The global financial crisis lead to a decline in stock prices because
A) of a lowered expected dividend growth rate.
B) of a lowered required return on investment in equity.
C) higher expected future stock prices.
D) higher current dividends.
In Keynes’s liquidity preference framework, if there is excess demand for money, there
is
A) an excess demand for bonds.
B) equilibrium in the bond market.
C) an excess supply of bonds.
D) too much money.
For a commodity to function effectively as money it must be
A) easily standardized, making it easy to ascertain its value.
B) difficult to make change.
C) deteriorate quickly so that its supply does not become too large.
D) hard to carry around.
During World War II, the Fed in effect relinquished its control of monetary policy
through its policy of
A) continually lowering reserve requirements.
B) continually raising reserve requirements.
C) pegging interest rates.
D) targeting free reserves.
According to the law of one price, if the price of Colombian coffee is 100 Colombian
pesos per pound and the price of Brazilian coffee is 4 Brazilian reals per pound, then
the exchange rate between the Colombian peso and the Brazilian real is
A) 40 pesos per real.
B) 100 pesos per real.
C) 25 pesos per real.
D) 0.4 pesos per real.
If, after a deposit outflow, a bank needs an additional $3 million to meet its reserve
requirements, the bank can
A) reduce deposits by $3 million.
B) increase loans by $3 million.
C) sell $3 million of securities.
D) repay its discount loans from the Fed.
Suppose interest rates are kept very low for a long time such that there is a spike in the
amount of lending. Everything else held constant, this could cause ________ bubble.
A) an irrational exuberance
B) a credit-driven
C) a stock
D) a debt-driven
Risk sharing is profitable for financial institutions due to
A) low transactions costs.
B) asymmetric information.
C) adverse selection.
D) moral hazard.
Everything else held constant, in the market for reserves, when the federal funds rate is
3%, lowering the discount rate from 5% to 4%
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.
The elimination of unexploited profit opportunities requires that ________ market
participants be well informed.
A) all
B) a few
C) zero
D) many
All other things held constant, premiums on options will increase when the
A) exercise price increases.
B) volatility of the underlying asset increases.
C) term to maturity decreases.
D) futures price increases.
A long contract requires that the investor
A) sell securities in the future.
B) buy securities in the future.
C) hedge in the future.
D) close out his position in the future.
Of the four factors that influence asset demand, which factor will cause the demand for
all assets to increase when it increases, everything else held constant?
A) wealth
B) expected returns
C) risk
D) liquidity
The long-run aggregate supply curve is
A) a vertical line through the non-inflationary rate of output.
B) a vertical line through the current level of output.
C) a vertical line through the natural rate level of output.
D) a horizontal line through the current level of output.
An autonomous depreciation of the U.S. dollar makes American goods ________
relative to foreign goods and results in a ________ in U.S. net exports, everything else
held constant.
A) cheaper; decline
B) cheaper; rise
C) more expensive; decline
D) more expensive; rise
A bank will want to hold more excess reserves (everything else equal) when
A) it expects to have deposit inflows in the near future.
B) brokerage commissions on selling bonds increase.
C) the cost of selling loans falls.
D) the discount rate decreases.
As in the United States, an important factor in the banking crises in Norway, Sweden,
and Finland was the
A) financial liberalization that occurred in the 1980s.
B) decline in real interest rates that occurred in the 1980s.
C) high inflation that occurred in the 1980s.
D) sluggish economic growth that occurred in the 1980s.
Financial innovations that grew out of the bank branching restrictions were
A) bank holding companies and automated teller machines.
B) bank holding companies and securitization.
C) automated teller machines and sweep accounts.
D) automated teller machines and bank credit cards.
Suppose that the European Central Bank enacts expansionary policy. Everything else
held constant, this will cause the demand for U.S. assets to ________ and the U.S.
dollar to ________.
A) increase; appreciate
B) decrease; appreciate
C) increase; depreciate
D) decrease; depreciate
Prices of money market instruments undergo the least price fluctuations because of
A) the short terms to maturity for the securities.
B) the heavy regulations in the industry.
C) the price ceiling imposed by government regulators.
D) the lack of competition in the market.
Direct finance involves the sale to ________ of marketable securities such as stocks and
bonds.
A) households
B) insurance companies
C) pension funds
D) financial intermediaries
An option allowing the owner to sell an asset at a future date is a
A) put option.
B) call option.
C) futures contract.
D) forward contract.
Prior to the 1980s, S&Ls and mutual savings banks were restricted almost entirely to
A) commercial real estate loans.
B) home mortgages.
C) education loans.
D) vacation loans.
Which of the following are NOT traded in a capital market?
A) U.S. government agency securities
B) state and local government bonds
C) repurchase agreements
D) corporate bonds
Everything else held constant, when prices in the art market become more uncertain
A) the demand curve for bonds shifts to the left and the interest rate rises.
B) the demand curve for bonds shifts to the left and the interest rate falls.
C) the demand curve for bonds shifts to the right and the interest rate falls.
D) the supply curve for bonds shifts to the right and the interest rate falls.
When financial institutions are able to reduce the costs of information for each service
they offer by applying the same information source to each service, we say that the
financial institution is realizing
A) economies of scope.
B) economies of scale.
C) increasing returns.
D) diminishing marginal returns.
With regard to external sources of financing for nonfinancial businesses in the United
States, which of the following are accurate statements?
A) Marketable securities account for a larger share of external business financing in the
United States than in Germany and Japan.
B) Since 1970, most of the newly issued corporate bonds and commercial paper have
been sold directly to American households.
C) Direct finance accounts for more than 50 percent of the external financing of
American businesses.
D) Smaller businesses almost always raise funds by issuing marketable securities.
Both ________ and ________ are Federal Reserve assets.
A) currency in circulation; reserves
B) currency in circulation; securities
C) securities; loans to financial institutions
D) securities; reserves
If a borrower takes out a $200 million loan in a repo agreement and is asked to post
$220 million of mortgage-backed securities as collateral, the “haircut” is
A) 5%.
B) 10%.
C) 20%.
D) 50%.
Which of the following is included in both M1 and M2?
A) currency
B) savings deposits
C) small-denomination time deposits
D) money market deposit accounts
A lower level of income causes the demand for money to ________ and the interest rate
to ________, everything else held constant.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase
The aggregate demand curve is the total quantity of an economy’s
A) intermediate goods demanded at different inflation rates.
B) intermediate goods demanded at a particular inflation rate.
C) final goods and services demanded at a particular inflation rate.
D) final goods and services demanded at different inflation rates.