An autonomous expenditure is one that does not depend on:
A) government policy
B) the automobile sector
C) interest rates
D) GDP
Answer:
A $10 million open market purchase will increase the monetary base by
A) $10 million.
B) $10 million times the money multiplier.
C) $10 million divided by the money multiplier.
D) an amount between $0 and $10 million, depending on the fraction of the purchase
the public wishes to hold as currency.
Answer:
The relationship between the output gap and the cyclical rate of unemployment is
known as
A) the Phillips curve.
B) the LM curve.
C) Murphy’s law.
D) Okun’s law.
Answer:
Which of the following accurately describes the tax treatment of municipal bonds?
A) All income from municipal bonds is tax free.
B) Interest is tax free, but unrealized capital gains are taxable.
C) Interest is tax free, but realized capital gains are taxable.
D) Interest is taxable, but capital gains are tax free.
Answer:
Why did fewer state banks choose to become or remain members of the Federal
Reserve System during the 1960s and 1970s?
A) Nominal interest rates rose.
B) The required reserve ratio rose.
C) The discount rate rose.
D) Open market operations declined.
Answer:
Which of the following is a bank liability?
A) reserves
B) consumer loans
C) nontransaction deposits
D) securities
Answer:
A put option is said to be “in the money” if
A) it is written on a Treasury bill or other money-market asset.
B) it has increased in price since it was first written.
C) the price of the underlying asset is currently less than the strike price.
D) the price of the underlying asset is currently less than the strike price plus the option
premium.
Answer:
The unemployment that is caused by changes in the economy, such as shifts in
manufacturing techniques, increased use of computers and electronic machines, and
increases in the production of services instead of goods, is called
A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) natural unemployment.
Answer:
Banks use “credit-risk analysis” to
A) determine the appropriate interest rate to charge borrowers.
B) determine whether to invest in the stock of a corporation.
C) determine the appropriate interest rate to pay depositors.
D) determine the likelihood of an audit by bank regulators.
Answer:
The currency premium in foreign-exchange markets
A) helps to offset anticipated declines in exchange rates.
B) helps to offset anticipated increases in exchange rates.
C) indicates investors’ collective preference for financial instruments denominated in
one currency relative to those denominated in another.
D) rises as domestic interest rates fall.
Answer:
The interest rate the Fed charges on loans to depository institutions is known as
A) the federal funds rate.
B) the Fed loan rate.
C) the discount rate.
D) the interbank clearing rate.
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:
Most economists believe that a zero rate of unemployment
A) is obtainable with the correct monetary policy.
B) would result in a better functioning economy.
C) is inconsistent with a well-functioning economy.
D) is obtainable only if the inflation rate is also zero.
Answer:
The Federal Reserve System was created in
A) 1836
B) 1863
C) 1913
D) 1945
Answer:
The gap between the current unemployment rate and the natural rate of unemployment
is called:
A) frictional unemployment
B) structural unemployment
C) cyclical unemployment
D) full employment
Answer:
Many economists believe
A) the Fed could have reduced the severity of the Great Depression by raising interest
rates.
B) the Fed could have reduced the severity of the Great Depression by encouraging
banks to make fewer loans to insolvent businesses.
C) bank failures increased the severity of the Great Depression.
D) the severity of the Great Depression and the policies of the Fed were unrelated.
Answer:
Which theory explains all three facts about the term structure?
A) expectations
B) segmented markets
C) preferential treatment
D) liquidity premium
Answer:
If pepperoni pizzas sell for $10 in Berkeley, California, and £10 in London, England,
and the exchange rate is $1.35 = £1,
A) the law of one price has been violated.
B) either the British government or the American government must be interfering with
the market determination of the exchange rate.
C) the value of the dollar versus the pound is likely to rise.
D) there is no contradiction in the information given because pizza is not a tradeable
good.
Answer:
All of the following are differences between hedge funds and mutual funds EXCEPT
A) hedge funds are largely unregulated.
B) hedge funds consist of a relatively number of wealthy investors.
C) hedge funds make risky investments that mutual funds cannot make.
D) hedge funds use money collected from savers to make investments.
Answer:
In a call options contract, the
A) seller has the obligation to deliver the instrument at a specified time.
B) buyer has the obligation to receive the instrument at a specified time.
C) seller may choose whether or not to deliver the instrument at a specified time.
D) buyer will choose to exercise his option only if the value of the underlying security
falls.
Answer:
Which of the following will NOT shift the short-run aggregate supply function?
A) changes in labor costs
B) changes in the costs of nonlabor inputs
C) changes in the price level
D) changes in the expected price level
Answer:
Which of the following is a behavior inconsistent with the Efficient Markets
Hypothesis?
A) diversification of one’s portfolio
B) avoiding active trading of stocks
C) holding onto a losing stock while being more likely to sell a stock that has increased
in value
D) the purchase of a stock index fund
Answer:
According to the Gordon-Growth model, an increase in the required return on equity
A) increases the future value of the stock.
B) reduces the current dividend.
C) reduces the value of a stock.
D) reduces the expected growth rate of the dividend.
Answer:
Which type of investor is most likely to have a diversified portfolio?
A) risk averse
B) risk loving
C) risk neutral
D) risk tolerant
Answer:
The bond demand curve slopes down because
A) interest rates decline as bond prices decline.
B) when bond prices are low, inflation is low.
C) the lender is willing and able to purchase more bonds when the price of the bond is
low.
D) the borrower is willing and able to purchase more bonds when the price of the bond
is low.
Answer:
The “lemons problem” exists in the market for goods because
A) sellers tend to try to take advantage of buyers.
B) buyers tend to try to take advantage of sellers.
C) differences in the quality of the goods being exchanged.
D) of moral hazard.
Answer:
Suppose a coupon bond with a par value of $1000 is currently priced at $950 and has a
coupon of $40. Which of the following is true?
A) current yield > coupon rate
B) current yield < coupon rate
C) coupon rate has risen
D) coupon rate has declined
Answer:
The difference between the interest a bank earns on loans and securities and the interest
paid on deposits and debt divided by the total value of its assets is called
A) interest spread.
B) net interest margin.
C) return on assets.
D) return on equity.
Answer:
The aggregate demand curve illustrates the relationship between
A) the aggregate expenditure for goods and services, and the real interest rate.
B) the aggregate expenditure for goods and services, and the level of current output.
C) the level of current output and the real interest rate.
D) the aggregate expenditure for goods and services, and the price level.
Answer:
Reserve requirements are set by
A) the Secretary of Treasury.
B) the President.
C) Congress.
D) the Fed.
Answer: