For simple loans, the yield to maturity
(a) is always less than the specified simple interest rate.
(b) is always greater than the specified simple interest rate.
(c) is always equal to the specified simple interest rate.
(d) may be less than, greater than, or equal to the specified simple interest rate,
depending on the maturity of the loan.
Answer:
The general directive from the FOMC is carried out by
(a) the presidents of the district banks.
(b) the presidents of commercial banks that are members of the Federal Reserve
System.
(c) the account manager at the Federal Reserve Bank of New York.
(d) private dealers in the bond market.
Answer:
What do the media generally mean when they use the phrase “printing money” in
relation to the financing of the federal budget deficit?
(a) The Treasury printing currency, rather than relying on tax revenue, to finance federal
spending.
(b) The Federal Reserve printing currency and sending it to the Treasury for use in
financing federal spending.
(c) The bank and nonbank public purchasing Treasury securities.
(d) The Federal Reserve purchasing Treasury securities.
Answer:
Which of the following statements about the presence of speculators in futures markets
is correct?
(a) Their main objective is to reduce their exposure to risk.
(b) They aid hedgers by increasing the liquidity in futures markets.
(c) They make it difficult for hedgers to find someone to take the opposite side of their
positions.
(d) Once a futures market participants is known to be a speculator he or she is no longer
allowed to participate in the market.
Answer:
Which of the following occurs as a result of an increase in the money supply in the
bank lending channel view, but does not occur in the money lending channel view?
(a) An increased availability of bank loans
(b) A rightward shift in the MD curve
(c) A high level of output
(d) A rightward shift in the AD curve
Answer:
The use of deductibles and coinsurance are examples of attempts by insurance
companies to deal with the problem of
(a) moral hazard.
(b) adverse selection.
(c) failure of policyholders to keep paying their premiums.
(d) excessive government regulation.
Answer:
Assets with greater liquidity
(a) also typically have greater returns.
(b) are generally tax-free.
(c) help savers smooth spending over time.
(d) are generally available only through brokers.
Answer:
What percentage of bank depositors are fully covered by federal deposit insurance?
(a) 1%
(b) 5%
(c) 99%
(d) 100%
Answer:
Investors value liquidity in an asset because
(a) liquid assets tend to have high rates of return.
(b) liquid assets incur lower selling costs.
(c) liquid assets incur lower tax liabilities.
(d) whereas liquid assets have high information costs, their low risk offsets this.
Answer:
Which of the following will NOT shift the short-run aggregate supply function?
(a) Changes in labor costs
(b) Changes in the costs of nonlabor inputs
(c) Changes in the price level
(d) Changes in the expected price level
Answer:
In the early 2000s, it was recognized that Japan had
(a) a very low money multiplier.
(b) very rapid growth in the monetary base.
(c) very rapid growth in the money supply.
(d) to begin to focus on interest rates instead of the money supply.
Answer:
According to Milton Friedman, permanent income is
(a) income received for a specific period of time under a contract.
(b) nominal income divided by the price level.
(c) expected average income over a lifetime.
(d) income received as interest payments on financial assets.
Answer:
Which of the following cities does not contain a Federal Reserve bank?
(a) Cleveland
(b) Dallas
(c) Los Angeles
(d) Boston
Answer:
A drop in the interest paid on checkable deposits will
(a) increase the quantity of real money balances demanded.
(b) reduce the real interest rate on nonmoney assets.
(c) shift the LM curve down and to the right.
(d) shift the IS curve down and to the right.
Answer:
Critics of allowing bank examiners too much discretion argue that doing so results in
banks
(a) charging higher interest rates on loans.
(b) being too conservative in making loans.
(c) having to pay bribes in order to receive favorable examiners’ reports.
(d) declining to accept deposits from some depositors.
Answer:
Currently, the price of gold is
(a) fixed by the United States.
(b) adjusted periodically by the IMF.
(c) adjusted periodically by the World Bank.
(d) determined in the market by demand and supply.
Answer:
The amount of funds the borrower receives from the lender with a simple loan is called
the
(a) principal.
(b) equity.
(c) maturity.
(d) collateral.
Answer:
Which of the following does NOT necessarily hold when the economy is in long-run
equilibrium?
(a) Saving equals investment.
(b) The nominal interest rate is equal to the real interest rate.
(c) The current output supplied is equal to the current output demanded.
(d) Households and businesses are willing to accept the mix of money and nonmoney
assets they hold.
Answer:
Society achieves greater prosperity when
(a) a single good is recognized as a medium of exchange.
(b) several goods each is recognized as a medium of exchange.
(c) the government plays no role in selecting the medium of exchange.
(d) the medium of exchange is used only for the settlement of debts.
Answer:
Barter is
(a) another name for money.
(b) an exchange of goods and services directly for goods and services.
(c) the basis for economic specialization.
(d) the main system of exchange in the United States today.
Answer:
If the interest rate is 6%, what would you expect to pay for a discount bond paying
$10,000 in seven years?
(a) $6651
(b) $9434
(c) $10,000
(d) $15,036
Answer:
When borrowers possess information about their opportunities or activities that they
don’t disclose to lenders or creditors, a problem of
(a) asymmetric information arises.
(b) illiquidity arises.
(c) communication arises.
(d) undiversified risk arises.
Answer:
Underwriting involves
(a) insuring the life or health of individuals.
(b) guaranteeing a price for new capital to the issuing firm.
(c) selling stock more cheaply than conventional stockbrokers.
(d) issuing stock and using the proceeds to buy bonds.
Answer:
On August 15, 1971, the United States
(a) returned to the gold standard.
(b) suspended the convertibility of dollars into gold.
(c) provided unlimited dollar reserves to the German central bank to help end a
speculative attack on the mark.
(d) provided unlimited dollar reserves to the Bank of England to help end a speculative
attack on the pound.
Answer:
An increase in expected inflation will
(a) increase the attractiveness of nonmoney assets.
(b) decrease the nominal interest rate.
(c) shift the LM curve up and to the left.
(d) increase the nominal return on money.
Answer:
Increases in interest rates are often blamed on
(a) Congress.
(b) the President.
(c) the Fed.
(d) the U.S. Treasury.
Answer:
If an investment bank underwrites an issue on an “all-or-none” basis,
(a) the issuing company receives nothing unless the investment bank sells the complete
issue at the offering price.
(b) the issuing company receives the guaranteed price even if the investment bank sells
none of the issue.
(c) the investment bank makes no guarantee and is required to sell to investors only as
much of the issue as it can.
(d) the investment bank will raise the indicated funds from an issue that is either all
stock or all bonds.
Answer:
Which of the following would cause the nominal exchange rate to appreciate?
(a) The real exchange rate depreciates.
(b) The domestic inflation rate decreases.
(c) The domestic inflation rate increases.
(d) The government budget deficit decreases.
Answer:
A “price index” is a
(a) summary statistic that reflects changes in the price of a group of goods and services
relative to the price in a base year.
(b) measure of the interest rate.
(c) good whose price tends to increase and decrease at about the same rate as most other
goods.
(d) measure of economic growth.
Answer:
According to the new classical view, aggregate output will differ from full-employment
output
(a) whenever saving does not equal investment.
(b) only if the actual price level does not equal the expected price level.
(c) only if the federal government’s expenditures are greater than its tax receipts.
(d) whenever imports exceed exports.
Answer:
Which of the following assets is the most liquid?
(a) Checking account
(b) Painting by Picasso
(c) Share of common stock
(d) House
Answer:
Which of the following will NOT result from an unsterilized intervention in which the
central bank sells foreign assets to purchase domestic currency?
(a) Domestic interest rates will rise.
(b) The foreign-exchange value of the domestic currency will rise.
(c) The central bank will experience a decrease in international reserves.
(d) The domestic money supply will rise.
Answer: