Archives: Quiz

1) The quantity theory of inflation indicates that if the aggregate output is growing at 3% per year and the growth rate of money is 5%, then inflation is A) 2% B) 8% C) -2% D) 16% 2) The money […]

1) Conditions that likely contributed to a credit crunch during the global financial crisis include: A) capital shortfalls caused in part by falling real estate prices B) regulated hikes in bank capital requirements C) falling interest rates that raised interest […]

1) The IS curve shifts to the left when A) taxes increase B) government spending increases C) the money supply increases D) autonomous planned investment spending increases 2) Everything else held constant, if a central bank makes an unsterilized sale […]

1) One of the concerns of increased bank consolidation is the reduction in community banks which could result in A) less lending to small businesses B) loss of cultural identity C) higher interest rates D) more bank regulation 2) Because […]

1) A decrease 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) The economic hardship resulting from a financial crises is severe, however, there are also social consequences such as A) increased crime B) difficulty getting a loan C) currency devaluations D) loss of output 2) With ________, firms value assets […]

1) The portfolio theories of money demand state that the demand for real money balances is ________ related to income and ________ related to the nominal interest rate A) positively; negatively B) positively; positively C) negatively; negatively D) negatively; positively […]

1) Foreign banks may engage in banking activities in the United States by opening all of the following except A) an agency office of the foreign bank B) a subsidiary US bank C) a branch of the foreign bank D) […]

1) Compared to checks, paper currency and coins have the major drawbacks that they A) are easily stolen B) are hard to counterfeit C) are not the most liquid assets D) must be backed by gold 2) Everything else held […]

1) Complete Milton Friedman’s famous proposition: “Inflation is always and everywhere a ________ phenomenon” A) monetary B) political C) policy D) budgetary 2) Kevin purchasing concert tickets with his debit card is an example of the ________ function of money […]

1) Suppose on any given day the prevailing equilibrium federal funds rate is above the Federal Reserve’s federal funds target rate If the Federal Reserve wishes for the federal funds rate to be at their target level, then the appropriate […]

1) The absence of money illusion means that A) as real income doubles, the demand for money doubles B) as interest rates double, the demand for money doubles C) as the money supply doubles, the demand for money doubles D) […]

1) The price of a consol equals the coupon payment A) times the interest rate B) plus the interest rate C) minus the interest rate D) divided by the interest rate 2) If the money supply is $600 and nominal […]

1) When the economy slips into a recession, normally the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant A) increases; increases; rises B) decreases; decreases; falls C) increases; decreases; falls […]

1) Which of the following statements about the characteristics of debt and equities is true? A) They can both be long-term financial instruments B) Bond holders are residual claimants C) The income from bonds is typically more variable than that […]

1) When the level of unplanned inventory investment is equal to zero, the economy is A) in disequilibrium B) in a recession C) in equilibrium D) overheating 2) Deposit insurance is only one type of government safety net All of […]

1) In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ________ the demand for reserves, ________ the federal funds rate, […]

1) A smart card is the equivalent of A) cash B) savings bonds C) savings deposits D) certificates of deposit 2) When the price level ________, the demand curve for money shifts to the ________ and the interest rate ________, […]

1) Credit risk management tools include A) deductibles B) collateral C) interest rate swaps D) duration analysis 2) Federal deposit insurance covers deposits up to $250,000, but as part of a doctrine called “too-big-to-fail” the FDIC sometimes ends up covering […]

1) If a bank has $10 million of checkable deposits, a required reserve ratio of 10 percent, and it holds $2 million in reserves, then it will not have enough reserves to support a deposit outflow of A) $12 million […]

1) In the figure above, one factor not responsible for the decline in the demand for money is A) a decline the price level B) a decline in income C) an increase in income D) a decline in the expected […]

1) Which of the following statements about financial markets and securities is true? A) A bond is a long-term security that promises to make periodic payments called dividends to the firm’s residual claimants B) A debt instrument is intermediate term […]

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

1) If expectations are formed rationally, then individuals A) will have a forecast that is 100% accurate all of the time B) change their forecast when faced with new information C) use only the information from past data on a […]

1) What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 next year? A) 5 percent B) 10 percent C) -5 percent D) -10 percent 2) Under a fixed exchange rate […]

1) One way of describing the solution that high net worth provides to the moral hazard problem is to say that it A) collateralizes the debt contract B) makes the debt contract incentive compatible C) state verifies the debt contract […]

1) The starting point for understanding how exchange rates are determined is a simple idea called ________, which states: if two countries produce an identical good, the price of the good should be the same throughout the world no matter […]

1) If float is predicted to decrease because of good 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) […]

1) Suppose the economy is producing at the natural rate of output Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause ________ in the unemployment rate in […]

1) In Irving Fisher’s quantity theory of money, velocity was determined by A) interest rates B) real GDP C) the institutions in an economy that affect individuals’ transactions D) the price level 2) Everything else held constant, an increase in […]

1) During World War II, whenever interest rates would rise and the price of bonds would begin to fall, the Fed would A) lower reserve requirements B) raise reserve requirements C) make open market purchases of government securities D) make […]

1) A corporation acquires new funds only when its securities are sold in the A) secondary market by an investment bank B) primary market by an investment bank C) secondary market by a stock exchange broker D) secondary market by […]

1) When stock prices fall A) an individual’s wealth is not affected nor is their willingness to spend B) a business firm will be more likely to sell stock to finance investment spending C) an individual’s wealth may decrease but […]

1) One reason financial systems in developing and transition countries are underdeveloped is A) they have weak links to their governments B) they make loans only to nonprofit entities C) the legal system may be poor making it difficult to […]

1) The time it takes for policy makers to change policy instruments once they have decided on the new policy is called A) the data lag B) the recognition lag C) the legislative lag D) the implementation lag E) the […]

1) Which of the following are primary concerns of the bank manager? A) Maintaining sufficient reserves to minimize the cost to the bank of deposit outflows B) Extending loans to borrowers who will pay low interest rates, but who are […]

1) Even if the Fed could completely control the money supply, monetary policy would have critics because A) the Fed is asked to achieve many goals, some of which are incompatible with others B) the Fed’s goals do not include […]

1) Which of the following is not an advantage of inflation targeting? A) There is simplicity and clarity of the target B) Inflation targeting does not rely on a stable money-inflation relationship C) There is an immediate signal on the […]

1) An increase in productivity in a country will cause its currency to ________ because it can produce goods at a ________ price, everything else held constant A) depreciate; lower B) appreciate; lower C) depreciate; higher D) appreciate; higher 2) […]

1) Because of the presence of asymmetric information problems in credit markets, an expansionary monetary policy causes a ________ in net worth, which ________ the adverse selection problem, thereby ________ increased lending to finance investment spending A) decline; increases; encouraging […]

1) A simple deposit multiplier equal to one implies a required reserve ratio equal to A) 100 percent B) 50 percent C) 25 percent D) 0 percent 2) In response to the overvalued dollar in the early 1970s, the German […]

1) If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is A) 7 percent B) 22 percent […]

1) If policymakers set a target for unemployment that is too low because it is less than the natural rate of unemployment, this can set the stage for a higher rate of money growth and A) cost-push inflation B) demand-pull […]

1) When the Federal Reserve calls in a discount loan from a bank, the monetary base ________ and reserves ________ A) remains unchanged; decrease B) remains unchanged; increase C) decreases; decrease D) decreases; remains unchanged 2) Inflation targets can increase […]

1) Banks face the problem of ________ in loan markets because bad credit risks are the ones most likely to seek bank loans A) adverse selection B) moral hazard C) moral suasion D) intentional fraud 2) The Dow reached a […]

1) The ________ states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries A) theory of purchasing power parity B) law of one price C) theory of money neutrality […]

1) A debt instrument sold by a bank to its depositors that pays annual interest of a given amount and at maturity pays back the original purchase price is called A) commercial paper B) a negotiable certificate of deposit C) […]

1) Recent research indicates that inflation performance (low inflation) has been found to be best in countries with A) the most independent central banks B) political control of monetary policy C) money financing of budget deficits D) a policy of […]

1) At the time of the South Korean financial crisis, the merchant banks were A) almost virtually unregulated B) subject to heavy government regulation C) engaged in long-term lending to the corporate sector D) restricted to long-term foreign borrowing 2) […]

1) The Federal Home Loan Bank Board and the FSLIC, both of which failed in their regulatory tasks, were abolished by the A) Competitive Equality Banking Act of 1987 B) Financial Institutions Reform, Recovery and Enforcement Act of 1989 C) […]