Archives: Quiz

Secondary reserves include A. deposits at Federal Reserve Banks. B. deposits at other large banks. C. short-term U.S. government securities. D. state and local government securities. Answer: Using the Gordon growth model, a stock’s current price will increase if A. […]

The Fed operating procedures employed between 1979 and 1982 resulted in ________ swings in the federal funds rate and ________ swings in the M1 growth rate. A. increased; increased B. increased; decreased C. decreased; decreased D. decreased; increased Answer: Banks […]

For a 3-year simple loan of $10,000 at 10 percent, the amount to be repaid is A. $10,030. B. $10,300. C. $13,000. D. $13,310. Answer: On the evening news you hear of a scientific study that directly links premature births […]

The mound-shaped yield curve in the figure above indicates that the inflation rate is expected to A. remain constant in the near-term and fall later on. B. fall moderately in the near-term and rise later on. C. rise moderately in […]

The higher the insurance coverage, the ________ the policyholder can gain from risky activities that make an insurance payoff ________ likely. A. more; less B. more; more C. less; less D. less; more Answer: Which of the following is an […]

A reduction in government spending causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant. A. rise; LM; right B. fall; IS; left C. […]

Factors that influenced planned investment spending include A. real interest rates. B. financial frictions. C. emotional waves of optimism and pessimism. D. all of the above. E. A and C. Answer: The M2 monetary aggregate contains everything that is in […]

Which of the following is NOT an entity of the Federal Reserve System? A. Federal Reserve Banks B. the Comptroller of the Currency C. the Board of Governors D. the Federal Open Market Committee Answer: When the central bank ________ […]

In the simple deposit expansion model, if the required reserve ratio is 10 percent and the Fed increases reserves by $100, checkable deposits can potentially expand by A. $100. B. $250. C. $500. D. $1,000. Answer: Suppose the economy is […]

Since the Federal Reserve sets the required reserve ratio to less than one, one dollar of reserves can support ________ of checkable deposits. a. exactly one dollar b. less than one dollar c. more than one dollar d. exactly twice […]

The speculative demand for money may not exist because A. banks now pay interest on some types of checkable deposits. B. there are alternative riskless assets paying higher returns than the return on money. C. the transactions demand can be […]

Increasing transactions costs of selling an asset make the asset A. more valuable. B. more liquid. C. less liquid. D. more moneylike. Answer: Everything else held constant, if aggregate output is to the right of the LM curve, then there […]

The factor accounting for the steepest rise in the currency ratio since 1892 is a. taxes. b. bank panics. c. illegal activity. d. an increase in wealth. Answer: If the required reserve ratio is 10 percent, currency in circulation is […]

If float is predicted to increase because of bad weather, the manager of the trading desk at the New York Fed bank will likely conduct ________ open market operations to ________ reserves. A) defensive; inject B) defensive; drain C) dynamic; […]

The fundamental value of a stock equals A) the future value of all future dividends. B) the present value of all future dividends. C) the present value of current and future dividends. D) the present value of all future capital […]

The automatic mechanism can best be described as: A) the process of the economy adjusting back to potential GDP without any action taken by the government B) the result of monetary policy implemented by the Fed restoring full employment C) […]

In a competition of financial analysts vs. throwing a dart to choose stocks, according Burton Malkiel, financial analysts came out ahead due to all of the following reasons EXCEPT: A) it considered only stock prices, not dividends B) investors that […]

Moody’s Investors Service is able to make a profit because A) most investors are irrational. B) of the existence of adverse selection problems. C) fluctuations in interest rates make default risk on corporate bonds difficult to gauge. D) small investors […]

Unless otherwise indicated, when economists or investors refer to the interest rate on a financial asset, they referring to the: A) current yield B) coupon rate C) yield to maturity D) prime rate Answer: Which of the following assets is […]

The efficient markets hypothesis A) assumes that market participants form their expectations adaptively. B) applies rational expectations to the pricing of assets. C) applies to the stock market, but not to the bond market. D) indicates that the stock market […]

Collateral is A) the interest rate that banks charge high-quality borrowers. B) assets pledged to the bank in the event the borrower defaults. C) the difference between the value of a bank’s assets and the value of a bank’s liabilities. […]

Which interest rates is most relevant in determining aggregate expenditures? A) federal funds rate B) short-term real interest rate C) long-term nominal interest rate D) long-term real interest rate Answer: The second stage in the regulatory process is A) a […]

The default risk premium is A) relevant only for securities issued by very small companies. B) the additional yield a saver requires for holding a bond with some default risk. C) zero for corporate bonds, but quite substantial for corporate […]

The Fed’s current position towards the existing monetary aggregates is A) it is convinced that M1 is the best measure of the money supply. B) it is convinced that M2 is the best measure of the money supply. C) it […]

Most macroeconomic policy consists of: A) monetary policy B) fiscal policy C) exchange-rate policy D) regulatory policy Answer: Why do higher interest rates increase adverse selection problems in the loan market? A) Higher interest rates reduce the gains from economies […]

The wealth of most people declined as a result of the financial crisis of 2007-2009. As a result, which asset was most likely became a larger portion of their portfolio? A) bonds B) stocks C) house D) checking account Answer: […]

Bank capital is equal to A) the value of the capital originally invested in the bank by its owners. B) the value of everything the bank owns. C) the difference between the value of the bank’s assets and the value […]

In a put options contract, the A) seller has the obligation to receive the instrument at a specified time. B) buyer has the obligation to deliver the instrument at a specified time. C) buyer has the obligation to receive the […]

In regard to crowd funding, it was expected that the SEC would limit the amount that small investors can invest in any one company to no more than: A) $1000 B) $10,000 C) $100,000 D) $1,000,000 Answer: How did the […]

As wealth increases in the economy, savers are willing to A) hold more cash relative to their holdings of bonds. B) buy fewer bonds at any given price. C) lend more at any given interest rate. D) lend less at […]

What is the yield to maturity of a consol with a coupon of $85 and a price of $944.44? A) 5.56% B) 8.50% C) 9.00% D) Not enough information has been provided to determine the answer. Answer: A falling dollar […]

Federal Reserve district banks perform all of the following roles EXCEPT A) managing checking clearing in the payments system. B) performing regulatory functions. C) setting the federal funds rate. D) managing currency in circulation by issuing new Federal Reserve Notes. […]

An autonomous expenditure is one that does not depend on: A) government policy B) the automobile sector C) interest rates D) GDP Answer: A $10 million open market purchase will increase the monetary base by A) $10 million. B) $10 […]

Businesses hold substantial balances in demand deposits for all of the following reasons EXCEPT: A) they cannot hold NOW accounts B) the existence of low transaction costs C) to maintain liquidity D) relatively high interest rates Answer: The demand curve […]

Stocks of small firms have a higher annual average return than stocks in general. Some economists attribute this to: A) compensation for the higher risk of small firms B) lower liquidity of stocks of small firms C) higher information costs […]

When the Fed lends to depository institutions, the loans are called A) federal funds. B) discount loans. C) repurchase agreements. D) reverse repurchase agreements. Answer: Discount loans available to health banks which can be used for any purpose are called […]

Special Drawing Rights A) are granted by the Fed to banks which want to trade in the foreign exchange markets. B) were eliminated when the Bretton Woods system broke down. C) are created by the IMF in its role as […]

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: Which of the following statements concerning seasonal credit is true? […]

Which of the following is a fixed payment loan? A) a home mortgage B) a U.S. Treasury bill C) a U.S. Treasury note D) a zero-coupon bond Answer: The “greater fool” theory assumes that A) markets are efficient. B) bubbles […]

Which of the following is NOT a fixed payment loan? A) a home mortgage B) a car loan C) a U.S. Treasury note D) a student loan Answer: Who had served as a de facto lender of last resort during […]

According to the efficient markets hypothesis, who should earn the highest risk-adjusted return on stocks? A) a financial expert who can devote considerable time to research B) the average investor who doesn’t do too much research C) someone throwing darts […]

Which of the following is an example of fiat money? A) a cowry shell used as money on a South Pacific island B) a gold coin used as money in nineteenth century England C) a Federal Reserve Note used as […]

If oil prices fall at the same time that the federal government increases its purchases, in the short run A) aggregate output and the price level will both increase. B) aggregate output will increase, but the price level will fall. […]

Under the Bretton Woods system, exchange rates were supposed to be adjusted A) only when a country experienced fundamental disequilibrium. B) daily. C) weekly. D) following each annual meeting of the board of governors of the International Monetary Fund. Answer: […]

An increase in oil prices will A) shift the short-run aggregate supply curve up and to the left. B) shift the short-run aggregate supply curve down and to the right. C) cause a movement along the short-run aggregate supply curve. […]

By the summer of 2008, about what percent of subprime mortgages were overdue by at least 30 days? A) 10% B) 25% C) 34% D) 50% Answer: Who organized the Bank of the United States? A) Alexander Hamilton B) George […]

All of the following took place during the economic crisis that began in 2007 EXCEPT: A) the financial system was disrupted B) large portions of the U.S. economy were cut off from the funds they needed to thrive C) there […]

As of 2012, the bank portion of TARP: A) earned a profit of $21 billion B) earned a profit of $245 billion C) cost $266 billion D) cost $700 billion Answer: The situation in which investors choose to put their […]

The speculative attack on the German mark in 1971 resulted in A) a large increase in the German monetary base. B) a decline in the value of the mark relative to the dollar. C) a decision to end the floating […]

If the price level in the United States increases more slowly than the price level in Canada, we would expect A) interest rates in the United States to be higher than interest rates in Canada. B) the U.S. dollar to […]