In a study published in 1963, Milton Friedman and Anna Schwartz found that in every
business cycle they studied over nearly a hundred-year period, the growth rate of the
________ decreased before ________ decreased.
A. money supply; interest rates
B. money supply; output
C. budget deficit; interest rates
D. budget deficit; output
Answer:
If the required reserve ratio is 15 percent, the simple deposit multiplier is
A. 15.0.
B. 1.5.
C. 6.67.
D. 3.33.
Answer:
If you buy a call option on Treasury futures at 110, and at expiration the market price is
115, the ________ will ________ exercised.
A. call; be
B. put; be
C. call; not be
D. put; not be
Answer:
All of the following are examples of off-balance sheet activities that generate fee
income for banks EXCEPT
A. foreign exchange trades.
B. guaranteeing debt securities.
C. back-up lines of credit.
D. selling negotiable CDs.
Answer:
A financial contract that obligates one party to exchange a set of payments it owns for
another set of payments owned by another party is called a
A. hedge.
B. call option.
C. put option.
D. swap.
Answer:
During a recession, the supply of bonds ________ and the supply curve shifts to the
________, everything else held constant.
A. increases; left
B. increases; right
C. decreases; left
D. decreases; right
Answer:
If a bank needs to raise the amount of capital relative to assets, a bank manager might
choose to
A. buy back bank stock.
B. pay higher dividends.
C. shrink the size of the bank.
D. sell securities the bank owns and put the funds into the reserve account.
Answer:
The actual execution of open market operations is done at
A. the Board of Governors in Washington, D.C.
B. the Federal Reserve Bank of New York.
C. the Federal Reserve Bank of Philadelphia.
D. the Federal Reserve Bank of Boston.
Answer:
The ________ of the term structure states the following: the interest rate on a long-term
bond will equal an average of short-term interest rates expected to occur over the life of
the long-term bond plus a term premium that responds to supply and demand conditions
for that bond.
A. segmented markets theory
B. expectations theory
C. liquidity premium theory
D. separable markets theory
Answer:
Property and casualty insurance companies hold the largest share of their assets in
A. long-term government bonds.
B. short-term government securities and commercial paper.
C. tax-exempt municipal bonds and U.S. government securities.
D. medium-term corporate bonds.
Answer:
The Fed does not tightly control the monetary base because it does NOT completely
control
A. open market purchases.
B. open market sales.
C. borrowed reserves.
D. the discount rate.
Answer:
Suppose that the Bank of Japan buys U.S. dollar assets with yen-denominated assets.
Everything else held constant, this transaction will cause ________ in the foreign assets
held by the Federal Reserve and ________ in the U.S. monetary base.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
Answer:
Bank consolidation will likely result in
A) less competition.
B) the elimination of community banks.
C) increased competition.
D) a shift in assets from larger banks to smaller banks.
Answer:
Using a unified analytic framework to present the information in the text keeps the
knowledge
A. focused on theories that have little to do with actual behavior.
B. theoretical and uninteresting.
C. abstract and not applicable to real life.
D. from becoming obsolete.
Answer:
According to the household liquidity effect, an expansionary monetary policy causes a
________ in the value of households’ financial assets, causing consumer durable
expenditure to ________.
A. decline; rise
B. rise; rise
C. rise; fall
D. decline; fall
Answer:
Equity contracts account for a small fraction of external funds raised by American
businesses because
A) costly state verification makes the equity contract less desirable than the debt
contract.
B) of the reduced scope for moral hazard problems under equity contracts, as compared
to debt contracts.
C) equity contracts do not permit borrowing firms to raise additional funds by issuing
debt.
D) there is no moral hazard problem when using a debt contract.
Answer:
Sweep accounts
A. have made reserve requirements nonbinding for many banks.
B. sweep funds out of deposit accounts into long-term securities.
C. enable banks to avoid paying interest to corporate customers.
D. reduce banks’ assets.
Answer:
Everything else held constant, when real estate prices are expected to decrease
A. the demand curve for bonds shifts to the left and the interest rate rises.
B. the demand curve for bonds shifts to the left and the interest rate falls.
C. the demand curve for bonds shifts to the right and the interest rate falls.
D. the supply curve for bonds shifts to the right and the interest rate falls.
Answer:
A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when
the reserve requirement is 25 percent. If the reserve requirement is lowered to 20
percent, the bank’s excess reserves will be
A. $1,000.
B. $5,000.
C. $8,000.
D. $9,000.
Answer:
As the payments system evolves from barter to a monetary system,
A. commodity money is likely to precede the use of paper currency.
B. transaction costs increase.
C. the number of prices that need to be calculated increase rather dramatically.
D. specialization decreases.
Answer:
To say that inflation is a monetary phenomenon seems to beg the question
A. Why does inflationary monetary policy occur?
B. Why do politicians seek reelection?
C. Why is the Fed independent?
D. Why does the U.S. Treasury print so much money?
Answer:
Total reserves are the sum of ________ and ________.
A. excess reserves; borrowed reserves
B. required reserves; currency in circulation
C. vault cash; excess reserves
D. excess reserves; required reserves
Answer:
Suppose that there is a negative aggregate demand shock and the central bank commits
to an inflation rate target. But if the commitment is not credible, then
A. the public’s expected inflation will remain unchanged.
B. the short-run aggregate supply curve will rise.
C. economic contraction will be worse.
D. all of the above.
E. both B and C.
Answer:
From 1980 to 1985 the dollar appreciated relative to the British pound. Holding
everything else constant, one would expect that, when compared to 1980
A. fewer Britons traveled to the United States in 1985.
B. Britons imported more wine from California in 1985.
C. Americans exported more wheat to England in 1985.
D. more Britons traveled to the United States in 1985.
Answer:
An increase in the quantity of money supplied shifts the money supply curve to the
________, and the equilibrium interest rate ________, everything else held constant.
A. right; falls
B. right; rises
C. left; falls
D. left; rises
Answer:
The agreement to provide a standardized commodity to a buyer on a specific date at a
specific future price is
A. a put option.
B. a call option.
C. a futures contract.
D. a mortgage-backed security.
Answer:
Everything else held constant, if the sum of the required reserve ratio and the excess
reserve ratio is less than one, an increase in the currency-deposit ratio causes the M1
money multiplier to ________ and the money supply to ________.
a. decrease; increase
b. increase; decrease
c. decrease; decrease
d. increase; increase
Answer:
Government regulations require publicly traded firms to provide information, reducing
A. transactions costs.
B. the need for diversification.
C. the adverse selection problem.
D. economies of scale.
Answer:
Under the current managed float exchange rate regime, countries with balance of
payments deficits frequently do not want to see their currencies depreciate because it
makes ________ goods more expensive for ________ consumers and can stimulate
inflation.
A) foreign; foreign
B) foreign; domestic
C) domestic; foreign
D) domestic; domestic
Answer:
If a bank needs to acquire funds quickly to meet an unexpected deposit outflow, the
bank could
A. borrow from another bank in the federal funds market.
B. buy U.S. Treasury bills.
C. increase loans.
D. buy corporate bonds.
Answer:
The government passed the Economic Recovery Act in October 2008 to prevent the
financial crisis from continuing to worsen. A controversial component of this act was
the
A. temporary decrease in the federal deposit insurance limit.
B. sale of new subprime mortgage assets.
C. borrowing of $150 million from AIG.
D. Troubled Asset Relief Program (TARP).
Answer:
Regulations that reduced competition between banks included
A. branching restrictions.
B. bank reserve requirements.
C. the dual system of granting bank charters.
D. interest-rate ceilings.
Answer:
The steepest increase in the currency ratio since 1892 occurred during
a. World War II.
b. the Great Depression.
c. the interwar years.
d. the past twenty years.
Answer:
The difference of rate-sensitive liabilities and rate-sensitive assets is known as the
A. duration.
B. interest-sensitivity index.
C. rate-risk index.
D. gap.
Answer: