The monetary base minus currency in circulation equals
A. reserves.
B. the borrowed base.
C. the nonborrowed base.
D. discount loans.
Answer:
If a bank has excess reserves of $15,000 and demand deposit liabilities of $80,000, and
if the reserve requirement is 20 percent, then the bank has total reserves of
A. $11,000.
B. $21,000.
C. $31,000.
D. $41,000.
Answer:
In the simple deposit expansion model, a decline in checkable deposits of $1,000 when
the required reserve ratio is equal to 10 percent implies that the Fed
A. sold $1,000 in government bonds.
B. sold $100 in government bonds.
C. purchased $1,000 in government bonds.
D. purchased $100 in government bonds.
Answer:
Keynes assumed that money has ________ rate of return.
A. a positive
B. a negative
C. a zero
D. an increasing
Answer:
Which of the following is a depository institution?
A. a life insurance company
B. a mutual savings bank
C. a pension fund
D. a finance company
Answer:
Which of the following is NOT an advantage of private equity funds?
A. Private companies are not subject to the same regulations as a publicly traded
company.
B. Managers of private firms are not under the same level of pressure to produce high
returns compared to the managers of publicly traded firms.
C. Private equity firms can do a better job in controlling the problems created by moral
hazard.
D. Private equity funds give managers of the companies higher stakes compared to
managers in publicly traded companies.
Answer:
The quantity theory of inflation indicates that the inflation rate equals
A. the growth rate of the money supply minus the growth rate of aggregate output.
B. the level of the money supply minus the level of aggregate output.
C. the growth rate of the money supply plus the growth rate of aggregate output.
D. the level of the money supply plus the level of aggregate output.
Answer:
If the current account balance shows a surplus, and the capital account also shows a
surplus, then the official reserve transactions balance
A) must be positive.
B) must be negative.
C) must be zero.
D) can either be positive, negative, or zero.
Answer:
An increase in the expected rate of inflation will ________ the expected return on
bonds relative to the that on ________ assets, everything else held constant.
A. reduce; financial
B. reduce; real
C. raise; financial
D. raise; real
Answer:
Brokers, in contrast to security dealers
A. hold inventories of securities.
B. make their income through commissions.
C. make their living on the spread between the bid price and the asked price.
D. buy and sell securities at given prices.
Answer:
Everything else held constant, if a central bank makes a sterilized purchase of foreign
assets, then the domestic currency will
A) appreciate.
B) depreciate.
C) either appreciate, depreciate, or remain constant.
D) not be affected.
Answer:
A discount bond
A. pays the bondholder a fixed amount every period and the face value at maturity.
B. pays the bondholder the face value at maturity.
C. pays all interest and the face value at maturity.
D. pays the face value at maturity plus any capital gain.
Answer:
Economists’ attempts to explain the term structure of interest rates
A. illustrate how economists modify theories to improve them when they are
inconsistent with the empirical evidence.
B. illustrate how economists continue to accept theories that fail to explain observed
behavior of interest rate movements.
C. prove that the real world is a special case that tends to get short shrift in theoretical
models.
D. have proved entirely unsatisfactory to date.
Answer:
If initially the money supply is $1 trillion, velocity is 5, the price level is 1, and real
GDP is $5 trillion, an increase in the money supply to $2 trillion
A. increases real GDP to $10 trillion.
B. causes velocity to fall to 2.5.
C. increases the price level to 2.
D. increases the price level to 2 and velocity to 10.
Answer:
Factors that decrease the demand for bonds include
A. an increase in the volatility of stock prices.
B. a decrease in the expected returns on stocks.
C. a decrease in the inflation rate.
D. a decrease in the riskiness of stocks.
Answer:
Everything else held constant, an increase in the required reserve ratio on checkable
deposits causes the M1 money multiplier to ________ and the money supply to
________.
a. decrease; increase
b. increase; increase
c. decrease; decrease
d. increase; decrease
Answer:
Although ________ currency is lighter than coins made of metals, a disadvantage
arising from modern technology is the ease of ________.
A. paper; transport
B. commodity; counterfeiting
C. fiat; transport
D. paper; counterfeiting
Answer:
Bank capital has both benefits and costs for the bank owners. Higher bank capital
________ the likelihood of bankruptcy, but higher bank capital ________ the return on
equity for a given return on assets.
A. reduces; reduces
B. increases; increases
C. reduces; increases
D. increases; reduces
Answer:
Crowding out will be more pronounced the closer to vertical is the
A. IS curve.
B. LM curve.
C. consumption function.
D. aggregate demand function.
Answer:
Which of the followings does NOT describe the goods market in the ISLM model?
A. consumption function
B. investment function
C. government spending and tax
D. money demand function
Answer:
The amount of borrowed reserves is ________ related to the discount rate, and is
________ related to the market interest rate.
a. negatively; negatively
b. negatively; positively
c. positively; negatively
d. positively; positively
Answer:
If a firm must pay for goods it has ordered with foreign currency, it can hedge its
foreign exchange-rate risk by ________ foreign exchange futures ________.
A. selling; short
B. buying; long
C. buying; short
D. selling; long
Answer:
In the Keynesian framework, as long as output is below the equilibrium level,
unplanned inventory investment will remain ________ and firms will continue to
________ production.
A. negative; lower
B. negative; raise
C. positive; lower
D. positive; raise
Answer:
New information that might lead to a decrease in a stock’s price might be
A. an expected decrease in the level of future dividends.
B. a decrease in the required rate of return.
C. an expected increase in the dividend growth rate.
D. an expected increase in the future sales price.
Answer:
When you deposit $50 in currency at Old National Bank
A. its assets increase by less than $50 because of reserve requirements.
B. its reserves increase by less than $50 because of reserve requirements.
C. its liabilities increase by $50.
D. its liabilities decrease by $50.
Answer:
The interest rate on secondary credit is set ________ basis points ________ the primary
credit rate.
A. 100; above
B. 100; below
C. 50; above
D. 50; below
Answer:
If the interest rate on a bond is below the equilibrium interest rate, there is an excess
________ of bonds and the bond price will ________.
A. demand; rise
B. demand; fall
C. supply; rise
D. supply; fall
Answer:
The European Central Bank (ECB) pursues a hybrid monetary policy strategy that has
elements in common with the -targeting strategy previously used by the Bundesbank
but also includes some elements of targeting.
A. monetary; inflation
B. inflation; monetary
C. monetary; exchange rate
D. monetary; nominal GDP
Answer:
Mutual savings banks are primarily regulated by
A) the states in which they are located.
B) the Federal Reserve.
C) the FDIC.
D) the National Credit Union Administration.
Answer:
The Argentine banking crisis of 2001 resulted from Argentina’s banks being required to
A. purchase large amounts of government debt.
B. pay back the value of failed loans.
C. make risky real estate loans.
D. make loans to only state-owned businesses.
Answer: