In the long-run ISLM model and with everything else held constant, as long as the level
of output ________ the natural rate level, the price level will continue to ________,
shifting the LM curve to the ________, until finally output is back at the natural rate
level.
A. exceeds; rise; right
B. exceeds; rise; left
C. remains below; fall; left
D. remains below; rise; right
Answer:
Based on the Taylor Principle, a central bank’s endogenous response of raising interest
rates when inflation rises
A. causes an upward movement along the monetary policy curve.
B. causes a downward movement along the monetary policy curve.
C. shifts the monetary policy curve upward.
D. shifts the monetary policy curve downward.
Answer:
Of the three agencies that have been created to promote residential housing, the only
one that is an entity of the U.S. government is
A. Fannie Mae.
B. Ginnie Mae.
C. Freddie Mac.
D. Sallie Mae.
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:
When you deposit $50 in your account at First National Bank and a $100 check you
have written on this account is cashed at Chemical Bank, then
A. the assets of First National rise by $50.
B. the assets of Chemical Bank rise by $50.
C. the reserves at First National fall by $50.
D. the liabilities at Chemical Bank rise by $50.
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
monetary base is
a. $480 billion.
b. $480.8 billion.
c. $80 billion.
d. $80.8 billion.
Answer:
If a bank’s liabilities are more sensitive to interest rate movements than are its assets,
then
A. an increase in interest rates will reduce bank profits.
B. a decrease in interest rates will reduce bank profits.
C. interest rates changes will not impact bank profits.
D. an increase in interest rates will increase bank profits.
Answer:
If brokerage commissions on bond sales decrease, then, other things equal, the demand
for bonds will ________ and the demand for real estate will ________.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase
Answer:
Regulators attempt to reduce the riskiness of banks’ asset portfolios by
A. limiting the amount of loans in particular categories or to individual borrowers.
B. encouraging banks to hold risky assets such as common stocks.
C. establishing a minimum interest rate floor that banks can earn on certain assets.
D. requiring collateral for all loans.
Answer:
When the economy suffers a permanent negative supply shock and the central bank
responds by changing the autonomous component of monetary policy to keep inflation
at the target inflation rate, then
A. aggregate demand curve shifts leftward.
B. output will be unchanged.
C. output will be at its potential.
D. all of the above.
E. both A and C.
Answer:
If a $10,000 face-value discount bond maturing in one year is selling for $5,000, then
its yield to maturity is
A. 5 percent.
B. 10 percent.
C. 50 percent.
D. 100 percent.
Answer:
An international lender of last resort creates a serious moral hazard problem because
________ and other ________ of banking institutions expect that they will be protected
if a crisis occurs.
A) depositors; debtors
B) depositors; creditors
C) borrowers; debtors
D) borrowers; creditors
Answer:
The Federal Reserve Banks are ________ institutions since they are owned by the
________.
A. quasi-public; private commercial banks in the district where the Reserve Bank is
located
B. public; private commercial banks in the district where the Reserve Bank is located
C. quasi-public; Board of Governors
D. public; Board of Governors
Answer:
According to the purchasing power parity theory, a rise in the United States price level
of 5 percent, and a rise in the Mexican price level of 6 percent cause
A. the dollar to appreciate 1 percent relative to the peso.
B. the dollar to depreciate 1 percent relative to the peso.
C. the dollar to depreciate 5 percent relative to the peso.
D. the dollar to appreciate 5 percent relative to the peso.
Answer:
When financial institutions are able to reduce the costs of information for each service
they offer by applying the same information source to each service, we say that the
financial institution is realizing
A. economies of scope.
B. economies of scale.
C. increasing returns.
D. diminishing marginal returns.
Answer:
In which of the following situations would you prefer to be the lender?
A. The interest rate is 9 percent and the expected inflation rate is 7 percent.
B. The interest rate is 4 percent and the expected inflation rate is 1 percent.
C. The interest rate is 13 percent and the expected inflation rate is 15 percent.
D. The interest rate is 25 percent and the expected inflation rate is 50 percent.
Answer:
Sweep accounts which were created to avoid reserve requirements became possible
because of a change in
A. deposit ceilings.
B. technology.
C. government rules.
D. bank mergers.
Answer:
The Phillips curve indicates that when the labor market is ________, production costs
will ________ and aggregate supply decreases.
A. easy; rise
B. easy; fall
C. tight; fall
D. tight; rise
Answer:
Suppose that the European Central Bank conducts a main refinancing sale. Everything
else held constant, this would cause the demand for U.S. assets to ________ and the
U.S. dollar will ________.
A. increase; appreciate
B. increase; depreciate
C. decrease; appreciate
D. decrease; depreciate
Answer:
Junk bonds, bonds with a low bond rating, are also known as
A. high-yield bonds.
B. investment grade bonds.
C. high quality bonds.
D. zero-coupon bonds.
Answer:
If the aggregate price level adjusts slowly over time, then an expansionary monetary
policy lowers
A. only the short-term nominal interest rate.
B. only the short-term real interest rate.
C. both the short-term nominal and real interest rates.
D. the short-term nominal, the short-term real, and the long-term real interest rates.
Answer:
In contrast to the CAPM, the APT assumes that there can be several sources of
________ that cannot be eliminated through diversification.
A. nonsystematic risk
B. systematic risk
C. credit risk
D. arbitrary risk
Answer:
An increase in the expected future domestic exchange rate causes the demand for
domestic assets to shift to the ________ and the domestic currency to ________,
everything else held constant.
A. right; appreciate
B. right; depreciate
C. left; appreciate
D. left; depreciate
Answer:
Which of the following is true of life insurance companies?
A. Typically the type of assets that life insurance companies hold are corporate bonds,
commercial mortgages, and corporate stock.
B. The two typical forms of life insurance polices that are held can be classified as
whole and variable life policies.
C. The major risk that life insurance companies face is that payouts to policy holders
are very hard to predict.
D. Life insurance companies have suffered from wide spread failures.
Answer:
The ________ suggests that the most important factor affecting the demand for
domestic and foreign assets is the expected return on domestic assets relative to foreign
assets.
A. theory of portfolio choice
B. law of one price
C. interest parity condition
D. theory of foreign capital mobility
Answer:
The Fed-Treasury Accord of March 1951 provided the Fed greater freedom to
A. let interest rates increase.
B. let unemployment increase.
C. let inflation accelerate.
D. let exchange rates increase.
Answer:
Suppose that Wells Fargo Home Mortgage sells $10 million worth of mortgage
payments to GMAC in exchange for $10 million in auto loan payments. This type of
transaction is called a
A. credit option.
B. credit swap.
C. credit-linked note.
D. credit default swap.
Answer:
The classical economists believed that if the quantity of money doubled
A. output would double.
B. prices would fall.
C. prices would double.
D. prices would remain constant.
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
excess reserves-checkable deposit ratio is
a. 0.001.
b. 0.10.
c. 0.01.
d. 0.05.
Answer:
In an agreement to exchange dollars for euros in three months at a price of $0.90 per
euro, the price is the
A. spot exchange rate.
B. money exchange rate.
C. forward exchange rate.
D. fixed exchange rate.
Answer: