If the price level in the United States increases more slowly than the price level in
Canada, we would expect
A) interest rates in the United States to be higher than interest rates in Canada.
B) the U.S. dollar to depreciate against the Canadian dollar.
C) the Canadian dollar to depreciate against the U.S. dollar.
D) U.S. productivity to have increased more slowly than Canadian productivity.
Answer:
If U.S. inflation is 2%, Japanese inflation is 1%, and Mexican inflation is 3%, which of
the following is true according to the theory of purchasing power parity?
A) The dollar should rise by 1% versus the yen and fall by 1% versus the peso.
B) The dollar should rise by 1% versus the peso and fall by 1% versus the yen.
C) The dollar should rise by 1% versus both the peso and the yen.
D) The dollar should fall by 1% versus both the peso and the yen.
Answer:
All of the following concerns have been raised about crowd funding EXCEPT:
A) possibility of fraud
B) lack of liquidity
C) information costs
D) limits access to funds for business start ups
Answer:
Due in part to record low interest rates on U.S. Treasury Bonds,
A) investors searching for higher yields bought corporate bonds
B) interest rates on corporate bonds rose
C) corporations faced higher borrowing costs
D) many corporations were at greater risk of defaulting
Answer:
The nominal interest rate parity condition states that
A) domestic and foreign assets must have nominal returns that are identical, irrespective
of the characteristics of the assets.
B) when domestic and foreign assets have identical risk, liquidity, and information
characteristics, their nominal returns must also be identical.
C) while nominal returns are equalized across all foreign and domestic assets, real
returns may vary widely.
D) while real returns are equalized across all foreign and domestic assets, nominal
returns may vary widely.
Answer:
Which of the following banned most proprietary trading by commercial banks?
A) Consumer financial Protection Bureau
B) Regulation Q
C) Greenspan rule
D) Volcker rule
Answer:
What is the length of a term for the Chairman of the Board of Governors?
A) one year
B) four years
C) 14 years
D) 28 years
Answer:
By ‘specialization” economists mean a situation where
A) individuals produce the goods or services for which they have relatively the best
ability.
B) goods are traded directly for goods and money is not used.
C) individuals who produce goods do not also produce services and individuals who
produce services do not also produce goods.
D) individuals are assigned to occupations on the basis of tests that gauge their relative
abilities.
Answer:
When deciding between domestic and foreign financial investments, investors typically
consider
A) domestic and foreign inflation rates and expected changes in the exchange rate.
B) domestic and foreign budget deficits.
C) shifts in the relative demand for foreign and domestic goods.
D) domestic and foreign interest rates and expected changes in the exchange rate.
Answer:
The information lag facing the Fed is
A) the difficulty of becoming informed quickly of changes in public opinion about
which policy goal is most important.
B) the delay in receiving accurate information about the state of the economy.
C) the delay in Congress and the President communicating their policy goals for the
Fed to act on.
D) the time required for monetary policy changes to affect output, employment, and
prices.
Answer:
Since the 1960s, the percentage of U.S. output exported to foreigners
A) remained about the same.
B) more than doubled.
C) increased by more than ten times.
D) declined by about half.
Answer:
During the Great Depression, unemployment peaked at
A) 10%.
B) between 15 and 20%.
C) over 20%.
D) 81%.
Answer:
The supply curve for bonds would be shifted to the right by
A) a decrease in expected profitability.
B) a decrease in the corporate tax on profits.
C) a decrease in tax subsidies for investment.
D) a decrease in government borrowing.
Answer:
The Chairman of the Federal Open Market Committee is also
A) the president of the Federal Reserve Bank of New York.
B) the chairman of the Securities and Exchange Commission.
C) the chairman of the Federal Deposit Insurance Corporation.
D) the chairman of the Board of Governors.
Answer:
If the interest rate on a U.S. one-year bond is 1%, the interest rate on a Mexican
one-year bond is 5%, and investors expect the dollar to appreciate by 1% versus the
peso, what is the currency premium for U.S. investors to hold Mexican pesos?
A) -3%
B) 3%
C) 4%
D) 7%
Answer:
Which of the following is the most important source of external financing for
corporations?
A) stock market
B) bond market
C) retained earnings
D) mortgages
Answer:
Which of the following describes the behavior of M1 in recent decades?
A) it soared during the recessions of 1990-91, 2001, and 2007-2009
B) it tended to grow more rapidly than M2
C) it was more stable than M2
D) it has not declined since the 1970s
Answer:
For simple loans, the yield to maturity
A) is always less than the specified simple interest rate.
B) is always greater than the specified simple interest rate.
C) is always equal to the specified simple interest rate.
D) may be less than, greater than, or equal to the specified simple interest rate,
depending on the maturity of the loan.
Answer:
All of the following are potential benefits of defined contribution plans EXCEPT:
A) clear ownership rights to the balances of their 401Ks
B) lower risk for employees
C) if the employee’s investments are profitable, the employee can have high income
during retirement
D) contributions to traditional 401Ks are tax deductible
Answer:
Which of the following is a hybrid of a checking and savings account?
A) CD
B) negotiable CD
C) passbook accounts
D) money market deposit account
Answer:
Which criterion for suitability as a medium of exchange do Federal Reserve Notes
meet?
A) They are of standardized quality.
B) They are durable.
C) They are acceptable to most traders.
D) Federal Reserve Notes meet all of the criteria for suitability as a medium of
exchange.
Answer:
At an interest rate of 6%, how much will need to be invested today to have $10,000 in 5
years?
A) $5,000
B) $7,473
C) $10,000
D) $13,382
Answer:
A specified amount of a claim that the insurance company does not need to pay is
called:
A) coinsurance
B) deductible
C) copayments
D) premium
Answer:
Which of the following statements about checking deposits is true?
A) It is a liability for both households and banks.
B) It is an asset for both households and banks.
C) It is an asset for households but a liability for a bank.
D) It is a liability for households but an asset for a bank.
Answer:
In investment banking the ‘spread” is the difference between
A) the value of a firm’s assets and the value of its liabilities.
B) the bid and asked prices on a bond.
C) the price of new capital guaranteed to the issuing firm and the price that can be
obtained in the market.
D) the price of a new stock issue and the price of an equivalent new bond issue.
Answer:
The difference between a savings deposit and a time deposit is
A) time deposits pay no interest.
B) savings deposits pay no interest.
C) time deposits have specified maturities.
D) savings deposits have specified maturities.
Answer:
The financial crisis of 2007-2009 worsened after the failure of which firm?
A) General Motors
B) Lehman Brothers
C) Bear Stearns
D) American International Group (AIG)
Answer:
Expansionary monetary policy consists of all of the following EXCEPT
A) open market sales.
B) lower interest rates.
C) increased monetary base.
D) increased money supply.
Answer:
A rising dollar makes U.S. goods
A) more expensive abroad and increases the volume of U.S. exports.
B) less expensive abroad and increases the volume of U.S. exports.
C) less expensive abroad and decreases the volume of U.S. exports.
D) more expensive abroad and decreases the volume of U.S. exports.
Answer:
How would monetary easing by the Bank of Japan affect the value of the yen?
A) It increases it since more people will take out loans at the low interest rates.
B) It reduces it since it reduces demand for yen since Japanese interest rates are now
lower.
C) It increases it since it increases demand for yen since Japanese interest rates are now
higher.
D) It reduces it since the supply of yen on the foreign exchange market is now lower.
Answer:
If a central bank engages in an unsterilized foreign-exchange intervention with the
intention of raising the foreign-exchange value of its currency,
A) the central bank’s holdings of international reserves will fall.
B) the domestic money supply will rise.
C) domestic interest rates will fall.
D) it will buy foreign assets.
Answer:
Which is the best example of idiosyncratic risk?
A) a financial crisis
B) a lawsuit because the corporation produced a faulty product
C) a recession
D) rising interest rates
Answer:
A Japanese television sells for ¥100,000 and a dollar is equal to ¥100. What is the dollar
price of the television?
A) $1000
B) $99,900
C) $10,000,000
D) $100,100
Answer:
Suppose that Congress passes an investment tax credit. The likely result will be
A) the supply curve for bonds will shift to the right.
B) the demand curve for bonds will shift to the left.
C) the demand curve for bonds will shift to the right.
D) the equilibrium interest rate will fall.
Answer:
Explain the process by which prices of securities adjust so as to eliminate arbitrage
profits.
Answer:
What is a black swan event?
Answer:
How does an increase in interest rates affect net exports?
Answer:
Why did some economists and policymakers think ratings agencies had a conflict of
interest leading up to the Financial Crisis of 2007-2009?
Answer:
How do new Keynesians use menu costs to help explain price stickiness in the short
run?
Answer:
Describe the temporary lending facilities that the Fed set up during the Financial Crisis
of 2007-2009.
Answer:
What is the difference between adaptive expectations and rational expectations?
Answer:
What is the difference between defensive and dynamic open market operations?
Answer:
What is a repurchase agreement?
Answer:
What are three reasons that banks charge interest on loans?
Answer:
Suppose that the one-year Treasury bill rate in the United States is 6%, the one-year
government bond rate in Canada is 4%, and investors expect the U.S. dollar to
depreciate against the Canadian dollar by 4% over the coming year. Is the nominal
interest rate parity condition violated?
Answer:
How are financial intermediaries able to reduce transactions costs?
Answer:
What new policy tools for controlling reserve balances did the Fed introduce during the
Financial Crisis of 2007-2009?
Answer:
What has been the approach of the European Central Bank to monetary targeting?
Answer:
What makes advising on mergers and acquisitions particularly profitable for investment
banks relative to other services that they provide?
Answer:
According to the Taylor rule, what should the federal funds rate target be if inflation is
5%, the target rate of inflation is 2%, the equilibrium real federal funds rate is 2%,
full-employment real GDP is $9 trillion, and current real GDP is $8.55 trillion?
Answer:
Suppose that Ruritania has a fixed exchange rate versus the U.S. dollar. If foreign
investors become convinced that the Ruritanian currency is overvalued, what actions
might they take to profit from this conviction? Would these actions make it easier or
harder for Ruritania to maintain the value of its currency versus the dollar? Why?
Answer: