When the current yield and the coupon rate are equal, the bond is:
A. purchased at a discount.
B. purchased at a price that equals the face value.
C. a zero-coupon bond.
D. purchased at a price that exceeds its face value.
Answer:
When a bank takes savings from many small savers and lends it to many borrowers, the
bank:
A. decreases the risk to savers through diversification.
B. increases the risk to borrowers through high transaction costs.
C. decreases the risk to savers through economies of scale.
D. decreases the return to savers and increases the cost to borrowers.
Answer:
The benefits to a country from dollarization include each of the following, except:
A. a lower risk premium since inflationary finance is no longer a possibility.
B. greater and faster integration into world markets, increasing trade and investment.
C. no risk of an exchange rate crisis.
D. increased revenue from seignorage.
Answer:
Central banks that have a hierarchical mandate with inflation targeting basically are
saying:
A. hitting the inflation target is the first priority after all other stated objectives are
reached.
B. hitting the inflation target is the only objective.
C. the inflation target is the second most important goal after economic growth, which
is always the most important goal for monetary policymakers.
D. hitting the inflation target comes first, everything else comes second.
Answer:
Suppose Paul borrows $4,000 for one year from his grandfather who charges Paul 7%
interest. At the end of the year Paul will have to repay his grandfather:
A. $4,280
B. $4,290
C. $4,350
D. $4,820
Answer:
The clearing corporation’s main role in the futures market is to:
A. set the market price of the contract.
B. act as the counterparty to both sides of the transaction, thereby guaranteeing
payment.
C. provide the underlying assets so the contracts can be created.
D. all of the above.
Answer:
In terms of economic growth, the central bank would like to:
A. have the maximum growth rate possible.
B. keep the growth rate averaging zero.
C. keep the economy close to its potential or sustainable rate of growth.
D. balance every recession with a boom.
Answer:
An inflation rate below the target rate will result in:
A. a movement up along the monetary policy reaction curve and a movement down the
dynamic aggregate demand curve.
B. a movement down along the monetary policy reaction curve and a movement down
the dynamic aggregate demand curve.
C. a movement up along the monetary policy reaction curve and a rightward shift of
the dynamic aggregate demand curve.
D. a movement up along the monetary policy reaction curve and a leftward shift of the
dynamic aggregate demand curve.
Answer:
The high rates of inflation that were experienced in the 1970s could partly be blamed
on:
A. the assumption the economy would continue to grow at the rates that the economy
experienced in the 1960s.
B. the Vietnam war.
C. high oil prices.
D. all of the answers given are correct.
Answer:
If the risk on foreign government bonds increases relative to U.S. government bonds,
the price of U.S. government bonds should:
A. not change since U.S. government bonds are free of default risk.
B. decrease since people will bail out of all government bonds.
C. increase as the demand for these bonds increases.
D. not be affected because the two types of bonds are traded in different markets.
Answer:
Which of the books used at the FOMC meetings is/are treated as secret documents and
not released to the public until after a number of years have passed?
A. The blue book and the beige book
B. The beige book and the green book
C. The teal book
D. The blue book and the green book
Answer:
If we focus on the banking system and assume no change in the public’s currency
holdings, a loss of reserves by any one bank must:
A. equal the loss of reserves by the entire system.
B. be equal to the net loss of reserves for the banking system.
C. result in no change in reserves for the banking system.
D. result in a multiple loss to the banking system.
Answer:
Asymmetric information poses two important obstacles to the smooth flow of funds
from savers to investors. They are:
A. adverse selection, which arises before the transaction occurs, and moral hazard,
which occurs after the transaction.
B. moral hazard, which arises before the transaction occurs, and adverse selection,
which occurs after the transaction.
C. adverse selection and moral hazard, both of which occur after the transaction.
D. adverse selection and moral hazard, both of which occur before the transaction.
Answer:
If the internal rate of return from an investment is more than the opportunity cost of
funds the firm should:
A. make the investment.
B. not make the investment.
C. only make the investment using retained earnings.
D. only make part of the investment and wait to see if interest rates decrease.
Answer:
The interest rate on primary credit extended by the Fed is:
A. the average of the prime interest rate charged by the ten largest banks in the nation.
B. below the target federal funds rate.
C. equal to the target federal funds rate.
D. above the target federal funds rate.
Answer:
The federal government is concerned about the health of the banking system for many
reasons, the most important of which may be:
A. banks are where government bonds are traded.
B. a significant number of people are employed in the banking industry.
C. many people earn the majority of their income from interest on bank deposits.
D. banks are of great importance in enabling the economy to operate efficiently.
Answer:
Over the last twenty years in the U.S., the number of banks has:
A. steadily increased.
B. stayed about the same.
C. steadily decreased.
D. more than doubled.
Answer:
Empirical evidence suggests that over the last ten years:
A. the nominal and real federal funds rates are related inversely.
B. the nominal and real federal funds rates are highly positively correlated.
C. while the FOMC has had a lot of influence over the nominal federal funds rate, they
have been less successful at changing the real federal funds rate.
D. there is no correlation between the nominal and real federal funds.
Answer:
A way for policymakers to avoid the problems that deflation can present and still meet
their objective of price stability is to:
A. set a target of zero inflation.
B. keep the monetary base fixed.
C. set an inflation target of two to three percent.
D. target a nominal interest rate of zero.
Answer:
Almost all recessions identified by the NBER are characterized by:
A. declining real GDP.
B. higher interest rates.
C. durations exceeding two years.
D. higher rates of inflation.
Answer:
The monetary policy transmission mechanism refers to the concept that monetary
policy:
A. always seems to work the way central bankers think it will.
B. works quickly.
C. only works through changes consumption and investment.
D. affects the economy in potentially many ways.
Answer:
The Standard & Poor’s 500 Index differs from the Dow Jones Industrial Index because:
A. it takes into account the stock prices of 500 of the largest firms, which is less than
the DJIA.
B. it is a price-weighted index, where the DJIA is a value-weighted index.
C. larger firms are less important in the S&P 500 than in the DJIA.
D. it takes into account the prices of more stocks and it uses a different weighting
scheme.
Answer:
The Gramm-Leach-Bliley Act:
A. repealed the Riegle-Neal Interstate Banking and Branching Efficiency Act.
B. repealed the Glass-Steagall Act’s prohibition of mergers between commercial banks
and insurance or securities firms.
C. repealed the McFadden Act’s restriction on bank branching.
D. reinforced the Glass-Steagall Act’s limitation on commercial banks’ availability to
merge with insurance or securities firms by increasing the penalties for doing so.
Answer:
The number of banks in the U.S. today is approximately:
A. 6,100.
B. 500.
C. 100.
D. 15,300.
Answer:
The sharp reduction in the number of banks that has occurred since the mid-1990s has
been due primarily to:
A. bank failures from increased competition.
B. bank mergers.
C. the closing of banks by federal regulators.
D. the revoking of state bank charters.
Answer:
Reinsurance is used by insurance companies faced with:
A. the prospects of a large but diversified risk.
B. inadequate capital to handle a potential loss.
C. insolvency.
D. the problem of moral hazard.
Answer:
Pension funds resemble life insurance companies in the sense that:
A. the payoff occurs only occurs when a person dies.
B. they accept deposits.
C. they offer the ability to make premium payments today in return for a promised
payment under specified future circumstances.
D. they both are better investments the longer you live.
Answer:
Considering the Federal Reserve Districts, which of the following is true?
A. With the exception of New York, no district coincides with a single state.
B. No district coincides with a single state.
C. Some districts are made up of single states.
D. The districts are divided with equal population.
Answer:
Compared to an independent central bank, elected officials are likely to:
A. favor long-run stability over short-term prosperity.
B. sacrifice short-term growth to keep future inflation low.
C. choose monetary policies that are overly accommodative.
D. prefer interest rates to vary more often.
Answer:
Considering state chartered banks:
A. most elect to join the Federal Reserve System.
B. those with assets exceeding $100 million must join the Federal Reserve System.
C. most elect not to join the system.
D. only those that join the system must abide by reserve requirements.
Answer:
When the yield curve slope is more upward sloping than usual, people are expecting:
A. an economic slowdown.
B. the U.S. Treasury may default on its obligations.
C. the Federal Reserve is going to ease monetary policy.
D. a future rise in short-term interest rates.
Answer:
If government purchases increase and as a result push current output above potential
output, monetary policymakers are likely to:
A. lower the real interest rate.
B. raise the real interest rate.
C. keep the real interest rate constant and focus on only changing the nominal interest
rate.
D. purchase Treasury securities.
Answer:
If prices were to adjust quickly:
A. output gaps would be persistent.
B. output gaps would disappear quickly.
C. inflation would adjust slowly.
D. the short-run aggregate supply curve would not shift.
Answer:
Everything else equal, if the growth rate of a country exceeds its sustainable rate, the
central bank:
A. will keep interest rates low to keep the momentum.
B. will now identify this new rate as the sustainable rate and try to maintain it.
C. is likely to raise interest rates to slow the rate of growth.
D. is likely to lower the interest rate thinking a slowdown is coming to offset this
boom.
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