The theory of PPP suggests that if one country’s price level rises relative to another’s, its
currency should
A) depreciate.
B) appreciate.
C) float.
D) do none of the above.
The originate-to-distribute business model has a serious ________ problem since the
mortgage broker has little incentive to make sure that the mortgagee is a good credit
risk.
A) principal-agent
B) debt deflation
C) democratization of credit
D) collateralized debt
If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1
money multiplier is
A) 2.5.
B) 1.67.
C) 2.0.
D) 0.601.
Advice on taxes, accounting or management information systems, and business
strategies are commonly referred to as ________ services.
A) accounting audit
B) management advisory
C) seller
D) managing underwriter
If a mutual fund outperforms the market in one period, evidence suggests that this fund
is
A) highly likely to consistently outperform the market in subsequent periods due to its
superior investment strategy.
B) likely to under-perform the market in subsequent periods to average its overall
returns.
C) not likely to consistently outperform the market in subsequent periods.
D) not likely to outperform the market in any subsequent period.
An autonomous decrease in money demand, other things equal, shifts the ________
curve to the ________.
A) IS; right
B) IS; left
C) LM; left
D) LM; right
Suppose the economy is producing at the natural rate of output. A decrease in consumer
and business confidence will cause ________ in real GDP in the short run and
________ in inflation in the short run, everything else held constant.
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
The amount of assets per dollar of equity capital is called the
A) asset ratio.
B) equity ratio.
C) equity multiplier.
D) asset multiplier.
An increase in the nonborrowed monetary base, everything else held constant, will
cause
A) the money supply to fall.
B) the money supply to rise.
C) no change in the money supply.
D) demand deposits to fall.
An increase in the quantity of money supplied shifts the money supply curve to the
________, and the equilibrium interest rate ________, everything else held constant.
A) right; falls
B) right; rises
C) left; falls
D) left; rises
Everything else held constant, if the expected return on U.S. Treasury bonds falls from
10 to 5 percent and the expected return on GE stock rises from 7 to 8 percent, then the
expected return of holding GE stock ________ relative to U.S. Treasury bonds and the
demand for GE stock ________.
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls
Competition between banks
A) encourages greater risk taking.
B) encourages conservative bank management.
C) increases bank profitability.
D) eliminates the need for government regulation.
The Fed’s support of the Depository Institutions Deregulation and Monetary Control
Act of 1980 stemmed in part from its
A) concern over declining Fed membership.
B) belief that all banking regulations should be eliminated.
C) belief that interest rate ceilings were too high.
D) belief that depositors had to become more knowledgeable of banking operations.
The regulatory agency that sets reserve requirements for all banks is
A) the Federal Reserve System.
B) the Federal Deposit Insurance Corporation.
C) the Office of Thrift Supervision.
D) the Securities and Exchange Commission.
Which of the following is an entity of the Federal Reserve System?
A) the U.S. Treasury Secretary
B) the FOMC
C) the Comptroller of the Currency
D) the FDIC
positive spending shocks lead to ________ real interest rates ________.
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
Which of the following is a depository institution?
A) a life insurance company
B) a credit union
C) a pension fund
D) a mutual fund
Macroprudential supervision policies try to prevent a leverage cycle by changing capital
requirements so that they ________ during an expansion and ________ during a
downturn.
A) increase; decrease
B) increase; increase
C) decrease; increase
D) decrease; decrease
Financial innovations occur because of financial institutions search for
A) profits.
B) fame.
C) stability.
D) recognition.
In asset markets, an asset’s price is
A) set equal to the highest price a seller will accept.
B) set equal to the highest price a buyer is willing to pay.
C) set equal to the lowest price a seller is willing to accept.
D) set by the buyer willing to pay the highest price.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 authorized
investors to bring lawsuits against credit-rating agencies for a reckless failure to get the
facts when providing a credit rating. This is an example of which remedy of conflicts of
interest?
A) regulate for transparency
B) supervisory oversight
C) leave it to the market
D) socialization of information production
The long-run aggregate supply curve shifts to the right when there is
A) an increase in the total amount of capital in the economy.
B) an increase in the available technology.
C) a decrease in the natural rate of unemployment.
D) A and B.
E) A, B, and C.
All else the same, if a bank’s liabilities are more sensitive to interest rate fluctuations
than are its assets, then ________ in interest rates will ________ bank profits.
A) an increase; increase
B) an increase; reduce
C) a decline; reduce
D) a decline; not affect
A shift in tastes toward foreign goods ________ net exports in the U.S. and causes the
quantity of aggregate output demanded to ________ in the U.S., everything else held
constant.
A) decreases; rise
B) decreases; fall
C) increases; rise
D) increases; fall
The interest rate that equates the present value of payments received from a debt
instrument with its value today is the
A) simple interest rate.
B) current yield.
C) yield to maturity.
D) real interest rate.
A rise in autonomous planned investment spending causes the equilibrium level of
aggregate output to ________ and shifts the ________ curve to the ________,
everything else held constant.
A) rise; LM; right
B) rise; IS; right
C) fall; IS; left
D) fall; LM; left
Two reasons for an industrialized country to adopt an exchange-rate targeting regime
are if the country ________ conduct successful monetary policy on its own, and if the
country wants to ________ integration of the domestic economy with its neighbors.
A) cannot; encourage
B) cannot; discourage
C) can; encourage
D) can; discourage
A speculative attack involves massive sales of a currency or purchases of a currency
that cause a sharp change in the exchange rate under a exchange rate system.
A) weak; strong; fixed
B) strong; weak; fixed
C) weak; strong; floating
D) strong; weak; floating
In the United States during the late 1970s, the nominal interest rates were quite high,
but the real interest rates were negative. From the Fisher equation, we can conclude that
expected inflation in the United States during this period was
A) irrelevant.
B) low.
C) negative.
D) high.
If an individual moves money from a savings deposit account to a money market
deposit account
A) M1 decreases and M2 stays the same.
B) M1 stays the same and M2 increases.
C) M1 stays the same and M2 stays the same.
D) M1 increases and M2 decreases.