Archives: Quiz

1) According to Tobin’s q theory, when q is ________, firms will not purchase new investment goods because the market value of firms is ________ relative to the cost of capital A) low; low B) low; high C) high; low […]

1) In the figure above, a factor that could cause the supply of bonds to increase (shift to the right) is: A) a decrease in government budget deficits B) a decrease in expected inflation C) expectations of more profitable investment […]

1) The revenue a government gains from issuing money is A) interest B) rent C) seignorage D) the national dividend E) the inflation tax 2) If actual output is less than equilibrium output, firms will ________ output to keep from […]

1) Increasing transactions costs of selling an asset make the asset A) more valuable B) more liquid C) less liquid D) more moneylike 2) The “Greenspan doctrine” – central banks should not try to prick bubbles – was based on […]

1) When interest rates rise in the United States (with the price level fixed), the value of the dollar ________, domestic goods become ________ expensive, and net exports ________ A) falls; less; fall B) falls; more; rise C) rises; more; […]

1) Everything else held constant, in the market for reserves, when the demand for federal funds intersects the reserve supply curve along the horizontal section, increasing the discount rate A) increases the federal funds rate B) lowers the federal funds […]

1) Which of the following items are not counted in US GDP? A) your purchase of a new Ford Mustang B) your purchase of new tires for your old car C) GM’s purchase of tires for new cars D) a […]

1) In the long-run ISLM model and with everything else held constant, the long-run effect of an expansionary monetary policy is to A) increase real output and the interest rate B) not change either real output or the interest rate […]

1) The difference between merchandise exports and imports is called the ________ balance A) current account B) capital account C) official reserve transactions D) trade 2) The reduction in transactions costs per dollar of investment as the size of transactions […]

1) Although it has a population about half that of the United States, Japan has A) many more banks B) about 25 percent of the number of banks C) more than 5000 commercial banks D) fewer than 100 commercial banks […]

1) To calculate the growth rate of a variable, you will A) calculate the percentage change from one time period to the next B) calculate the difference between the two variables C) add the ending value to the beginning value […]

1) Modern liability management has resulted in A) increased sales of certificates of deposits to raise funds B) increase importance of deposits as a source of funds C) reduced borrowing by banks in the overnight loan market D) failure by […]

1) The growth of the subprime mortgage market led to A) increased demand for houses and helped fuel the boom in housing prices B) a decline in the housing industry because of higher default risk C) a decrease in home […]

1) Cutting the money supply by one-third is predicted by the quantity theory of money to cause A) a sharp decline in real output of one-third in the short run, and a fall in the price level by one-third in […]

1) An expansionary monetary policy shifts the LM curve to the ________, reducing ________, everything else held constant A) left; output and increasing interest rates B) left; both real output and interest rates C) right; both interest rates and real […]

1) Using the one-period valuation model, assuming a year-end dividend of $011, an expected sales price of $110, and a required rate of return of 10%, the current price of the stock would be A) $11011 B) $12112 C) $10010 […]

1) Using the information contained in Situation 20-1, if autonomous consumption increases by $100, then equilibrium aggregate output will change by A) -$1,000 B) -$100 C) $100 D) $1,000 2) ________ policy involves decisions about government spending and taxation A) […]

1) An increase in the quantity of money supplied shifts the money supply curve to the ________ and the LM curve to the ________, everything else held constant A) right; left B) right; right C) left; left D) left; right […]

1) There are two types of investment: ________ investmentthe spending by business firms on equipment and structures, and planned spending on residential housesand ________ investmentspending by business firms on additional holdings of raw materials, parts, and finished goods A) planned; […]

1) Although the National Bank Act of 1863 was designed to eliminate state-chartered banks by imposing a prohibitive tax on banknotes, these banks have been able to stay in business by A) issuing credit cards B) ignoring the regulations C) […]

1) A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called a A) simple loan B) fixed-payment loan C) coupon bond D) discount bond […]

1) Looking at the Net Interest Margin indicates that the poor bank performance in the late 1980s A) was not the result of interest-rate movements B) was not the result of risky loans made in the early 1980s C) resulted […]

1) When banks calculate the losses the institution would incur if an unusual combination of bad events happened, the bank is using the ________ approach A) stress-test B) value-at-risk C) trading-loss D) maximum value 2) In the generalized dividend model, […]

1) China is trying to move its banking system from being strictly ________ owned by having them issue shares overseas A) state B) domestic investor C) depositor D) domestic corporate 2) ________ in the domestic interest rate causes the demand […]

1) In the liquidity preference framework, a one-time increase in the money supply results in a price level effect The maximum impact of the price level effect on interest rates occurs A) at the moment the price level hits its […]

1) Everything else held constant, if aggregate output is to the right of the IS curve, then there is an excess ________ of goods which will cause aggregate output to ________ A) supply; fall B) supply; rise C) demand; fall […]

1) Which of the following is not a disadvantage of of the Fed’s “just do it” approach to monetary policy? A) There is low transparency of policy B) There is low accountability for central bankers C) This type of policy […]

1) Because policies in the United States were too expansionary from 1965 through 1973, the US suffered A) demand-pull inflation B) cost-push inflation, as workers sought higher wages in order to keep up with inflation C) both demand-pull and cost-push […]

1) Assuming initially that rr = 15%, c = 40%, and e = 5%, an increase in e to 10% causes the M1 money multiplier to ________, everything else held constant A) increase from 215 to 233 B) decrease from […]

1) The decline in traditional banking internationally can be attributed to A) increased regulation B) improved information technology C) increasing monopoly power of banks over depositors D) increased protection from competition 2) Everything else held constant, when bonds become less […]

1) In the long-run ISLM model and with everything else held constant, as long as the level of output ________ the natural rate level, the price level will continue to ________, shifting the LM curve to the ________, until finally […]

1) Mutual savings banks are owned by A) shareholders B) partners C) depositors D) foreign investors 2) If a bank has excess reserves of $7,000 and demand deposit liabilities of $100,000, and if the reserve requirement is 10 percent, then […]

1) Debt deflation occurs when A) an economic downturn causes the price level to fall and a deterioration in firms’ net worth because of the increased burden of indebtedness B) rising interest rates worsen adverse selection and moral hazard problems […]

1) Everything else held constant, when a country’s currency depreciates, its goods abroad become ________ expensive while foreign goods in that country become ________ expensive A) more; less B) more; more C) less; less D) less; more 2) On January […]

1) Suppose the economy is producing at the natural rate of output An open market sale of bonds by the Fed will cause ________ in real GDP in the long run and ________ in inflation in the long run, everything […]

1) Bruce the Bank Manager can reduce interest rate risk by ________ the duration of the bank’s assets to increase their rate sensitivity or, alternatively, ________ the duration of the bank’s liabilities A) shortening; lengthening B) shortening; shortening C) lengthening; […]

1) Nonactivists of the policies believe that A) wages and prices are very flexible B) the self-correcting mechanism is very rapid C) government action is unnecessary D) all of the above 2) Everything else held constant, a decrease in planned […]

1) Banks acquire the funds that they use to purchase income-earning assets from such sources as A) cash items in the process of collection B) savings accounts C) reserves D) deposits at other banks 2) In the simple model of […]

1) Everything else held constant, a stronger dollar benefits ________ and hurts ________ A) American businesses; American consumers B) American businesses; foreign businesses C) American consumers; American businesses D) foreign businesses; American consumers 2) High-powered money minus currency in circulation […]

1) Everything else held constant, when the government has higher budget deficits A) the demand curve for bonds shifts to the left and the interest rate rises B) the demand curve for bonds shifts to the left and the interest […]

1) An increase in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant A) increase; appreciate B) increase; depreciate C) decrease; appreciate D) decrease; depreciate […]

1) From the standpoint of ________, specialization in lending is surprising but makes perfect sense when one considers the ________ problem A) moral hazard; diversification B) diversification; moral hazard C) adverse selection; diversification D) diversification; adverse selection 2) If a […]

1) The research document given to the Federal Open Market Committee that contains information on the state of the economy in each Federal Reserve district is called the A) beige book B) green book C) blue book D) black book […]

1) Bank’s make their profits primarily by issuing A) equity B) negotiable CDs C) loans D) NOW accounts 2) ________ occurs when market participants observe returns on a security that are larger than what is justified by the characteristics of […]

1) The problem created by asymmetric information before the transaction occurs is called ________, while the problem created after the transaction occurs is called ________ A) adverse selection; moral hazard B) moral hazard; adverse selection C) costly state verification; free-riding […]

1) In the period 1965 through the 1970s, policymakers pursued ________ policies in order to achieve ________ A) expansionary; high employment B) expansionary; low inflation C) contractionary; high employment D) contractionary; low inflation 2) The delivery of financial services electronically […]

1) In the Keynesian cross diagram, an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to ________, and the IS curve to […]

1) Everything else held constant, if a central bank makes an unsterilized ________ of foreign assets, then the domestic money supply will decrease and the domestic currency will ________ A) purchase; appreciate B) purchase; depreciate C) sale; appreciate D) sale; […]

1) In the Keynesian cross diagram, an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant […]

1) Everything else held constant, a decrease in the cost of production ________ aggregate ________ A) increases; demand B) decreases; demand C) increases; supply D) decreases; supply 2) Prior to 2008, the bank’s cost of holding reserves equaled A) the […]