Most macroeconomic policy consists of:
A) monetary policy
B) fiscal policy
C) exchange-rate policy
D) regulatory policy
Answer:
Why do higher interest rates increase adverse selection problems in the loan market?
A) Higher interest rates reduce the gains from economies of scale.
B) As interest rates rise, the creditworthiness of the average loan applicant declines.
C) Higher interest rates reduce information problems in the loan market.
D) At higher interest rates fewer investment projects are profitable.
Answer:
An open economy is one that
A) has a large government sector.
B) lends and borrows in the international capital market.
C) produces mainly agricultural goods.
D) produces mainly manufactured goods.
Answer:
All of the following arguments are presented in favor of inflation targeting EXCEPT
A) it would draw attention to what the central bank can achieve in practice.
B) it would provide an anchor for inflationary expectations.
C) it would promote accountability by providing a yardstick by which policy can be
measured.
D) it would reduce the lags inherent in monetary policy.
Answer:
As of 2012, mortgage-backed securities made up approximately what portion of
securities held by a bank?
A) 5%
B) 20%
C) 50%
D) 70%
Answer:
Which of the following statements is true?
A) The more liquid the bond, the lower the yield.
B) Tax-free bonds normally have a higher interest rate than other types of bonds.
C) The price of a bond increases as it becomes more risky.
D) The yield curve illustrates the relative default risks of alternative types of bonds.
Answer:
Generally,
A) countries with the most independent central banks have the lowest inflation rates.
B) countries with the least independent central banks have the lowest inflation rates.
C) countries without central banks have the lowest inflation rates.
D) the degree of independence of a country’s central banks has little to do with its
inflation rate.
Answer:
Individual investors who always want to hold gold are known as:
A) goldfinger
B) golden boys
C) gold bugs
D) goldilocks
Answer:
If there is an excess demand for bonds at a given price of bonds, then
A) the interest rate will fall.
B) the interest rate will rise.
C) the price of bonds will fall.
D) the interest rate may rise or the interest rate may fall depending upon the reasons for
the excess demand for bonds.
Answer:
If households increase their saving at the same time that the government increases its
deficit,
A) the demand and supply curves for bonds will be unaffected.
B) the demand curve for bonds will shift to the left.
C) the supply curve for bonds will shift to the right.
D) the equilibrium interest rate will definitely rise.
Answer:
The Fed has attempted to solve the problems of being unable to directly control the
variables that determine economic performance and the timing lags in observing and
reacting to economic fluctuations by
A) pressing Congress for legislation which would expand its powers.
B) using targets to meet its goals.
C) abandoning some goals in order to achieve others.
D) devising new monetary policy tools.
Answer:
Which of the following statements about the Depository Institutions Deregulation and
Monetary Control Act of 1980 is NOT correct?
A) It required all banks to maintain reserve deposits with the Fed.
B) It gave member and nonmember banks equivalent access to discount loans.
C) It halted the decline in Fed membership.
D) It eliminated restrictions on interstate banking for member banks.
Answer:
Suppose the exchange rate is 10 pesos per dollar and you use $1000 to purchase a
one-year Mexican bond that pays 10% interest. Next year, the exchange rate is 11 pesos
per dollar. Assuming you convert your funds back to U.S. dollars, how much money
will you have in one year?
A) $1000
B) $1100
C) $91
D) $0
Answer:
The existence of counterparty risk
A) has no effect on the contracting parties.
B) is disallowed under current government regulations.
C) results in information costs for buyers and sellers when analyzing the potential
creditworthiness of potential trading partners.
D) reduces the risk introduced by forward contracts.
Answer:
The FDIC was created in
A) 1863
B) 1913
C) 1934
D) 1991
Answer:
The level of potential GDP
A) increases as the real rate of interest decreases.
B) increases as the real rate of interest increases.
C) is unaffected by the real rate of interest.
D) is represented on the IS-MP model by a horizontal line at the world real rate of
interest.
Answer:
A decline in bank lending has the most significant effect on
A) small businesses.
B) large businesses.
C) state governments.
D) federal government.
Answer:
Lower interest rates which reduce the debt-servicing burden of households, thus
increasing their net worth, is best described by the
A) bank lending channel.
B) money channel.
C) financial market channel.
D) balance sheet channel.
Answer:
The counterparty of someone buying a futures contract on the Chicago Board of Trade
is::
A) Chicago Board of Trade
B) hedger
C) speculator
D) trader
Answer:
Most of the TARP funds were used to
A) fund a stimulus package.
B) pay for losses incurred by Fannie Mae and Freddie Mac.
C) finance the operations of the Federal Reserve.
D) make direct purchases of preferred stock in banks to increase their capital.
Answer:
The portfolios that mutual funds offer to savers are
A) usually made up of bonds.
B) usually made up of common stocks.
C) tax free in most states.
D) usually more liquid than the underlying assets.
Answer:
Default risk arises from the fact that
A) borrowers differ in their ability to repay in full the principal and interest required by
a loan agreement.
B) the bond price drops when interest rates rise.
C) it is inherently riskier to wait for a capital gain than to receive an immediate interest
payment.
D) interest rates are far more likely to go up than to go down.
Answer:
When economists refer to the role of money as a unit of account, they mean that
A) most accounting systems reflect that goods are purchased with currency.
B) most accounting systems reflect that goods are purchased with checks.
C) money gives traders a way of measuring value in the economy.
D) money makes it possible for specialization to take place.
Answer:
Which of the following is NOT an accurate description of the recession that
accompanied the financial crisis of 2007-2009?
A) GDP declined by more than twice the rate of the average recession.
B) Inflation rose at nearly twice the rate as the average recession.
C) It lasted just under twice as long as the typical recession.
D) Peak unemployment was about one-third higher than usual.
Answer:
Which of the following is NOT considered to be a goal of monetary policy?
A) fair wages
B) high employment
C) economic growth
D) price stability
Answer:
The exchange rate system followed by the United States is known as
A) the gold standard.
B) a fixed exchange rate system.
C) a flexible exchange rate system.
D) a barter system.
Answer:
According to the Gordon-Growth model, what will be the percentage change in the
value of the stock of a company whose current dividend is $10.00 and whose dividends
had been expected to grow by 3% per year but now are expected to grow by 1% per
year?
A) -4.0%
B) -23.7%
C) -31.1%
D) -66.0%
Answer:
The paper currency of the United States is issued by
A) state governments and the Fed.
B) state governments and the U.S. Treasury.
C) the U.S. Congress.
D) the Fed.
Answer:
If the Fed buys $2 billion of short-term securities issued by the government of Japan
and pays for them by writing a check for $2 billion,
A) its assets will rise by $2 billion and its liabilities will fall by $2 billion.
B) its assets will fall by $2 billion and its liabilities will rise by $2 billion.
C) its assets and liabilities will both fall by $2 billion.
D) its assets and liabilities will both rise by $2 billion.
Answer:
The policy directive from the FOMC is carried out by
A) the presidents of the district banks.
B) the presidents of commercial banks that are members of the Federal Reserve System.
C) the account manager at the Federal Reserve Bank of New York.
D) private dealers in the bond market.
Answer:
Banks are exposed to interest rate risk primarily because
A) interest rates are very difficult to forecast.
B) the maturities of banks’ assets and liabilities differ.
C) borrowers from banks are prone to default.
D) depositors are always searching for a slightly higher interest rate.
Answer:
What are federally chartered banks called?
A) federal banks
B) Federal Reserve banks
C) national banks
D) central banks
Answer:
Which of the following is the most common goal for central banks of industrialized
countries?
A) high employment
B) high economic growth
C) low interest rates
D) low inflation
Answer: