Archives: Quiz

The problem of a double coincidence of wants refers to A) the insatiability of wants in a free market economy. B) poorly-managed companies producing what consumers want only by coincidence. C) the necessity in a barter system of each trading […]

Interest-rate risk can best be characterized as the risk that A) you could have earned a higher interest rate if you waited to purchase a bond. B) fluctuations in the price of a financial asset in response to changes in […]

In what way can the stock market affect the overall economy? A) It’s an important source of funds for corporations. B) It can affect consumer and business sentiment. C) It is an important factor affecting consumer wealth and thus consumer […]

An expansionary monetary policy that successfully counteracts a recession has the side effect of A) lower investment spending than if no action had been taken. B) a larger government deficit than if no action had been taken. C) a higher […]

The “lemons problem” in the used car market arises from A) the difficulty U.S. producers have in making reliable cars. B) the difficulty buyers have in distinguishing good cars from lemons. C) the tendency of buyers of used cars to […]

Which of the following does NOT describe the relationship between banks and small business during the 2000s (prior to the financial crisis)? A) Banks typically applied fixed guidelines for granting loans, leaving little room for personal judgment. B) Fewer small […]

If i is the yield to maturity of a fixed-payment loan, A) the value of the loan today equals i times the sum of the values of all the loan payments. B) i equals the present value of the loan […]

Alt-A borrowers were those who A) used mortgages to purchase apartments. B) chose adjustable-rate mortgages instead of fixed-rate mortgages. C) borrowed using “interest-only” mortgages. D) did not provide documentation of their income when applying for a mortgage. Answer: Economies of […]

Which of the following is included in M1, but not in M2? A) currency B) checking account deposits C) travelers checks D) Everything in M1 is in M2. Answer: Which of the following statements about ACH transactions is false? A) […]

Reserves equal A) deposits with the Fed plus holdings of U.S. government securities. B) currency in circulation plus vault cash. C) deposits with the Fed plus vault cash. D) currency outstanding plus currency in circulation. Answer: The buyer of a […]

Derivative instruments are A) assets such as bonds or common stock that derive their value from the value of the companies which issue them. B) assets whose rates of returns must be derived from information published in financial tables. C) […]

Which of the following is NOT a benefit of derivatives? A) risk sharing B) guaranteed minimum profit C) liquidity D) information services Answer: At any point along the LM curve, A) the quantity of money demanded equals the quantity of […]

In the liquidity-preference model, a decline in prices causes the a. money supply curve to shift to the right. b. money supply curve to shift to the left. c. money demand curve to shift to the left. d. money demand […]

Investors who wish to reduce their risk should a. buy stocks of small companies. b. diversify. c. buy stocks of large companies. d. keep large amounts of cash. Answer: Which of the following statements is true? a. Different stock indexes […]

If a country’s potential output is $100 billion and the output gap is 5%, the country’s actual output is a. $500 billion. b. $20 billion. c. $95 billion. d. $105 billion Answer: Which of the following is a factor considered […]

In an economy, the actual inflation rate is increasing while the ideal inflation rate is constant. In such a case, the inflation gap in the economy will a. increase over time. b. decrease over time. c. stay the same. d. […]

If actual output is denoted yand potential output is denoted y*, the output gap is a. [(y − y*)/ y*] × 100. b. [(y − y*)/ y] × 100. c. [(y* − y)/ y*] × 100. d. [(y* − y)/ […]

Which of the following statements is true of the U.S. economy? a. In the second half of the 1960s, the output gap was mostly negative while in the first half of the 1990s, the output gap was mostly positive. b. […]

The reason why people are putting more funds in checking and savings account rather than in time deposits is that a. checking and savings account accept fiat money, while time deposits do not. b. long-term interest rates have declined in […]

Reserve requirements for banks are currently: Amount of Bank’s Requirement Transaction Deposits Reserve The first $6.6 million 0 percent Amounts from $6.6 to $45.4 million 3 percent Amounts over $45.4 million 10 percent Calculate the reserve requirements for three banks […]

According to the Dodd-Frank Act, a bank merger can be stopped if the new bank would hold more than ______percent of the nation’s deposits. a. 20 b. 15 c. 10 d. 5 Answer: If interest-rate parity holds and the interest […]

The Phillips curve, modified with the addition of expected inflation into the analysis, is known as a. the expectations-augmented Phillips curve. b. the long-run Phillips curve. c. the inflation-surprise theory. d. the Phillips-curve non-accelerating inflation theory of unemployment. Answer: A […]

In the event that a firm goes bankrupt and is liquidated, who is paid off first, second, and third between workers, debt holders, and stockholders? a. (1) debt holders; (2) workers; (3) stockholders b. (1) stockholders; (2) workers; (3) debt […]

Most often after a merger, bank profits a. rise. b. remain constant. c. drop slightly. d. fall to zero. Answer: If the exchange rate equals the ratio of price indexes in two countries, there is said to be a. one […]

The cost of going to an ATM is $1 in an economy. If the nominal interest rate in the economy is 5 percent, what is the total cost associated with holding cash for an individual who spends $10 daily and […]

If the actual inflation was 4 percent over the past year and you owned a one-year bond that paid 4 percent interest, what was your after-tax realized real interest rate if your tax rate was 15 percent? a. −0.6 percent […]

The lag that arises because the random nature of economic data may make it difficult for policy makers to fully understand the state of the economy is referred to as the___ lag. a. implementation b. recognition c. effectiveness d. decision […]

If sales of a firm exactly equals investor expectations, stock price of the firm a. is expected to increase. b. is expected to decrease. c. is expected to remain the same. d. can increase or decrease depending on the volume […]

According to monetarists, the main source of fluctuations in economic activity is a. changes in the amount of money in the economy. b. waves of optimism and pessimism that cause business investment in capital goods to fluctuate. c. changes in […]

Which of the following is the third step in the procedure of conducting a research by researchers using a DSGE model? a. To match up the model with economic data, using statistical techniques to calculate the size of shocks that […]

The amount of nonborrowed reserves equals a. the monetary base plus the amount of discount loans. b. the amount of reserves plus the amount of discount loans. c. the amount of reserves minus the sum of the amount of discount […]

Another name for the expected real interest rate is the a. securitized real interest rate. b. realized real interest rate. c. ex-post real interest rate. d. ex-ante real interest rate. Answer: Someone who has an average cash balance of $45 […]

In the CAPM, the risk to a stock’s return that is attributable to the fluctuations in the overall stock market is referred to as a. idiosyncratic risk. b. explicit risk. c. systematic risk. d. unsystematic risk. Answer: A rise in […]

Consider a coupon bond that pays $150 every year and repays its principal amount of $1,500 at the end of five years.If the annual rate of discount is 7 percent, the present value of the bond is approximately a. $214.29. […]

In 2006, Chairman Greenspan left the Fed because a. President Bush wanted him to resign. b. he reached mandatory retirement age. c. his term as Governor expired. d. his term as Chairman expired. Answer: Suppose the money demand function is […]

A rise in the annual interest rates will cause a. the principal amount of a bond to increase. b. the principal amount of a bond to decrease. c. the present value of a bond to decrease. d. the present value […]

In the liquidity-preference model, a decrease in the money supply causes a. the nominal interest rate to increase and the equilibrium quantity of money to decrease. b. the nominal interest rate to increase and the equilibrium quantity of money to […]

In recessions, the long-term expected real interest rate usually a. rises. b. declines. c. stays unchanged. d. rises early in the recession; declines later in the recession. Answer: Suppose a bank earned $173 million in interest on its assets of […]

The Friedman rule suggests that a. the optimal nominal interest rate in an economy should be negative. b. the optimal nominal interest rate in an economy should be positive. c. the optimal nominal inflation rate in an economy should be […]

Which of the following securities is likely to have the highest yield to maturity? a. A corporate bond with a Baa rating b. A corporate bond with AAA rating c. A government bond exempted from federal income tax d. A […]

According to the Fisher hypothesis, if the real interest rate is 5 percent and the inflation rate rises from 2 percent to 4 percent, then the nominal interest rate will____percentage points and the real interest rate will change by_____percentage points. […]

The financial system consists of a. all the securities, intermediaries, and markets that exist to match savers and borrowers. b. all transactions occurring in the goods market during a financial year. c. all markets that exist to match the buyers […]

The Wesson Wisconsin State Bank has purchased a bank-qualified municipal bond with a coupon rate of 7.5%. The bank had to borrow funds to make this purchase at a cost of 6%. The bank is in the 25% tax bracket. […]

Which of the following is a disadvantage of using loan-backed bonds for a bank? A. The cost of funding often rises B. There is greater default risk on the bonds C. Loans used as collateral for the bonds must be […]

Suppose a bank promises an annual return of 6.5 percent on a three month (90-day $150,000 CD), what will be the total amount due to the customer at the end of the three month period? A. $152,437.50 B. $2,437.50 C. […]

Of the principal reasons for regulating banks, what was the primary purpose of the National Banking Act (1863)? A. Separation of commercial and investment banking B. Separation of commercial banking and insurance activities C. Chartering new banks and examining existing […]

The principal task of the Consumer Financial Protection Bureau (CFPB) is to: A. design the monetary policy. B. ensure safety and soundness of the banking system. C. write new rules to protect customers of the financial services industry. D. provide […]

You know the following information about the Davis National Bank: Given this information, what is the value of this firm’s total revenues? A. $800 B. $850 C. $150 D. $950 E. $900 Answer: Most loans sold in the open market […]

A bank is considering adding life insurance underwriting to the services it offers. It has estimated that the expected return and standard deviation of its traditional services are 12 percent and 6 percent respectively. It has also estimated that the […]

A bond has a face value of $1,000 and five years to maturity. This bond has a coupon rate of 13 percent and is selling in the market today for $902. Coupon payments are made annually on this bond. What […]