The concept of diversification is captured by the statement
A) don’t look a gift horse in the mouth.
B) don’t put all your eggs in one basket.
C) it never rains, but it pours.
D) make hay while the sun shines.
________ assume the risk of issuing a new stock in the hope of earning profits on its
sale.
A) Stock brokers
B) Securities dealers
C) Underwriters
D) Stock speculators
E) Reinsurers
A decrease in the expected future domestic exchange rate causes the demand for
domestic assets to shift to the ________ and the domestic currency to ________,
everything else held constant.
A) right; appreciate
B) right; depreciate
C) left; appreciate
D) left; depreciate
A serious consequence of a financial crisis is
A) a contraction in economic activity.
B) an increase in asset prices.
C) financial engineering.
D) financial globalization.
Financial institutions search for ________ has resulted in many financial innovations.
A) higher profits
B) regulations
C) respect
D) higher risk
Depositors have a strong incentive to show up first to withdraw their funds during a
bank crisis because banks operate on a
A) last-in, first-out constraint.
B) sequential service constraint.
C) double-coincidence of wants constraint.
D) everyone-shares-equally constraint.
If the interest rates on all bonds rise from 5 to 6 percent over the course of the year,
which bond would you prefer to have been holding?
A) a bond with one year to maturity
B) a bond with five years to maturity
C) a bond with ten years to maturity
D) a bond with twenty years to maturity
Which of the following statements are TRUE?
A) Checkable deposits are payable on demand.
B) Checkable deposits do not include NOW accounts.
C) Checkable deposits are the primary source of bank funds.
D) Checkable deposits are assets for the bank.
The concept of ________ is based on the common-sense notion that a dollar paid to you
in the future is less valuable to you than a dollar today.
A) present value
B) future value
C) interest
D) deflation
Of the three agencies that have been created to promote residential housing, the only
one that is an entity of the U.S. government is
A) Fannie Mae.
B) Ginnie Mae.
C) Freddie Mac.
D) Sallie Mae.
The ability to use one resource to provide different products and services is
A) economies of scale.
B) economies of scope.
C) diversification.
D) vertical integration.
Bank customers perceive Internet-only banks as being
A) more secure than physical bank branches.
B) a better method for the purchase of long-term savings products.
C) better at keeping customer information private.
D) prone to many more technical problems.
When there are many goods is that in a barter system
A) transactions costs are minimized.
B) there exists a multiple number of prices for each good.
C) there is only one store of value.
D) exchange of services is impossible.
Which of the following statements about central bank structure and independence is
TRUE?
A) In recent years, with the exception of the Bank of England and the Bank of Japan,
most countries have reduced the independence of their central banks, subjecting them to
greater democratic control.
B) Before the Bank of England was granted greater independence, the Federal Reserve
was the most independent of the world’s central banks.
C) Both theory and experience suggest that more independent central banks produce
better monetary policy.
D) While the European Central Bank is independent, it is not as independent as the
Federal Reserve.
A difference between inventory investment and fixed investment is that
A) fixed investment is never unplanned.
B) fixed investment is never planned.
C) inventory investment is never unplanned.
D) unplanned inventory investment is always zero.
Liquidity provision and asset purchase may not be enough to stimulate the economy
unless the these policy actions are able to
A) lower the real interest rate for investments.
B) lower the short-term real interest rate.
C) raise the policy rate above zero.
D) lower the policy rate.
When we say that money is a stock variable, we mean that
A) the quantity of money is measured at a given point in time.
B) we must attach a time period to the measure.
C) it is sold in the equity market.
D) money never loses purchasing power.
Banks face the problem of ________ in loan markets because bad credit risks are the
ones most likely to seek bank loans.
A) adverse selection
B) moral hazard
C) moral suasion
D) intentional fraud
A country that dollarizes
A) maximizes its seignorage.
B) earns the same amount of seignorage as it would with a currency board.
C) earns the same amount of seignorage as it would with exchange-rate targeting.
D) eliminates its seignorage.
E) must pay seignorage to other governments to use their currency.
Decisions by ________ about their holdings of currency and by ________ about their
holdings of excess reserves affect the money supply.
A) borrowers; depositors
B) banks; depositors
C) depositors; borrowers
D) depositors; banks
Using the Gordon growth model, if D1 is $.50, ke is 7%, and g is 5%, then the present
value of the stock is
A) $2.50.
B) $25.
C) $50.
D) $46.73.
The efficient markets hypothesis implies that future changes in exchange rates should
for all practical purposes be
A) unpredictable.
B) set by each country.
C) increasing.
D) pegged to a standard such as the U.S. dollar or the Euro.
If the prices would have been much higher ten years ago for the items the average
consumer purchased last month, then one can likely conclude that
A) the aggregate price level has declined during this ten-year period.
B) the average inflation rate for this ten-year period has been positive.
C) the average rate of money growth for this ten-year period has been positive.
D) the aggregate price level has risen during this ten-year period.
The real interest rate for investments reflects not only the short-term real interest rate
set by the central bank, but also the financial frictions. When the policy rate has hit the
floor of zero, to stimulate the economy at given inflation rates, policymakers can
A) lower the financial frictions.
B) lower the short-term real interest rate.
C) lower both the short-term real interest rate and the financial frictions.
D) lower the policy rate.
U.S. banks have most of their branches in
A) Latin America, the Far East, the Caribbean, and London.
B) Latin America, the Middle East, the Caribbean, and London.
C) Mexico, the Middle East, the Caribbean, and London.
D) South America, the Middle East, the Caribbean, and Canada.
The problem created by asymmetric information before the transaction occurs is called
________, while the problem created after the transaction occurs is called ________.
A) adverse selection; moral hazard
B) moral hazard; adverse selection
C) costly state verification; free-riding
D) free-riding; costly state verification
Poorly performing financial markets can be the cause of
A) wealth.
B) poverty.
C) financial stability.
D) financial expansion.
Situation 20-1
Assume a closed economy with no government. Suppose that autonomous
consumption equals $400, planned investment equals $500, and the mpc equals 0.9.
Using the information in Situation 20-1, the equilibrium level of aggregate output is
A) $900
B) $8,000
C) $9,000
D) $10,000
The quantity theory of inflation indicates that if the aggregate output is growing at 3%
per year and the growth rate of money is 5%, then inflation is
A) 2%.
B) 8%.
C) -2%.
D) 1.6%.
An option that gives the owner the right to buy a financial instrument at the exercise
price within a specified period of time is a
A) call option.
B) put option.
C) American option.
D) European option.
Because it provides some indication of what is happening to U.S. claims on foreign
wealth and the demand for imports and exports, the ________ is closely followed by
economists wanting information on the future movement of exchange rates.
A) trade balance
B) capital account
C) current account balance
D) statistical discrepancy