How does the Fed reach its target for the federal funds rate?
A) by changing the discount rate
B) by changing reserve requirements
C) by adjusting the level of reserves
D) by directly setting the federal funds rate
Answer:
All of the following have been proposed as explaining the limited effectiveness of
monetary policy during and after the Financial Crisis of 2007-2009 EXCEPT:
A) recessions accompanied by financial crises tend to be severe
B) a high level of uncertainty due in part to government policy
C) the reluctance of the Fed to implement nonconventional policies
D) structural changes as important sectors of the economy were deeply affected by the
financial crisis
Answer:
According to the Gordon-Growth model, which of the following can cause the value of
a stock to decline?
A) higher expected growth rate of dividends
B) increase in the current dividend
C) increased systemic risk
D) decreased required return on equity
Answer:
The yield to maturity on a new one-year discount bond equals
A) (F V- P)/P.
B) (D – FV)/P.
C) (FV – P)/FV.
D) (P – FV)/FV.
Answer:
Which country was least supportive of expansionary policy by the European Central
Bank during the Financial Crisis of 2007-2009?
A) Spain
B) Portugal
C) Greece
D) Germany
Answer:
Which of the following types of mortgage loans became more common during the
housing boom of the early-to-mid 2000s?
A) those with flawed credit histories
B) thirty-year, fixed-rate mortgages
C) prime Mortgages
D) those with down payments of at least 20%
Answer:
Economists who are skeptical of hysteresis in Europe during the 1980s and 1990s cite
all of the following as reasons for persistently high unemployment in Europe EXCEPT
A) generous unemployment benefits.
B) restrictions on firms’ ability to hire and fire workers.
C) the existence of an ongoing recession.
D) high tax rates.
Answer:
If Sony keeps the price of PlayStation 3 constant in terms of dollars, what is the impact
on Sony of a stronger yen?
A) a decline in exports to the United States
B) an increase in imports from the United States
C) lower profit
D) higher profit
Answer:
Suppose there’s a 50% chance of a stock rising by 20% and a 50% chance of it falling
by 20%. What is the expected rate of return on the stock?
A) -20%
B) 0%
C) 10%
D) 20%
Answer:
Assets denominated in foreign currency and use in international transactions are
referred to as:
A) foreign money
B) international reserves
C) international monetary base
D) foreign exchange
Answer:
Suppose that a bank with no excess reserves receives a deposit into a checking account
of $10,000 in currency. If the required reserve ratio is 0.20, what is the maximum
amount that the bank can lend out?
A) $2,000
B) $8,000
C) $10,000
D) $50,000
Answer:
Financial intermediaries are able to act as delegated monitors for individual savers
because
A) other investors are unable to gain a free ride on their monitoring efforts.
B) borrowers consider this role to be traditional for financial intermediaries and are
willing to put up with it.
C) the federal government has granted them waivers from laws protecting privacy.
D) they employ a vast network of private detectives to carry out their monitoring role.
Answer:
When financial markets and institutions are not efficient in matching savers and
borrowers,
A) interest rates fall, which discourages saving even further.
B) interest rates fall, which discourages investment even further.
C) resources are lost.
D) investment rises.
Answer:
The purchasing power of money
A) rises when prices fall.
B) rises when prices rise.
C) is set by the Fed in January of each year.
D) is constant.
Answer:
What happened to the risk premium on Baa corporate bonds during the Financial Crisis
of 2007-2009?
A) it declined slightly
B) it rose to about 2%
C) it rose to about 4%
D) it rose to about 6%
Answer:
A bank’s revenue comes from all of the following EXCEPT
A) interest earned on vault cash.
B) fees for services provided.
C) interest on loans.
D) interest on securities.
Answer:
In recent decades,
A) trading in financial futures declined in importance relative to trading in agricultural
and mineral commodities futures.
B) trading in financial futures increased in importance relative to trading in agricultural
and mineral commodities futures.
C) trading in agricultural and commodities futures was discontinued.
D) trading in financial futures was discontinued.
Answer:
One reaction of firms to the adverse selection problem is to
A) rely on internal funds to finance investment.
B) use the stock market rather than the bond market to raise funds.
C) use the bond market rather than the stock market to raise funds.
D) borrow long-term rather than short-term.
Answer:
It is generally agreed that
A) the financial system would be more efficient if intermediaries were eliminated.
B) small- and medium-sized firms benefit by the actions of intermediaries.
C) the addition of intermediaries adds to transactions costs.
D) intermediaries should not seek to profit from reducing transactions costs.
Answer:
Which of the following would NOT cause the demand curve for bonds to shift?
A) a change in wealth
B) a change in the price of bonds
C) a change in the liquidity of bonds
D) a change in expected inflation
Answer:
Which of the following is NOT included in M2?
A) currency
B) savings bonds
C) money market deposit accounts
D) overnight repurchase agreements
Answer:
At the 1976 IMF conference in Jamaica,
A) the United States reaffirmed its commitment to buy and sell gold at a fixed price.
B) currencies were formally allowed to float.
C) the major countries of the world agreed to continue a system of fixed exchange rates.
D) the gold standard was reestablished.
Answer:
If you are indifferent between investing $1000 for one year in a U.S. Treasury security
that has an interest rate of 5% or in a Canadian government security that has an interest
rate of 8%, you must be expecting
A) the inflation rate in the United States will be higher than the inflation rate in Canada
during the year.
B) the U.S. dollar to depreciate against the Canadian dollar by 3% during the year.
C) the U.S. dollar to appreciate against the Canadian dollar by 3% during the year.
D) productivity growth in Canada to be greater than productivity growth in the United
States during the year.
Answer:
Which of the following is NOT an accurate description of the recession that
accompanied the financial crisis of 2007-2009?
A) GDP declined by more than twice the rate of the average recession.
B) Inflation rose at nearly twice the rate as the average recession.
C) It lasted just under twice as long as the typical recession.
D) Peak unemployment was about one-third higher than usual.
Answer:
For the goods market to be in equilibrium in a closed economy, which of the following
must be true?
A) Y = S + I + G
B) S + I = C + G
C) S + G = Y + C
D) S = I
Answer:
Congress created the Federal Reserve System
A) to serve as a lender of last resort.
B) to process the receipt of taxes received by the Internal Revenue Service.
C) to regulate the value of the U.S. dollar against foreign currencies.
D) to provide a source of mortgage loans to the residential housing market.
Answer:
Investors often pay professional analysts to gather and monitor information on the
creditworthiness of borrowers because
A) federal law requires it.
B) most investors are risk neutral.
C) the cost of acquiring information about a borrower’s creditworthiness can be high.
D) doing so increases the net-of-tax yield on most investments.
Answer:
Which of the following men has NOT served as Chairman of the Board of Governors?
A) Milton Friedman
B) Arthur Burns
C) Paul Volcker
D) Alan Greenspan
Answer:
Nominal interest rates are higher than real interest rates as long as
A) expected inflation is positive.
B) the government taxes interest income.
C) inflation is expected to decline in the future.
D) long-term interest rates are higher than short-term interest rates.
Answer:
If you buy a futures contract for U.S. Treasury bills and on the delivery date the interest
rate on T-bills is lower than you expected, you will have
A) lost money on your long position.
B) gained money on your long position.
C) lost money on your short position.
D) gained money on your short position.
Answer:
Which of the following makes up the largest share of M2?
A) M1
B) savings deposits
C) small time deposits
D) money market mutual fund shares
Answer: