If an inflation targeting regime increases the central bank’s credibility in targeting
inflation, the magnitude by which the AS curve shifts leftward due to inflation
expectations is
a. reduced
b. increased
c. constant
d. not enough information is given to answer the question
Answer:
Concerning money, income, and wealth, which are stock variables and which are flow
variables?
a. Money and wealth are stocks; income is a flow.
b. Money and income are stocks; wealth is a flow.
c. Money is a stock, while income and wealth are flows.
d. Income and money are flows; wealth is a stock.
Answer:
When a customer at the First Bank of Overland Park writes a check for $35,000 to pay
a student’s expenses at Princeton University, the bank will
a. gain deposits in the amount of $35,000
b. lose reserves in the amount of $35,000
c. increase the money supply by $35,000
d. lose excess reserves in the amount of $35,000
Answer:
The institution responsible for guiding the long-term behavior of the money supply is
a. the Department of the Treasury
b. the central bank
c. the federal government
d. the banking system
Answer:
Members of the Executive Board of the ECB are
a. appointed by the President of the ECB
b. appointed by the presidents of the EMU nations
c. elected by the citizens of member nations
d. nominated by ECOFIN
Answer:
In the credit view, the link between bank lending and GDP is ____ than the link
between the money supply and GDP.
a. stronger
b. weaker
c. equally strong as
d. the credit view has no opinion on the link between the above
Answer:
The Federal Reserve uses the U.S. government securities markets to implement open
market operations because
a. the Fed wishes to assist the U.S. Treasury in borrowing
b. other markets are less highly developed
c. other markets would produce less powerful monetary effects
d. all of the above are true
Answer:
The Board of Governors of the Federal Reserve System
a. is appointed by the boards of the district banks and confirmed by the Senate
b. is composed of twelve members
c. resides in Washington, D.C.
d. all of the above are true
Answer:
In hyperinflation, money’s ____ function tends to break down first.
a. store of value
b. standard of value
c. medium of exchange
d. none of money’s functions break down during hyperinflation
Answer:
When you purchase shares of corporate stock through a stockbroker, then:
a. you have made new funds available to the corporation
b. you have loaned money to the corporation
c. you own part of the corporation
d. all of the above
Answer:
Economic scholars believe that the Great Depression had the most severe effects in
which two countries?
a. the United States and the United Kingdom
b. the United States and Germany
c. the United States and France
d. France and the United Kingdom
Answer:
The primary purpose of FDIC insurance is to
a. make it easy for banks to take bigger risks
b. prevent bank runs and contagion
c. pay off depositors when a bank fails
d. none of the above
Answer:
Assuming a 10% reserve requirement, a withdrawal of $1,000 in cash by a depositor
will immediately cause ____ and eventually cause ____.
a. bank reserves to fall by $1,000; the money supply to fall by $10,000
b. bank reserves to fall by $1,000; bank deposits to fall by $10,000
c. the money supply to fall by $1,000; the money supply to fall by $10,000
d. none of the above
Answer:
Which of the following stock indices is not weighted by market capitalization?
a. DJIA
b. Russell 1000
c. S&P 500
d. all of the above are weighted by market capitalization
Answer:
The text examines the Fisher hypothesis in an exhibit that includes a cross section of 13
nations. The findings reported in the study indicate that:
a. countries with higher inflation have lower interest rates
b. one can reject the strong version but not the weak version of the Fisher hypothesis
c. one cannot reject the strong or weak version of the Fisher hypothesis
d. inflation and interest rates across countries are not related
Answer:
The high inflation and rising output that typically occur during wartime must be caused
primarily by
a. increases in aggregate demand
b. increases in aggregate supply
c. decreases in aggregate demand
d. decreases in aggregate supply
Answer:
The text includes a discussion of proposals for consolidating the supervisory and
examination authority of bank regulators. What was Fed Chairman Alan Greenspan’s
view on such proposals?
a. Greenspan was against the proposals because he thought they would take away an
important system of checks and balances.
b. Greenspan was against the proposals because he thought they would give the states
too much power.
c. Greenspan supported the proposals because he thought they would increase the
availability of timely information about monetary policy.
d. Greenspan supported the proposals because he felt the banking sector had a declining
importance in the nation’s overall economy.
Answer:
If the public comes to fear major bank failures and a breakdown of the deposit
insurance system, then
a. B would rise
b. B would fall
c. k would fall
d. re would rise
Answer:
A Fed-engineered increase in interest rates affects the economy by
a. increasing aggregate demand
b. increasing aggregate supply
c. decreasing aggregate demand
d. decreasing aggregate supply
Answer:
A bank that practices aggressive liability management typically
a. maintains a higher loan/deposit ratio
b. raises a relatively high proportion of its funds by issuing large time deposits
c. is taking on more risk, other things equal, than a bank that does not
d. all of the above are true
Answer:
Once a loan is made, a borrower has an incentive to engage in more risk than is optimal
from the lender’s point of view. This problem is known as:
a. moral hazard
b. adverse selection
c. moral turpitude
d. asymmetric information
Answer:
Your neighbor promises to pay you $1,000 for a boat you are trying to sell, but asks if
he can defer payment for one year. If market interest rates are 10%, what is the present
value of the future payment?
a. $909
b. $940
c. $1,000
d. more than $1,000
Answer:
Which of the following was a “weak currency” over the period 1974-2004?
a. the Japanese yen
b. the Swiss franc
c. the U.S. dollar
d. the Canadian dollar
Answer:
The U.S. analogue to the Governing Council of the ECB is the
a. Federal Open Market Committee
b. Fed Advisory Board
c. Council of Economic Advisors
d. Board of Governors of the Federal Reserve
Answer:
The major impetus to the growth of money market mutual funds occurred:
a. in the early 1990s, when the mutual fund craze began in earnest
b. in the mid-1980s, when oil prices collapsed
c. in the late 1970s and early 1980s, when interest rates increased dramatically
d. in the late 1960s, when the Vietnam War created inflation
Answer:
The text indicates that, over the 1950-2003 period, the 30-year Treasury bond yield
exceeded the 90-day Treasury bill yield by an average of:
a. 0.04 percentage points
b. 1.41 percentage points
c. 2.96 percentage points
d. 3.52 percentage points
Answer:
The issuer of a bond is a
a. lender
b. borrower
c. both a borrower and a lender
d. neither a borrower nor a lender
Answer:
Limits on the potential range of applicable reserve requirements are set by
a. the Board of Governors
b. Congress
c. the Federal Open Market Committee
d. the New York Federal Reserve Bank
Answer:
Which of the following would boost the market price of Microsoft stock?
a. real interest rates fall
b. nominal interest rates rise
c. the Department of Justice invokes anti-trust sanctions against Microsoft
d. none of the above
Answer:
When the Fed increases its securities portfolio,
a. both bank reserves and bank lending tend to rise
b. both bank reserves and bank lending tend to fall
c. bank reserves tend to rise, and bank lending tends to fall
d. bank reserves tend to fall, and bank lending tends to rise
Answer:
Changes in the money supply will lead to large changes in interest rates
a. only if the money demand function is relatively flat
b. only if the money demand function is horizontal
c. only if the money demand function is relatively steep
d. not enough information is given to answer the question
Answer:
Rank the following assets as effective hedges against inflation (best hedge to worst
hedge) over the long period since 1926: gold, stocks, and money.
a. stocks, gold, and money
b. gold, stocks, and money
c. gold, money, and stocks
d. stocks, money, and gold
Answer:
Prior to its collapse in 1984, the Continental Illinois Bank was vulnerable because of
a. its high ratio of cash/total assets
b. its holdings of junk bonds
c. its low ratio of loans/total assets
d. its reliance on volatile sources of funds
Answer:
Which of the following can be considered interest-bearing checking accounts?
a. ATS accounts
b. MMD accounts
c. NOW accounts
d. all of the above
Answer: