________ imposes a conceptual structure and inherent discipline on policy makers, but
without eliminating all flexibility.
A. Constrained discretion
B. A policy rule
C. A discretionary policy
D. The Taylor rule
Answer:
The problem created by asymmetric information before the transaction occurs is called
________, while the problem created after the transaction occurs is called ________.
A. adverse selection; moral hazard
B. moral hazard; adverse selection
C. costly state verification; free-riding
D. free-riding; costly state verification
Answer:
While the discount rate is “established” by the regional Federal Reserve Banks, in truth,
the rate is determined by
A. Congress.
B. the president of the United States.
C. the Senate.
D. the Board of Governors.
Answer:
The Glass-Steagall Act, before its repeal in 1999, prohibited commercial banks from
A. issuing equity to finance bank expansion.
B. engaging in underwriting and dealing of corporate securities.
C. selling new issues of government securities.
D. purchasing any debt securities.
Answer:
Banks’ asset portfolios include state and local government securities because
A. they help to attract business from these government entities.
B. banks consider them helpful in attracting accounts of Federal employees.
C. the Federal Reserve requires member banks to buy securities from state and local
governments located within their respective Federal Reserve districts.
D. there is no default-risk with state and local government securities.
Answer:
Because of the weak systems of property rights in many developing and transition
economies, the financial system is unable to use collateral effectively worsening the
________ problem.
A) adverse selection
B) moral hazard
C) principal/agent
D) diversification
Answer:
Which of the following statements accurately describes the two measures of the money
supply?
A. The two measures do not move together, so they cannot be used interchangeably by
policymakers.
B. The two measures’ movements closely parallel each other, even on a month-to-month
basis.
C. Short-run movements in the money supply are extremely reliable.
D. M2 is the narrowest measure the Fed reports.
Answer:
When economists say that money promotes ________, they mean that money
encourages specialization and the division of labor.
A. bargaining
B. contracting
C. efficiency
D. greed
Answer:
A simple deposit multiplier equal to one implies a required reserve ratio equal to
A. 100 percent.
B. 50 percent.
C. 25 percent.
D. 0 percent.
Answer:
The Lucas critique indicates that
A. advocates of discretionary policies’ criticisms of rational expectations models are
well-founded.
B. advocates of discretionary policies’ criticisms of rational expectations models are not
well-founded.
C. expectations are important in determining the outcome of a discretionary policy.
D. expectations are not important in determining the outcome of a discretionary policy.
Answer:
The Fed accidentally discovered open market operations in the early
A. 1920s.
B. 1910s.
C. 1900s.
D. 1890s.
Answer:
If the Japanese yen appreciates from $0.01 per yen to $0.02 per yen, the U.S. dollar
depreciates from ________ per dollar to ________ per dollar.
A. 100¥; 50¥
B. 10¥; 5¥
C. 5¥; 10¥
D. 50¥; 100¥
Answer:
Suppose on any given day the prevailing equilibrium federal funds rate is below the
Federal Reserve’s federal funds target rate. If the Federal Reserve wishes for the federal
funds rate to be at their target level, then the appropriate action for the Federal Reserve
to take is a ________ open market ________, everything else held constant.
A. defensive; sale
B. defensive; purchase
C. dynamic; sale
D. dynamic; purchase
Answer:
Activists of the policies believe that
A. the self-correcting mechanism through wage and price adjustment is very slow.
B. wages and prices are sticky.
C. the government needs to pursue active policy to eliminate high unemployment when
it develops.
D. all of the above.
Answer:
The velocity of money is
A. the average number of times that a dollar is spent in buying the total amount of final
goods and services.
B. the ratio of the money stock to high-powered money.
C. the ratio of the money stock to interest rates.
D. the average number of times a dollar is spent in buying financial assets.
Answer:
When the economy suffers a permanent negative supply shock and the central bank
does not respond by changing the autonomous component of monetary policy, then
A. inflation will be higher.
B. output will be at its potential.
C. output will be unchanged.
D. inflation will be unchanged.
E. both A and B.
Answer:
If a bank has excess reserves of $7,000 and demand deposit liabilities of $100,000, and
if the reserve requirement is 15 percent, then the bank has actual reserves of
A. $17,000.
B. $22,000.
C. $27,000.
D. $29,000.
Answer:
Which of the following are NOT contractual savings institutions?
A. life insurance companies
B. credit unions
C. pension funds
D. state and local government retirement funds
Answer:
An increase in the foreign interest 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:
A bank has excess reserves of $6,000 and demand deposit liabilities of $100,000 when
the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the
bank’s excess reserves will be
A. -$5,000.
B. -$1,000.
C. $1,000.
D. $5,000.
Answer:
The ________ is defined as the payments to the owner plus the change in a security’s
value expressed as a fraction of the security’s purchase price.
A. yield to maturity
B. current yield
C. rate of return
D. yield rate
Answer:
The Dodd-Frank legislation of 2010 permanently increased the federal deposit
insurance to
A. $40,000.
B. $100,000.
C. $200,000.
D. $250,000.
Answer:
From 1980 to early 1985 the dollar ________ in value, thereby benefiting American
________.
A. appreciated; consumers
B. appreciated, businesses
C. depreciated; consumers
D. depreciated, businesses
Answer:
Everything else held constant, an increase in government spending will cause
A. aggregate demand to increase.
B. aggregate demand to decrease.
C. the quantity of aggregate demand to increase.
D. the quantity of aggregate demand to decrease.
Answer:
When investment banks allocate shares of a popular but underpriced IPO to executives
of other firms in order to attract their business, it is called
A. spinning.
B. a bribe.
C. reputational activities.
D. a kickback.
Answer:
With downward-sloping monetary policy and IS curves,the aggregate demand curve is
A. downward sloping.
B. flat.
C. vertical.
D. upward sloping.
Answer:
The process of transforming otherwise illiquid financial assets into marketable capital
market instruments is known as
A. securitization.
B. internationalization.
C. arbitrage.
D. program trading.
Answer:
Inflationary pressures caused the FOMC to increase the federal funds rate by ¼ of a
percentage point in June 2004, and by exactly the same amount at every subsequent
FOMC meeting through June of Theses actions
A. caused an upward movement along the monetary policy curve.
B. caused a downward movement along the monetary policy curve.
C. shifted the monetary policy curve upward.
D. shifted the monetary policy curve downward.
Answer:
For banks
A. return on assets exceeds return on equity.
B. return on assets equals return on equity.
C. return on equity exceeds return on assets.
D. return on equity is another name for net interest margin.
Answer:
On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about
1.15 Swiss francs. Therefore, one Swiss franc would have purchased about ________
U.S. dollars.
A. 0.30
B. 0.87
C. 1.15
D. 3.10
Answer:
As in the United States, an important factor in the banking crises in Norway, Sweden,
and Finland was the
A. financial liberalization that occurred in the 1980s.
B. decline in real interest rates that occurred in the 1980s.
C. high inflation that occurred in the 1980s.
D. sluggish economic growth that occurred in the 1980s.
Answer:
Regulatory forbearance
A. meant delaying the closing of “zombie S&Ls” as their losses mounted during the
1980s.
B. had the advantage of benefiting healthy S&Ls at the expense of “zombie S&Ls,” as
insolvent institutions lost deposits to health institutions.
C. had the advantage of permitting many insolvent S&Ls the opportunity to return to
profitability, saving the FSLIC billions of dollars.
D. increased adverse selection dramatically.
Answer:
Which of the followings does NOT shift the short-run aggregate supply curve?
A. supply shocks.
B. persistent positive output gap.
C. changes in expected inflation.
D. an increase in output gap.
Answer:
Government regulations to reduce the possibility of financial panic include all of the
following EXCEPT
A. transactions costs.
B. restrictions on assets and activities.
C. disclosure.
D. deposit insurance.
Answer: