Assume a closed economy with no government. Suppose that autonomous consumption
equals $400, planned investment equals $500, and the mpc equals 0.9.
Using the information in Situation 20-1, the equilibrium level of aggregate output is
A) $900
B) $8,000
C) $9,000
D) $10,000
Three factors explain the risk structure of interest rates
A) liquidity, default risk, and the income tax treatment of a security.
B) maturity, default risk, and the income tax treatment of a security.
C) maturity, liquidity, and the income tax treatment of a security.
D) maturity, default risk, and the liquidity of a security.
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
If you sell twenty-five $100,000 futures contracts to hedge holdings of a Treasury
security, the value of the Treasury securities you are holding is
A) $250,000.
B) $1,000,000.
C) $2,500,000.
D) $5,000,000.
If the U.S. dollar appreciates from 1.25 Swiss franc per U.S. dollar to 1.5 francs per
dollar, then the franc depreciates from ________ U.S. dollars per franc to ________
U.S. dollars per franc.
A) 0.80; 0.67
B) 0.67; 0.80
C) 0.50; 0.33
D) 0.33; 0.50
One suggested method of reducing excessive risk-taking by SIFIs is to require them to
hold ________ capital when credit is expanding rapidly and ________ capital when
credit is contracting.
A) less; more
B) more; no
C) more; less
D) less; no
The collapse of the subprime mortgage market increased the spread between Baa and
default-free U.S. Treasury bonds. This is due to
A) a reduction in risk.
B) a reduction in maturity.
C) a flight to quality.
D) a flight to liquidity.
If the required reserve ratio is 15 percent, the simple deposit multiplier is
A) 15.0.
B) 1.5.
C) 6.67.
D) 3.33.
From the earlier 1990s until 2012, the Japanese monetary was ________ and stock and
real estate prices were ________.
A) tight; rising.
B) easy; rising.
C) tight; falling.
D) easy; falling.
Monetarists contend that the channels of monetary influence in Keynesian structural
models are too ________ defined, ________ the importance of monetary policy.
A) broadly; exaggerating
B) broadly; understating
C) narrowly; understating
D) narrowly; exaggerating
As their relative riskiness ________, the expected return on corporate bonds ________
relative to the expected return on default-free bonds, everything else held constant.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; does not change
During a “flight to quality”
A) the spread between Treasury bonds and Baa bonds increases.
B) the spread between Treasury bonds and Baa bonds decreases.
C) the spread between Treasury bonds and Baa bonds is not affected.
D) the change in the spread between Treasury bonds and Baa bonds cannot be
predicted.
With downward-sloping monetary policy and IS curves,the aggregate demand curve is
A) downward sloping.
B) flat.
C) vertical.
D) upward sloping.
A short 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.
Everything else held constant, if the tax-exempt status of municipal bonds were
eliminated, then
A) the interest rates on municipal bonds would still be less than the interest rate on
Treasury bonds.
B) the interest rate on municipal bonds would equal the rate on Treasury bonds.
C) the interest rate on municipal bonds would exceed the rate on Treasury bonds.
D) the interest rates on municipal, Treasury, and corporate bonds would all increase.
Using the Gordon growth model, if D1 is $.50, ke is 7%, and g is 5%, then the present
value of the stock is
A) $2.50.
B) $25.
C) $50.
D) $46.73.