Everything else held constant, in the market for reserves, when the federal funds rate is
3%, lowering the interest rate paid on excess reserves rate from 2% to 1%
A) lowers the federal funds rate.
B) raises the federal funds rate.
C) has no effect on the federal funds rate.
D) has an indeterminate effect on the federal funds rate.
Which of the following is NOT included in the M1 measure of money but is included in
the M2 measure of money?
A) currency
B) traveler’s checks
C) demand deposits
D) small-denomination time deposits
Of the three motives for holding money suggested by Keynes, which did he believe to
be the most sensitive to interest rates?
A) the transactions motive
B) the precautionary motive
C) the speculative motive
D) the altruistic motive
Under the Bretton Woods system, when a country adopted an expansionary monetary
policy, thereby causing a balance of payments ________, the country would eventually
be forced to implement ________ monetary policy.
A) deficit; expansionary
B) deficit; contractionary
C) surplus; expansionary
D) surplus; contractionary
The efficient markets hypothesis suggests that investors
A) should purchase no-load mutual funds which have low management fees.
B) can use the advice of technical analysts to outperform the market.
C) let too many unexploited profit opportunities go by if they adopt a “buy and hold”
strategy.
D) act on all “hot tips” they hear.
If expectations are formed rationally, then individuals
A) will have a forecast that is 100% accurate all of the time.
B) change their forecast when faced with new information.
C) use only the information from past data on a single variable to form their forecast.
D) have forecast errors that are persistently low.
If the Fed wants to permanently lower interest rates, then it should raise the rate of
money growth if
A) there is fast adjustment of expected inflation.
B) there is slow adjustment of expected inflation.
C) the liquidity effect is smaller than the expected inflation effect.
D) the liquidity effect is larger than the other effects.
Everything else held constant, a decrease in government spending will cause the IS
curve to shift to the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
During the 2007-2009 financial crisis the currency ratio
A) increased sharply.
B) decreased sharply.
C) increased slightly.
D) decreased slightly.
Everything else held constant, a decrease in the currency ratio will mean ________ in
the M1 money multiplier and ________ in the M2 money multiplier.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
Which of the following is NOT a form of e-money?
A) a debit card
B) a credit card
C) a stored-value card
D) a smart card
Which of the following is a part of the Global Legal Settlement of 2002?
A) The establishment of a Public Company Accounting Oversight Board (PCAOB) to
supervise accounting firms and thus insure that audits are independent and controlled
for quality.
B) Increased penalties for white-collar crime and obstruction of official investigations.
C) Requires a CEO and CFO to certify that periodic financial statements and disclosure
of the firm are accurate.
D) Requires investment banks to make public their analysts’ recommendations.
Holding the expected return on bonds constant, an increase in the expected return on
common stocks would ________ the demand for bonds, shifting the demand curve to
the ________.
A) decrease; left
B) decrease; right
C) increase; left
D) increase; right
There are two types of open market operations: ________ open market operations are
intended to change the level of reserves and the monetary base, and ________ open
market operations are intended to offset movements in other factors that affect the
monetary base.
A) defensive; dynamic
B) defensive; static
C) dynamic; defensive
D) dynamic; static
One advantage of using swaps to eliminate interest-rate risk is that swaps
A) are less costly than futures.
B) are less costly than rearranging balance sheets.
C) are more liquid than futures.
D) have better accounting treatment than options.
When the exchange rate for the British pound changes from $1.80 per pound to $1.60
per pound, then, holding everything else constant, the pound has ________ and
________ expensive.
A) appreciated; British cars sold in the United States become more
B) appreciated; British cars sold in the United States become less
C) depreciated; American wheat sold in Britain becomes more
D) depreciated; American wheat sold in Britain becomes less
Under the current managed float exchange rate regime; countries with surpluses in their
balance of payments frequently do not want to see their currencies appreciate because it
makes their goods ________ expensive abroad and foreign goods ________ in their
countries.
A) more; cheaper
B) more; costlier
C) less; cheaper
D) less; costlier
The principal-agent problem
A) occurs when managers have more incentive to maximize profits than the
stockholders-owners do.
B) in financial markets helps to explain why equity is a relatively important source of
finance for American business.
C) would not arise if the owners of the firm had complete information about the
activities of the managers.
D) explains why direct finance is more important than indirect finance as a source of
business finance.
High net worth helps to diminish the problem of moral hazard problem by
A) requiring the state to verify the debt contract.
B) collateralizing the debt contract.
C) making the debt contract incentive compatible.
D) giving the debt contract characteristics of equity contracts.
The ________ describes the combinations of interest rates and aggregate output for
which the quantity of money demanded equals the quantity of money supplied.
A) IS curve
B) LM curve
C) consumption function
D) investment schedule
Federal deposit insurance covers deposits up to $250,000, but as part of a doctrine
called “too-big-to-fail” the FDIC sometimes ends up covering all deposits to avoid
disrupting the financial system. When the FDIC does this, it uses the
A) “payoff” method.
B) “purchase and assumption” method.
C) “inequity” method.
D) “Basel” method.
A permanent negative supply shock leads to ________ inflation ________.
A) higher; in both the short and long runs
B) higher; in the short run but not in the long run
C) lower; in both the short and long runs
D) lower; in the short run but not in the long run
The ________ states that the nominal interest rate equals the real interest rate plus the
expected rate of inflation.
A) Fisher equation
B) Keynesian equation
C) Monetarist equation
D) Marshall equation
Of the sources of external funds for nonfinancial businesses in the United States, loans
from banks and other financial intermediaries account for approximately ________ of
the total.
A) 6%
B) 40%
C) 56%
D) 60%
In the simple deposit expansion model, a decline in checkable deposits of $500 when
the required reserve ratio is equal to 10 percent implies that the Fed
A) sold $500 in government bonds.
B) sold $50 in government bonds.
C) purchased $50 in government bonds.
D) purchased $500 in government bonds.
In the market for reserves, if the federal funds rate is between the discount rate and the
interest rate paid on excess reserves, an increase in the reserve requirement ________
the ________ for reserves and causes the federal funds interest rate to rise, everything
else held constant.
A) decreases; demand
B) increases; demand
C) increases; supply
D) decreases; supply
Everything else held constant, in the market for reserves, when the demand for federal
funds intersects the reserve supply curve along the horizontal section, increasing the
discount rate
A) increases the federal funds rate.
B) lowers the federal funds rate.
C) has no effect on the federal funds rate.
D) has an indeterminate effect on the federal funds rate.
According to this theory of the term structure, bonds of different maturities are not
substitutes for one another.
A) segmented markets theory
B) expectations theory
C) liquidity premium theory
D) separable markets theory
Factors causing an increase in currency holdings include
A) an increase in the interest rates paid on checkable deposits.
B) an increase in the cost of acquiring currency.
C) a decrease in bank panics.
D) an increase in illegal activity.
An increase in default risk on corporate bonds ________ the demand for these bonds,
but ________ the demand for default-free bonds, everything else held constant.
A) increases; lowers
B) lowers; increases
C) does not change; greatly increases
D) moderately lowers; does not change
If Second National Bank has more rate-sensitive liabilities then rate-sensitive assets, it
can reduce interest rate risk with a swap that requires Second National to
A) pay fixed rate while receiving floating rate.
B) receive fixed rate while paying floating rate.
C) both receive and pay fixed rate.
D) both receive and pay floating rate.