In the ten year period 1981-1990, 1202 commercial banks were closed, with a peak of
206 failures in 1989. This rate of failures was approximately ________ times greater
than that in the period from 1934 to 1980.
A) two
B) three
C) five
D) ten
Everything else held constant, an autonomous monetary policy tightening ________
aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
The most common type of discount lending, ________ credit loans, are intended to help
healthy banks with short-term liquidity problems that often result from temporary
deposit outflows.
A) secondary
B) primary
C) temporary
D) seasonal
If the liquidity effect is smaller than the other effects, and the adjustment to expected
inflation is slow, then the
A) interest rate will fall.
B) interest rate will rise.
C) interest rate will initially fall but eventually climb above the initial level in response
to an increase in money growth.
D) interest rate will initially rise but eventually fall below the initial level in response to
an increase in money growth.
If the Fed expects currency holdings to rise, it conducts open market ________ to offset
the expected ________ in reserves.
A) purchases; increase
B) purchases; decrease
C) sales; increase
D) sales; decrease
Points on the IS curve satisfy ________ market equilibrium.
A) money
B) goods
C) stock
D) bond
The increase in the availability of ATMs has caused the cost of acquiring currency to
________ which will cause the currency ratio to ________, everything else held
constant.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
A decrease 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
Under the current managed float exchange rate regime, countries with balance of
payments ________ frequently do not want to see their currencies ________ because it
makes foreign goods more expensive for domestic consumers and can stimulate
inflation.
A) surpluses; depreciate
B) deficits; depreciate
C) surpluses; appreciate
D) deficits; appreciate
If there is an excess demand for money, individuals ________ bonds, causing interest
rates to ________.
A) sell; rise
B) sell; fall
C) buy; rise
D) buy; fall
Subject to the approval of the Board of Governors, the decision of choosing the
president of a district Federal Reserve Bank is made by
A) all nine district bank directors.
B) the six district bank directors elected by the member banks.
C) three district bank directors who are professional bankers.
D) district bank directors who are not professional bankers.
E) class A and class B directors.
If the Federal Reserve conducts open market ________, the money supply ________,
shifting the LM curve to the left, everything else held constant.
A) purchases; decreases
B) sales; decreases
C) purchases; increases
D) sales; increases
During the Great Depression years 1930-1933 there was a very high rate of business
failures and defaults, we would expect the risk premium for ________ bonds to be very
high.
A) U.S. Treasury
B) corporate Aaa
C) municipal
D) corporate Baa
American businesses get their external funds primarily from
A) bank loans.
B) bonds and commercial paper issues.
C) stock issues.
D) loans from nonbank financial intermediaries.
The basic concepts used in the analytic framework of this text include all of the
following EXCEPT
A) the not-for-profit nature of most financial institutions.
B) a basic supply and demand analysis to explain the behavior of financial markets.
C) an approach to financial structure based on transaction costs and asymmetric
information.
D) the concept of equilibrium.
Everything else held constant, if the federal government were to guarantee today that it
will pay creditors if a corporation goes bankrupt in the future, the interest rate on
corporate bonds will ________ and the interest rate on Treasury securities will
________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
The time it takes for policy makers to be sure of what the data are signaling about the
future course of the economy is called
A) the data lag.
B) the recognition lag.
C) the legislative lag.
D) the implementation lag.
E) the effectiveness lag.
With direct finance, funds are channeled through the financial market from the
________ directly to the ________.
A) savers, spenders
B) spenders, investors
C) borrowers, savers
D) investors, savers
Countries that experience very high rates of inflation may also have
A) balanced budgets.
B) rapidly growing money supplies.
C) falling money supplies.
D) constant money supplies.
With a 10 percent interest rate on dollar deposits, and an expected appreciation of 7
percent over the coming year, the expected return on dollar deposits in terms of the
foreign currency is
A) 3 percent.
B) 10 percent.
C) 13.5 percent.
D) 17 percent.
Everything else held constant, an autonomous monetary policy easing ________
aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
An individual’s annual salary is her
A) money.
B) income.
C) wealth.
D) liabilities.
When the price level falls, the ________ curve for nominal money ________, and
interest rates ________, everything else held constant.
A) demand; decreases; fall
B) demand; increases; rise
C) supply; increases; rise
D) supply; decreases; fall
The ________ states that exchange rates between any two currencies will adjust to
reflect changes in the price levels of the two countries.
A) theory of purchasing power parity
B) law of one price
C) theory of money neutrality
D) quantity theory of money
If, for a $1000 premium, you buy a $100,000 put option on bond futures with a strike
price of 114, and at the expiration date the price is 110, your ________ is ________.
A) profit; $4000
B) loss; $4000
C) profit; $3000
D) loss; $3000
In the bond market, the market equilibrium shows the market-clearing ________ and
market-clearing ________.
A) price; deposit
B) interest rate; deposit
C) price; interest rate
D) interest rate; premium
The classical economists’ conclusion that nominal income is determined by movements
in the money supply rested on their belief that ________ could be treated as ________
in the short run.
A) velocity; constant
B) velocity; variable
C) money; constant
D) money; variable
Financial markets improve economic welfare because
A) they channel funds from investors to savers.
B) they allow consumers to time their purchase better.
C) they weed out inefficient firms.
D) they eliminate the need for indirect finance.
In the money market, a condition of excess supply of money can be eliminated by a
________ in aggregate output or a ________ in the interest rate, everything else held
constant.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
If a bank has $200,000 of checkable deposits, a required reserve ratio of 20 percent, and
it holds $80,000 in reserves, then the maximum deposit outflow it can sustain without
altering its balance sheet is
A) $50,000.
B) $40,000.
C) $30,000.
D) $25,000.
An investment bank purchases securities from a corporation at a predetermined price
and then resells them in the market. This process is called
A) underwriting.
B) underhanded.
C) understanding.
D) undertaking.
Equity instruments are traded in the ________ market.
A) money
B) bond
C) capital
D) commodities