The amount of nonborrowed reserves equals
a. the monetary base plus the amount of discount loans.
b. the amount of reserves plus the amount of discount loans.
c. the amount of reserves minus the sum of the amount of discount loans and currency.
d. the monetary base minus the sum of the amount of discount loans and currency.
Answer:
Which of the following happens when an economy is in a trough?
a. Income begins to rise.
b. Output begins to fall.
c. Employment begins to fall.
d. Population growth rate begins to rise.
Answer:
A stock index tells you
a. the average price of a collection of stocks.
b. the expected changes in the prices of select stocks over a year.
c. where to buy or sell stocks.
d. what stocks to buy or sell.
Answer:
The unemployment rate when the economy is producing output equal to its potential is
known as
a. the rate of disguised unemployment.
b. the potential rate of unemployment.
c. the natural rate of unemployment.
d. equilibrium rate of unemployment.
Answer:
The Fed measures the money supply following a system based mainly on
a. the liquidity and size of various bank accounts.
b. the interest rate on different assets.
c. the correlation of different assets with GDP growth.
d. legal requirements.
Answer:
How long is the normal term in office for a Governor of the Federal Reserve Board?
a. Five years
b. Seven years
c. Fourteen years
d. Life
Answer:
Suppose a country has a population of 76 million, of which 53 million are in the
working-age population. Of those, 3 million are unemployed and 46 million are
employed.
a. Calculate the number of people who are in the labor force.
b. Calculate the number of people who are not in the labor force. c. Calculate the
labor-force participation rate.
d. Calculate the unemployment rate.
Answer:
The Wilshire 5000 stock index is
a. an index of the 2000 largest industrial companies whose shares trade in U.S. markets.
b. an index of all the companies with U.S. headquarters whose shares trade in the U.S.
c. an index of 5000 major companies whose shares trade in U.S. markets.
d. an index of the average stock prices of many small firms operating in the U.S.
Answer:
Securitization is the process by which a bank sells a loan (which it made previously) to
a. investors.
b. the government.
c. other banks.
d. depositors.
Answer:
The amount foreign citizens, firms, and governments invest in a country minus the
amount that the country’s citizens, firms, and governments invest abroad is
a. the trade balance.
b. the balance on current account.
c. the capital-account balance.
d. the balance on capital and financial account.
Answer:
Which of the following is an example of an anomaly?
a. The discovery that stock prices fully reflect all available information.
b. The discovery that stock prices follow a random walk.
c. The discovery that returns to stock tend to be negative in periods of recessions.
d. The discovery that stocks have a higher than average return in early January.
Answer:
According to real business cycle (RBC) theory, the main source of the business cycle is
a. changes in the amount of money in the economy.
b. waves of optimism and pessimism that cause business investment in capital goods to
fluctuate.
c. changes in the prices of oil and other resources.
d. changes in productivity.
Answer:
Carter’s $150,000 CD matures and he deposits the funds into his checking account so he
can buy a house. The total effect is that M1 and M2 .
a. is unchanged; falls by $150,000
b. rises by $150,000; is unchanged
c. rises by $150,000; falls by $150,000
d. rises by $150,000; rises by $150,000
Answer:
The equation for the Phillips curve in an economy is
π = πe− 5(U− 5),
If the inflation rate is 4 percent and the unemployment rate is 6 percent, then the
expected inflation rate in the economy must be
a. 2.5 percent.
b. 4.0 percent.
c. 4.5 percent.
d. 5.0 percent.
Answer:
Under which Fed Chairman did the inflation rate decline the most?
a. William McChesney Martin
b. Arthur Burns
c. Paul Volcker
d. Alan Greenspan
Answer:
When the overall level of business activity declines persistently, there is said to be
a. a revolution.
b. a hyperinflation.
c. a recession.
d. an expansion.
Answer:
Which of the following statements is true of a perpetuity?
a. A perpetuity has a fixed maturity.
b. The present value of each payment made by a perpetuity is less than the previous
payment.
c. The present value of a perpetuity that pays $100 every year when the annual rate of
discount is 5% is $1,000.
d. The present value of a perpetuity that pays $200 every year when the annual rate of
discount is 7% is $1,750.
Answer:
The United States has a dual banking system, which means that a bank
a. has two regulators.
b. may hold its reserves either in the form of vault cash or as deposits at a Federal
Reserve Bank.
c. may take out a primary credit discount loan or a secondary credit discount loan.
d. may choose whether to be chartered by federal government authorities or by a state
government.
Answer:
In the two-period model, a decrease in the real interest rate causes the budget constraint
to
a. shift to the left in a parallel fashion.
b. shift to the right in a parallel fashion.
c. rotate in a clockwise direction.
d. rotate in a counterclockwise direction.
Answer:
The Fed is said to tighten policy when it
a. decreases both the money growth and the federal funds rate.
b. decreases the money growth and increases the federal funds rate.
c. increases both the money growth and the federal funds rate.
d. increases the money growth and decreases the federal funds rate.
Answer:
Suppose a country has a population of 61 million, of which 37 million are in the
working-age population. Of those, 11 million are not in the labor force and 23 million
are employed. The unemployment rate is
a. 12.7 percent.
b. 11.5 percent.
c. 8.1 percent.
d. 4.9 percent.
Answer:
The possibility that a bank’s loan customers might not repay their loans is known as
a. withdrawal risk.
b. default risk.
c. interest-rate risk.
d. foreign-exchange risk.
Answer:
In a dynamic model of money, if money supply and trend output is constant over time
a. nominal supply of money will increase, while nominal demand for money will be
constant.
b. nominal supply of money will decrease, while nominal demand for money will be
constant.
c. nominal supply of money will be constant, while nominal demand for money will
decrease.
d. both the nominal supply of money and nominal demand for money will be constant.
Answer:
A stock’s price is $100 at the beginning of a year. There is a 25 percent chance that the
price will be $90 at the end of the year, and a 75 percent chance that the price will be
$130 at the end of the year. The stock will pay a dividend of $10 during the year.
a. Calculate the stock’s expected return.
b. Calculate the standard deviation of the stock’s return.
Answer:
A variable that is determined outside a model is called a(n)
a. dynamic variable.
b. static variable.
c. endogenous variable.
d. exogenous variable.
Answer:
Which of the following statements is true?
a. When an investor diversifies his investments, the total risk involved reduces.
b. Dividends paid on stocks are legally not liable to attract taxes.
c. When a company increases its retained earnings, the dividends paid by it increases.
d. As a company increases its retained earnings, the stock price of the company is
expected to reduce.
Answer:
Suppose that a change in the expected inflation rate leads supply and demand to adjust
so that the after-tax expected real interest rate is unchanged at 2.0 percent. The tax rate
is 30 percent. Initially, the expected inflation rate is 3.0 percent. If the expected inflation
rate falls from 6 percent to 0 percent, the expected real interest rate
a. rises by 1.25 percent.
b. rises by 2.5 percent.
c. falls by 2.5 percent.
d. falls by 1.25 percent.
Answer:
Suppose the interest rate in Japan is 2 percent and the yen per euro exchange rate is
expected to appreciate by 1 percent. If interest-rate parity holds, then the interest rate in
France is
a. 3 percent.
b. 1 percent.
c. −1 percent.
d. −3 percent.
Answer:
Which of the following is likely to cause a recession according to real business cycle
theorists?
a. A fall in fuel prices
b. A fall in aggregate demand
c. A sudden fall in productivity
d. A fall in money supply
Answer:
You are planning to buy a stock, the risk on which is dependent on two factors: (1) the
change over the last year in the inflation rate and (2) the spread between ten-year
Treasury bonds and three-month Treasury bills. Suppose the average risk-free interest
rate is 1 percent. The beta coefficients of the stock associated with the change in
inflation rate and spread between ten-year Treasury bonds and three-month Treasury
bills are -2 and 5 respectively. If you expect the inflation rate to rise 1 percentage point
and you think the spread will be 3 percentage points. What is the expected return to this
stock? Use the arbitrage-pricing theory.
a. 11 percent
b. 12 percent
c. 14 percent
d. 18 percent
Answer:
If the expected inflation rate was 7 percent and the actual inflation rate was 3 percent,
then
a. borrowers gained in real terms at the expense of lenders.
b. lenders gained in real terms at the expense of borrowers.
c. borrowers and lenders were not affected.
d. the government gained because it collected more in taxes.
Answer:
Hyperinflation occurs when
a. the inflation rate is extremely high.
b. a dollar today has the same real value as one million dollars last year.
c. the inflation rate is negative.
d. the inflation rate is positive and below 10%.
Answer: