When an insurance company makes a direct loan to a firm, the loan is known as
(a) a private placement.
(b) a commercial paper.
(c) an account receivable.
(d) an account payable.
Answer:
In a matched sale-purchase transaction, the Fed
(a) buys securities from a dealer and the dealer agrees to buy them back.
(b) sells securities to a dealer and the dealer agrees to sell them back.
(c) buys securities from one dealer and sells the same dollar amount of securities to
another dealer.
(d) sells securities to one dealer and buys the same dollar amount of securities from
another dealer.
Answer:
Suppose that Acme Widget is currently selling for $100 per share and you own a call
option to buy Acme Widget at $75 per share. The intrinsic value of your option is
(a) $25.
(b) $75.
(c) $100.
(d) not possible to determine in the absence of information on values of the share price
of Acme Widget between now and the expiration date of the call.
Answer:
The most important service provided by underwriters is
(a) lowering of information costs.
(b) dealing with problems of moral hazard.
(c) insuring firms against loss from fire.
(d) insuring firms against loss from employee theft.
Answer:
Research on the Free Banking Period has found that
(a) holders of state bank notes took only small losses.
(b) holders of state bank notes took substantial losses.
(c) bank failures during the period were due largely to a loss of consumer confidence.
(d) bank failures had little to do with changes in the value of banks’ assets.
Answer:
A portfolio is a
(a) brokerage house specializing in the trading of common stock.
(b) brokerage house specializing in the trading of corporate bonds.
(c) measure of the risk involved with a holding a particular asset.
(d) collection of assets.
Answer:
Luxury assets
(a) have wealth elasticities of less than 1.
(b) generally have low fixed costs of ownership.
(c) generally have high transactions costs of acquisition.
(d) have returns that are taxed at a higher rate than the returns on necessity assets.
Answer:
If the money supply is unchanged, expansionary fiscal policy
(a) cannot result in an increase in the price level.
(b) cannot result in an increase in output.
(c) cannot result in prolonged inflation.
(d) results in prolonged inflation provided it was unexpected.
Answer:
Before World War II
(a) capital flows between the United States and other countries were much greater than
they are today.
(b) capital flows between the United States and other countries were prohibited.
(c) capital flows between the United States and other countries were restricted by
regulation.
(d) the volume of international trade was large relative to the volume of domestic
economic activity.
Answer:
An increase in the supply of real money balances will cause
(a) the LM curve to shift down and to the right.
(b) the LM curve to shift up and to the left.
(c) the IS curve to shift down and to the right.
(d) the IS curve to shift up and to the left.
Answer:
New classical economists attribute the link between the money supply and output to
(a) reverse causation.
(b) sticky prices.
(c) the XOAXOA the Fed has in adjusting the Fed funds rate.
(d) imperfect information.
Answer:
When a bank joins the Federal Reserve System,
(a) the Fed’s capital account and the bank’s deposits with the Fed increase, but the
monetary base falls.
(b) the Fed’s capital account increases, but the bank’s deposits with the Fed and the
monetary base fall.
(c) the Fed’s capital account, the bank’s deposits with the Fed, and the monetary base all
fall.
(d) the Fed’s capital account, the bank’s deposits with the Fed, and the monetary base all
increase.
Answer:
If market participants expect that inflation in the future will be lower than it currently
is, the yield curve
(a) will slope upward.
(b) will be flat.
(c) will be inverted.
(d) will be vertical.
Answer:
A key reason the commercial paper market developed later in Europe than in the United
States is that
(a) well-capitalized European banks did not need to find substitutes to traditional bank
lending activities.
(b) participation in the commercial paper market has been required of U.S. banks since
(c) in the United States there have been important tax advantages to corporations in
using the commercial paper market.
(d) it was impossible for the commercial paper market in Europe to develop until the
Eurodollar market became sufficiently large.
Answer:
Which of the following statements is true concerning the new Keynesian approach?
(a) Only unexpected changes in the money supply affect output.
(b) Only expected changes in the money supply affect output.
(c) Unexpected changes in the money supply have a greater effect on output than do
expected changes in the money supply.
(d) Expected changes in the money supply have a greater effect on output than do
unexpected changes in the money supply.
Answer:
A change in the dollar value of the British pound from $1.60 to $1.50 represents
(a) an increase in the pound price of British goods.
(b) an appreciation of the dollar relative to the pound.
(c) an appreciation of the pound relative to the dollar.
(d) an increase in the dollar price of British goods.
Answer:
The new classical explanation of aggregate supply in the short run builds on research by
(a) Irving Fisher.
(b) John Maynard Keynes.
(c) Robert Lucas.
(d) Robert Solow.
Answer:
In the bond market, the seller 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:
Which of the following is an operating target?
(a) M1
(b) M2
(c) Reserves
(d) The inflation rate
Answer:
In 1987, the so-called Louvre Accord
(a) formally abolished the Bretton Woods system.
(b) established unofficial trading ranges for currencies.
(c) committed the United States to defend a fixed price for gold.
(d) designated the Japanese yen as an official reserve currency.
Answer:
A currency swap is
(a) the informal name bankers give to the exchange rate.
(b) an exchange of the expected future returns on debt instruments denominated in
different currencies.
(c) an agreement by one government to provide aid to another government in the form
of a loan denominated in the recipient’s currency.
(d) an agreement to buy and sell a specified amount of foreign currency at a specified
future date.
Answer:
Which of the following is the most efficient means of trade?
(a) Barter
(b) Money
(c) Government rationing
(d) The combination of barter with some government rationing
Answer:
Which of the following is NOT true of exchanges?
(a) Securities are bought and sold in one physical location.
(b) Securities are sold in an auction market.
(c) The NYSE is an exchange.
(d) The NASDAQ is an exchange.
Answer:
Savers generally are
(a) more concerned about expected returns than about the variability of those returns.
(b) risk-neutral.
(c) risk-averse.
(d) unconcerned about expected returns, but very concerned about the variability of
those returns.
Answer:
Which of the following appears to be evidence against the public interest view of the
Fed’s motivation?
(a) The conflict with the Treasury over interest rate fixing during World War II
(b) The failure of the Fed to emphasize the goal of price stability
(c) The unwillingness of the Fed to turn over its excess profits to the Treasury
(d) The independence of Fed chairmen from the authority of the President
Answer:
Small savers prefer to use financial intermediaries rather than make loans to borrowers
directly because
(a) savers prefer to share risk.
(b) financial intermediaries offer higher interest rates than could be obtained directly
from borrowers.
(c) savers reduce their tax liability by doing so.
(d) borrowers dislike dealing with small savers.
Answer:
With respect to the period of the last three decades, which of the following statements is
true?
(a) Bank net worth has been relatively stable, but the riskiness of bank assets has
increased substantially.
(b) Bank net worth has declined substantially, but the riskiness of bank assets has
remained about the same.
(c) Bank net worth has declined substantially and the riskiness of bank assets has
increased substantially.
(d) Bank net worth and the riskiness of bank assets have remained relatively stable.
Answer:
In the new Keynesian expression for the price level, c represents
(a) the fraction of firms in the economy with sticky prices.
(b) the marginal propensity to consume.
(c) the responsiveness of the price level to differences between actual aggregate output
and full-employment aggregate output.
(d) the responsiveness of aggregate output to the difference between the actual price
level and the expected price level.
Answer:
An agency office of a foreign bank
(a) is subject to the same branching restrictions as U.S. banks.
(b) is subject to the same FDIC insurance requirements as U.S. banks.
(c) may not make loans within the United States.
(d) may not accept deposits from U.S. residents.
Answer:
Which of the following is an example of a short-term debt instrument?
(a) A six-month U.S. Treasury bill
(b) A ten-year U.S. Treasury note
(c) A thirty-year U.S. Treasury bond
(d) A thirty-year corporate bond
Answer:
The law of large numbers allows insurance companies to
(a) hold capital market instruments as assets without fearing overly large numbers of
defaults.
(b) hold money market instruments as assets without fearing overly large numbers of
defaults.
(c) predict the average number of occurrences of insurable events in a large population
of policyholders.
(d) charge higher premiums than necessary, knowing that large numbers of individuals
will pay them.
Answer:
Which events made the inflation that began in the late 1960s worse?
(a) The large tax cuts of the early 1970s
(b) The oil supply shocks of the mid 1970s
(c) The large increases in the exchange value of the dollar in the early 1970s
(d) The large reductions in the government spending in the late 1970s
Answer:
Federally chartered S&Ls are supervised by the
(a) Office of Thrift Supervision.
(b) Securities and Exchange Commission.
(c) Office of the Comptroller of the Currency.
(d) Federal Reserve System.
Answer: