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1. History proves that: (Points : 2) Countries w...




1. History proves that: (Points : 2) Countries with low rates of money growth have high rates of inflation Money growth and inflation are not related Countries with high rates of money growth have high rates of inflation Money growth rates equal inflation rates 2. Consider the following ratio: the average annual inflation rate/the average annual money growth rate. If a country's rate of money growth consistently exceeds the rate of inflation the ratio would be: (Points : 2) Less than one Greater than one That is infinite Exactly one 3. If the nominal interest rate increases: (Points : 2) The cost of holding money decreases The cost of holding money increases The velocity of money should decrease The cost of holding money increases and the velocity of money should decrease 4. The Federal Reserve uses monetary policy in an effort to impact short-run inflation and output by altering: (Points : 2) The production function Aggregate supply Aggregate demand Fiscal policy 5. For central bankers to alter the real interest rate by changing the nominal interest rate, which of the following must be true? (Points : 2) The rate of inflation has to remain constant Inflation expectations do not change The expected rate of inflation has to change The change in the expected rate of inflation must equal the change in the nominal interest rate 6. In the U.S., most of the recessions are the result of: (Points : 2) Ill-timed fiscal policy Decreasing net exports Decreases in investment Large decreases in consumption 7. If an economy starts off in a state of long-run equilibrium, but then aggregate demand decreases; the short-run effect of the decrease will be: (Points : 2) An expansionary gap A higher rate of inflation A higher level of potential output A recessionary gap 8. In practice, it is difficult to keep inflation and output from fluctuating when aggregate expenditures change because: (Points : 2) It takes time for policymakers to recognize that shifts have occurred Changes in interest rates do not have an immediate impact on the economy Changes in consumer or business confidence can be very difficult to recognize as they are occurring All of the answers given are correct 9. During the Great Moderation experienced in the United States during the 1990s the volatility of inflation and growth: (Points : 2) Moved in opposite directions Both dropped significantly Both increased but only slightly. Disappeared. 10. Given a firm's liabilities, an increase in interest rates reduces the firm's net worth because: (Points : 2) Profits will be lower due to higher interest costs Asset values will increase The principal amount of the loans will increase All of the answers given are correct 11. During the 1990s, the Japanese recession did not respond to the continual interest rate reductions implemented by monetary policymakers. Which of the following contributing to this lack of response? (Points : 2) Many banks that continued to make loans were actually insolvent The Japanese stock market collapsed Property values fell dramatically All of the answers given are correct 12. Asset-backed securities include: (Points : 2) Mortgage-backed securities held by government-sponsored enterprises Car loans and student loans Credit card debt All of the answers given are correct 13. Which best describes money as a means of payment? (Points : 2) Money provides an immediate double coincidence of wants Money makes sure a double coincidence of wants never occurs Money requires at least two transactions to obtain the double coincidence of wants To obtain a double coincidence of wants without money is impossible 14. Suppose Mary receives an $8,000 loan from First National Bank. Mary repays $8,480 to First National Bank at the end of one year. Assuming the simple calculation of interest, the interest rate on Mary's loan was: (Points : 2) 8.00% 5.66% $480 6.00% 15. Interest-rate risk would not matter to which of the following bondholders? (Points : 2) A holder of a U.S. government bond A holder of a U.S. government bond indexed for inflation A holder of a U.S. government bond that plans on holding it until it matures A holder of a U.S. government bond who plans on selling it in one year 16. Financial instruments are used to channel funds from: (Points : 2) Savers to borrowers in financial markets and via financial institutions Savers to borrowers in financial markets but not through financial institutions Borrowers to savers in financial markets but not through financial institutions Borrowers to savers through financial institutions, but not in financial markets 17. Which of the following statements is most correct? (Points : 2) All banks are financial intermediaries, but not all financial intermediaries are banks Financial intermediaries must be public corporations All financial intermediaries are insurance companies Financial intermediaries are government agencies 18. As inflation increases, for any fixed nominal interest rate, the real interest rate: (Points : 2) Also increases Remains the same, that's why it is real Decreases Decreases by less than the increase in inflation 19. If a lender wants to earn a real interest rate of 3% and expects inflation to be 3%, he/she should charge a nominal interest rate that: (Points : 2) Is at least 7% Is anything above 0% Equals the real rate desired plus expected inflation Equals the real rate desired less expected inflation 20. A portfolio of assets has lower risk than holding one asset, but the same expected return and higher transaction costs. Which of the following statements is most correct? (Points : 2) The portfolio is attractive to people who are risk-averse and risk-neutral, but not to risk seekers The portfolio is attractive to investors who are risk-neutral The portfolio is not attractive to investors who are risk-neutral The portfolio is attractive to investors who are risk seekers 21. All other factors held constant, an investment: (Points : 2) With more risk should offer a lower return and sell for a higher price With less risk should sell for a lower price and offer a higher return With more risk should sell for a lower price and offer a higher return With less risk should sell for a lower price and offer a lower return 22. The bond demand curve slopes downward because: (Points : 2) At lower prices the reward for holding the bond increases As bond prices fall so do yields As bond prices fall bonds are less attractive As bond prices rise yields increase 23. If the quantity of bonds supplied exceeds the quantity of bonds demanded, bond prices and bond yields would: (Points : 2) Bond prices would rise and yields would fall Bond prices would fall and yields would rise Bond prices would rise but yields will remain constant Bond prices would fall and yields would fall 24. Commercial paper refers to: (Points : 2) The financial publications read by the CEOs of public corporations Any debt security with a maturity exceeding one year Short-term collateralized securities issued only by corporations Unsecured short-term debt issued by corporations and governments 25. The fact that common stockholders are residual claimants means: (Points : 2) The stockholders have a claim against the revenue that remains after everyone else is paid The stockholders are paid before the bondholders but after any taxes are paid The stockholders receive their dividends before any other residuals are paid The stockholders are paid any past due dividends before other claims are paid 26. In a derivative transaction: (Points : 2) The dollar amount of the transaction increases as the contract date approaches. The risk is less than if actually purchasing the underlying asset. There is always a futures contract. What one person gains is what the other person loses. 27. A country's capital account: (Points : 2) Is synonymous with the current account Will be in a surplus position if the current account is in a deficit position Will be in a deficit position when the current account is in a deficit Reflects the sum of exports minus imports 28. Regulators require a bank to hold some of its assets as reserves mainly to address: (Points : 2) Operational risk Credit risk Liquidity risk Trading risk 29. Which of the following statements is true? (Points : 2) Both American and European options can be sold prior to expiration. Call options can be sold prior to expiration but put options cannot. Put options can be sold prior to expiration but call options cannot. No option can be sold prior to expiration. 30. Which of the following tradeoffs impact the likelihood of a bank's failure? (Points : 2) The more competitive the banking environment, the more liquid the bank will be The greater the regulation from government the more likely the bank will fail The more profitable the bank, the less liquid the bank will be and the more likely it will fail The larger the bank in asset size the more likely it will fail 31. The financial system is inherently more unstable than most other industries due to the fact that: (Points : 2) While in most other industries customers disappear at a faster rate, in banking they disappear slowly so the damage is done before the real problem is identified Banks deal in paper profits, not in real profits A single firm failing in banking can bring down the entire system; this isn't true in most other industries There is less competition than in other industries 32. If the lender of last resort function of the Federal Reserve is to be effective in working to minimize a financial crisis, it must be: (Points : 2) Reserved only for those banks that are most deserving Used on a limited basis Credible, with banks knowing they can get loans quickly Only available during economic downturns 33. One problem for the Federal Reserve regarding setting policy stems from the fact that: (Points : 2) There are multiple goals that may be inconsistent with each other There are more policy instruments than goals The membership of its governing board changes so often Congress sets very tight goal ranges that the central bankers must hit 34. If the required reserve rate is ten percent and banks do not hold any excess reserves and there are no changes in currency holdings, a $1 million open market purchase by the Fed will result in what change in loans? (Points : 2) No change An increase of $10 million A decrease of $1 million An increase of $1 million 35. Discount lending today is primarily used for: (Points : 2) Controlling reserves Providing short-term financial stability and preventing bank panics Preventing bank panics Providing short-term financial stability 36. Setting an explicit numerical inflation target is most associated with the goal(s) of: (Points : 2) Transparency Accountability Both transparency and accountability Neither transparency nor accountability; it's about moral hazard 37. For fiscal policymakers, one of the results of an independent central bank is: (Points : 2) To finance government spending the Treasury has to order more currency from the central bank Fiscal policymakers always have to borrow to increase spending Fiscal policymakers cannot borrow unless the Federal Reserve prints more money Increased government spending has to be financed with either higher taxes or increased government borrowing 38. The purpose of the lender of last resort is to (Points : 2) purchase banks that are having difficulty but appear sound. make loans to solvent but illiquid banks. make loans to insolvent but liquid banks. make loans to any banks that request them. 39. The number of regional Federal Reserve Banks is: (Points : 2) Nine Seven Five Twelve 40. Each of the Reserve Banks has a president who is: (Points : 2) Appointed by the bank's board of directors but approved by the board of governors Appointed by the board of governors but approved by the bank's board of directors Elected by the commercial banks in their district Selected from the Board of Directors 41. The majority of the world's central banks target: (Points : 2) Monetary aggregates. Nominal GDP. Exchange rates. Nominal interest rates. 42. In its role as the bankers' bank, the Federal Reserve performs all of the following services, except: (Points : 2) Collecting and making available data on business conditions Making discount loans Managing U.S. Treasury borrowings Clearing paper checks and transferring funds electronically 43. The services the Federal Reserve provides to foreign central banks and other international organizations are handled: (Points : 2) Directly by the Board of Governors in Washington D.C By all of the Reserve Banks Only by the Reserve Bank in New York Only by the Reserve Bank in San Francisco 44. A central bank holds foreign exchange reserves primarily for: (Points : 2) Diversification purposes Foreign exchange interventions Safekeeping Diversification and safekeeping 45. Vault cash is: (Points : 2) Equal to the total amount of reserves and is an asset of the central bank Not reserves but is a liability of the central bank A part of reserves and an asset of commercial banks Not reserves but is an asset of central banks 46. Purchasing power parity implies: (Points : 2) A basket of goods should sell for the same price in all countries, even if trade barriers exist A basket of goods will sell for the same price in all countries as long as there are no trade barriers A basket of goods cannot sell for the same price in different countries due to the different wage rates As long as goods can move freely across international boundaries, one unit of domestic currency should buy the same basket of goods anywhere in the world 47. Bank reserves on deposit with the Federal Reserve are: (Points : 2) Assets of the central bank and liabilities of the commercial bank Assets of the commercial banks and liabilities of the central bank Liabilities of the commercial and central banks Assets and liabilities for the central bank 48. The fact that there is a market for federal funds enables banks to: (Points : 2) Make fewer loans than they would otherwise Borrow more from the Fed Hold a lower level of excess reserves than they would otherwise hold Hold less in required reserves 49. If foreigners are restricted in their ability to buy investments in a country then that government is imposing: (Points : 2) Controls on capital inflows Controls on capital outflows Controls on both capital inflows and outflows Fixed exchange rates 50. If the U.S. was to return to the gold standard, trade deficits would: (Points : 2) Result in a decrease in the American gold reserves Result in lower domestic interest rates Quickly disappear Result in high inflation 4. Seigniorage is the (Points : 5) title for persons of Spanish descent. net revenues received by the government for issuing bonds net revenues gained by the government from issuing money major components of a system based on cybertechnologies 5. Federal Funds refers to: (Points : 5) funds that are used by the federal government funds that are available from the Federal Government for emergencies funds that banks lend to each other funds that are owed to the Federal Government by the taxpayers 6. Exchange rates are determined in the long run by: (Points : 5) economic fundamentals such as price controls, or productivity levels in different countries. the difference between short run and long run interest rates in each country. agreement among the governments of the major industrial countries. the rate at which each country's currency exchanges for gold. 7. If a currency has a current market value lower than the theoretical purchasing power parity predicts, it is called: (Points : 5) an undervalued currency. an overvalued currency. a reserve currency. An artificial currency. 8. The deposit rate in a perfectly competitive banking system is determined by the: (Points : 5) supply of bank deposits supply of loans demand for loans All of the above 9. The largest source of income to depository institutions is: (Points : 5) noninterest income interest income deposit fee income income from safety box fees 10. The FDIC currently insures deposits up to a maximum of: (Points : 5) $1,000 $2,500 $100,000 $1,000,000 11. Which of the following is not a determinant of the size of the money multiplier? (Points : 5) The required reserve ratio The currency-deposit ratio Excess reserves relative to deposits The discount rate 12. The largest asset on the Fed's balance sheet is the: (Points : 5) reserves of member banks reserves of nonmember banks securities loans to banks 13. Normally, the U.S. Treasury: (Points : 5) deposits receipts from taxes in commercial banks deposits receipts from taxes in its account at the Fed pays for its expenditures from its accounts at commercial banks borrows from the Fed to finance its expenditures 14. The organization whose main role is the clearing of checks is the: (Points : 5) CHIPS SEC FDIC COMEX 15. Velocity of money is the: (Points : 5) total number of times a dollar is spent on a purchase of final goods and services average number of times a dollar is spent on a purchase of final goods and services speed with which one country's currency may be converted into another country's currency rate at which paper currency wears out and must be replaced 16. The transactional demand for money is: (Points : 5) independent of the price level likely to fall during periods of inflation proportional to the price level constant over long periods of time 17. Which of the following is an advantage of the interest rate targeting procedure? (Points : 5) Interest rates are frequently observable, definable, and controllable. Interest rates reveal clearer signals of monetary policy intentions than other target variables. Interest rates are less related to output than other target variables, such as monetary aggregates. Both Answer A & Answer B combined 18. The tendency of given monetary aggregate to not adjust consistently to a fixed long-run growth level is known as: (Points : 5) the signal extraction problem the base drift monetary aggregate instability none of the above 19. When the Fed wants to reduce the value of the dollar, it will: (Points : 5) sell foreign assets and purchase dollars sell dollars and purchase foreign assets purchase both foreign assets and dollars sell both foreign assets and dollars 20. Central banks engage in foreign-exchange interventions in order to stabilize: (Points : 5) the domestic money supply domestic interest rates foreign interest rates the exchange rate


Paper#12634 | Written in 18-Jul-2015

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