Using an interest rate for an intermediate target
(a) will cause the quantity of money to fluctuate.
(b) will often lead to a recession.
(c) requires the use of a monetary aggregate as an operating target.
(d) is required by the Federal Reserve Act.
Answer:
The total rate of return is equal to the
(a) sum of the coupon rate and the current yield.
(b) yield to maturity.
(c) sum of the current yield and the actual rate of capital gain.
(d) sum of the current yield and the expected rate of capital gain.
Answer:
The key reason that expected inflation can distort financial decisions is that
(a) lenders pay taxes on nominal rather than real returns.
(b) lenders have an easier time calculating expected inflation than do borrowers.
(c) expected inflation reduces the real value of the national debt.
(d) expected inflation results in substantial menu costs.
Answer:
What strategy did Yasushi Mieno, Governor of the Bank of Japan, believe was
appropriate in the face of declining aggregate output in Japan in the early 1990s?
(a) He decided to use an expansionary monetary policy.
(b) He decided to advise the Japanese government to use an expansionary fiscal policy,
while keeping monetary policy neutral.
(c) He decided to rely on economic expansion in the United States to increase demand
for Japanese products.
(d) He decided to wait for downward adjustment of the price level.
Answer:
Which of the following decreased its share of the percentage of total assets of financial
intermediaries between 1960 and 2003?
(a) Money market mutual funds
(b) Private pension funds.
(c) State and local government retirement funds
(d) Life insurance companies
Answer:
One of the reasons the British pound depreciated against the U.S. dollar during the late
1970s is that
(a) British productivity growth was greater than U.S. productivity growth.
(b) the U.S. inflation rate was greater than the British inflation rate.
(c) the British inflation rate was greater than the U.S. inflation rate.
(d) U.S. consumers increased their preference for British goods.
Answer:
A small company that issues bonds for the first time may have to offer them at a high
yield because the bonds will
(a) not be as liquid as many other corporate bonds.
(b) be less risky than many other corporate bonds.
(c) be less costly to gather information on than other corporate bonds.
(d) be subject to a lower tax rate than other corporate bonds.
Answer:
A rise in interest rates hurts thrifts because it
(a) reduces their net worth.
(b) raises the market value of their mortgages.
(c) decreases their cost of funds.
(d) increases their tax liability to the federal government.
Answer:
Collateral is
(a) the interest rate that banks charge high-quality borrowers.
(b) assets pledged to the bank in the event the borrower defaults.
(c) the difference between the value of a bank’s assets and the value of a bank’s
liabilities.
(d) required reserves minus excess reserves.
Answer:
A decrease in Federal Reserve float will
(a) increase nonborrowed reserves.
(b) increase borrowed reserves.
(c) increase the federal funds rate.
(d) decrease the federal funds rate.
Answer:
In the new classical view, firms and workers
(a) adjust their wages and prices, even in the short run.
(b) do not adjust their wages and prices in the short run because they have imperfect
information about changes in the price level.
(c) increase their output when the price level is lower than expected.
(d) fail to incorporate expectations of changes in the money supply into their forecasts
of the aggregate price level.
Answer:
Which of the following statements is correct?
(a) Dynamic open market operations are carried out to offset fluctuations in the
monetary base.
(b) Defensive open market operations are carried out to change monetary policy.
(c) The volume of defensive open market operations is much greater than the volume of
dynamic open market operations.
(d) Defensive open market operations are usually carried out through outright purchases
or sales.
Answer:
The introduction of federal deposit insurance resulted in
(a) more banking panics than had occurred previously.
(b) a decline in monitoring activities by depositors.
(c) an increase in monitoring activities by depositors.
(d) an increase in the interest rate paid on bank deposits.
Answer:
Why are banks able to offer funds more cheaply to many borrowers than can financial
markets?
(a) Banks tend to be willing to settle for lower profits than are other lenders.
(b) Banks are less regulated than are financial markets, which lowers banks’ costs of
operating.
(c) Banks specialize in gathering information on the creditworthiness of borrowers and
monitoring borrowers’ activities.
(d) Financial markets are generally uninterested in making loans to small borrowers,
because small borrowers usually cannot afford to pay the rates charged large
corporations and other large borrowers.
Answer:
The fourth stage in the regulatory process is
(a) a banking crisis.
(b) response by the financial system.
(c) regulation.
(d) regulatory response.
Answer:
Which of the following is NOT considered to be a goal of monetary policy?
(a) Fair wages
(b) High employment
(c) Economic growth
(d) Foreign-exchange market stability
Answer:
The Fed’s largest asset is
(a) reserves of member banks.
(b) reserves of nonmember banks.
(c) securities.
(d) loans to banks.
Answer:
A classic example of hyperinflation occurred
(a) in Japan in the 1970s.
(b) in the United Kingdom in the 1960s.
(c) in the United States in the 1930s.
(d) in Germany in the 1920s.
Answer:
A substantial appreciation of the U.S. dollar will likely result in, all else equal,
(a) lower demand for U.S. products and layoffs of U.S. workers.
(b) increased demand for U.S. products and increased employment of U.S. workers.
(c) lower foreign currency prices of U.S. products in foreign countries.
(d) higher U.S. dollar prices of foreign products in the United States.
Answer:
The supply curve for bonds would be shifted to the right by
(a) a decrease in expected profitability.
(b) a decrease in the corporate tax on profits.
(c) a decrease in tax subsidies for investment.
(d) a decrease in government borrowing.
Answer:
Movements in the growth rate of the money supply are
(a) procyclical.
(b) countercyclical.
(c) unrelated to the business cycle.
(d) difficult to identify because the federal government has stopped collecting data on
the money supply.
Answer:
Which of the following statements about the total rate of return is NOT correct?
(a) The total rate of return may be greater or less than the current yield.
(b) The total rate of return may be greater or less than the rate of capital gain.
(c) The total rate of return may never be negative.
(d) The total rate of return is greater than the coupon, holding everything else constant.
Answer:
The market for short-term credit exists in large part to
(a) provide the federal government with a means of financing its budget deficit.
(b) provide banks with short-term investments.
(c) accommodate firms’ demands for working capital.
(d) accommodate consumers’ demand to own houses.
Answer:
The correct expression for the equation of exchange is
(a) PV = MY.
(b) VY = MP.
(c) MV =PY.
(d) M/P = VY.
Answer:
If participants in financial markets come to believe that dividends paid by the company
in
Question 38 will grow at a rate of 1% rather than 3%, what will be the percentage
change in the price of the company’s stock?
(a) 4.0%
(b) 23.7%
(c) 31.1%
(d) 66.0%
Answer:
In investment banking the ‘spread” is the difference between
(a) the value of a firm’s assets and the value of its liabilities.
(b) the bid and asked prices on a bond.
(c) the price of new capital guaranteed to the issuing firm and the price that can be
obtained in the market.
(d) the price of a new stock issue and the price of an equivalent new bond issue.
Answer:
What is the most liquid market in the world?
(a) The market for gold
(b) The market for U.S. Treasury bonds
(c) The market for Japanese government bonds
(d) The market for U.S. corporate bonds
Answer:
Cost-push inflation results from
(a) workers’ pressure for higher wages.
(b) policymakers’ attempts to increase aggregate demand for current output above the
full-employment level.
(c) attempts by financial markets to deal with bracket creep.
(d) attempts by the public to receive higher after-tax returns on their savings.
Answer:
When a country’s nominal exchange rate appreciates, the price of
(a) that country’s goods abroad increases.
(b) that country’s goods abroad decreases.
(c) foreign goods sold in the country increases.
(d) that country’s goods produced and sold at home increases.
Answer:
When a bank issues a checkable deposit and loans the funds out to a business, it has
transformed
(a) a financial asset for a saver into a liability for a borrower.
(b) a financial liability for a saver into a financial asset for a borrower.
(c) a short-term liability to a borrower into a long-term asset to a saver.
(d) one liability into another liability.
Answer:
Borrowers promise to repay borrowed funds
(a) by borrowing additional funds in the future.
(b) based on their expectation of having higher incomes in the future.
(c) by reducing their costs relative to their revenues.
(d) by selling other assets.
Answer:
By the end of the 1990s,
(a) the reputation of the Fed had declined substantially.
(b) the influence and prestige of the Fed had increased.
(c) Paul Volcker had replaced Alan Greenspan has Chairman of the Board of Governors.
(d) the inflation rate had soared, calling into question the Fed’s monetary policy.
Answer:
Weighted monetary aggregates differ from traditional monetary aggregates in that they
(a) weight included assets by their liquidity.
(b) weight all included assets equally.
(c) include a much broader range of assets.
(d) include a much narrower range of assets.
Answer: