The “Member Bank Reserve Changes” data published weekly in The Wall Street
Journal is most useful for
(a) information on sources of change in the monetary base.
(b) gauging whether a particular bank is likely to fail.
(c) gauging the extent to which a particular bank is indebted to the Fed.
(d) forecasting interest rates.
Answer:
Which of the following statements is true concerning the Fed’s ability to measure
potential intermediate targets over a short period of time?
(a) The Fed can perfectly measure the relevant interest rates, but cannot perfectly
measure the relevant monetary aggregates.
(b) The Fed can perfectly measure the relevant monetary aggregates, but cannot
perfectly measure the relevant interest rates.
(c) The Fed can perfectly measure both the relevant monetary aggregates and the
relevant interest rates.
(d) The Fed cannot perfectly measure either the relevant monetary aggregates or the
relevant interest rates.
Answer:
In a large open economy an increase in government spending will lead in the long run
to
(a) a lower equilibrium real interest rate.
(b) a permanently lower price level.
(c) a decrease in net exports.
(d) a permanently higher level of real output.
Answer:
The margin requirement set by the Federal Reserve is the
(a) proportion of the purchase price of a security that an investor must pay in cash.
(b) difference between the interest rate banks may charge on loans and the interest rate
they receive from deposits.
(c) same thing as the required reserve ratio on deposits.
(d) difference banks must maintain between the value of their assets and the value of
their liabilities.
Answer:
In forward transactions
(a) the exchange takes place at the same exchange rate as in the spot market.
(b) currencies are exchanged at a set date in the future.
(c) currencies may only be exchanged at rates set by governments well in advance.
(d) currency is bought and sold for delivery later that same day.
Answer:
According to the theory of purchasing power parity, whenever a country’s price level is
expected to fall relative to another country’s price level,
(a) its currency’s real exchange rate relative to the other country’s currency should rise.
(b) its currency should depreciate relative to the other country’s currency.
(c) its currency should appreciate relative to the other country’s currency.
(d) its nominal interest rate should rise relative to the other country’s nominal interest
rate.
Answer:
In terms of the AD-AS model, the new classical approach indicates that an unexpected
decrease in the money supply will affect output because it will cause
(a) the SRAS curve to shift down, whereas the AD curve will be unaffected.
(b) the SRAS curve to shift up, whereas the AD curve will be unaffected.
(c) the AD curve to shift to the left, whereas the SRAS curve will be unaffected.
(d) the AD curve to shift to the right, whereas the SRAS curve will be unaffected.
Answer:
A bank run involves
(a) a failure by a bank to get the maximum return on its investments.
(b) large numbers of depositors withdrawing their deposits within a short period of
time.
(c) a bank being forced out of business.
(d) fraud on the part of a bank’s managers.
Answer:
The expected real interest rate equals
(a) the nominal interest rate minus the tax rate.
(b) the nominal interest rate minus the expected rate of inflation.
(c) the nominal interest rate plus the expected rate of inflation.
(d) the yield to maturity on a coupon bond held to maturity.
Answer:
Which of the following financial futures contracts are traded in the United States?
(a) Interest rates
(b) Stock indexes
(c) Currencies
(d) All of the above
Answer:
In some financial panics, an unanticipated drop in the price level led to declining
investment because the lower price level
(a) resulted in higher nominal interest rates.
(b) raised the real value of firms’ debt obligations.
(c) reduced the real value of consumers’ financial wealth.
(d) reduced the real value of expected future profits.
Answer:
Which of the following statements is correct?
(a) The Fed is fully insulated from external pressures due to the long terms that
members of the Board of Governors serve.
(b) The Fed is fully insulated from external pressures because it does not need to go
through the normal congressional appropriations process.
(c) The Fed is fully insulated from external pressures because it has a constitutional
mandate.
(d) The Fed is only partially insulated from external pressures.
Answer:
A lender who is worried that its cost of funds might rise during the term of a loan it has
made, can hedge against this rise by
(a) buying futures contracts on Treasury bills.
(b) selling futures contracts on Treasury bills.
(c) buying call options on Treasury bills.
(d) increasing the amount of money which it lends.
Answer:
If the United States puts a quota on imports of automobiles,
(a) the price of U.S.-produced automobiles will fall.
(b) the dollar will depreciate.
(c) the dollar will appreciate.
(d) the efficiency of the U.S. economy will be enhanced.
Answer:
Since 1965, the price level in the United States has
(a) remained roughly the same.
(b) declined by about 50%.
(c) roughly doubled.
(d) more than quadrupled.
Answer:
In general, a young saver should choose a financial portfolio based on
(a) maximizing expected return with only limited concern for variability.
(b) minimizing variability with only limited concern for expected return.
(c) equal concern for expected return and variability.
(d) maximizing the number of tax-free securities included.
Answer:
In which of the following assets are commercial banks in the United States NOT
allowed to invest checkable deposits?
(a) Home mortgages
(b) Corporate bonds
(c) Municipal bonds
(d) U.S. Treasury bonds
Answer:
Which of the following statements is correct?
(a) The discount rate is generally above the federal funds rate.
(b) The discount rate is generally below the federal funds rate.
(c) The discount rate is generally equal to the federal funds rate.
(d) There is no general pattern to the relation between the discount rate and the federal
funds rate.
Answer:
Federal funds are
(a) the tax revenues of the Federal government.
(b) loans by the Federal Reserve to banks.
(c) loans by banks to the Federal Reserve.
(d) unsecured loans between banks.
Answer:
Which of the following statements is correct?
(a) Because in practice few borrowers are bank-dependent, the bank lending channel is
of little real-world importance.
(b) In the money channel, an expansionary monetary policy may cause a leftward shift
in the AD curve.
(c) In the bank lending channel, an expansionary monetary policy can increase output in
the short run even if it results in an increase in the real interest rate.
(d) In the money channel, an expansionary monetary policy affects the money supply
curve but not the money demand curve.
Answer:
Under a European monetary union,
(a) European central banks would retain most of the authority they currently have.
(b) regional shocks to demand would have a greater impact on income and employment
in member countries.
(c) the currencies of member countries would float independently against the dollar.
(d) the gold standard would be reestablished.
Answer:
To be useful, an economic theory should
(a) be based on reasonable assumptions.
(b) generate predictions that can be verified with actual data.
(c) actually have its predictions corroborated with data.
(d) be based on reasonable assumptions, generate predictions that can be verified with
actual data, and actually have its predictions corroborated with data.
Answer:
The onset of the Korean War in 1950 made it more difficult for the Fed to peg the
interest rate on Treasury securities because
(a) the economy moved into recession.
(b) the inflation rate declined.
(c) the tax rate on personal income was raised.
(d) the federal government increased its borrowing.
Answer:
The development of money market mutual funds also aided large, well-established
firms in raising funds by
(a) lowering interest rates throughout the economy.
(b) expanding the market for Treasury bills.
(c) expanding the market for commercial paper.
(d) expanding the market for negotiable certificates of deposit.
Answer:
Which of the following is NOT a key factor in determining household saving?
(a) The expected real rate of interest
(b) The level of government purchases
(c) Current income
(d) Expected future income
Answer:
Money markets
(a) involve trading in debt instruments with maturities of more than one year.
(b) are used by large corporations to finance inventories.
(c) involve trading in equities.
(d) are used by large corporations to finance long-term investments in plant and
equipment.
Answer:
To minimize the impact of its transactions on the monetary base, the Treasury
(a) times its payments from its account at the Fed to match its withdrawals from local
banks.
(b) makes purchases only on a few days per year.
(c) times most of its purchases for mid-April, when it receives most of its tax receipts.
(d) attempts to make roughly the same dollar value of purchases each business day.
Answer:
Investors are less willing to hold an asset with a high beta because
(a) such assets tend to be illiquid.
(b) systematic risk cannot be diversified away.
(c) idiosyncratic risk cannot be diversified away.
(d) such assets tend to have lower expected returns.
Answer:
The Federal Reserve System was created in response to
(a) the stock market crash of 1929.
(b) the ending of the Civil War.
(c) banking panics.
(d) difficulties of the free-banking era.
Answer:
For large firms economists have found that
(a) internal funds are a cheaper source of funds than are external funds.
(b) external funds are a cheaper source of funds than are internal funds.
(c) internal and external funds cost firms about the same.
(d) direct loans from the federal government are the largest source of funds.
Answer:
A national bank is subject to examination by all of the following EXCEPT the
(a) Securities and Exchange Commission.
(b) Office of the Comptroller of the Currency.
(c) Federal Reserve.
(d) FDIC.
Answer:
What is meant by inflation targeting? Does the Fed engage in inflation targeting?
Answer: