The number of regional Federal Reserve Banks is:
A. nine.
B. seven.
C. five.
D. twelve.
Answer:
Which of the following statements is most correct?
A. The FOMC is more successful at keeping the market rate closer to the target rate
than the ECB.
B. The FOMC is more successful than the ECB at keeping the market rate within a 100
basis point band of the target rate.
C. The ECB has kept the market rate within a 100 basis point band of the target rate;
the FOMC cannot make this claim.
D. The ECB seldom has the market rate within 100 basis points of the target rate.
Answer:
Stable inflation implies:
A. that the rate of inflation averaged over many years is zero.
B. that inflation is predictable.
C. that the rate of inflation conceals relative price changes.
D. low rates of unemployment.
Answer:
Farou invests $2,000 at 8% interest. About how long will it take for Farou to double his
investment (e.g., to have $4,000)?
A. 4 years
B. 5 years
C. 8 years
D. 9 years
Answer:
Options are popular because of all of the following EXCEPT:
A. stock prices are volatile.
B. they offer a tool to transfer risk.
C. they present a tool to limit losses but also limit gains.
D. they offer opportunities for high leverage.
Answer:
An insurance company is an example of a financial institution that:
A. transfers risk.
B. acts as a broker.
C. serves as a depository institution.
D. sells derivative securities.
Answer:
A rumor starts that says a bank has suffered significant losses and may not be able to
honor its promises to depositors. This causes most of the depositors to line up in front
of the bank the next morning wanting to withdraw their deposits. This is an example
of:
A. liquidity risk.
B. operational risk.
C. interest rate risk.
D. credit risk.
Answer:
The 1990s saw inflation fall and real growth increase in the U.S. and in many other
countries. This is partially attributed to all of the following except:
A. technological innovation.
B. redesign of many central banks.
C. central banks became better at their jobs.
D. central banks focused more on exchange rates in a global environment.
Answer:
Which of the books used at the FOMC meetings contains a discussion of financial
markets and current policy options?
A. The teal book
B. The beige book
C. The green book
D. Both the beige and green books
Answer:
One way insurance companies deal with the problem of adverse selection is by:
A. charging the same price to everyone.
B. screening applicants.
C. monitoring policyholders after they have purchased insurance.
D. spreading the risk in the same geographic area.
Answer:
One major difference between a debit card and a credit card is:
A. only the debit card helps you to build a credit history.
B. the debit card has lower minimum monthly payments.
C. you do not need to actually have the funds in your account when you use a debit
card.
D. debit cards have no late fees.
Answer:
Which of the following is not true about the information and advice investment bankers
provide to clients?
A. It is public information that the bank compiles and makes available to anyone.
B. It is highly valued if the fees paid for it are any indication of its value.
C. It is often used to identify possible acquisition and merger candidates.
D. It helps improve the allocation of resources across the economy.
Answer:
The market for bonds is initially described by the supply of bonds – S0, and the demand
for bonds – D0, with the equilibrium price and quantity being P0 and Q0. If the U.S.
government’s borrowing needs decrease, all other factors constant:
A. Bond supply curve to shift to S1
B. Bond demand curve to shift to D1
C. Bond supply curve to shift to S2
D. Bond demand curve to shift to D2
Answer:
One of the limiting factors for using monetary policy is:
A. the central banks are limited in their ability to print money.
B. central banks are limited in their ability to make loans.
C. there is a lower nominal-interest-rate bound of zero.
D. the real interest rate cannot fall below zero.
Answer:
If monetary policymakers do not change their inflation target and aggregate demand
shifts left:
A. there will be a temporary decrease in output.
B. potential output will decrease.
C. there will be an increase in inflation in the long run.
D. it will result in a permanent reduction in inflation.
Answer:
M1 is:
A. less than 25% of GDP.
B. equal to GDP.
C. about four times larger than GDP.
D. about one fourth the amount of GDP.
Answer:
A monthly growth rate of 0.6% is an annual growth rate of:
A. 7.20%
B. 6.00%
C. 7.60%
D. 7.44%
Answer:
Vault cash is:
A. equal to the total amount of reserves and is an asset of the central bank.
B. not reserves but is a liability of the central bank.
C. a part of reserves and an asset of commercial banks.
D. not reserves but is an asset of central banks.
Answer:
Financial instruments used primarily as stores of value do not include:
A. asset backed securities.
B. U.S. Treasury bonds.
C. a car insurance policy.
D. a bank loan.
Answer:
As the time of settlement gets closer:
A. the price of the futures contract will diverge from the price of the underlying asset.
B. the price of the futures contract will always be above the price of the underlying
asset.
C. the price of the underlying asset and the future’s price will show no correlation at all.
D. the price of the futures contract will move in lockstep with the price of the
underlying asset.
Answer:
Which of the following statements best describes the level of potential output in the
U.S.?
A. It never changes year to year
B. It is very erratic year to year
C. It usually increases year to year
D. It has been decreasing since 1999
Answer:
Which of the following statements is most correct?
A. A recession is officially defined as two consecutive quarters where the real growth
rate is negative.
B. A recession officially begins when unemployment exceeds 5.0 percent.
C. There is no hard and fast definition of a recession.
D. The official date of a recession is determined by the Federal Reserve Board, but
usually with at least a three-month delay.
Answer:
Key assumptions behind the quantity theory of money include:
A. the money supply is fixed.
B. the velocity of money is constant.
C. the percentage change in the price level equals the percentage change in real GDP.
D. the change in nominal GDP is zero.
Answer:
The primary function of central banks is to:
A. increase risk and volatility to increase compensation.
B. control inflation, as well as help reduce the size and frequency of business cycle
fluctuations.
C. increase the uncertainty that firms face in making investment decisions.
D. eliminate the need for banks to collect financial information.
Answer:
Increases in a borrower’s net worth:
A. reduces the problem of moral hazard.
B. lowers the information costs of lending.
C. reduces the problem of adverse selection.
D. all of the answers given are correct.
Answer:
Considering the theory of purchasing power parity, if inflation in Mexico is 5% while
prices in the U.S. are stable; we should expect over the period of a year:
A. the dollar to appreciate 5% relative to the peso.
B. the peso to appreciate 5% relative to the dollar.
C. the nominal exchange rate to stay fixed.
D. the real exchange rate of U.S. goods/Mexican goods to appreciate 5%.
Answer:
In the bond market, the assigning of a risk premium is a tool designed to address the
problem of:
A. adverse selection.
B. information asymmetry.
C. the free-rider.
D. moral hazard.
Answer:
Most economists view capital controls:
A. unfavorably.
B. unfavorably, emphasizing their harmful effects on developing countries.
C. favorably, since this is the main way for countries to exploit their comparative
advantage.
D. favorably, since having them makes capital markets more efficient.
Answer:
Most of the Fed’s income is:
A. paid to member banks in the form of a dividend.
B. sent to the FDIC to shore up the depositor insurance fund.
C. returned to the U.S. Treasury.
D. used to build the Fed’s portfolio of securities.
Answer:
The actual results of the McFadden Act included:
A. increased efficiency of banking across the country.
B. a tight network of interconnected banks across the country.
C. the continued operation of small inefficient banks.
D. the elimination of banking monopolies.
Answer:
If a recession were the result of monetary policy, we should observe:
A. inflation increasing as output decreases.
B. potential output decreasing.
C. inflation slowing as output falls.
D. a high rate of money growth.
Answer: