Archives: Quiz

A central bank’s attempt to prevent an appreciation of its currency can stimulate domestic inflation if the ________ of its currency leads to ________ international reserves which ________ the monetary base. A) purchase; higher; increases B) purchase; lower; decreases C) […]

To say that stock prices follow a “random walk” is to argue that stock prices A) rise, then fall, then rise again. B) rise, then fall in a predictable fashion. C) tend to follow trends. D) cannot be predicted based […]

The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that the A) Fisher effect is dominated by the liquidity effect and interest rates adjust slowly […]

Allowing individuals to manage a portion of their Social Security funds is A) socialization. B) privatization. C) democratization. D) regeneration. Everything else held constant, an increase in net taxes ________ aggregate ________. A) increases; demand B) decreases; demand C) decreases; […]

The primary goal of the European Central Bank is A) price stability. B) exchange rate stability. C) interest rate stability. D) high employment. The declining cost of computer technology has made ________ a reality. A) brick and mortar banking B) […]

If the consumption function is C = 20 + 0.8YD, then an increase in disposable income by $100 will result in an increase in consumer expenditure by A) $58. B) $64. C) $80. D) $100. The interest rate for primary […]

Everything else held constant, a decrease in autonomous consumer spending will cause the IS curve to shift to the ________ and aggregate demand will ________. A) right; increase B) right; decrease C) left; increase D) left; decrease The risk of […]

The amount paid for an option is the A) strike price. B) premium. C) discount. D) yield. The primary purpose of deposit insurance is to A) improve the flow of information to investors. B) prevent banking panics. C) protect bank […]

What makes the Federal Reserve so unique compared to other central banks around the world is its A) centralized structure. B) decentralized structure. C) regulatory functions. D) monetary policy functions. Aggregate output and the interest rate are ________ related to […]

Which of the following are transaction deposits? A) savings accounts B) small-denomination time deposits C) checkable deposits D) certificates of deposit If reserves in the banking system increase by $100, then checkable deposits will increase by $1000 in the simple […]

The theory of PPP suggests that if one country’s price level rises relative to another’s, its currency should A) depreciate in the long run. B) appreciate in the long run. C) depreciate in the short run. D) appreciate in the […]

Which of the following statements best explains how the use of money in an economy increases economic efficiency? A) Money increases economic efficiency because it is costless to produce. B) Money increases economic efficiency because it discourages specialization. C) Money […]

If a central bank does not want to see its currency fall in value, it may pursue ________ monetary policy to ________ the domestic interest rate, thereby strengthening its currency. A) expansionary; raise B) contractionary; raise C) expansionary; lower D) […]

U.S. government bonds have no default risk because A) they are issued in strictly limited quantities. B) the federal government can increase taxes or print money to pay its obligations. C) they are backed with gold reserves. D) they can […]

A bank failure is less likely to occur when A) a bank holds less U.S. government securities. B) a bank suffers large deposit outflows. C) a bank holds fewer excess reserves. D) a bank has more bank capital. The Fed’s […]

In a ________ banking system, commercial banks provide a full range of banking, securities, and insurance services, all within a single legal entity. A) universal B) severable C) barrier-free D) dividerless As the costs associated with deposit outflows ________, the […]

An increase in stock prices ________ the size of people’s wealth and may ________ their willingness to spend, everything else held constant. A) increases; increase B) increases; decrease C) decreases; increase D) decreases; decrease If aggregate demand is less than […]

When yield curves are steeply upward sloping A) long-term interest rates are above short-term interest rates. B) short-term interest rates are above long-term interest rates. C) short-term interest rates are about the same as long-term interest rates. D) medium-term interest […]

In order to reduce risk and increase the safety of financial institutions, commercial banks and other depository institutions are prohibited from A) owning municipal bonds. B) making real estate loans. C) making personal loans. D) owning common stock. The lon-run […]

Which of the followings is NOT true about the word “autonomous” that economists use? A) Changes in autonomous components are associated with shifts of a curve. B) The autonomous component of a variable is exogenous. C) The autonomous component of […]

Prices and returns for ________ bonds are more volatile than those for ________ bonds, everything else held constant. A) long-term; long-term B) long-term; short-term C) short-term; long-term D) short-term; short-term Monetarists contend that the channels of monetary influence in Keynesian […]

The global financial crisis lead to a decline in stock prices because A) of a lowered expected dividend growth rate. B) of a lowered required return on investment in equity. C) higher expected future stock prices. D) higher current dividends. […]

When the domestic currency is initially overvalued in a fixed exchange rate regime, the central bank must intervene in the foreign exchange market to ________ the domestic currency, thereby allowing the money supply to ________. A) purchase; decline B) sell; […]

An autonomous easing of monetary policy A) causes an upward movement along the monetary policy curve. B) causes a downward movement along the monetary policy curve. C) shifts the monetary policy curve upward. D) shifts the monetary policy curve downward. […]

In the ten year period 1981-1990, 1202 commercial banks were closed, with a peak of 206 failures in 1989. This rate of failures was approximately ________ times greater than that in the period from 1934 to 1980. A) two B) […]

Tests used to rate the performance of rules developed in technical analysis conclude that technical analysis A) outperforms the overall market. B) far outperforms the overall market, suggesting that stockbrokers provide valuable services. C) does not outperform the overall market. […]

When banks borrow money from the Federal Reserve, these funds are called A) federal funds. B) discount loans. C) federal loans. D) Treasury funds. If you expect the inflation rate to be 12 percent next year and a one-year bond […]

The steeply upward sloping yield curve in the figure above indicates that ________ interest rates are expected to ________ in the future. A) short-term; rise B) short-term; fall moderately C) short-term; remain unchanged D) long-term; fall moderately The term structure […]

The credit derivative that, for a fee, gives the purchaser the right to receive profits that are tied either to the price of an underlying security or to an interest rate is called a A) credit option. B) credit swap. […]

Situation 20-1 Assume a closed economy with no government. Suppose that autonomous consumption equals $400, planned investment equals $500, and the mpc equals 0.9. Using the information in Situation 20-1, if aggregate output is equal to $10,000, then unplanned inventory […]

The Fed is considering eliminating A) primary credit lending. B) secondary credit lending. C) seasonal credit lending. D) its lender of last resort function. In the simple deposit expansion model, if the Fed extends a $100 discount loan to a […]

The discount rate is kept ________ the federal funds rate because the Fed prefers that ________. A) below; banks can monitor each other for credit risk B) below; the Fed can monitor banks for credit risk C) above; banks can […]

In the Baumol-Tobin analysis of the demand for money, either an increase in ________ or an increase in ________ increases money demand. A) income; interest rates B) brokerage fees; interest rates C) interest rates; the price level D) brokerage fees; […]

Because of the weak systems of property rights in many developing and transition economies, the financial system is unable to use collateral effectively worsening the ________ problem. A) adverse selection B) moral hazard C) principal/agent D) diversification If the money […]

________ in the foreign interest rate causes the demand for domestic assets to shift to the left and the domestic currency to ________, everything else held constant. A) An increase; appreciate B) An increase; depreciate C) A decrease; appreciate D) […]

When a primary dealer buys a government bond from the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant. A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreases Which […]

Everything else held constant, when output is ________ the natural rate level, wages will begin to ________, increasing short-run aggregate supply. A) above; fall B) above; rise C) below; fall D) below; rise To lower interest rates on residential mortgages […]

If the Fed injects reserves into the banking system and they are held as excess reserves, then the monetary base ________ and the money supply ________. A) remains unchanged; remains unchanged B) remains unchanged; increases C) increases; increases D) increases; […]

External financing by ________ should be more important in developing countries than in industrialized countries because information about private firms is more difficult to collect in developing countries. A) financial intermediaries B) bonds C) stock D) direct lending The total […]

According to the interest parity condition, if the domestic interest rate is 10 percent and the foreign interest rate is 12 percent, then the expected ________ of the foreign currency must be ________ percent. A) appreciation; 4 B) appreciation; 2 […]

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

The European Central Bank (ECB) pursues a hybrid monetary policy strategy that has elements in common with the -targeting strategy previously used by the Bundesbank but also includes some elements of targeting. A) monetary; inflation B) inflation; monetary C) monetary; […]

Hedging by buying an option A) limits gains. B) limits losses. C) limits gains and losses. D) has no limit on option premiums. Everything else held constant, in the market for reserves, when the supply for federal funds intersects the […]

Analysis of adverse selection indicates that financial intermediaries, especially banks A) have advantages in overcoming the free-rider problem, helping to explain why indirect finance is a more important source of business finance than is direct finance. B) despite their success […]

The theory of PPP suggests that if one country’s price level rises relative to another’s, its currency should A) depreciate. B) appreciate. C) float. D) do none of the above. The originate-to-distribute business model has a serious ________ problem since […]

The revenue a government gains from issuing money is A) interest. B) rent. C) seignorage. D) the national dividend. E) the inflation tax. Bankers’ concerns regarding the optimal mix of excess reserves, secondary reserves, borrowings from the Fed, and borrowings […]

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. Situation […]

One factor contributing to the decline in cost advantages that banks once had is the A) decline in the importance of checkable deposits from over 60 percent of banks’ liabilities to 2 percent today. B) decline in the importance of […]

Evidence from the United States and other foreign countries indicates that A) there is a strong positive association between inflation and growth rate of money over long periods of time. B) there is little support for the assertion that “inflation […]

If people expect real estate prices to increase significantly, the ________ curve for bonds will shift to the ________, everything else held constant. A) demand; right B) demand; left C) supply; left D) supply; right If a bank has excess […]