In the bond market, the buyer 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:
Why were interest rates on U.S. Treasury securities in 1998 at their lowest levels in a
generation?
(a) Investors were fearful of a revival of inflation.
(b) A severe recession in the United States resulted in investors shifting out of corporate
bonds and into U.S. Treasury securities.
(c) A cut in tax rates reduced the desirability of municipal bonds, leading investors to
shift into U.S. Treasury securities.
(d) A crisis in Asian financial markets resulted in a flight to quality.
Answer:
How does the Fed acquire its holdings of securities?
(a) Through open market operations
(b) As a result of defaults by banks on discount loans
(c) As contributions by the U.S. Treasury aimed at enabling the Fed to meet its
operating expenses
(d) As contributions by member banks when they first join the system
Answer:
Which of the following assets has the lowest information costs?
(a) A U.S. Treasury bond
(b) A bond issued by the city of Smallplace, South Dakota
(c) A bond issued by General Motors
(d) A share of stock issued by General Motors
Answer:
According to the efficient markets hypothesis
(a) any change in Fed policy will affect security prices and returns.
(b) nothing the Fed does is capable of affecting security prices and returns.
(c) the announcement of an unexpected change in Fed policy will affect security prices
and returns.
(d) securities prices are determined largely by Fed actions.
Answer:
What does the coefficient a in the new classical expression for short-run aggregate
supply represent?
(a) The full employment level of output
(b) The price level in the previous period
(c) How much output responds when the actual price level differs from the expected
price level
(d) How much the price level responds when the actual level of output differs from the
full employment level of output
Answer:
An increase in borrower net worth will result in
(a) higher output and a higher real interest rate.
(b) higher output, but a lower real interest rate.
(c) lower output and a lower real interest rate.
(d) lower output, but a higher real interest rate.
Answer:
An options contract
(a) confers the rights to buy or sell an underlying asset at a predetermined price by a
predetermined time.
(b) is another name for a futures contract.
(c) may be written for debt instruments, but not equities.
(d) may be written for equities, but not for debt instruments.
Answer:
Which of the following is an intermediate target?
(a) M1
(b) Reserves
(c) Federal funds rate
(d) Inflation rate
Answer:
Credit risk is the risk that
(a) an insufficient number of borrowers will apply for loans or credit.
(b) interest rates will rise after a loan has been granted.
(c) interest rates will fall after a loan has been granted.
(d) borrowers might default on their loans.
Answer:
An increase in the nominal return on money
(a) shifts the LM curve up and to the left.
(b) shifts the LM curve down and to the right.
(c) will increase the real interest rate on nonmoney assets.
(d) shift the IS curve down and to the right.
Answer:
SEC Rule 415
(a) fixes the fees that may be charged by underwriters.
(b) requires underwriters to invest their own funds in the firms whose securities they are
underwriting.
(c) eliminates the requirement that short-term securities be underwritten.
(d) allows firms to wait as long as two years before selling a newly registered security.
Answer:
The tax code
(a) adjusts values of inventories for inflation, but does not adjust the value of
depreciation allowances.
(b) adjusts the value of depreciation allowances for inflation, but does not adjust values
of inventories.
(c) adjusts both values of inventories and the value of depreciation allowances for
inflation.
(d) adjusts neither the values of inventories nor the value of depreciation allowances for
inflation.
Answer:
The difference between the Keynesian and new Keynesian approaches to the short-run
aggregate supply curve is that
(a) Keynesians assumed that the short-run aggregate supply curve was vertical or nearly
vertical, while new Keynesians assume that it is nearly horizontal.
(b) Keynesians focused on the difference between the actual and expected price levels,
whereas new Keynesians believe this difference to be unimportant.
(c) Keynesians believed that aggregate demand was more important than aggregate
supply, whereas new Keynesians believe the reverse.
(d) Keynesians assumed that the short-run aggregate supply curve was horizontal or
nearly horizontal, whereas new Keynesians have provided economic explanations for
price stickiness.
Answer:
Studies have shown that the degree of international mobility of savings among the
United States, Japan and many European countries
(a) has been about the same since the 1960s.
(b) declined during the 1980s in comparison to the 1960s and 1970s.
(c) increased during the 1980s in comparison to the 1960s and 1970s.
(d) has continually declined since the 1960s.
Answer:
The liquidity premium
(a) compensates savers for the illiquidity of an asset.
(b) is announced quarterly for each asset by the Securities and Exchange Commission.
(c) is published by private bond-rating agencies.
(d) compensates savers for the lower yield they would otherwise receive on highly
taxed assets.
Answer:
The formula for the yield to maturity, i, on a discount bond is i =
(a) (Face value Discount price)/Discount price.
(b) (Discount price Face value)/Discount price.
(c) (Face value Discount price)/Face value.
(d) (Discount price Face value)/Face value.
Answer:
The main argument against Fed independence is that
(a) in a democracy elected officials should make public policy.
(b) monetary and fiscal policy would be easier to coordinate if the Fed were not
independent.
(c) the Fed has proven irresponsible on many occasions.
(d) congressional control was tried during the 1960s and it worked well.
Answer:
If the equilibrium interest rate in the loanable funds market on a one-year discount bond
is 8%, then the equilibrium price in the bond market must be
(a) $9200.
(b) $9259.26.
(c) $9325.15.
(d) $10,000.
Answer:
What are the leading financial intermediaries in the United States and most developed
countries?
(a) Pension funds
(b) Stock mutual funds
(c) Banks
(d) Credit unions
Answer:
The Employment Act of 1946 codified the federal government’s commitment to
(a) promote high employment consistent with price stability.
(b) promote high employment irrespective of the effects on price stability.
(c) guarantee a job to every unemployed person.
(d) fine companies that engage in excessive layoffs during recessions.
Answer:
Which of the following is NOT true of the habitat term premium?
(a) It is zero under the expectations theory.
(b) It is infinite under the segmented markets theory.
(c) It increases as a bond’s maturity increases.
(d) It is zero for thirty-year bonds.
Answer:
If i is the yield to maturity of a fixed-payment loan,
(a) the value of the loan today equals i times the sum of the values of all the loan
payments.
(b) i equals the present value of the loan payments.
(c) the value of the loan today equals the sum of the values of the loan payments.
(d) the value of the loan today equals the present value of the loan payments discounted
at rate i.
Answer:
If you deposit a $50 check in the bank, before the check has cleared the change in your
bank’s balance sheet will be
(a) a $50 increase in reserves and a $50 increase in checkable deposits.
(b) a $50 increase in cash items in the process of collection and a $50 increase in
reserves.
(c) a $50 increase in cash items in the process of collection and a $50 increase in
checkable deposits.
(d) a $50 increase in cash and a $50 increase in checkable deposits.
Answer:
As a result of asymmetric information
(a) small firms are better able to secure external financing than are large firms.
(b) investment spending may fall in a recession even if true investment opportunities do
not change.
(c) short-run fluctuations in output are smaller than they would otherwise be.
(d) fluctuations in the amount of internal funds have large effects on the investment in
plant and equipment carried out by mature firms.
Answer:
A decline in bank lending during a recession
(a) indicates that a credit crunch is occurring.
(b) indicates that the demand for bank loans has declined.
(c) will generally result in higher real interest rates.
(d) might be the result of a credit crunch or a decline in the demand for bank loans.
Answer:
What is the primary reason for the differences between the U.S. banking system and
those in other major industrial countries?
(a) Economies of scale are greater in banking in the U.S. than in banking in other
countries.
(b) Economies of scale are greater in banking in other countries than in banking in the
First Bank of the United States.
(c) the Federal Reserve System.
(d) the National Bank.
Answer:
When bank loan officers screen loan applicants to eliminate potentially bad risks, they
are attempting to mitigate the problem of
(a) adverse selection.
(b) moral hazard.
(c) interest rate risk.
(d) illiquidity.
Answer:
In a closed economy national saving equals
(a) C + I + G.
(b) Y C G.
(c) Y C I.
(d) Y G I.
Answer:
If the equilibrium price in the bond market for a one-year discount bond is $9200, then
the equilibrium interest rate in the loanable funds market must be
(a) 8%.
(b) 8.7%.
(c) 9.2%.
(d) 10%.
Answer:
When the Fed sells foreign assets to buy domestic assets,
(a) its assets and liabilities rise by the same amount.
(b) its assets and liabilities fall by the same amount.
(c) the composition of its assets changes, but its liabilities are unaffected.
(d) the composition of its liabilities changes, but its assets are unaffected.
Answer:
If a currency’s foreign exchange value is expected to fall, then
(a) demand for the currency will rise in anticipation.
(b) the current foreign-exchange value of the currency will rise.
(c) the current foreign-exchange value of the currency will fall.
(d) the country’s nominal interest rate will rise.
Answer:
Open market operations
(a) lack flexibility because only very small purchases or sales may be carried out in any
given month.
(b) lack flexibility because open market purchases cannot easily be offset by subsequent
open market sales.
(c) are more flexible than other policy tools.
(d) may only be carried out on the third Friday of each month.
Answer:
The GDP implicit price deflator was 102.6 in 1993 and 105.0 in 1994. Therefore, the
increase in the price level between the base year and 1994 was
(a) 2.3%.
(b) 2.6%.
(c) 5.0%.
(d) 105%.
Answer: