The bank-lending channel of monetary policy focuses on:
A. the interest rate banks charge their largest customer.
B. the banks’ willingness and ability to lend.
C. how central bank policy influences the solvency of banks.
D. the deposit insurance premiums banks will end up paying.
Answer:
Considering the balance sheet for all commercial banks in the U.S., the largest category
of assets is:
A. cash items.
B. U.S. Government Securities.
C. required reserves.
D. loans.
Answer:
Mergers resulting from the financial crisis of 2007-2009 have left what percentage of
deposits in the hands of 4 banks?
A. 10%
B. 30%
C. 40%
D. 60%
Answer:
If the Fed decides to maintain a fixed euro/dollar exchange rate when they purchase
euros:
A. they increase the number of dollars.
B. downward pressure is put on domestic interest rates.
C. the domestic money supply increases.
D. all of the answers given are correct.
Answer:
As general business conditions deteriorate, all other factors constant:
A. the demand for bonds will decrease.
B. the supply of bonds will increase.
C. bond prices will decrease.
D. bond yields will increase.
Answer:
As a result of “Check 21The Check Clearing for the 21st Century Act”:
A. banks no longer have to ship paper checks to complete the process of check
clearing.
B. people can write checks and plan on having a couple of days to make a deposit to
cover the check amount.
C. canceled checks can no longer be used as proof of payment.
D. the Federal Reserve is no longer involved in the check-clearing process.
Answer:
If M = the quantity of money, m, the money multiplier, MB, the Monetary Base, C =
Currency, D = Deposits, R = Reserves, RR = required reserves, and ER = Excess
reserves, then C + R would equal:
A. M.
B. R.
C. MB.
D. ER.
Answer:
Which of the following is not an important addition made to the Basel Accords by Basel
III in 2010?
A. It supplements capital requirements based on risk-weighted assets with restrictions
on leverage.
B. It introduces three buffers over and above capital requirements itself.
C. It adds a liquidity requirement that compels banks to hold a quantity of high-quality
liquid assets.
D. It ends the too-big-to-fail problem.
Answer:
Which of the following statements is most correct?
A. Financial intermediaries are banks.
B. A bank is a financial intermediary.
C. Financial intermediaries are insurance companies.
D. Financial intermediaries are essential to direct finance.
Answer:
An investor in a 30% marginal tax bracket, earning $10 in interest annually for a $100
U.S. Treasury bond:
A. earns a 10% after-tax return because interest on U.S. Treasury bonds is tax exempt
at the federal level.
B. earns a 3% return after-tax.
C. would be indifferent between this bond and a municipal bond offering $7 annually
per $100 of face value, assuming the same default risk and liquidity characteristics.
D. earns a 1% return after-tax.
Answer:
Mom’s Pizzeria goes out of business due to a dramatic decrease in sales from a local
newspaper article highlighting the fact that Mom’s Pizzeria has been purchasing expired
meat from a distributor at cut rate prices for years. The decrease in business also results
in Mom’s defaulting on the loan they have with the bank. This is an example of:
A. symmetric information in the financial markets.
B. perfect information in the financial markets.
C. asymmetric information in the financial markets.
D. perfect information in the pizza market.
Answer:
An increase in aggregate demand will have the following effect on potential output:
A. potential output will increase.
B. potential output will decrease.
C. potential output will increase at first and then decrease.
D. there won’t be a change in potential output from an increase in aggregate demand.
Answer:
The category of financial intermediaries called securities firms includes each of the
following, except:
A. mutual funds.
B. brokerages.
C. investment banks.
D. credit unions.
Answer:
The Dodd-Frank does all of the following except:
A. sets out new rules for financial institutions and markets.
B. repeals the Glass-Steagall Act of 1933.
C. requires closer government oversight over key establishments called systemically
important financial institutions.
D. sharply alters the authorities of the government agencies that govern the financial
sector.
Answer:
An Edge Act Corporation is:
A. a company created so a U.S. bank can operate in more than one state.
B. a subsidiary of a bank created to provide insurance and securities services.
C. a company created by a non-bank corporation used to purchase and operate banks.
D. a subsidiary of a domestic bank that is established specifically to engage in
international banking transactions.
Answer:
It has been argued that the information technology age has greatly increased
productivity and potential output. If this is true:
A. the long-run real interest rate is also higher as a result.
B. nominal long-run interest rates should have increased.
C. we should have seen lower short-run interest rates than we have seen.
D. the long-run real interest rate is lower as a result.
Answer:
The velocity of money increases if:
A. each unit of money is used more frequently.
B. each unit of money is used less frequently.
C. more purchases are made.
D. none of the above answers is correct; the velocity of money is constant.
Answer:
During the Vietnam War, monetary policy officials reacted to the increases in aggregate
demand resulting from military expenditures by:
A. not shifting the monetary policy reaction function.
B. dramatically slowing money growth.
C. shifting the monetary policy reaction curve to the left.
D. keeping the same inflation target and raising the real interest rates.
Answer:
Bonds issued by the U.S. Treasury would:
A. not be held by the Fed.
B. be held by the Fed as part of its securities.
C. be held by the Fed as part of its foreign exchange reserves.
D. be held by the Fed as part of its loans.
Answer:
Someone who purchases a call option is really buying insurance to protect against:
A. the stock not being available when they want to purchase it.
B. the price of the stock falling.
C. a seller not being able to deliver the stock.
D. the price of the stock rising.
Answer:
In practice, it is difficult to keep inflation and output from fluctuating when aggregate
expenditures change because:
A. it takes time for policymakers to recognize that shifts have occurred.
B. changes in interest rates do not have an immediate impact on the economy.
C. changes in consumer or business confidence can be very difficult to recognize as
they are occurring.
D. all of the answers given are correct.
Answer:
Non-depository institutions would include all of the following except:
A. finance companies.
B. pension funds.
C. insurance companies.
D. credit unions.
Answer:
As an option approaches its expiration date, the value of the option approaches:
A. the intrinsic value.
B. the price of the underlying asset.
C. zero.
D. infinity.
Answer:
Monetary policymakers could keep equity and property price bubbles from developing
by:
A. raising their interest rate target when they suspect a bubble.
B. lowering their interest rate target when they suspect a bubble.
C. expanding the money supply in the economy.
D. purchasing U.S. treasury securities to drive up their prices.
Answer:
Between 1997 and mid-2013, U.S. policymakers intervened in the foreign exchange
markets:
A. almost constantly.
B. twice.
C. never.
D. once a year.
Answer:
An index number is valuable because:
A. the level of every index number itself provides critical information.
B. it is more stable than the data it reflects.
C. it provides a meaningful measurement scale to calculate percentage changes.
D. it does not require any calculations to compute percentage changes.
Answer:
The most commonly quoted monetary aggregate is:
A. money-market mutual fund shares.
B. M1 since it is the most liquid.
C. public currency.
D. M2 since its movement is most closely related to interest rates and economic
growth.
Answer:
In 2010, regulators of many nations agreed on a major update of internationally active
banks known as:
A. Basel III.
B. the Fred-Bob Act.
C. the Gramm-Leach-Bliley Act.
D. the Dodd-Frank Act.
Answer:
A tariff disrupts the workings of the law of one price because tariffs:
A. are standardized by GATT.
B. are taxes on imports and can vary across products and countries.
C. apply only to goods countries export.
D. are only applied to commodity products.
Answer:
Considering the methods available to the FDIC for dealing with a failed bank, the
depositors of the failed bank should:
A. be indifferent between the two since it really does not matter to them which method
is used.
B. prefer the purchase and assumption method since the deposits over $250,000 will
also be protected.
C. prefer the payoff method because they will have access to their funds earlier.
D. prefer the payoff method since a lot less paperwork is involved for the depositor.
Answer:
The likelihood that the Fed will implement a change that will seriously harm the
economy is minimized by the fact that:
A. only bright, well-intentioned people are appointed to key roles at the Fed.
B. Congress can remove the Chairman of the Fed at any time.
C. the Board of Governors ultimately must answer to the U.S. President since he can
replace them.
D. there is decision making by committee.
Answer:
Which of the following is not a bank liability?
A. Reserves
B. Demand deposits
C. Non-transaction deposits
D. Federal fund borrowings
Answer:
Which of the following statements best completes the following statement: “Over the
past 40 years, the percentage(s) of assets for all financial intermediaries”?
A. controlled by banks has decreased as has the percentage for mutual funds while
insurance companies have increased their percentage.
B. controlled by insurance companies and mutual funds has decreased and the
percentage controlled by banks has increased.
C. controlled by banks and insurance companies has decreased while the percentage
controlled by mutual funds and pensions has increased.
D. controlled by banks, insurance companies, mutual funds and pensions have all
increased.
Answer:
If a fair coin is tossed, the probability of coming up with either a head or a tail is:
A. ½ or 50 percent.
B. Zero.
C. 1 or 100 percent.
D. Unquantifiable.
Answer: