On a bank’s balance sheet, assets are
(a) the uses of acquired funds.
(b) the sources of acquired funds.
(c) those items owed by the bank to depositors and others.
(d) by definition equal to the bank’s liabilities.
Answer:
Investors often pay professional analysts to gather and monitor information on the
creditworthiness of borrowers because
(a) federal law requires it.
(b) most investors are risk neutral.
(c) the cost of acquiring information about a borrower’s creditworthiness can be high.
(d) doing so increases the net-of-tax yield on most investments.
Answer:
Which of the following is NOT included in aggregate demand?
(a) Demand for goods and services for consumption
(b) Investment in business plant and equipment
(c) Net exports
(d) Investment in Treasury bonds
Answer:
Which of the following is NOT a determinant of asset demand?
(a) The saver’s wealth
(b) The saver’s income
(c) Expectations of the return on the asset
(d) The liquidity of the asset
Answer:
One implication of the efficient markets hypothesis is that investors should
(a) concentrate their investments in just a few well-chosen assets.
(b) hold a diversified portfolio of assets.
(c) buy stocks rather than bonds.
(d) buy bonds rather than stocks.
Answer:
Which of the following would be most likely to use a financial market?
(a) A household with a small amount of funds to lend
(b) A household wishing to borrow a small amount
(c) A small business wishing to borrow to expand its operations
(d) A state government wishing to borrow to finance a highway project
Answer:
The low point in a business cycle is known as the
(a) lower limit.
(b) zero point.
(c) trough.
(d) peak.
Answer:
Under the Bretton Woods system, the value of the dollar could be changed
(a) only by a coordinated realignment of all other currencies.
(b) only if the Fed were willing to buy large amounts of foreign currency.
(c) only if the Fed were willing to sell large amounts of foreign currency.
(d) by adjusting short-term interest rates in the United States.
Answer:
Which of the following is NOT one of the three leading financial centers in the world?
(a) London
(b) Amsterdam
(c) Tokyo
(d) New York
Answer:
A financial portfolio
(a) is a brokerage firm that deals only in common stock.
(b) measures the risk involved with holding a particular asset.
(c) is a collection of assets.
(d) will generally have less liquidity than a nonfinancial portfolio.
Answer:
Between 1989 and 2003, the Japanese Nikkei stock index
(a) rose more than 1000%.
(b) rose more than 500%.
(c) remained unchanged.
(d) declined by more than 70%.
Answer:
Which of the following is a coupon bond?
(a) A U.S. savings bond
(b) A U.S. Treasury bill
(c) A U.S. Treasury note
(d) A zero-coupon bond
Answer:
During the Free Banking Period
(a) banks were not allowed to charge interest on loans.
(b) banks were not allowed to charge fees to depositors.
(c) banking was conducted with little government intervention.
(d) the Second Bank of the United States was in operation.
Answer:
Factoring
(a) involves selling stocks and using the proceeds to buy bonds.
(b) is purchasing accounts receivable at a discount.
(c) is calculating the optimal par values of stocks and bonds.
(d) has been declared illegal under the Factoring Reform Act of 1994.
Answer:
Comparing U.S. household portfolios in 2003 with U.S. household portfolios in 1950,
which of the following statements is true?
(a) Pension reserves were a larger fraction of U.S. household portfolios in 2000, but
U.S. government securities were a smaller fraction.
(b) Life insurance reserves were a larger fraction of U.S. household portfolios, but
pension reserves were a smaller fraction.
(c) Money market mutual funds were a smaller fraction of U.S. household portfolios,
but U.S. government securities were a larger fraction.
(d) U.S. government securities were a smaller fraction of U.S. household portfolios, but
life insurance reserves were a larger fraction.
Answer:
Which of the following is considered a default-risk-free instrument?
(a) A thirty-year bond issued by IBM
(b) A share of stock issued by IBM
(c) A share of stock issued by the federal government
(d) A thirty-year bond issued by the U.S. Treasury
Answer:
The equilibrium exchange rate
(a) is determined by the relative amounts of gold contained in each country’s currency.
(b) is determined monthly by the International Monetary Fund.
(c) in the short run reflects the relative purchasing power of each country’s currency.
(d) makes investors indifferent between holding domestic and foreign assets.
Answer:
Capital controls were imposed in 1998 by
(a) the United States.
(b) Canada.
(c) Japan.
(d) some emerging economies.
Answer:
In which of the following books did J. M. Keynes first present the liquidity preference
theory of the demand for money?
(a) Money through the Ages
(b) The Theory of Interest
(c) The General Theory of Employment, Interest, and Money
(d) Money, Banking, and the Economy
Answer:
Attempts by policymakers to keep the rate of unemployment below the natural rate of
unemployment for a sustained period of time will result in
(a) demand-pull inflation.
(b) permanently higher levels of output.
(c) a recession.
(d) a shift of the LRAS curve to the left.
Answer:
Decreases in which of the following items from the Fed’s balance sheet will result in
increases in the monetary base?
(a) Securities
(b) Gold and SDR certificates
(c) U.S. Treasury currency outstanding
(d) U.S. Treasury deposits
Answer:
A call option is said to be in the money if it
(a) is written on a Treasury bill or other money-market asset.
(b) has increased in price since it was first written.
(c) if the price of the underlying asset is currently greater than the strike price.
(d) if the price of the underlying asset is currently greater than the strike price plus the
option premium.
Answer:
If, while you are holding a coupon bond, the interest rates on other similar bonds fall,
you can be sure that
(a) the coupon payments on your bond will fall.
(b) the market price of your bond will rise.
(c) the market price of your bond will fall.
(d) the par value of your bond will rise.
Answer:
The existence of rating agencies has
(a) lowered returns on corporate bonds.
(b) raised returns on corporate bonds.
(c) left returns on corporate bonds largely unaffected.
(d) raised returns on both corporate bonds and Treasury securities.
Answer:
Cumulatively, over the long run, the government sector
(a) cannot spend more than it collects in taxes.
(b) runs very large deficits.
(c) runs very large surpluses.
(d) must balance its budget every year.
Answer:
When domestic and foreign assets are imperfect substitutes, an increase in the supply of
domestic assets
(a) implies greater exchange rate risk.
(b) implies lower exchange rate risk.
(c) raises the exchange rate.
(d) implies lower exchange rate risk and raises the exchange rate.
Answer:
Suppose that neither output nor the money supply has been growing. In the new
classical view, if the Chairman of the Fed announces a 10% increase in the money
supply and then takes actions that cause the money supply to grow by only 5%, the
result will be that
(a) the price level will increase, but output will not.
(b) output will increase, but the price level will not.
(c) neither output nor the price level will increase.
(d) both the price level and output will increase.
Answer:
Since 1980, discount loans have been available
(a) only to member banks of the Federal Reserve System.
(b) only to national banks.
(c) only to state banks.
(d) to all depository institutions.
Answer:
Financing government spending by raising taxes
(a) will increase the monetary base.
(b) will decrease the monetary base.
(c) will leave the monetary base unaffected.
(d) will increase the monetary base if the taxes are paid in currency, but will decrease it
if they are paid for by check.
Answer:
Which of the following are included in M3, but not in M2?
(a) Savings account deposits
(b) Checking account deposits
(c) Small-denomination time deposits
(d) Term repurchase agreements
Answer:
The yield on a 30-year Treasury bond is 8% at the same time as the yield on 2-year
Treasury note is 5%. This occurrence
(a) indicates that the yield curve is downward sloping.
(b) is well explained by the segmented markets theory.
(c) is largely explained by the favorable tax treatment of Treasury notes.
(d) indicates that the bond market is anticipating that inflation will fall.
Answer:
Which of the following best states the relationship among the Fed’s policy goals?
(a) Although difficult to attain, the goals are mutually consistent.
(b) Conflicts among the Fed’s policy goals often arise.
(c) The goals are always in conflict; attempting to attain one goal involves decreasing
the likelihood of attaining the other goals.
(d) The Fed focuses exclusively on the goal of low inflation and ignores the other goals.
Answer:
Which of the following is NOT an example of off-balance-sheet lending?
(a) A swap
(b) A standby letter of credit
(c) A loan commitment
(d) A loan sale
Answer: