A problem with barter exchange when there are many goods is that in a barter system
A) transactions costs are minimized.
B) there exists a multiple number of prices for each good.
C) there is only one store of value.
D) exchange of services is impossible.
Answer:
An increase in the expected rate of inflation will ________ the expected return on
bonds relative to the that on ________ assets, everything else held constant.
A) reduce; financial
B) reduce; real
C) raise; financial
D) raise; real
Answer:
Securities are ________ for the person who buys them, but are ________ for the
individual or firm that issues them.
A) assets; liabilities
B) liabilities; assets
C) negotiable; nonnegotiable
D) nonnegotiable; negotiable
Answer:
Planned investment spending is higher
A) when real interest rate is higher.
B) during financial frictions.
C) when businesses are optimistic.
D) all of the above.
E) A and C.
Answer:
An important function of the regional Federal Reserve Banks is
A) setting reserve requirements.
B) clearing checks.
C) determining monetary policy.
D) setting margin requirements.
Answer:
Currently, Fannie Mae and Freddie Mac are
A) privately owned government-sponsored enterprises.
B) privately owned enterprises with no government sponsorship.
C) government agencies.
D) government departments.
Answer:
High inflation can spiral out of control when
A) expected inflation increases nominal interest rates, causing the Fed to buy bonds,
increasing the money supply and further increasing inflation.
B) expected inflation decreases nominal interest rates, causing the Fed to buy bonds,
increasing the money supply and further increasing inflation.
C) expected inflation increases nominal interest rates, causing the Fed to sell bonds,
increasing the money supply and further increasing inflation.
D) expected inflation decreases nominal interest rates, causing the Fed to sell bonds,
increasing the money supply and further increasing inflation.
Answer:
The interest rate for primary credit is usually set ________ basis points ________ the
federal funds rate. In March 2008, this gap was changed to ________ basis points.
A) 50; below; 100
B) 100; above; 25
C) 100; below; 50
D) 50; above; 25
Answer:
In the simple deposit expansion model, a decline in checkable deposits of $1,000 when
the required reserve ratio is equal to 10 percent implies that the Fed
A) sold $1,000 in government bonds.
B) sold $100 in government bonds.
C) purchased $1,000 in government bonds.
D) purchased $100 in government bonds.
Answer:
Milton Friedman called the response of lower interest rates resulting from an increase in
the money supply the ________ effect.
A) liquidity
B) price level
C) expected-inflation
D) income
Answer:
Models describing the determination of the money supply and the Fed’s role in this
process normally focus on ________ rather than ________, since Fed actions have a
more predictable effect on the former.
A) reserves; the monetary base
B) reserves; high-powered money
C) the monetary base; high-powered money
D) the monetary base; reserves
Answer:
Everything else held constant, a decrease in autonomous consumer spending will cause
the IS curve to shift to the ________ and aggregate demand will ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
Answer:
Which of the following is not a disadvantage to inflation targeting?
A) There is a delayed signal about achievement of the target.
B) Inflation targets could impose a rigid rule on policymakers.
C) There is potential for larger output fluctuations.
D) There is a lack of transparency.
Answer:
Through correspondent banking, large banks provide services to small banks, including
A) loan guarantees.
B) foreign exchange transactions.
C) issuing stock.
D) debt reduction.
Answer:
If wealth increases, the demand for stocks ________ and that of long-term bonds
________, everything else held constant.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
Answer:
________ may antagonize customers and thus can be a very costly way of acquiring
funds to meet an unexpected deposit outflow.
A) Selling securities
B) Selling loans
C) Calling in loans
D) Selling negotiable CDs
Answer:
Using the Gordon growth model, a stock’s current price decreases when
A) the dividend growth rate increases.
B) the required return on equity decreases.
C) the expected dividend payment increases.
D) the growth rate of dividends decreases.
Answer:
If your nominal income in 1998 is $50,000, and prices increase by 50% between 1998
and 2011, then to have the same real income, your nominal income in 2011 must be
A) $50,000.
B) $75,000.
C) $100,000.
D) $150,000.
Answer:
________ markets transfer funds from people who have an excess of available funds to
people who have a shortage.
A) Commodity
B) Fund-available
C) Financial
D) Derivative exchange
Answer:
The entry of AT&T and GM into the credit card business is an indication of
A) government’s efforts to deregulate the provision of financial services.
B) the rising profitability of credit card operations.
C) the reduction in costs of credit card operations since 1990.
D) the sale of unprofitable operations by Bank of America and Citicorp.
Answer:
The discount rate is
A) the interest rate the Fed charges on loans to banks.
B) the price the Fed pays for government securities.
C) the interest rate that banks charge their most preferred customers.
D) the price banks pay the Fed for government securities.
Answer:
Policymakers in a country with a balance of payments surplus may not want to see their
country’s currency appreciate because this would
A) hurt consumers in their country by making foreign goods more expensive.
B) hurt domestic businesses by making foreign goods cheaper in their country.
C) increase inflation in their country.
D) decrease the wealth of the country.
Answer:
If a bank has excess reserves greater than the amount of a deposit outflow, the outflow
will result in equal reductions in
A) deposits and reserves.
B) deposits and loans.
C) capital and reserves.
D) capital and loans.
Answer:
The collapse of the subprime mortgage market
A) did not affect the corporate bond market.
B) increased the perceived riskiness of Treasury securities.
C) reduced the Baa-Aaa spread.
D) increased the Baa-Aaa spread.
Answer:
When the government has a surplus, as occurred in the late 1990s, the ________ curve
of bonds shifts to the ________, everything else held constant.
A) supply; right
B) supply; left
C) demand; right
D) demand; left
Answer:
If the required reserve ratio is one-third, currency in circulation is $300 billion,
checkable deposits are $900 billion, and there is no excess reserve, then the M1 money
multiplier is
A) 2.5
B) 2.8
C) 2
D) 0.67
Answer:
An investment intermediary that lends funds to consumers is
A) a finance company.
B) an investment bank.
C) a finance fund.
D) a consumer company.
Answer:
Which of the following statements about financial markets and securities is true?
A) A bond is a long-term security that promises to make periodic payments called
dividends to the firm’s residual claimants.
B) A debt instrument is intermediate term if its maturity is less than one year.
C) A debt instrument is intermediate term if its maturity is ten years or longer.
D) The maturity of a debt instrument is the number of years (term) to that instrument’s
expiration date.
Answer:
Members of the Executive Board of the European System of Central Banks are
appointed to ________ year, nonrenewable terms.
A) four
B) eight
C) ten
D) fourteen
Answer:
________ means people are more unhappy when they suffer losses than they are happy
when they achieve gains.
A) Loss fundamentals
B) Loss aversion
C) Loss leader
D) Loss cycle
Answer:
The two types of open market operations are
A) offensive and defensive.
B) dynamic and reactionary.
C) active and passive.
D) dynamic and defensive.
Answer:
The leverage ratio is the ratio of a bank’s
A) assets divided by its liabilities.
B) income divided by its assets.
C) capital divided by its total assets.
D) capital divided by its total liabilities.
Answer:
Which of the following are not liabilities on the Fed’s balance sheet?
A) Discount loans
B) Bank deposits
C) Deferred availability cash items
D) U.S. Treasury deposits
Answer:
When stock prices fall
A) an individual’s wealth is not affected nor is their willingness to spend.
B) a business firm will be more likely to sell stock to finance investment spending.
C) an individual’s wealth may decrease but their willingness to spend is not affected.
D) an individual’s wealth may decrease and their willingness to spend may decrease.
Answer:
If workers believe that government policymakers will increase aggregate demand to
avoid a politically unpopular increase in unemployment when workers demand higher
wages, then workers will not fear higher unemployment and their wage demands will
result in
A) demand-pull inflation.
B) hyperinflation.
C) deflation.
D) cost-push inflation.
Answer: