The LM curve automatically shifts to the left when the intersection point of the IS and
LM curves occurs at a point
A) beyond full-employment income.
B) in the liquidity trap.
C) less than full-employment income.
D) where planned saving is less than planned investment.
Increases in the money supply will not necessarily cause inflation if the increase in the
money supply is offset by
A) a falling velocity of money.
B) a constant velocity of money.
C) falling GDP levels.
D) full employment.
A package of nontraded financial instruments can be transformed into a traded financial
instrument through the process of
A) collateralization.
B) repurchasing.
C) securitization.
D) underwriting.
Our “dual” banking system refers to
A) commercial banks and thrifts.
B) federal and state chartering and supervision of commercial banks.
C) stockholder-ownership and depositor-ownership of depository institutions.
D) banks that are members and non-members of the Fed.
Suppose that one-year treasury bills yield 8 percent in the United States and 6 percent in
Japan. Investors will prefer to purchase the U.S. securities, unless they expect the dollar
to __________ against the yen over the next year.
A) depreciate by less than 2 percent
B) depreciate by more than 2 percent
C) appreciate by less than 2 percent
D) appreciate by more than 2 percent
When the economy is at full employment __________ interest rates are __________ by
an expansionary monetary policy if inflationary expectations are generated.
A) real; decreased
B) real; not changed
C) nominal; decreased
D) nominal; not changed
If GDP = $300 billion and velocity = 1.5, then the money supply is
A) indeterminate.
B) $200 billion.
C) $300 billion.
D) $450 billion.
The seller of a call option has the
A) right to buy shares at a specified price.
B) obligation to buy shares at a specified price if the option is exercised.
C) right to sell shares at a specified price.
D) obligation to sell shares at a specified price if the option is exercised.
In the ISLM framework, monetary policy has the greatest impact on equilibrium
income when
A) money demand = money supply.
B) money demand is infinitely elastic.
C) the interest rate is low.
D) the investment function is highly interest-sensitive.
“Universal banking” can lower the risk of participating financial institutions if
A) there is high correlation in the returns of the permitted activities.
B) there is low correlation in the returns of the permitted activities.
C) there are firewalls between all the permitted activities.
D) none of the customers of the institution are federally insured.
Which of the following lists of assets is in the correct order from most liquid to least
liquid?
A) A car, a small denomination time deposit, a dollar bill
B) Government bonds, checking accounts, parcel of land
C) Government bonds, apartment building, money market deposit account
D) A dollar bill, government bonds, a house
A Purchasing Manager’s Index below 50 indicates
A) a declining retail sector.
B) a downturn in economic activity.
C) an increase in bond prices in the near future.
D) a declining manufacturing sector.
Regulation Q put a ceiling on
A) bank loan rates.
B) loan rates at all depository institutions.
C) deposit rates.
D) the proportion of a savings-and-loan’s assets made up of loans other than mortgages.
__________ firms are treated similarly in financial systems around the world in the
handling of their __________ conflict.
A) Small; stockholder-lender
B) Small; manager-stockholder
C) Large; stockholder-lender
D) Large; manager-stockholder
The advent of money market mutual funds is __________ the trend of
“institutionalization,” in which a __________ percentage of financial assets are directly
owned by individuals.
A) part of; growing
B) part of; shrinking
C) not a part of; growing
D) not a part of; shrinking
When the Federal Reserve System was created in 1913, it was designed to
A) play the role of a passive service agency.
B) stabilize the economy through the use of open market operations.
C) collect taxes for the federal government.
D) mint new gold and silver coins.
If an investor pays $925 for a bond with a face value of $1,000 and annual payments, it
follows that
A) the current yield and coupon rate are equal.
B) the coupon rate is greater than the current yield.
C) the current yield is greater than the coupon rate.
D) Insufficient information is provided to answer this question.
Behind the Glass-Steagall Act was the feeling that __________ is too risky for
commercial banks.
A) underwriting corporate securities
B) competing to pay high deposit rates
C) making business mortgage loans
D) interstate branching