In the simple deposit expansion model, a decline in checkable deposits of $500 when
the required reserve ratio is equal to 10 percent implies that the Fed
A. sold $500 in government bonds.
B. sold $50 in government bonds.
C. purchased $50 in government bonds.
D. purchased $500 in government bonds.
Answer:
The ________ of a coupon bond and the yield to maturity are inversely related.
A. price
B. par value
C. maturity date
D. term
Answer:
Everything else held constant, if aggregate output is to the ________ of the IS curve,
then there is an excess ________ of goods which will cause aggregate output to rise.
A. right; supply
B. right; demand
C. left; supply
D. left; demand
Answer:
Mortgage-backed securities are similar to ________ but the interest and principal
payments are backed by the individual mortgages within the security.
A. bonds
B. stock
C. repurchase agreements
D. negotiable CDs
Answer:
Well-functioning financial markets
A. cause inflation.
B. eliminate the need for indirect finance.
C. cause financial crises.
D. allow the economy to operate more efficiently.
Answer:
When in 1985 a British pound cost approximately $1.30, a Shetland sweater that cost
100 British pounds would have cost $130. With a weaker dollar, the same Shetland
sweater would have cost
A. less than $130.
B. more than $130.
C. $130, since the exchange rate does not affect the prices that American consumers pay
for foreign goods.
D. $130, since the demand for Shetland sweaters will decrease to prevent an increase in
price due to the stronger dollar.
Answer:
Banks will be examined at least once a year and given a CAMELS rating by examiners.
The L stands for
A. liabilities.
B. liquidity.
C. loans.
D. leverage.
Answer:
A depreciation of the U.S. dollar makes American goods cheaper relative to foreign
goods, resulting in a ________ in net exports in the U.S. and a ________ shift of the IS
curve in the U.S., everything else held constant.
A. fall; leftward
B. rise; leftward
C. fall; rightward
D. rise; rightward
Answer:
The yield to maturity for a one-year discount bond equals the increase in price over the
year, divided by the
A. initial price.
B. face value.
C. interest rate.
D. coupon rate.
Answer:
The situation in which expansionary fiscal policy does not lead to a rise in aggregate
output is referred to as
A. fiscal neutrality.
B. a recession.
C. complete crowding out.
D. inflation.
Answer:
Because of securitization, a new class of residential mortgages offered to borrowers
with less-than-stellar credit records developed. These mortgages are known as
A. risk-enhanced mortgages.
B. subprime mortgages.
C. bundled mortgages.
D. adjustable-rate mortgages.
Answer:
Everything else held constant, in the market for reserves, when the supply for federal
funds intersects the reserve demand curve along the horizontal section of the demand
curve, lowering the interest rate paid on excess reserves
A. increases the federal funds rate.
B. lowers the federal funds rate.
C. has no effect on the federal funds rate.
D. has an indeterminate effect of the federal funds rate.
Answer:
Because central banks have not been willing to give up their option of intervening in the
foreign exchange market, the current international financial system can best be
described as a
A) variable-pegged exchange rate system.
B) moving-pegged exchange rate system.
C) hybrid of a fixed exchange rate and flexible exchange rate system.
D) flexible-exchange, dollar-pegged exchange rate system.
Answer:
Aggregate output is ________ related to autonomous consumer expenditure, and is
________ related to planned investment spending.
A. negatively; negatively
B. negatively; positively
C. positively; negatively
D. positively; positively
Answer:
A type of investment fund that makes long-term investments in companies that are not
publicly traded is called a
A. private equity fund.
B. hedge fund.
C. sovereign wealth fund.
D. brokerage fund.
Answer:
If the 2005 inflation rate in Canada is 4 percent, and the inflation rate in Mexico is 2
percent, then the theory of purchasing power parity predicts that, during 2005, the value
of the Canadian dollar in terms of Mexican pesos will
A. rise by 6 percent.
B. rise by 2 percent.
C. fall by 6 percent.
D. fall by 2 percent.
Answer:
An example of economies of scale in the provision of financial services is
A. investing in a diversified collection of assets.
B. providing depositors with a variety of savings certificates.
C. hiring more support staff so that customers don’t have to wait so long for assistance.
D. spreading the cost of writing a standardized contract over many borrowers.
Answer:
Financial intermediaries’ low transaction costs allow them to provide ________ services
that make it easier for customers to conduct transactions.
A. liquidity
B. conduction
C. transcendental
D. equitable
Answer:
A credit-driven bubble arises when ________ in lending causes ________ in asset
prices which can cause ________ in lending.
A. a decrease; a decrease; an increase
B. a decrease; an increase; an increase
C. an increase; an increase; a further increase
D. a decrease; a decrease; a further decrease
Answer:
Under the Sarbanes-Oxley Act of 2002, the clause that makes it unlawful for a
registered public accounting firm to provide any nonaudit service to a client
contemporaneously with an impermissible audit is an example of which remedy of
conflicts of interest?
A. regulate for transparency
B. supervisory oversight
C. separation of functions
D. socialization of information production
Answer:
Reserves are equal to the sum of
A. required reserves and excess reserves.
B. required reserves and vault cash reserves.
C. excess reserves and vault cash reserves.
D. vault cash reserves and total reserves.
Answer:
Reasons regulators chose to follow regulatory forbearance rather than to close the
insolvent S&Ls include all of the following EXCEPT
A. they had insufficient funds to close all of the insolvent S&Ls.
B. they were friends with the S&L owners.
C. they hoped the problem would go away.
D. they did not have the authority to close the insolvent S&Ls.
Answer:
To say that stock prices follow a “random walk” is to argue that stock prices
A. rise, then fall, then rise again.
B. rise, then fall in a predictable fashion.
C. tend to follow trends.
D. cannot be predicted based on past trends.
Answer:
A decrease in default risk on corporate bonds ________ the demand for these bonds,
and ________ the demand for default-free bonds, everything else held constant.
A. increases; lowers
B. lowers; increases
C. does not change; greatly increases
D. moderately lowers; does not change
Answer:
A type of ________ problem that occurs when a person or institution has multiple
objectives that conflict with each other is called ________.
A. moral hazard; conflicts of interest
B. adverse selection; conflicts of interest
C. moral hazard; spinning
D. adverse selection; spinning
Answer:
U.S. Treasury deposits at the Fed are ________ for the Fed but ________ for the
Treasury. Thus an increase in U.S. Treasury deposits ________ the monetary base.
a. a liability; an asset; increases
b. a liability; an asset; decreases
c. an asset; a liability; increases
d. an asset; a liability; decreases
Answer:
Keynes argued that the transactions component of the demand for money was primarily
determined by the level of people’s ________, which he believed were proportional to
________.
A. transactions; income
B. transactions; age
C. incomes; wealth
D. incomes; age
Answer:
Equity and debt instruments with maturities greater than one year are called ________
market instruments.
A. capital
B. money
C. federal
D. benchmark
Answer:
Which of the following is a long-term financial instrument?
A. a negotiable certificate of deposit
B. a repurchase agreement
C. a U.S. Treasury bond
D. a U.S. Treasury bill
Answer:
Which of the following bonds are considered to be default-risk free?
A. municipal bonds
B. investment-grade bonds
C. U.S. Treasury bonds
D. junk bonds
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: