ECO 301 Final Exam (1)
If the required reserve ratio is 10 percent, the simple deposit multiplier is A) 100.0 B) 10.0 C) 2.5 D) 5.0
B
The interest rate the Fed charges banks borrowing from the Fed is the A) discount rate. B) federal funds rate. C) Treasury bill rate. D) prime rate.
A
The three players in the money supply process include A) banks, depositors, and the central bank. B) banks, borrowers, and the central bank. C) banks, depositors, and borrowers. D) banks, depositors, and the U.S. Treasury.
A
To lower interest rates on residential mortgages to stimulate the housing market, the Fed extended its open market operations to purchase A) mortgage-backed securities. B) commercial papers. C) long-term Treasuries. D) Treasury bills and Treasury notes.
A
When the Fed supplies the banking system with an extra dollar of reserves, deposits ________ by ________ than one dollar—a process called multiple deposit creation. A) increase; more B) decrease; less C) decrease; more D) increase; less
A
If the required reserve ratio is one-third, currency in circulation is $300 billion, checkable deposits are $900 billion, and there is no excess reserve, then the money multiplier is 2.8. 2.0. 0.67. 2.5.
B
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the money supply is ________ billion. A) $1,200.80 B) $1,200 C) $8,400 D) $8,000
B
A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 20 percent. If the reserve requirement is lowered to 10 percent, the bank's excess reserves will be $8,000. $9,000. $17,000. $1,000.
B
A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 20 percent. If the reserve requirement is lowered to 10 percent, the bank's excess reserves will be A) $17,000. B) $9,000. C) $8,000. D) $1,000.
B
Currency includes paper money, coins, checks, and savings deposits. paper money and coins. paper money and checks. paper money, coins, and checks.
B
Decisions by depositors to increase their holdings of ________, or of banks to hold ________ will result in a smaller expansion of deposits than the simple model predicts. A) deposits; required reserves B) currency; excess reserves C) currency; required reserves D) deposits; excess reserves
B
If a bank has excess reserves of $10,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20 percent, then the bank has actual reserves of A) $16,000. B) $26,000. C) $20,000. D) $36,000.
B
If reserves in the banking system increase by $100, then checkable deposits will increase by $100 in the simple model of deposit creation when the required reserve ratio is A) 0.01. B) 1.00. C) 0.10. D) 0.20.
B
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the monetary base is A) $80.8 billion. B) $480.8 billion. C) $480 billion. D) $80 billion.
B
A ________ in market interest rates relative to the discount rate will cause discount borrowing to ________. rise; decrease fall; increase fall; remain unchanged fall; decrease
D
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio = 20%, and the excess reserve ratio = 0, a decrease in the required reserve ratio to 5% causes the money multiplier to ________, everything else held constant. None of the other answers is correct. increase from 2.8 to 3.1 decrease from 3.1 to 2.8 increase from 4.0 to 4.8
D
Assuming initially that the required reserve ratio = 15%, the currency-deposit ratio = 40%, and the excess reserve ratio = 5%, a decrease in the excess reserve ratio to 0% causes the M1 money multiplier to ________, everything else held constant. A) decrease from 1.82 to 1.67 B) decrease from 2.55 to 2.33 C) increase from 1.67 to 1.82 D) increase from 2.33 to 2.55
D
Everything else held constant, an increase in the required reserve ratio on checkable deposits will cause the money supply to rise. checkable deposits to rise. the money supply to remain constant. the money supply to fall.
D
If a bank has deposits of $100,000, cash in its vault of $10,000, and $15,000 on deposit at the Federal Reserve and if the required reserve ratio is 20%, then the bank has: an insufficient deposit to loan ratio. insufficient reserves to meet requirements. no excess reserves. excess reserves of $5,000.
D
If reserves in the banking system increase by $100, then checkable deposits will increase by $500 in the simple model of deposit creation when the required reserve ratio is 0.10. 0.05. 0.01. 0.20.
D
If the required reserve ratio is 15 percent, the simple deposit multiplier is A) 1.5. B) 3.33. C) 15.0. D) 6.67.
D
If banks were required to keep 100% of deposits in reserves, they could: make no loans. make more deposits. make more loans. use excess reserves for loans.
A
If a perpetuity has a price of $500 and an annual interest payment of $25, the interest rate is 5 percent. 7.5 percent. 2.5 percent. 10 percent.
A
A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of 8 percent. 10 percent. 12 percent. 14 percent.
A
A $10,000 8 percent coupon bond that sells for $9,000 has a yield to maturity of higher than 8 percent. 8 percent. lower than 8 percent. 10 percent.
A
A ________ in market interest rates relative to the discount rate will cause discount borrowing to ________. A) rise; increase B) fall; remain unchanged C) rise; decrease D) fall; increase
A
A bank makes a loan for one year. The nominal annual interest rate is 7.5%. The real rate is 4%. Over the course of the year, overall prices increase by 4%. This rate of inflation hurt the _____ because the actual rate of inflation was _____ than the anticipated rate. lender; higher borrower; lower borrower; higher lender; lower
A
A consol paying $20 annually when the interest rate is 5 percent has a price of $400. $200. $100. $800.
A
A coupon bond that has no maturity date and no repayment of principal is called a consol. cabinet. Treasury bill. Treasury note.
A
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 coupon bond. discount bond. fixed-payment loan. simple loan.
A
A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity of 33.3 percent. 25 percent. 20 percent. 3 percent.
A
All of the following are examples of coupon bonds EXCEPT U.S. Treasury bills. U.S. Treasury bonds corporate bonds. U.S. Treasury notes.
A
An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of 10 percent. 5 percent. 8 percent. 40 percent.
A
An assumption in the model of the money supply process is that the desired levels of currency and excess reserves grow proportionally with checkable deposits. grow proportionally with high-powered money. are given as constants. grow proportionally over time.
A
An increase in an asset's expected return relative to that of an alternative asset, holding everything else constant, ________ the quantity demanded of the asset. increases decreases has no effect on erases
A
An increase in the expected rate of inflation will ________ the expected return on bonds relative to the that on ________ assets, everything else held constant. reduce; real raise; financial reduce; financial raise; real
A
An increase in the monetary base that goes into ________ is not multiplied, while an increase that goes into ________ is multiplied. A) currency; deposits B) currency; excess reserves C) deposits; currency D) excess reserves; currency
A
An increase in the time to the promised future payment ________ the present value of the payment. decreases increases is irrelevant to has no effect on
A
Consider the simple money supply model. Suppose that your grandma sends you $100 for your birthday and you deposit that $100 in your checking account. The reserve ratio is 10%. Based upon this deposit, the bank's excess reserves have increased by _____, and if the bank lends these new excess reserves, the money supply could eventually grow by as much as an additional _____ in the banking system. $90; $900 $90; $1,000 $100; $900 $100; $1,000
A
Economists consider the ________ to be the most accurate measure of interest rates. yield to maturity. simple interest rate. current yield. nominal interest rate
A
Everything else held constant, a decrease in holdings of excess reserves will mean an increase in the money supply. a decrease in the money supply. a decrease in checkable deposits. an increase in discount loans.
A
Everything else held constant, if the expected return on U.S. Treasury bonds falls from 10 to 5 percent and the expected return on GE stock rises from 7 to 8 percent, then the expected return of holding GE stock ________ relative to U.S. Treasury bonds and the demand for GE stock ________. rises; rises rises; falls falls; rises falls; falls
A
Everything else held constant, if the expected return on U.S. Treasury bonds falls from 8 to 7 percent and the expected return on corporate bonds falls from 10 to 8 percent, then the expected return of corporate bonds ________ relative to U.S. Treasury bonds and the demand for corporate bonds ________. falls; falls falls; rises rises; falls rises; rises
A
Everything else held constant, if the sum of the required reserve ratio and the excess reserve ratio is less than one, an increase in the currency-deposit ratio causes the M1 money multiplier to ________ and the money supply to ________. A) decrease; decrease B) decrease; increase C) increase; decrease D) increase; increase
A
Examples of discount bonds include U.S. Treasury bills. U.S. Treasury notes. corporate bonds. municipal bonds.
A
Excess reserves are equal to A) vault cash plus deposits with Federal Reserve banks minus required reserves. B) deposits with the Fed minus vault cash plus required reserves. C) vault cash minus required reserves. D) total reserves minus discount loans.
A
For a 3-year simple loan of $10,000 at 10 percent, the amount to be repaid is $13,310. $10,030. $10,300. $13,000.
A
If a $5,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to maturity is 0 percent. 5 percent. 10 percent. 20 percent.
A
If a bank has excess reserves of $20,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20 percent, then the bank has total reserves of $36,000. $20,000. $16,000. $26,000.
A
If brokerage commissions on bond sales decrease, then, other things equal, the demand for bonds will ________ and the demand for real estate will ________. increase; decrease increase; increase decrease; decrease decrease; increase
A
If reserves in the banking system increase by $100, then checkable deposits will increase by $100 in the simple model of deposit creation when the required reserve ratio is 1.00. 0.01. 0.10. 0.20.
A
If stock prices are expected to drop dramatically, then, other things equal, the demand for stocks will ________ and that of Treasury bills will ________. decrease; increase decrease; decrease increase; decrease increase; increase
A
If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply A) does not change. B) increases by a multiple of the initial increase in reserves. C) increases by only the initial increase in reserves. D) increases by only one-half the initial increase in reserves.
A
If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply does not change. increases by only the initial increase in reserves. increases by only one-half the initial increase in reserves. increases by a multiple of the initial increase in reserves.
A
If the interest rate on a bond is above the equilibrium interest rate, there is an excess ________ for bonds and the bond price will ________. demand; rise demand; fall supply; rise supply; fall
A
If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up to a maximum amount equal to A) its excess reserves. B) 10 times its excess reserves. C) 10 percent of its excess reserves. D) its total reserves.
A
If wealth increases, the demand for stocks ________ and that of long-term bonds ________, everything else held constant. increases; increases increases; decreases decreases; decreases decreases; increases
A
In the bond market, the bond demanders are the ________ and the bond suppliers are the ________. lenders; borrowers lenders; advancers borrowers; lenders borrowers; advancers
A
In the bond market, the market equilibrium shows the market-clearing ________ and market-clearing ________. price; interest rate interest rate; premium price; deposit interest rate; deposit
A
In the bond market, the market equilibrium shows the market-clearing ________ and market-clearing ________. price; interest rate interest rate; premium interest rate; deposit price; deposit
A
Open market sales shrink ________ thereby lowering ________. A) reserves and the monetary base; the money supply B) the money multiplier; reserves and the monetary base C) the money base; the money multiplier D) the money multiplier; the money supply
A
Pieces of property that serve as a store of value are called assets. units of account. liabilities. borrowings.
A
Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine million dollars in excess reserves. Given this information, we can say First National Bank faces a required reserve ratio of ________ percent. ten ninety eighty twenty
A
Suppose that the reserve ratio is 20%. If Holly deposits $1,000 of cash in her checking account and her bank lends $600 to Freda, the money supply: increases by $600. decreases by $1,000. decreases by $600. remains the same.
A
The interest rate that equates the present value of payments received from a debt instrument with its value today is the yield to maturity. simple interest rate. current yield. real interest rate.
A
The present value of an expected future payment ________ as the interest rate increases. falls is unaffected is constant rises
A
The price of a coupon bond and the yield to maturity are ________ related; that is, as the yield to maturity ________, the price of the bond ________. Correct! negatively; rises; falls positively; rises; falls negatively; falls; falls positively; rises; rises
A
The yield to maturity for a perpetuity is a useful approximation for the yield to maturity on long-term coupon bonds. It is called the ________ when approximating the yield for a coupon bond. current yield discount yield future yield star yield
A
The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value. greater; coupon; below greater; coupon; above greater; perpetuity; above less; perpetuity; below
A
To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of discounting the future. face value. par value. deflation.
A
To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of discounting the future. par value. deflation. face value.
A
What is the present value of $500.00 to be paid in two years if the interest rate is 5 percent? $453.51 $550.00 $500.00 $476.25
A
When inflation rises quickly, borrowers will _____ and lenders will _____. benefit; be hurt benefit; benefit be hurt; benefit be hurt; be hurt
A
When the price of a bond is ________ the equilibrium price, there is an excess demand for bonds and price will ________. below; rise below; fall above; fall above; rise
A
When the price of a bond is above the equilibrium price, there is an excess ________ bonds and price will ________. supply of; fall supply of; rise demand for; fall demand for; rise
A
Which of the following $1,000 face-value securities has the highest yield to maturity? a 12 percent coupon bond selling for $1,000 a 5 percent coupon bond selling for $1,000 a 10 percent coupon bond selling for $1,000 a 12 percent coupon bond selling for $1,100
A
Which of the following $1,000 face-value securities has the highest yield to maturity? a 5 percent coupon bond with a price of $600 a 5 percent coupon bond with a price of $800 a 5 percent coupon bond with a price of $1,000 a 5 percent coupon bond with a price of $1,200
A
Which of the following $5,000 face-value securities has the highest yield to maturity? a 12 percent coupon bond selling for $4,500 a 10 percent coupon bond selling for $5,000 a 6 percent coupon bond selling for $5,500 a 6 percent coupon bond selling for $5,000
A
Which of the following are TRUE for discount bonds? The purchaser receives the face value of the bond at the maturity date. U.S. Treasury bonds and notes are examples of discount bonds. A discount bond is bought at par. The purchaser receives the par value at maturity plus any capital gains.
A
You purchase a bond, with a face value of $1,000, at $1,000. Its coupon rate is 5% and will mature in 30 years. If you hold it for 30 years, what is the yield to maturity? 5%. $50. 100%. $500.
A
You would be more willing to buy AT&T bonds (holding everything else constant) if the brokerage commissions on bond sales become cheaper. interest rates are expected to rise. your wealth has decreased. you expect diamonds to appreciate in value.
A
A bond that is bought at a price below its face value and the face value is repaid at a maturity date is called a fixed-payment loan. discount bond. simple loan. coupon bond.
B
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 simple loan. coupon bond. discount bond. fixed-payment loan.
B
A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a discount bond. simple loan. fixed-payment loan. coupon bond.
B
For a 3-year simple loan of $10,000 at 10 percent, the amount to be repaid is $10,030. $13,310. $10,300. $13,000.
B
If a $1,000 face value coupon bond has a coupon rate of 3.75 percent, then the coupon payment every year is $13.75 $37.50. $375.00. $3.75.
B
If a security pays $55 in one year and $133 in three years, its present value is $150 if the interest rate is 5 percent. 10 percent. 15 percent. 12.5 percent.
B
In the bond market, the bond demanders are the ________ and the bond suppliers are the ________. borrowers; lenders lenders; borrowers borrowers; advancers lenders; advancers
B
In the simple deposit expansion model, a decline in checkable deposits of $1,000 when the required reserve ratio is equal to 20 percent implies that the Fed A) sold $500 in government bonds. B) sold $200 in government bonds. C) purchased $200 in government bonds. D) purchased $500 in government bonds.
B
In the simple deposit expansion model, if the banking system has excess reserves of $75, and the required reserve ratio is 20%, the potential expansion of checkable deposits is A) $750. B) $375. C) $37.50. D) $75.
B
Negative yields to maturity imply that bond purchasers are better off to hold cash. Acceptance of slightly negative yields by purchasers in recent times suggest that the decision makers are only concerned with yields convenience of storing large sums is also important to decisions. inflation rate is positive. governments have issued too many bonds.
B
Suppose that banks are issuing personal loans at 9%. If expected inflation is 3%, then the nominal interest rate is _____% and the real interest rate is _____%. 6; 12 9; 6 6; 9 9; 3
B
The concept of ________ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today. deflation present value future value interest
B
The concept of ________ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today. interest present value deflation future value
B
The dollar amount of the yearly coupon payment expressed as a percentage of the face value of the bond is called the bond's maturity rate. coupon rate. payment rate. face value rate.
B
The dollar amount of the yearly coupon payment expressed as a percentage of the face value of the bond is called the bond's payment rate. coupon rate. maturity rate. face value rate.
B
The monetary liabilities of the Federal Reserve include securities and loans to financial institutions. currency in circulation and reserves. securities and reserves. currency in circulation and loans to financial institutions.
B
The most important advantage of discount policy is that the Fed can use it to A) punish banks that have deficient reserves. B) perform its role as lender of last resort. C) precisely control the monetary base. D) control the money supply.
B
The percentage of deposits that banks must hold in reserve is the currency ratio. required reserve ratio. excess reserve ratio. total reserve ratio.
B
The purpose of the commitment by the Fed to keep the federal funds rate at zero for a long period of time is to A) increase the long term interest rates. B) lower the long term interest rates. C) increase the short term interest rates. D) lower the short term interest rates.
B
The ratio that relates the change in the money supply to a given change in the monetary base is called the discount rate. money multiplier. required reserve ratio. deposit ratio.
B
The sum of the Fed's monetary liabilities is called A) the money supply. B) the monetary base. C) bank reserves. D) currency in circulation.
B
Total reserves minus bank deposits with the Fed equals currency in circulation. vault cash. excess reserves. required reserves.
B
Which of the following $1,000 face-value securities has the lowest yield to maturity? a 10 percent coupon bond selling for $1,000 a 5 percent coupon bond selling for $1,000 a 15 percent coupon bond selling for $1,000 a 15 percent coupon bond selling for $900
B
Which of the following $5,000 face-value securities has the highest yield to maturity? a 6 percent coupon bond selling for $5,500 a 10 percent coupon bond selling for $4,500 a 6 percent coupon bond selling for $5,000 a 10 percent coupon bond selling for $5,000
B
Which of the following are TRUE for a coupon bond? The yield to maturity is greater than the coupon rate when the bond price is above the par value. When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. The yield is less than the coupon rate when the bond price is below the par value. The price of a coupon bond and the yield to maturity are positively related.
B
With an interest rate of 5 percent, the present value of $100 to be received next year is approximately $94. $95. $106. $100.
B
With an interest rate of 6 percent, the present value of $100 to be received next year is approximately $106. $94. $100. $92.
B
credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a simple loan. fixed-payment loan. discount bond. coupon bond.
B
A ________ pays the owner a fixed coupon payment every year until the maturity date, when the ________ value is repaid. coupon bond; discount discount bond; face coupon bond; face discount bond; discount
C
A bank has excess reserves of $6,000 and demand deposit liabilities of $100,000 when the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the bank's excess reserves will be A) -$1,000. B) -$5,000. C) $1,000. D) $5,000.
C
A bank has no excess reserves and demand deposit liabilities of $100,000 when the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the bank's excess reserves will now be $5,000. -$1,000. -$5,000. $1,000.
C
A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a coupon bond. fixed-payment loan. simple loan. discount bond.
C
A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a simple loan. coupon bond. fixed-payment loan. discount bond.
C
A person's house is part of her money. income. wealth. liabilities.
C
An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of 40 percent. 10 percent. 8 percent. 5 percent.
C
An assumption in the model of the money supply process is that the desired levels of currency and excess reserves A) grow proportionally over time. B) are given as constants. C) grow proportionally with checkable deposits. D) grow proportionally with high-powered money.
C
Both ________ and ________ are Federal Reserve assets. A) currency in circulation; reserves B) currency in circulation; securities C) securities; loans to financial institutions D) Securities; reserves
C
Decisions by depositors to increase their holdings of ________, or of banks to hold excess reserves will result in a ________ expansion of deposits than the simple model predicts. currency; larger deposits; larger currency; smaller deposits; smaller
C
Discount policy affects the money supply by affecting the volume of ________ and the ________. A) excess reserves; monetary base B) borrowed reserves; money multiplier C) borrowed reserves; monetary base D) excess reserves; money multiplier
C
Everything else held constant, a decrease in holdings of excess reserves will mean A) a decrease in the money supply. B) an increase in discount loans. C) an increase in the money supply. D) a decrease in checkable deposits.
C
Everything else held constant, a decrease in the required reserve ratio on checkable deposits will mean A) a decrease in checkable deposits. B) a decrease in the money supply. C) an increase in the money supply. D) an increase in discount loans.
C
Everything else held constant, an increase in currency holdings will cause A) the money supply to rise. B) checkable deposits to rise. C) the money supply to fall. D) the money supply to remain constant.
C
Excess reserves are equal to total reserves minus discount loans. vault cash minus required reserves. vault cash plus deposits with Federal Reserve banks minus required reserves. deposits with the Fed minus vault cash plus required reserves.
C
Funds held in ________ are subject to reserve requirements. A) all checkable and time deposits B) all checkable, time, and money market fund deposits C) all checkable deposits D) all time deposits
C
If $22,050 is the amount payable in two years for a $20,000 simple loan made today, the interest rate is 10 percent. 22 percent. 5 percent. 25 percent.
C
If a $10,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to maturity is 5 percent. 10 percent. 100 percent. 50 percent.
C
If a $10,000 face-value discount bond maturing in one year is selling for $8,000, then its yield to maturity is 50 percent. 20 percent. 25 percent. 15 percent.
C
If a security pays $110 next year and $121 the year after that, what is its yield to maturity if it sells for $200? 12 percent 9 percent 10 percent 11 percent
C
If an individual moves money from a small-denomination time deposit to a demand deposit account M1 stays the same and M2 increases. M1 increases and M2 decreases. M1 increases and M2 stays the same. M1 stays the same and M2 stays the same.
C
If the Fed decides to reduce bank reserves, it can extend discount loans to banks. purchase government bonds. sell government bonds. print more currency.
C
If the Fed expects currency holdings to rise, it conducts open market ________ to offset the expected ________ in reserves. A) purchases; increase B) sales; decrease C) purchases; decrease D) sales; increase
C
If the Fed injects reserves into the banking system and they are held as excess reserves, then the monetary base _______. decreases remains unchanged increases none of the other responses is correct.
C
If the required reserve ratio is 10 percent, currency in circulation is $1,200 billion, checkable deposits are $1,600 billion, and excess reserves total $2,500 billion, then the excess reserves-checkable deposit ratio is 0.48 0.72. 1.56. 0.56.
C
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1,100 billion, and excess reserves total $1 billion, then the money supply is ________ billion. $4,000 $10,400 $1,500 $1,400
C
If there were no banks, money supply __________________. equals the currency in circulation. does not exist. cannot be measured. None of the other answers is correct.
C
In the simple deposit expansion model, a decline in checkable deposits of $1,000 when the required reserve ratio is equal to 10 percent implies that the Fed sold $1,000 in government bonds. purchased $100 in government bonds. sold $100 in government bonds. purchased $1,000 in government bonds.
C
In the simple deposit expansion model, an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 20 percent implies that the Fed A) purchased $500 in government bonds. B) sold $200 in government bonds. C) purchased $200 in government bonds. D) sold $500 in government bonds.
C
In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, the bank can now increase its loans by A) $100 times the reciprocal of the required reserve ratio. B) $100 times the required reserve ratio. C) $100. D) $10.
C
The Fed's open market operations normally involve only the purchase of government securities, particularly those that are short-term. However, during the crisis, the Fed started new programs to purchase A) commercial papers and short-term Treasuries. B) mortgage-backed securities and Treasury bills. C) mortgage-backed securities and long-term Treasuries. D) Treasury bills and Treasury notes.
C
The ________ is calculated by multiplying the coupon rate times the par value of the bond. maturity payment face value coupon payment present value
C
The ________ of a coupon bond and the yield to maturity are inversely related. maturity date par value price term
C
The interest rate charged on overnight loans of reserves between banks is the A) discount rate. B) Treasury bill rate. C) federal funds rate. D) prime rate.
C
The monetary liabilities of the Federal Reserve include A) securities and reserves. B) securities and loans to financial institutions. C) currency in circulation and reserves. D) circucurrency in circulation and loans to financial institutions
C
The percentage of deposits that banks must hold in reserve is the A) currency ratio. B) excess reserve ratio. C) required reserve ratio. D) total reserve ratio.
C
The purpose for a central bank to set negative interest rates on bank's deposit is to A) increase bank's cost to holding cash. B) prevent banks from paying positive interest rates to their depositors. C) stimulate the economy by encouraging banks to lend out the deposits they were keeping at the central bank. D) make banks less likely to lend.
C
The quantity of reserves demanded equals A) required reserves plus borrowed reserves. B) total reserves minus excess reserves. C) required reserves plus excess reserves. D) excess reserves plus borrowed reserves.
C
The value of any investment is found by computing the future value of all future expenses. present value of all future sales. present value of all future cash flows. present value of all future liabilities.
C
The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value. less; perpetuity; below greater; perpetuity; above greater; coupon; below greater; coupon; above
C
Total reserves are the sum of ________ and ________. A) vault cash; excess reserves B) excess reserves; borrowed reserves C) excess reserves; required reserves D) required reserves; currency in circulation
C
What is the present value of $500.00 to be paid in two years if the interest rate is 5 percent? $500.00 $476.25 $453.51 $550.00
C
When a primary dealer sells a government bond to the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant. A) decrease; increases B) increase; decreases C) increase; increases D) decrease; decreases
C
When the Fed extends a $100 discount loan to the First National Bank, reserves in the banking system A) increase by more than $100. B) decrease by $100. C) increase by $100. D) decrease by more than $100.
C
When the Fed supplies the banking system with an extra dollar of reserves, deposits ________ by ________ than one dollar—a process called multiple deposit creation. decrease; less increase; less increase; more decrease; more
C
When the Fed wants to raise interest rates after banks have accumulated large amounts of excess reserves, it would A) increase the required reserve ratio. B) conduct massive open market purchase. C) increase the interest rate paid on excess reserves. D) increase discount rate.
C
When the Federal Reserve calls in a discount loan from a bank, the monetary base ________ and reserves ________. remains unchanged; increase decreases; remains unchanged decreases; decrease remains unchanged; decrease
C
When the Federal Reserve sells a government bond to a primary dealer, reserves in the banking system ________ and the monetary base ________, everything else held constant. A) increase; decreases B) increase; increases C) decrease; decreases D) decrease; increases
C
Which of the following are TRUE for a coupon bond? The price of a coupon bond and the yield to maturity are positively related. The yield to maturity is greater than the coupon rate when the bond price is above the par value. When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. The yield is less than the coupon rate when the bond price is below the par value.
C
Which of the following are TRUE of fixed payment loans? Commercial loans to businesses are often of this type. The borrower repays both the principal and interest at the maturity date. Installment loans and mortgages are frequently of the fixed payment type. The borrower pays interest periodically and the principal at the maturity date.
C
________ are the most important monetary policy tool because they are the primary determinant of changes in the ________, the main source of fluctuations in the money supply. A) Changes in reserve requirements; money multiplier B) Changes in reserve requirements; monetary base C) Open market operations; monetary base D) Open market operations; money multiplier
C
f reserves in the banking system increase by $100, then checkable deposits will increase by $1,000 in the simple model of deposit creation when the required reserve ratio is A) 0.20. B) 0.05. C) 0.10. D) 0.01.
C
All of the following are examples of coupon bonds EXCEPT U.S. Treasury bonds. corporate bonds. U.S. Treasury notes. U.S. Treasury bills.
D
Elon Musk's estimated net worth was $220 billion as of this early morning. It has more than doubled over the past year, according to the Bloomberg Billionaires Index. If he would like to share it equally with all Americans (currently around 330 million), how much would you receive? $525. $636. $876. $667.
D
Everything else held constant, if the expected return on Disney stock rises from 5 to 10 percent and the expected return on CBS stock is unchanged, then the expected return of holding CBS stock ________ relative to Disney stock and the demand for CBS stock ________. rises; falls rises; rises falls; rises falls; falls
D
Examples of discount bonds include municipal bonds. corporate bonds. U.S. Treasury notes. U.S. Treasury bills.
D
For simple loans, the simple interest rate is ________ the yield to maturity. greater than less than not comparable to equal to
D
If a $5,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to maturity is 20 percent. 10 percent. 5 percent. 0 percent.
D
If reserves in the banking system increase by $100, then checkable deposits will increase by $400 in the simple model of deposit creation when the required reserve ratio is A) 0.20. B) 0.01. C) 0.10. D) 0.25.
D
If the amount payable in two years is $2,420 for a simple loan at 10 percent interest, the loan amount is $2,200. 1,210. $1,000. $2,000.
D
If the banking system has a large amount of reserves, many banks will have excess reserves to lend and the federal funds rate will probably ________; if the level of reserves is low, few banks will have excess reserves to lend and the federal funds rate will probably ________. A) fall; fall B) rise; rise C) rise; fall D) fall; rise
D
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1,000 billion, and excess reserves total $1 billion, then the currency-deposit ratio is 0.25. 0.50. 0.05. 0.40.
D
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is A) 1.67. B) 0.601. C) 2.0. D) 2.5.
D
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the currency-deposit ratio is A) 0.40. B) 0.05. C) 0.25. D) 0.50.
D
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $20 billion, then the money multiplier is 2.5. 2.3. 1.67. 2.4
D
If the required reserve ratio is one-third, currency in circulation is $300 billion, checkable deposits are $900 billion, and there is no excess reserve, then the monetary base is A) $333 billion. B) $300 billion. C) $667 billion. D) $600 billion.
D
In the model of the money supply process, the depositor's role in influencing the money supply is represented by A) the currency holdings and borrowed reserve. B) the market interest rate. C) the currency holdings and excess reserve. D) the currency holdings.
D
Purchases and sales of government securities by the Federal Reserve are called A) federal fund transfers. B) discount loans. C) swap transactions D) open market operations.
D
Purchases and sales of government securities by the Federal Reserve are called discount loans. swap transactions. federal fund transfers. open market operations.
D
Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine million dollars in excess reserves. Given this information, we can say First National Bank faces a required reserve ratio of ________ percent. A) twenty B) eighty C) ninety D) ten
D
Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars in required reserves. Given this information, we can say First National Bank has ________ million dollars in excess reserves. A) eleven B) ten C) three D) nine
D
The ________ is the final amount that will be paid to the holder of a coupon bond. present value coupon value discount value face value
D
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) above; the Fed can monitor banks for credit risk C) below; the Fed can monitor banks for credit risk D) above; banks can monitor each other for credit risk
D
The interest rate that equates the present value of payments received from a debt instrument with its value today is the simple interest rate. current yield. real interest rate. yield to maturity.
D
The interest rate the Fed charges banks borrowing from the Fed is the Treasury bill rate. federal funds rate. prime rate. discount rate.
D
The policy tool of changing reserve requirements is A) the most widely used. B) still used, even with its disadvantages. C) the preferred tool from the bank's perspective. D) no longer used.
D
The three players in the money supply process include banks, borrowers, and the central bank. banks, depositors, and the U.S. Treasury. banks, depositors, and borrowers. banks, depositors, and the central bank.
D
The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value. greater; coupon; above greater; perpetuity; above less; perpetuity; below greater; coupon; below
D
There are two ways in which the Fed can provide additional reserves to the banking system: it can ________ government bonds or it can ________ discount loans to commercial banks. A) sell; extend B) purchase; call in C) sell; call in D) purchase; extend
D
There is ________ for any bond whose time to maturity matches the holding period. rate-of-return risk yield-to-maturity risk a large interest-rate risk no interest-rate risk
D
Which of the following $1,000 face-value securities has the highest yield to maturity? a 12 percent coupon bond selling for $1,100 a 10 percent coupon bond selling for $1,000 a 5 percent coupon bond selling for $1,000 a 12 percent coupon bond selling for $1,000
D
Which of the following bonds would you prefer to be buying? a $10,000 face-value security with a 9 percent coupon selling for $10,000 a $10,000 face-value security with a 7 percent coupon selling for $10,000 a $10,000 face-value security with a 10 percent coupon selling for $10,000 a $10,000 face-value security with a 10 percent coupon selling for $9,000
D
You take a car loan of $30,000 at 0% interest rate, thanks to your excellent credit score, for 5 years. How much is your monthly payment? $417 $5,000. $625. $500.
D