1) A corporation acquires new funds only when its securities are sold in the
A) secondary market by an investment bank
B) primary market by an investment bank
C) secondary market by a stock exchange broker
D) secondary market by a commercial bank
2) Assuming the same coupon rate and maturity length, when the interest rate on a
Treasury Inflation Protected Security is 3 percent, and the yield on a nonindexed
Treasury bond is 8 percent, the expected rate of inflation is
A) 3 percent
B) 5 percent
C) 8 percent
D) 11 percent
3) The main center of the Eurodollar market is
A) London
B) Basel
C) Paris
D) New York
4) Suppose the US economy is producing at the natural rate of output A depreciation of
the US dollar will cause ________ in real GDP in the short run and ________ in
inflation in the short run, everything else held constant (Assume the depreciation causes
no effects in the supply side of the economy)
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
5) Under the current managed float exchange rate regime, countries with ________ in
their balance of payments frequently do not want to see their currencies ________
because it makes their goods more expensive abroad and foreign goods cheaper in their
countries
A) surpluses; depreciate
B) deficits; depreciate
C) surpluses; appreciate
D) deficits; appreciate
6) If the consumption function is C = 20 + 08YD, then an increase in disposable income
by $100 will result in an increase in consumer expenditure by
A) $58
B) $64
C) $80
D) $100
7) The bond markets are important because they are
A) easily the most widely followed financial markets in the United States
B) the markets where foreign exchange rates are determined
C) the markets where interest rates are determined
D) the markets where all borrowers get their funds
8) When the interest rate is above the equilibrium interest rate, there is an excess
________ money and the interest rate will ________
A) demand for; rise
B) demand for; fall
C) supply of; fall
D) supply of; rise
9) In Japan in 1998 and in the US in 2008, interest rates were negative for a short period
of time because investors found it convenient to hold six-month bills as a store of value
because
A) of the high inflation rate
B) these bills sold at a discount from face value
C) the bills were denominated in small amounts and could be stored electronically
D) the bills were denominated in large amounts and could be stored electronically
10) Solutions to the moral hazard problem include
A) low net worth
B) monitoring and enforcement of restrictive covenants
C) greater reliance on equity contracts and less on debt contracts
D) greater reliance on debt contracts than financial intermediaries
11) In an open economy, aggregate demand is the sum of
A) consumer expenditure, actual investment spending, and government spending
B) consumer expenditure, planned investment spending, and government spending
C) consumer expenditure, actual investment spending, government spending, and net
exports
D) consumer expenditure, planned investment spending, government spending, and net
exports
12) When the European System of Central Banks uses long-term refinancing
operations, it is similar to the Federal Reserve using
A) dynamic open market operations
B) defensive open market operations
C) discount policy
D) reserve requirements