What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for
$1,200 next year?
A. 5 percent
B. 10 percent
C. -5 percent
D. 25 percent
Answer:
The Federal Reserve System was created to
A. make it easier to finance budget deficits.
B. promote financial market stability.
C. lower the unemployment rate.
D. promote rapid economic growth.
Answer:
In the model of the money supply process for M2, the relationship between checkable
deposits and the M2 money supply is represented by
a. D = × M2.
b. D = (1 + c + t + mm) × M2.
c. M2 = × D.
d. M2 = .
Answer:
Monetary aggregates are
A. measures of the money supply reported by the Federal Reserve.
B. measures of the wealth of individuals.
C. never redefined since “money” never changes.
D. reported by the Treasury Department annually.
Answer:
If an economy has aggregate output of $20 trillion, then aggregate income is
A. $10 trillion.
B. $20 trillion.
C. $30 trillion.
D. $40 trillion.
Answer:
Demand-pull inflation can result when
A. policymakers set an unemployment target that is too high.
B. a persistent budget deficit is financed by selling bonds to the public.
C. a persistent budget deficit is financed by selling bonds to the central bank.
D. workers get numerous wage increases.
Answer:
Nonactivists of the policies believe that
A. wages and prices are very flexible.
B. the self-correcting mechanism is very rapid.
C. government action is unnecessary.
D. all of the above.
Answer:
Not surprisingly, when financial institutions have consolidated more services under one
roof, the amount of conflicts of interest has ________, which has led to ________ in
unethical behavior.
A. increased; an increase
B. increased; a decrease
C. decreased; an increase
D. decreased; a decrease
Answer:
An autonomous easing of monetary policy results in a ________ level of equilibrium
output, shifting the aggregate demand curve to the ________.
A. higher; right
B. lower; right
C. higher; left
D. lower; left
Answer:
The M2 money multiplier is
a. negatively related to high-powered money.
b. positively related to the time deposit ratio.
c. positively related to the required reserve ratio.
d. positively related to the excess reserves ratio.
Answer:
In the market for reserves, if the federal funds rate is between the discount rate and the
interest rate paid on excess reserves, a ________ in the reserve requirement ________
the demand for reserves, raising the federal funds interest rate, everything else held
constant.
A. rise; decreases
B. rise; increases
C. decline; increases
D. decline; decreases
Answer:
To claim that a lottery winner who is to receive $1 million per year for twenty years has
won $20 million ignores the process of
A. face value.
B. par value.
C. deflation.
D. discounting the future.
Answer:
The “Greenspan doctrinecentral banks should not try to prick bubbleswas based on
which of the following arguments?
A. Asset-price bubbles are nearly impossible to identify.
B. Monetary actions would be likely to affect asset prices in general, rather than the
specific assets that are experiencing a bubble.
C. Raising interest rates has often been found to cause a bubble to burst more severely.
D. Monetary policy actions to prick bubbles can have harmful effects on the aggregate
economy.
E. All of the above.
Answer:
Reducing risk through the purchase of assets whose returns do not always move
together is
A. diversification.
B. intermediation.
C. intervention.
D. discounting.
Answer:
Banks subject to reserve requirements set by the Federal Reserve System include
A. only nationally chartered banks.
B. only banks with assets less than $100 million.
C. only banks with assets less than $500 million.
D. all banks whether or not they are members of the Federal Reserve System.
Answer:
Differences in ________ explain why interest rates on Treasury securities are not all the
same.
A. risk
B. liquidity
C. time to maturity
D. tax characteristics
Answer:
An electronic payments system has not completely replaced the paper payments system
because of all of the following reasons EXCEPT
A. expensive equipment is necessary to set up the system.
B. security concerns.
C. privacy concerns.
D. transportation costs.
Answer:
Members of Congress are able to influence monetary policy, albeit indirectly, through
their ability to
A. withhold appropriations from the Board of Governors.
B. withhold appropriations from the Federal Open Market Committee.
C. propose legislation that would force the Fed to submit budget requests to Congress,
as must other government agencies.
D. instruct the General Accounting Office to audit the foreign exchange market
functions of the Federal Reserve.
Answer:
If an individual moves money from a demand deposit account to a money market
deposit account
A. M1 decreases and M2 stays the same.
B. M1 stays the same and M2 increases.
C. M1 stays the same and M2 stays the same.
D. M1 increases and M2 decreases.
Answer:
Banks, savings and loan associations, mutual savings banks, and credit unions
A. are no longer important players in financial intermediation.
B. since deregulation now provide services only to small depositors.
C. have been adept at innovating in response to changes in the regulatory environment.
D. produce nothing of value and are therefore a drain on society’s resources.
Answer:
If there is an excess supply of money
A. individuals sell bonds, causing the interest rate to rise.
B. individuals sell bonds, causing the interest rate to fall.
C. individuals buy bonds, causing interest rates to fall.
D. individuals buy bonds, causing interest rates to rise.
Answer:
Which of the following can be described as involving direct finance?
A. A corporation takes out loans from a bank.
B. People buy shares in a mutual fund.
C. A corporation buys a short-term corporate security in a secondary market.
D. People buy shares of common stock in the primary markets.
Answer:
The combination of a successful wage push by workers and the government’s
commitment to high employment leads to
A. demand-pull inflation.
B. supply-side inflation.
C. supply-shock inflation.
D. cost-push inflation.
Answer:
If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the
money supply is ________ billion.
a. $8000
b. $1200
c. $1200.8
d. $8400
Answer:
In the Baumol-Tobin analysis of transactions demand, scale economies imply that an
increase in real income increases the quantity of money demanded ________, while an
increase in the price level increases the quantity of money demanded ________.
A. proportionately; less than proportionately
B. more than proportionately; proportionately
C. less than proportionately; proportionately
D. proportionately; more than proportionately
Answer:
If the economy is on the IS curve, but is to the left of the LM curve, then the ________
market is in equilibrium, but the interest rate is ________ the equilibrium level.
A. goods; below
B. goods; above
C. money; below
D. money; above
Answer:
Most of a bank’s operating income results from
A. interest on assets.
B. service charges on deposit accounts.
C. off-balance-sheet activities.
D. fees from standby lines of credit.
Answer:
Markets in which funds are transferred from those who have excess funds available to
those who have a shortage of available funds are called
A. commodity markets.
B. fund-available markets.
C. derivative exchange markets.
D. financial markets.
Answer:
Deflation causes the demand for bonds to ________, the supply of bonds to ________,
and bond prices to ________, everything else held constant.
A. increase; increase; increase
B. increase; decrease; increase
C. decrease; increase; increase
D. decrease; decrease; increase
Answer:
In the Keynesian cross diagram, an increase in investment spending because companies
become more optimistic about investment profitability causes the aggregate demand
function to shift up, the equilibrium level of aggregate output to ________, and the IS
curve to shift to the ________, everything else held constant.
A. rise; left
B. rise; right
C. fall; left
D. fall; right
Answer: