Real wages will decline if
A) money supply growth exceeds expectations.
B) real interest rates rise.
C) aggregate demand exceeds aggregate supply.
D) money supply growth exceeds the inflation rate.
An unexpected fall in the Purchasing Managers’ Index should send bond prices
__________ and stock prices __________.
A) up; up
B) up; down
C) down; up
D) down; down
The stockholder-lender conflict generally becomes greater
A) the smaller the firm.
B) the larger the firm.
C) the more the firm borrows from banks.
D) the less the firm borrows from banks.
Chapter 16 on “Financial System Design” calls the asymmetric information problem
discussed in earlier chapters the __________ conflict.
A) manager-stockholder
B) stockholder-lender
C) manager-lender
D) profit-risk
A swap designed to compensate for mismatched securities is a type of __________
called a __________ swap.
A) speculation; currency
B) speculation; generic
C) hedging; London
D) hedging; plain vanilla
Targeting reserves would be the best choice if
A) there is a close and predictable relationship between bank reserves and total
spending.
B) there is an unpredictable relationship between bank reserves and total spending.
C) the discount rate is fixed.
D) private sector spending is very stable.
The parties to a swap are formally called the
A) counterparties.
B) optioners.
C) short and long positions.
D) bond- and billholders.
Starting from equilibrium and using the ISLM framework, a decrease in investment
leads to
A) lower interest rates and higher income.
B) higher interest rates and higher income.
C) lower interest rates and lower income.
D) higher interest rates and lower income.
Reserve requirements apply to
A) life insurance companies.
B) investment banks.
C) credit unions.
D) stock brokers.
When money supply __________, the real rate of interest __________.
A) increases; falls
B) increases; rises
C) decreases; rises
D) increases; remains unchanged
Assuming rational expectations and complete wage and price flexibility, systematic
stabilization policy impacts
A) real GDP.
B) real wages.
C) the unemployment rate.
D) the inflation rate.
The demand deposit multiplier is equal to the
A) reciprocal of the reserve requirement ratio.
B) reciprocal of the discount rate.
C) inverse of the reserve requirement ratio.
D) inverse of the discount rate.
Assume that the actual inflation rate is 3 percent, the target inflation rate is 2.5 percent,
and that the percentage difference between actual and potential real GDP is 1 percent.
According to the Taylor rule, the federal funds rate target should be
A) 3.25 percent.
B) 5.75 percent.
C) 6.25 percent.
D) 5.50 percent.
An unexpected rise in the Producer Price Index should send bond prices __________
and stock prices __________.
A) up; up
B) up; down
C) down; up
D) down; down
A one-year Treasury bill with an annual yield of 10 percent and a price of $909.09 has a
face value of
A) $900.
B) $1,000.
C) $980.
D) $1,020.
An option premium is
A) paid by the short to the long as soon as the option is purchased.
B) paid by the long to the short as soon as the option is purchased.
C) paid by the long to the short when the option is exercised.
D) paid by the short to the long when the option is exercised.
To borrow funds between tax payment dates, city governments can issue
A) tax anticipation notes.
B) corporate bonds.
C) general obligation bonds.
D) revenue bonds.
To the stockholder, corporate stock represents
A) a source of fixed interest income.
B) a loan.
C) ownership.
D) a guaranteed return of principal.
Because transactions deposits can be withdrawn at any time, banks are exposed to
A) credit risk.
B) liquidity risk.
C) trading risk.
D) interest risk.
The current price of a government bond is $920. The bond pays $90 in interest this year.
At the end of the current year, the bond matures, and the principal of $1,000 is repaid.
What is the return to the holder of this bond?
A) 1 percent
B) 8 percent
C) 9 percent
D) 17 percent
Which of the following types of financial institutions is most likely to be a market
maker in mortgage-backed securities?
A) A commercial bank
B) An investment bank
C) A savings and loan association
D) A credit union
Which of the following assets yields a 0 percent return?
A) U.S. Treasury Bills
B) Excess reserves
C) Deposits with correspondent banks
D) Municipal bonds
At any point below the current LM curve there is an
A) excess demand for money.
B) excess supply of money.
C) excess demand for goods.
D) excess supply of goods.