If the U.S. rate of productivity growth is less than the rate of Canadian productivity
growth, then we would expect
(a) the Canadian dollar to appreciate against the U.S. dollar.
(b) the Canadian dollar to depreciate against the U.S. dollar.
(c) interest rates in Canada to be higher than interest rates in the U.S.
(d) the price level in Canada to be increasing more rapidly than the price level in the
U.S.
Answer:
Which of the following is a bank asset?
(a) Checkable deposits
(b) Savings deposits
(c) Borrowings in the Federal funds market
(d) Cash items in the process of collection
Answer:
Suppose First National Bank makes a one-year simple loan of $10,000 to Acme Widget.
If at the end of one year Acme Widget pays First National $10,700, then the interest rate
on this loan must have been
(a) 0.07%.
(b) 0.7%.
(c) 1.07%.
(d) 7%.
Answer:
Suppose Acme Widget issues a one-year discount bond with a face value of $10,000,
and received $9434, repaying $10,000 after one year. The interest rate on this bond
would be
(a) 4.34%.
(b) 5.66%
(c) 6%.
(d) 10%.
Answer:
Which of the following is a bank liability?
(a) Reserves
(b) Consumer loans
(c) Nontransaction deposits
(d) Securities
Answer:
The incident in which an S&L entrepreneur contributed about $1.3 million to the
campaigns of five U.S. Senators in return for their assistance in getting FHLBB
Chairman Edwin Gray to deal lightly with the problems of Lincoln Savings and Loan is
known as the
(a) “Lincoln Log” scandal.
(b) “Keating Five” scandal.
(c) “Bonfire of the Vanities” scandal.
(d) “FSLIC” scandal.
Answer:
In addition to U.S. Treasury securities, the Fed’s portfolio of securities contains
(a) corporate stock.
(b) corporate bonds.
(c) bankers’ acceptances.
(d) commercial paper.
Answer:
Sales finance companies
(a) purchase accounts receivable of small firms at a discount.
(b) sell commercial paper and buy long-term corporate bonds.
(c) take in deposits from savers and buy corporate commercial paper.
(d) are affiliated with companies which manufacture or sell goods.
Answer:
Why are U.S. government securities referred to as a bank’s secondary reserves?
(a) Their current market value may count toward meeting a bank’s legal reserve
requirements.
(b) They are very liquid.
(c) Banks are legally required to hold a certain minimum amount of these securities.
(d) They are the same thing as vault cash.
Answer:
The M1, M2, and M3 aggregates
(a) have moved very closely together since 1960.
(b) have moved broadly together since 1960.
(c) have moved significantly differently during certain periods since 1960.
(d) have moved broadly together but have also moved very differently during certain
periods since 1960.
Answer:
In the new Keynesian view, an increase in the real interest rate would cause firms to
(a) increase their spending on plant and equipment.
(b) increase the wages they pay their employees.
(c) reduce their inventory holdings.
(d) increase their reliance on borrowed funds.
Answer:
Financial markets
(a) channel funds indirectly between borrowers and lenders.
(b) issue claims on individual borrowers directly to savers.
(c) act as go-betweens by holding a portfolio of assets and issuing claims based on that
portfolio to savers.
(d) generally provide lenders with lower returns than do financial intermediaries.
Answer:
What fraction of the nation’s currency is made up of Federal Reserve Notes?
(a) 1%
(b) 10%
(c) 90%
(d) 100%
Answer:
Which of the following statements concerning the measurability of interest rates is true?
(a) Information on nominal interest rates is available to the Fed with a two-week lag.
(b) The relevant interest rates are instantaneously measurable by the Fed.
(c) The Fed is more interested in measuring the nominal interest rate than in measuring
the real interest rate.
(d) The Fed is unable to continuously measure the real interest rate.
Answer:
In the new Keynesian view, a disinflation policy
(a) will almost always result in a recession.
(b) will rarely be credible.
(c) should use the cold turkey, rather than the gradual, approach.
(d) shifts the LRAS curve.
Answer:
Savers generally compare
(a) the nominal rates of return on assets.
(b) the real rates of return on assets.
(c) the real after-tax rates of return on assets.
(d) the nominal after-tax rates of return on assets.
Answer:
Credit unions have invested primarily in
(a) corporate stock.
(b) commercial paper.
(c) corporate bonds.
(d) mortgages.
Answer:
According to the real business cycle model, in the economy’s short run equilibrium
(a) inflation must be zero.
(b) output is as the full employment level.
(c) productivity must be zero.
(d) the supply of money must be constant.
Answer:
A one-time cut in taxes
(a) can result in inflation.
(b) can result in a one-time increase in the price level, but cannot result in inflation.
(c) can result in a one-time decrease in the price level, but cannot result in inflation.
(d) will cause a dollar-for-dollar increase in the money supply.
Answer:
Results supporting mean reversion are strongest for
(a) large-firm stocks during the post-World War II period.
(b) small-firm stocks during the post-World War II period.
(c) large-firm stocks during the pre-World War II period.
(d) small-firm stocks during the pre-World War II period.
Answer:
The purchasing power of money
(a) rises when prices fall.
(b) rises when prices rise.
(c) is set by the Fed in January of each year.
(d) is constant.
Answer:
Keynes assumed that the expected return on bonds is determined by
(a) the interest rate on the bond.
(b) the interest rate on the bond adjusted for expectations of capital gains or losses on
the bond.
(c) the interest rate on the bond adjusted for the expected inflation rate.
(d) the expected inflation rate adjusted for expectations of capital gains or losses on the
bond.
Answer:
When a country’s real exchange rate appreciates
(a) its nominal exchange rate must also have appreciated.
(b) its nominal exchange rate must have depreciated.
(c) it can trade its goods for fewer units of foreign goods.
(d) it can trade its goods for more units of foreign goods.
Answer:
Differences in price levels
(a) explain well actual exchange rate movements.
(b) are not capable of explaining well actual exchange rate movements, particularly in
the short run.
(c) have been small for most countries in the post-World War II period.
(d) only can be explained by the fact that little foreign trade actually takes place.
Answer:
An automobile loan is likely to be a (an)
(a) short-term debt instrument.
(b) intermediate-term debt instrument.
(c) long-term debt instrument.
(d) equity.
Answer:
Monetizing the debt refers to
(a) the Treasury selling securities for currency.
(b) the Treasury paying its bills by printing currency.
(c) the Fed purchasing Treasury securities to finance budget deficits.
(d) the federal government foregoing an interest payment on the national debt.
Answer:
If major traders believe the price of a stock should be higher than its current market
price,
(a) they have an incentive to bid down the price of the stock.
(b) their actions will result in the information they possess being incorporated into the
price of the stock.
(c) there is little they can do because government regulation precludes their acting on
what they know.
(d) they should petition the Securities and Exchange Commission to authorize an
adjustment in the price of the stock.
Answer:
Expectations of asset values by participants in financial markets
(a) are not possible to model, given the current state of economic knowledge.
(b) determine market prices, but are not related to changes in market prices.
(c) are determined largely by governmental actions.
(d) determine market prices and changes in market prices.
Answer:
An increase in the money supply will result in a lower exchange rate because
(a) the real interest rate on domestic assets will fall relative to the rates on foreign
assets.
(b) the real interest rate on domestic assets will rise relative to the rates on foreign
assets.
(c) it will lead to faster domestic growth, resulting in an increase in exports to other
countries.
(d) it will lead to lower inflation, thereby increasing the demand for domestic currency.
Answer:
An increase in the corporate profits tax is likely to cause
(a) the equilibrium interest rate to rise and the equilibrium price of bonds to fall.
(b) the equilibrium interest rate to fall and the equilibrium price of bonds to rise.
(c) the equilibrium interest rate and the equilibrium price of bonds both to rise.
(d) the equilibrium interest rate and the equilibrium price of bonds both to fall.
Answer:
The “greater fool” theory assumes that
(a) markets are efficient.
(b) bubbles cannot exist in well-organized markets.
(c) an investor is not a fool to buy an asset as long as there is a greater fool to buy it
later for a higher price.
(d) bond market returns are always above stock market returns.
Answer:
The buyer of a futures contract
(a) assumes the short position.
(b) assumes the long position.
(c) may not sell the contract without the permission of the original seller.
(d) has the obligation to deliver the underlying financial instrument at the specified
future date.
Answer:
Which of the following is NOT a fixed payment loan?
(a) A home mortgage
(b) A car loan
(c) A U.S. Treasury note
(d) A student loan
Answer:
The implication of the expectations theory that expected returns for a holding period
must be the same for bonds of different maturities depends on the assumption that
(a) yield curves usually slope upward.
(b) yield curves usually slope downward.
(c) instruments with different maturities are perfect substitutes.
(d) savers are usually risk averse.
Answer: