To minimize the cost of holding reserves for small banks, the:
A. required reserve rate decreases as the amount of deposits increases.
B. required reserve rate is constant.
C. required reserve rate is not applied for transaction deposits less than $100 million.
D. first few million of transactions deposits are exempt from reserve requirements.
Answer:
To say that the relationship between the velocity of money and the opportunity cost of
holding money is not stable is the same as saying:
A. the supply of money is not stable.
B. the money market is always in disequilibrium.
C. money demand is stable.
D. money demand is not stable.
Answer:
We should expect a country that experiences volatile inflation to also have:
A. volatile nominal interest rates.
B. volatile real interest rates but stable nominal rates.
C. stable nominal interest rates.
D. volatile real interest rates.
Answer:
Secondary financial markets:
A. are financial markets for all financial instruments rated less than investment grade.
B. are financial markets where existing securities are bought and sold.
C. eliminate the transaction costs for buyers and sellers.
D. are only for stock.
Answer:
If a bank has more interest-rate sensitive liabilities than interest-rate sensitive assets, an
increase in the interest rate will cause profits to:
A. increase.
B. decrease.
C. remain constant.
D. be negative, meaning there will not be profits, only losses.
Answer:
One problem for the Federal Reserve regarding setting policy stems from the fact that:
A. there are multiple goals that may be inconsistent with each other.
B. there are more policy instruments than goals.
C. Congress sets very tight goal ranges that the central bankers must hit.
D. the membership of its governing board changes so often.
Answer:
The greater the standard deviation of an investment the:
A. lower the return.
B. greater the risk.
C. lower the risk.
D. lower the risk and return.
Answer:
Which of the following statements is incorrect?
A. If you can buy the same goods this year as you bought last year with less money
there must have been deflation.
B. If you can buy the same goods this year as you purchased one year ago with the
same amount of money, prices are stable.
C. If purchasing the same goods today that were purchased one year ago requires more
money, there must have been inflation.
D. If you can buy the same goods this year as you bought last year with the same
money there must have been deflation.
Answer:
A call option described as at the money would find:
A. the market price of the stock is above the strike price.
B. the market price of the stock is below the strike price.
C. the option has been exercised.
D. the market price of the stock equals the strike price.
Answer:
The effect on the monetary policy reaction curve resulting from policymakers
decreasing their inflation target would be:
A. the monetary policy reaction curve shifting to the left.
B. a movement up the existing monetary policy reaction curve.
C. a movement down the existing monetary policy reaction curve.
D. the monetary policy reaction curve shifting to the right.
Answer:
Using the equation of exchange, if inflation is 1.5%, real output grows by 3.0%, and the
growth rate of money is 5.0%, the change in the velocity of money is:
A. Zero; velocity is constant.
B. -0.5%.
C. +4.5%.
D. +0.5%.
Answer:
The dynamic aggregate demand curve has a negative slope for all of the following
reasons except:
A. the reduction in real wealth caused by inflation.
B. the fact that high rates of inflation are good for the stock market.
C. the redistribution that occurs as inflation has a greater impact on the poor than it
does on the wealthy.
D. higher current inflation leads policymakers to increase the real interest rate, which
depresses various components of aggregate expenditures.
Answer:
When expected inflation increases, for any given nominal interest rate the:
A. bond demand curve shifts right.
B. bond supply curve shifts right.
C. price of bonds increases.
D. yield on bonds will increase.
Answer:
The most common form of zero-coupon bonds found in the United States is:
A. AAA rated corporate bonds.
B. U.S. Treasury bills.
C. 30-year U.S. Treasury bonds.
D. municipal bonds.
Answer:
The ability to create money means the central bank can control:
A. the availability of money and credit in a country’s economy.
B. tax revenue.
C. the unemployment rate.
D. government expenditures.
Answer:
If the interest rate is zero, a promise to receive a $100 payment one year from now is:
A. more valuable than receiving $100 today.
B. less valuable than receiving $100 today.
C. equal in value to receiving $100 today.
D. equal in value to receiving $101 today.
Answer:
When the monetary policymakers raise the target inflation rate they:
A. raise the current real inflation rate at every level of current inflation.
B. lower the current real interest rate at every level of current inflation.
C. in effect shift the monetary policy reaction curve to the left.
D. in effect move up along the current monetary policy reaction curve.
Answer:
When the Fed makes a discount loan, the impact on the Banking System’s balance sheet
will reflect:
A. an increase in liabilities with no change in assets.
B. an increase in assets and a decrease in liabilities.
C. a decrease in assets and an increase in liabilities.
D. an increase in assets and liabilities.
Answer:
Which of the following would not be included in aggregate expenditures?
A. Your purchase of a new car
B. The value of 100 shares of Microsoft stock you purchased
C. The purchase of new textbooks by your local school district
D. The value of blue jeans produced in the U.S. and exported to Japan
Answer:
The credit risk a bank faces is the risk resulting specifically from:
A. the economy entering a recession.
B. interest rates falling.
C. some of the bank’s loans not being repaid.
D. the bank experiencing a decrease in deposits.
Answer:
A decrease in Americans’ preference for foreign goods will lead to the following in the
foreign exchange market:
A. an increase in the demand for dollars.
B. a decrease in the supply of dollars.
C. a depreciation of the dollar relative to foreign currencies.
D. a movement down the demand curve for dollars.
Answer:
Most economists do not advocate a return to the gold standard because:
A. it forces the central bank to fix the price of something we don’t really care about
while other prices can fluctuate a lot.
B. past willingness to exit the Gold Standard casts doubt on the credibility of
committing to it again.
C. inflation will depend on the rate that gold is mined.
D. all of the answers given are correct.
Answer:
The market for bonds is initially described by the supply of bonds – S0, and the demand
for bonds – D0, with the equilibrium price and quantity being P0 and Q0. Suppose that
the expected return on bonds falls relative to other assets. In the bond market this will
result in:
A. Bond supply curve to shift to S1
B. Bond demand curve to shift to D1
C. Bond supply curve to shift to S2
D. Bond demand curve to shift to D2
Answer:
Which of the following is not a reason why interbank lending dried up during the
financial crisis of 2007-2009?
A. Banks preferred to hold on to their liquid assets in case their own need for them
increased.
B. Banks grew increasingly concerned about the ability of their trading partners to
repay the loans.
C. The increased cost of loans.
D. The Fed grew increasingly wary of making liquidity available to banks.
Answer:
If most people expect the inflation rate will increase, the:
A. long-run aggregate supply curve would shift right.
B. aggregate demand curve would shift right.
C. short-run aggregate supply curve would shift to the right.
D. short-run aggregate supply curve would shift to the left.
Answer:
In a barter system people:
A. have to specialize in order to have goods to trade.
B. cannot specialize because they never know what goods will be desired.
C. are less likely to specialize as extensively as they would in a monetary economy.
D. must be self sufficient.
Answer:
If the axes in the model for the monetary policy reaction curve are the real interest rate
(vertical axis) and the rate of inflation (horizontal axis), then the monetary policy
reaction curve would:
A. have a positive slope.
B. have a negative slope.
C. have a zero slope.
D. be vertical.
Answer:
In reading the national business news, you hear that mortgage rates increased by 50
basis points. If mortgage rates were initially at 6.5%, what are they after this increase?
A. 6.55%
B. 7.0%
C. 11.5%
D. 56.5%
Answer:
An automobile is an asset, but it is not liquid because:
A. the transactions costs for turning it into money are high.
B. the owner may still be making payments on the loan.
C. the automobile may not be in good repair.
D. the automobile cannot be sold without a loss in value.
Answer:
If the Dow Jones Industrial Average is currently at 10,000 and the price of one stock
included in the index increases by $10, the Dow Jones Industrial Average will:
A. not change; it is a value-weighted index.
B. increase by 10.0%.
C. increase by 1.0%.
D. increase by 0.1%.
Answer:
Imagine a scandal that finds the officers of bond rating agencies have been taking bribes
to inflate the rating of specific bonds. This should:
A. have no impact on the bond market since bond markets are highly efficient.
B. decrease the demand for all bonds.
C. increase the demand for U.S. Treasury securities and decrease the demand for
corporate bonds.
D. decrease the risk spread.
Answer:
The future value of $100 at a 5% per year interest rate at the end of one year is:
A. $95.00
B. $105.00
C. $97.50
D. 107.50
Answer:
An increase in expected inflation for any given nominal interest rate will cause:
A. the real return to bondholders to decrease.
B. a movement down the bond demand curve, but no change in the bond demand
curve.
C. the bond demand curve to shift right.
D. the price of bonds to increase.
Answer:
One hundred basis points could be expressed as:
A. 0.01%
B. 1.00%
C. 100.0%
D. 0.10%
Answer:
Equity markets are markets:
A. of U.S. Treasury bonds.
B. for AAA rated bonds.
C. for stocks.
D. for either stocks or bonds.
Answer:
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