unsustainable increase in the price of a class of assets
C) rapid increases in inflation
D) when bond prices rise more quickly than stock prices
Answer:
Which of the following is NOT a fixed-payment loan?
A) mortgage
B) car loan
C) student loan
D) corporate bond
Answer:
Which of the following is NOT a step involved in using checks?
A) The recipient must take the check to the bank.
B) The bank must present the check to the checkwriter’s bank.
C) The funds must be transferred from the checkwriter’s bank to the recipient’s bank.
D) The funds must be transferred from the recipient’s bank to the checkwriter’s bank.
Answer:
Which of the following is fixed on a coupon bond?
A) coupon rate
B) current yield
C) market price
D) yield to maturity
Answer:
The euro is
A) the currency of all nations in Europe.
B) the rate at which the French central bank makes discount loans.
C) a common currency of many European countries.
D) the name of the European central bank.
Answer:
All of the following arguments are made against inflation targeting EXCEPT
A) rigid numerical targets would diminish the flexibility of monetary policy.
B) the Fed would need to depend on future forecasts of inflation since monetary policy
acts with a lag.
C) the Fed has little influence on inflation.
D) Holding the Fed accountable for low inflation may make it difficult for elected
officials to monitor whether the Fed is supporting good overall economic policy.
Answer:
When all workers who want jobs have them and the demand for and supply of labor are
in equilibrium,
A) the unemployment rate will be zero.
B) unemployment is at its natural rate.
C) the economy will be experiencing high rates of inflation.
D) frictional unemployment will be zero.
Answer:
As of late 2012, what was the all-time high price for an ounce of gold?
A) $1078
B) $1780
C) $7800
D) $14,163
Answer:
A sustained decrease in the price level is known as
A) inflation.
B) disinflation.
C) reflation.
D) deflation.
Answer:
The supply curve of loanable funds slopes up because
A) at higher bond prices more loanable funds will be supplied.
B) higher interest rates reduce the inflation rate.
C) an increase in the interest rate makes lenders more willing and able to supply more
funds.
D) a decrease in the interest rate makes lenders more willing and able to supply more
funds.
Answer:
Above-normal returns on stock investments can be expected by investors who
A) possess insider information.
B) are wealthy enough to hold the stock of many different companies in their portfolios.
C) are risk seeking.
D) concentrate their investments in one or two stocks.
Answer:
Credit rationing refers to
A) the increase in the interest rate that occurs when the demand for credit increases.
B) the increase in the interest rate that occurs when the supply of credit increases.
C) the increase in the interest rate that occurs when the supply of credit decreases.
D) a restriction in the availability of credit.
Answer:
Other things equal, an increase in the tax on dividends is likely to result in all of the
following EXCEPT:
A) higher expected return on bonds relative to stocks
B) increased demand for bonds
C) lower interest rates
D) higher interest rates
Answer:
All of the following help provide the basis for the Fed controlling the real interest rate
in the IS-MP model EXCEPT
A) the Fed controls the federal funds rate through open market operations.
B) if expected future inflation remains stable, changes in nominal interest rates reflect
changes in real interest rates.
C) short-term and long-term interest rates tend to move together.
D) the Fed’s increased use of TIPS in conducting monetary policy.
Answer:
Which of the following is NOT an example of adverse selection?
A) A family with a home ten feet from a large river buys flood insurance.
B) A company uses the proceeds of a new stock sale to build an unnecessarily luxurious
new headquarters.
C) A terminal cancer patient buys life insurance.
D) A company in serious financial trouble offers to pay you 30% on a loan.
Answer:
Since crowd funding sites do not themselves invest in business start ups that raise funds
on their sites, they don’t reduce:
A) the principal-agent problem
B) information costs
C) transaction costs
D) asymmetric information
Answer:
How does an increase in the price level lead to a higher interest rate?
Answer:
How did the use of the euro limit the use of monetary policy by European nations
severely affected by the Financial Crisis of 2007-2009?
Answer:
Describe the four stages of the financial regulatory pattern.
Answer:
What were the two main rationale for exempting nonbanks from restrictions on assets
and degrees of leverage?
Answer:
How can diversification reduce idiosyncratic risk but not systematic risk?
Answer:
Why did banks increase their holdings of excess reserves during the Financial Crisis of
2007-2009?
Answer:
How can banks measure interest-rate risk?
Answer:
What is included in the public statement released by the FOMC following the
conclusion of its meeting?
Answer:
Why would people outside the United States choose to hold dollars?
Answer:
In what ways is the Fed independent of the political process?
Answer:
Suppose you buy a stock that sells for $20. It’s expected annual dividend is $2 and you
expect its price to be $25 in one year. What is your expected rate of return on the stock?
Answer:
How do ratings agencies earn income?
Answer:
Why did Goldman Sachs and Morgan Stanley seek to become financial holding
companies in October 2008?
Answer:
Which bond would someone in a 35% tax bracket choose to buy: a municipal bond with
an interest rate of 7% or a corporate bond with an interest rate of 10%?
Answer:
In what sense does the IMF act as a lender of last resort? How might the IMF’s actions
during the Mexican crisis of the mid-1990s have contributed to the Asian currency
crisis a few years later?
Answer: