The economist who proposed that, “Inflation is always and everywhere a monetary
phenomenon” was
A. John Maynard Keynes.
B. John R. Hicks.
C. Milton Friedman.
D. Franco Modigliani.
Answer:
In May 1991, the FDIC announced that it would sell the government’s final 26% stake
in Continental Illinois, ending government ownership of the bank that it had rescued in
1984. The FDIC took control of the bank, rather than liquidate it, because it believed
that Continental Illinois
A. was a good investment opportunity for the government.
B. could be the Chicago branch of a new governmentally-owned interstate banking
system.
C. was too big to fail.
D. would become the center of the new midwest region central bank system.
Answer:
By taking the short position on a futures contract of $100,000 at a price of 115 you are
agreeing to ________ a ________ face value security for ________.
A. sell; $100,000; $115,000.
B. sell; $115,000; $100,000.
C. buy; $100,000; $115,000.
D. buy; $115,000; $100,000.
Answer:
For restrictive covenants to help reduce the moral hazard problem, they must be
________ by the lender.
A) monitored and enforced
B) written in all capitals
C) easily changed
D) impossible to remove
Answer:
A rise in the price level causes the demand for money to ________ and the interest rate
to ________, everything else held constant.
A. decrease; decrease
B. decrease; increase
C. increase; decrease
D. increase; increase
Answer:
The Federal Reserve entity that makes decisions regarding the conduct of open market
operations is the
A. Board of Governors.
B. chairman of the Board of Governors.
C. Federal Open Market Committee.
D. Open Market Advisory Council
Answer:
If peanuts serve as a medium of exchange, a unit of account, and a store of value, then
peanuts are
A. bank deposits.
B. reserves.
C. money.
D. loanable funds.
Answer:
In the liquidity trap, monetary policy
A. has a large impact on interest rates.
B. has a small impact on interest rates.
C. has no impact on interest rates.
D. has a proportionate impact on interest rates.
Answer:
Agency problems in the subprime mortgage market included all of the following
EXCEPT
A. homeowners could refinance their houses with larger loans when their homes
appreciated in value.
B. mortgage originators had little incentives to make sure that the mortgagee is a good
credit risk.
C. underwriters of mortgage-backed securities had weak incentives to make sure that
the holders of the securities would be paid back.
D. the evaluators of securities, the credit rating agencies, were subject to conflicts of
interest.
Answer:
The concept of adverse selection helps to explain
A. why collateral is not a common feature of many debt contracts.
B. why large, well-established corporations find it so difficult to borrow funds in
securities markets.
C. why financial markets are among the most heavily regulated sectors of the economy.
D. why stocks are the most important source of external financing for businesses.
Answer:
A major difference between the United States and Japanese banking systems is that
A) American banks are allowed to hold substantial equity stakes in commercial firms,
whereas Japanese banks cannot.
B) Japanese banks are allowed to hold substantial equity stakes in commercial firms,
whereas American banks cannot.
C) bank holding companies are illegal in the United States.
D) Japanese banks are usually organized as bank holding companies.
Answer:
In the basic closed-economy ISLM model, as the interest sensitivity of investment
spending increases, fiscal policy has ________ effect on output and monetary policy
has ________ effect on output.
A. less; less
B. more; more
C. more; less
D. less; more
Answer:
Everything else held constant, when output is ________ the natural rate level, wages
will begin to ________, decreasing short-run aggregate supply.
A. above; fall
B. above; rise
C. below; fall
D. below; rise
Answer:
As interest rates rise, the opportunity cost of holding money ________ and the demand
for money ________.
A. rises; rises
B. rises; falls
C. falls; rises
D. falls; falls
Answer:
The long-run aggregate supply curve shifts to the right when there is
A. an increase in the total amount of capital in the economy.
B. an increase in the available technology.
C. a decrease in the natural rate of unemployment.
D. A and B.
E. A, B, and C.
Answer:
If Toyota sells a $1000 bond in the United States, the bond is a
A. foreign bond.
B. Eurobond.
C. Tokyo bond.
D. currency bond.
Answer:
The existence of lags prevents the instantaneous adjustment of the economy to policies
changing aggregate demand, thereby strengthening the case for
A. supply-side policy.
B. nonactivists.
C. activists.
D. demand-management policy.
Answer:
The expectations-augmented Phillips curve implies that as expected inflation increases,
nominal wages ________ to prevent real wages from ________.
A. fall; rising
B. fall; falling
C. rise; falling
D. rise; rising
Answer:
________ in the expected future domestic exchange rate causes the demand for
domestic assets to increase and the domestic currency to ________, everything else
held constant.
A. An increase; appreciate
B. An increase; depreciate
C. A decrease; appreciate
D. A decrease; depreciate
Answer:
The specialty of Lloyd’s of London is
A. annuities.
B. hedge funds.
C. mutual funds.
D. reinsurance.
Answer:
The most important category of assets on a bank’s balance sheet is
A. other assets.
B. securities.
C. loans.
D. cash items in the process of collection.
Answer:
In the model of the money supply process, the depositor’s role in influencing the money
supply is represented by
a. the currency holdings.
b. the currency holdings and excess reserve.
c. the currency holdings and borrowed reserve.
d. the market interest rate.
Answer:
Which of the following statements are TRUE?
A. An increase in tax rates will increase the demand for Treasury bonds, lowering their
interest rates.
B. Because the tax-exempt status of municipal bonds was of little benefit to bond
holders when tax rates were low, they had higher interest rates than U.S. government
bonds before World War II.
C. Interest rates on municipal bonds will be higher than comparable bonds without the
tax exemption.
D. Because coupon payments on municipal bonds are exempt from federal income tax,
the expected after-tax return on them will be higher for individuals in lower income tax
brackets.
Answer:
If you expect the inflation rate to be 15 percent next year and a one-year bond has a
yield to maturity of 7 percent, then the real interest rate on this bond is
A. 7 percent.
B. 22 percent.
C. -15 percent.
D. -8 percent.
Answer:
If the optimal forecast of the return on a security exceeds the equilibrium return, then
A. the market is inefficient.
B. no unexploited profit opportunities exist.
C. the market is in equilibrium.
D. the market is myopic.
Answer:
When one party to a transaction has incentives to engage in activities detrimental to the
other party, there exists a problem of
A. moral hazard.
B. split incentives.
C. ex ante shirking.
D. pre-contractual opportunism.
Answer:
Both France and the United Kingdom successfully used exchange-rate targeting to
lower inflation in the late 1980s and early 1990s by tying the value of their currencies
to the________
A) U.S. dollar.
B) German mark.
C) Swiss franc.
D) Euro.
Answer:
Early Keynesians felt that ________ policy was ________, so they stressed the
importance of ________ policy.
A. fiscal; ineffective; monetary
B. monetary; ineffective; fiscal
C. monetary; potent; monetary
D. fiscal; too potent; monetary
Answer:
The seignorage for a government is greater for ________ than for ________.
A) dollarization; a currency board
B) dollarization; exchange-rate targeting
C) dollarization; monetary targeting
D) dollarization; inflation targeting
E) exchange-rate targeting; dollarization
Answer:
Which of the following is a disadvantage to monetary targeting?
A. It relies on a stable money-inflation relationship.
B. There is a delayed signal about the achievement of a target.
C. It implies larger output fluctuations.
D. It implies a lack of transparency.
Answer:
A decrease in the foreign interest rate causes the demand for domestic assets to
________ and the domestic currency to ________, everything else held constant.
A. increase; appreciate
B. increase; depreciate
C. decrease; appreciate
D. decrease; depreciate
Answer:
The teal book is the Fed research document containing
A. the forecast of national economic variables for the next three years.
B. forecasts of the money aggregates conditional on different monetary policy stances.
C. information on the state of the economy in each Federal Reserve district.
D. both A and B.
E. A, B and C.
Answer: