The quantity interest income minus interest expenses divided by assets is a measure of
bank performance known as
A) operating income.
B) net interest margin.
C) return on assets.
D) return on equity.
Answer:
The primary difference between the “payoff” and the “purchase and assumption”
methods of handling failed banks is
A) that the FDIC guarantees all deposits when it uses the “payoff” method.
B) that the FDIC guarantees all deposits when it uses the “purchase and assumption”
method.
C) that the FDIC is more likely to use the “payoff” method when the bank is large and it
fears that depositor losses may spur business bankruptcies and other bank failures.
D) that the FDIC is more likely to use the purchase and assumption method for small
institutions because it will be easier to find a purchaser for them compared to large
institutions.
Answer:
An increase in Treasury deposits at the Fed causes
A) the monetary base to increase.
B) the monetary base to decrease.
C) Fed assets to increase but has no effect on the monetary base.
D) Fed assets to decrease but has no effect on the monetary base.
Answer:
Everything else held constant, an increase in financial frictions ________ aggregate
________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
Answer:
The Depository Institutions Deregulation and Monetary Control Act of 1980
A) restricted thrift institutions to making loans for home mortgages.
B) restricted the use of ATS accounts.
C) imposed restrictive interest-rate ceilings on large agricultural loans.
D) increased deposit insurance from $40,000 to $100,000.
Answer:
Typically, borrowers have superior information relative to lenders about the potential
returns and risks associated with an investment project. The difference in information is
called
A) moral selection.
B) risk sharing.
C) asymmetric information.
D) adverse hazard
Answer:
If the real exchange rate between the United States and Japan is ________, then it is
cheaper to buy goods in Japan than in the United States.
A) greater than 1.0
B) greater than 0.5
C) less than 0.5
D) less than 1.0
Answer:
An important feature of money market mutual fund shares is
A) deposit insurance.
B) the ability to write checks against shareholdings.
C) the ability to borrow against shareholdings.
D) claims on shares of corporate stock.
Answer:
Microprudential supervision focuses on the safety and soundness of
A) individual financial institutions.
B) the financial system as a whole.
C) the shadow banking system.
D) government credit agencies.
Answer:
A rise in stock prices ________ the net worth of firms and so leads to ________
investment spending because of the reduction in moral hazard.
A) raises; higher
B) raises; lower
C) reduces; higher
D) reduces; lower
Answer:
When banks involved in trading activities attempt to outguess markets, they are
A) forecasting.
B) diversifying.
C) speculating.
D) engaging in riskless arbitrage.
Answer:
When secondary market buyers and sellers of securities meet in one central location to
conduct trades the market is called a(n)
A) exchange.
B) over-the-counter market.
C) common market.
D) barter market.
Answer:
Everything else held constant, in the market for reserves, when the federal funds rate is
3%, raising the discount rate from 5% to 6%
A) lowers the federal funds rate.
B) raises the federal funds rate.
C) has no effect on the federal funds rate.
D) has an indeterminate effect on the federal funds rate.
Answer:
According to the expectations theory of the term structure
A) the interest rate on long-term bonds will exceed the average of short-term interest
rates that people expect to occur over the life of the long-term bonds, because of their
preference for short-term securities.
B) interest rates on bonds of different maturities move together over time.
C) buyers of bonds prefer short-term to long-term bonds.
D) buyers require an additional incentive to hold long-term bonds.
Answer:
The bond markets are important because they are
A) easily the most widely followed financial markets in the United States.
B) the markets where foreign exchange rates are determined.
C) the markets where interest rates are determined.
D) the markets where all borrowers get their funds.
Answer:
The major criticism of the view that expectations are formed adaptively is that
A) this view ignores that people use more information than just past data to form their
expectations.
B) it is easier to model adaptive expectations than it is to model rational expectations.
C) adaptive expectations models have no predictive power.
D) people are irrational and therefore never learn from past mistakes.
Answer:
The presence of ________ in financial markets leads to adverse selection and moral
hazard problems that interfere with the efficient functioning of financial markets.
A) noncollateralized risk
B) free-riding
C) asymmetric information
D) costly state verification
Answer:
Which of the following is not included in the M1 measure of money but is included in
the M2 measure of money?
A) Currency
B) Traveler’s checks
C) Demand deposits
D) Small-denomination time deposits
Answer:
The Federal Reserve entity that makes decisions regarding the conduct of open market
operations is the
A) Board of Governors.
B) chairman of the Board of Governors.
C) Federal Open Market Committee.
D) Open Market Advisory Council
Answer:
The actual execution of open market operations is done at
A) the Board of Governors in Washington, D.C.
B) the Federal Reserve Bank of New York.
C) the Federal Reserve Bank of Philadelphia.
D) the Federal Reserve Bank of Boston.
Answer:
When the expected inflation rate increases, the real cost of borrowing ________ and
bond supply ________, everything else held constant.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Answer:
Which of the following instruments are traded in a money market?
A) State and local government bonds
B) U.S. Treasury bills
C) Corporate bonds
D) U.S. government agency securities
Answer:
Because prices are sticky in the short-run, when the Federal Reserve raises the federal
funds rate,
A) nominal interest rates fall.
B) real interest rates rise.
C) inflation falls.
D) real interest rates fall.
Answer:
Which of the following are transaction deposits?
A) Savings accounts
B) Small-denomination time deposits
C) Negotiable order of withdraw accounts
D) Certificates of deposit
Answer:
The payments system is
A) the method of conducting transactions in the economy.
B) used by union officials to set salary caps.
C) an illegal method of rewarding contracts.
D) used by your employer to determine salary increases.
Answer:
Everything else held constant, the vertical section of the supply curve of reserves is
shortened when the
A) discount rate increases.
B) discount rate decreases.
C) federal funds rate rises.
D) federal funds rate falls.
Answer:
If, in retaliation for “unfair” trade practices, Congress imposes a 30 percent tariff on
Japanese DVD recorders, but at the same time, U.S. demand for Japanese goods
increases, then, in the long run, ________, everything else held constant
A) the Japanese yen should appreciate relative to the U.S. dollar
B) the Japanese yen should depreciate relative to the U.S. dollar
C) there is no effect on the Japanese yen relative to the U.S. dollar
D) the Japanese yen could appreciate, depreciate or remain constant relative to the U.S.
dollar
Answer:
A current account surplus indicates that America is ________ its claims on foreign
wealth, while a deficit indicates that this country is ________ its claims on foreign
wealth.
A) reducing; reducing
B) reducing; increasing
C) increasing; reducing
D) increasing; increasing
Answer:
According to the quantity theory of money demand,
A) an increase in interest rates will cause the demand for money to fall.
B) a decrease in interest rates will cause the demand for money to increase.
C) interest rates have no effect on the demand for money.
D) an increase in money will cause the demand for money to fall.
Answer:
Monetary aggregates are
A) measures of the money supply reported by the Federal Reserve.
B) measures of the wealth of individuals.
C) never redefined since “money” never changes.
D) reported by the Treasury Department annually.
Answer:
According to the household liquidity effect, higher stock prices lead to increased
consumption expenditures because consumers
A) feel more secure about their financial position.
B) want to sell stocks and spend the proceeds before stock prices fall.
C) believe that their wages will increase due to increased profitability of firms.
D) can now afford more expensive imports.
Answer:
Banks responded to disintermediation by
A) supporting the elimination of interest rate regulations, enabling them to better
compete for funds.
B) opposing the elimination of interest rate regulations, as this would increase their cost
of funds.
C) demanding that interest rate regulations be imposed on money market mutual funds.
D) supporting the elimination of interest rate regulations, as this would reduce their cost
of funds.
Answer:
Budgets deficits can be a concern because they might
A) ultimately lead to higher inflation.
B) lead to lower interest rates.
C) lead to a slower rate of money growth.
D) lead to higher bond prices.
Answer:
An advantage to exchange-rate targeting is it helps keep inflation under control by tying
the inflation rate for ________ traded goods to what is found in the ________ country.
A) domestically; anchor
B) domestically, domestic
C) internationally; anchor
D) internationally; domestic
Answer:
________ theory relates the quantity of money and monetary policy to changes in
aggregate economic activity and inflation.
A) Monetary
B) Fiscal
C) Financial
D) Systemic
Answer: