Moody’s Investors Service is able to make a profit because
A) most investors are irrational.
B) of the existence of adverse selection problems.
C) fluctuations in interest rates make default risk on corporate bonds difficult to gauge.
D) small investors like the mutual funds they sell.
Answer:
Which of the following does NOT lead to an increase in potential GDP?
A) labor force grows
B) technological change takes place
C) new machinery and equipment are installed
D) aggregate expenditures increase
Answer:
For a bank, the ration of after-tax profit to assets is its:
A) net interest margin.
B) return on assets.
C) return on equity.
D) spread.
Answer:
The primary motive for financial innovation during the regulatory process is
A) profit.
B) adherence to the new regulations.
C) return to the way business was conducted prior to the new regulations.
D) increase coordination with other financial institutions.
Answer:
If you deposit a $50 check in the bank, the immediate impact on your bank’s balance
sheet will be a
A) $50 increase in reserves and a $50 increase in checkable deposits.
B) $50 decrease in reserves and a $50 increase in checkable deposits.
C) $50 increase in reserves and a $50 decrease in checkable deposits.
D) $50 decrease in liabilities and a $50 increase in checkable deposits.
Answer:
Fiat money
A) is money that would have no value if it were not usable as money.
B) is illegal in most advanced, industrial countries.
C) is usually some type of precious metal.
D) will generally be accepted in trade for less than its face value.
Answer:
A coupon bond involves
A) interest payments from the borrower to the lender periodically during the life of the
loan and payment by the borrower to the lender of the face value of the loan at maturity.
B) interest and principal payments from the borrower to the lender periodically during
the life of the loan.
C) periodic payments by the borrower to the lender that include both principal and
interest.
D) periodic payments by the borrower to the lender that include principal, but not
interest.
Answer:
The LM curve slopes upward to the right because
A) the demand for money plus the demand for nonmoney assets must equal the supply
of money plus the supply of nonmoney assets.
B) a higher real interest rate is associated with a higher level of the output gap in money
market equilibrium.
C) a higher real interest rate is associated with a higher level of saving in goods market
equilibrium.
D) in equilibrium the actual real interest rate must increase one-for-one with expected
real interest rate.
Answer:
Under a system of barter
A) each individual trades output directly with another.
B) only agricultural goods may be traded.
C) goods may be traded for money, but money may not be traded for goods.
D) currency is accepted for purchases, but personal checks are not.
Answer:
Which of the following would NOT shift the aggregate demand curve to the left?
A) an increase in money demand
B) a cut in federal government spending
C) a reduction in federal income taxes
D) a decrease in consumption spending
Answer:
Using a good as a medium of exchange confers the benefit that
A) the need to quote so many prices in trade is reduced.
B) the need for a double coincidence of wants is greatly increased.
C) the need for specialization is reduced.
D) transactions costs are increased, but they now may be paid in money terms.
Answer:
Which of the following is the correct expression for the approximate expected real
interest rate?
A) r = i +
B) r = i –
C) r = i/
D) r = i
Answer:
As wealth increases in the economy, savers are willing to
A) hold more cash relative to their holdings of bonds.
B) buy fewer bonds at any given price.
C) buy more bonds at any given price.
D) lend less at any given interest rate.
Answer:
Which of the following is NOT fixed on a coupon bond?
A) coupon
B) coupon rate
C) market price
D) par value
Answer:
Which of the following countries experienced hyperinflation during the 1920s?
A) The United States
B) Canada
C) Germany
D) England
Answer:
In the market for loanable funds, the seller is considered to be
A) the lender.
B) the borrower.
C) the lender or the borrower depending upon the use to which the funds are put.
D) the lender or the borrower depending upon whether interest rates are rising or
falling.
Answer:
All of the following are roles of a exchange EXCEPT
A) instituting margin requirements on futures contracts.
B) marking to market at the end of each day.
C) eliminate the need for buyers and sellers of futures contracts to be concerned about
the creditworthiness of each other.
D) reducing the default risk involving forward contracts.
Answer:
The process in which a cycle of falling asset prices and falling prices of goods and
services can increase the severity of an economic downturn is called:
A) financial crisis
B) bank run
C) sovereign debt crisis
D) debt-deflation process
Answer:
If you are indifferent between investing $1000 for one year in a U.S. Treasury security
that has an interest rate of 5% or in a Canadian government security that has an interest
rate of 8%, you must be expecting
A) the inflation rate in the United States will be higher than the inflation rate in Canada
during the year.
B) the U.S. dollar to depreciate against the Canadian dollar by 3% during the year.
C) the U.S. dollar to appreciate against the Canadian dollar by 3% during the year.
D) productivity growth in Canada to be greater than productivity growth in the United
States during the year.
Answer:
Which of the following is a coupon bond?
A) a U.S. savings bond
B) a U.S. Treasury bill
C) a U.S. Treasury note or bond
D) a zero-coupon bond
Answer:
If the German interest rate is 4% and the U.S. interest rate is 5%, what is the expected
change in the value of the dollar in terms of the euro?
A) 1%
B) -1%
C) 9%
D) -9%
Answer:
A reduction in expected inflation will result in all of the following EXCEPT:
A) lower nominal interest rates
B) lower real interest rates
C) reduced demand for bonds
D) increased supply of bonds
Answer:
What is a primary reason for the yield on 3-month Treasury bills being low during
recessions?
A) low risk premium
B) the Fed pushing short-term interest rates down
C) rising inflation
D) the inversion of the yield curve
Answer:
When talking about forward contracts, the date on which the contracted delivery must
take place is called:
A) the settlement date
B) the counterparty date
C) forward date
D) spot date
Answer:
An open market purchase
A) decreases the price of Treasury securities and also decreases their yield.
B) increases the price of Treasury securities and decreases their yield.
C) increases the price of Treasury securities and also increases their yield.
D) decreases the price of Treasury securities and increases their yield.
Answer:
If AE < Y, which of the following will NOT occur?
A) inventories will decline
B) actual investment will be more than planned investment
C) employment will decline
D) GDP will decline
Answer:
Monetary neutrality refers to the fact that changes in the money supply
A) affect output more in the long run than in the short run.
B) have no effect on output in the long run.
C) affect only output in the long run.
D) have a greater effect on prices in the short run than in the long run.
Answer:
A person’s earnings over a period of time is known as
A) money
B) income
C) wealth
D) all of the above
Answer:
The expectations theory suggests that
A) the yield curve should usually be upward-sloping.
B) the yield curve should usually be downward-sloping.
C) the slope of the yield curve depends on the expected future path of short-term rates.
D) the slope of the yield curve reflects the risk premium incorporated into the yields on
long-term bonds.
Answer:
Members of the Board of Governors are
A) elected by the district bank presidents.
B) appointed by the President of the United States, subject to confirmation by the
Senate.
C) appointed by the National Monetary Commission.
D) appointed by the Securities and Exchange Commission, subject to congressional
veto.
Answer:
Which of the following is the mandate of the European Central Bank?
A) high economic growth
B) price stability
C) low unemployment
D) a fixed exchange rate
Answer:
The theory of purchasing power parity
A) extends the law of one price to a group of goods.
B) assumes that most changes in nominal exchange rates are the result of changes in
real exchange rates.
C) assumes that inflation rates are roughly the same in most countries.
D) was valid only under the gold standard.
Answer:
Which of the following statements is correct?
A) The volume of open market operations is determined jointly by the actions of the
Fed, the banking system, and the nonbank public.
B) The Fed’s control over discount lending is more complete than its control over open
market operations.
C) The Fed completely controls the volume of open market operations.
D) The Fed has complete control over the volume of both discount loans and open
market operations.
Answer: