ECON 302 (Exam MC Q's) actual

Banks want to hold as little cash as possible because holding cash __________. a. provides very little liquidity b. offers a minimal rate of return c. is risky d. provides too much liquidity

b. offers a minimal rate of return

Inflation is a benefit to __________. a. no one b. borrowers c. lenders d. both borrowers and lenders

b. borrowers

One of the most important prices determined in financial markets is the _______ rate. a. bond b. stock c. saving d. interest

d. interest

The primary responsibility of all central banks is monetary policy. a. true b. false

a. true

__________ predicted that capitalism would fail under the weight of growing unemployment. His economic ideas formed the basis for the system adopted by the Soviet Union. a. Karl Marx b. John Maynard Keynes c. Vladimir Lenin d. Jean Baptiste Say

a. Karl Marx

An output gap exists in an economy when there is a difference between the actual level of real GDP and the economy's potential real GDP. a. True b. False

a. True

When the parties to a transaction have different levels of knowledge about each other and/or the nature and implications of the transaction, it is said that there exists __________ information. a. asymmetric b. symmetric c. adverse d. ad hoc

a. asymmetric

Monetary policy has the best chance of influencing the level of __________ unemployment. a. cyclical b. frictional c. structural d. seasonal

a. cyclical

One of the biggest challenges of Federal Reserve faces in conducting monetary policy is the existence of __________ lags. a. information and impact b. excess reserve and money supply c. meeting and analysis d. information and analysis

a. information and impact

When the Federal Reserve buys US Treasury securities on the open market, it is attempting to __________. a. lower interest rates b. raise interest rates c. reduce inflation d. slow economic growth

a. lower interest rates

Mortgages that are pooled together and sold to investors are known as __________. a. mortgage-backed securities b. pooled mortgages c. mortgage-backed assets d. safe mortgage securities

a. mortgage-backed securities

In the Taylor Rule formulation for setting a federal funds target rate, a negative output gap means that the __________. a. output in the economy is below the economy's potential output b. output in the economy is above the economy's potential output c. economy is operating at its full employment level d. economy is operating above its full employment level

a. output in the economy is below the economy's potential output

Bank regulators in the United States have a lot to watch over, so they do so by __________. a. reading call reports and conducting on-site examinations b. examining tax returns and conducting on-site examinations c. reading call reports and examining tax returns d. conducting on-site examinations

a. reading call reports and conducting on-site examinations

Three things fully describe the aspects of a bond. They are __________. a. the face value, the coupon rate, and the term to maturity b. the face value, the term to maturity, and the bond price c. the coupon rate, the term to maturity, and the issuer of the bond d. the face value, the coupon rate, and the bond price

a. the face value, the coupon rate, and the term to maturity

A dual banking system is one in which charters can be granted by national or state/provincial authorities. a. true b. false

a. true

Bank reluctance to loan out excess reserves limited the effectiveness of the Federal Reserve's policy of quantitative easing in 2008. a. true b. false

a. true

Banks that are too big to fail are prime candidates for bailouts when they experience solvency issues. a. true b. false

a. true

Dieter works for a pension fund and is thinking of buying some bonds that have a nominal interest rate of 6%. She believes that the inflation rate over the life of the bond will be 2%. The ex-post real interest rate on this bond is __________. a. 6% b. 4% c. 2% d. unknown

b. 4%

When the Federal Reserve began its policy of quantitative easing in November 2008, there was __________ in the monetary base. a. no change b. a dramatic increase c. a slight increase d. a decline

b. a dramatic increase

Bank regulators use the CAMELS system to provide a standardized assessment of a bank, where CAMELS stands for __________. a. cash, assets, management, equity, leverage, and stability b. capital, assets, management, earnings, liquidity, and sensitivity c. capital, assets, management, earnings, liabilities, and stability d. cash, assets. management, earnings, liabilities, and stability

b. capital, assets, management, earnings, liquidity, and sensitivity

In a barter economy, the number of prices necessary will __________. a. depend on the number of people in the economy b. depend on the number of goods exchanged in the economy c. be too many to be counted d. be fewer than the number of prices in an economy with money

b. depend on the number of goods exchanged in the economy

Bond prices and interest rates are __________. a. directly related b. inversely related c. unrelated d. exponentially related

b. inversely related

The acquisition of a public or private company that is financed largely by debt is referred to as a __________. a. debt acquisition b. leveraged buyout c. junk bond d. junk takeover

b. leveraged buyout

A mortgage loan is an example of _________ loan. a. long-term business b. long-term consumer c. short-term business d. short-term consumer

b. long-term consumer

In the face of a credit crunch, the Federal Reserve will most likely attempt to __________. a. raise interest rates in order to inject liquidity into the financial system b. lower interest rates to inject liquidity into the financial system c. raise interest rates in order to take liquidity out of the financial system d. lower interest rates in order to take liquidity out of the financial system

b. lower interest rates to inject liquidity into the financial system

Harmon opens a new restaurant, which he insures for twice its worth. Knowing his business is insured, Harmon becomes careless in his management of the restaurant, with the result being that he suffers a bad fire which burns down his restaurant. This is an example of __________. a. adverse selection b. moral hazard c. free-riding d. adverse hazard

b. moral hazard

The president of which district bank is a permanent member of the Federal Open Market Committee? a. san francisco b. new york c. boston d. washington

b. new york

Savings accounts and certificates of deposit are commonly referred to as __________ accounts. a. transaction b. non transaction c. liquidity d. interest rate

b. non transaction

The Federal Reserve was created largely in response to the __________. a. start of World War I b. panic of 1907 c. european immigration at the end of the nineteenth and beginning of the twentieth centuries d. rise of industrial trusts

b. panic of 1907

The idea that the failure of one megabank could result in the collapse of the entire financial system is known as __________ risk. a. oligopolistic b. systemic c. monopolistic d. competitive

b. systemic

In a very basic sense, banks perform two functions in society: they __________ and __________. a. print money; make loans b. take deposits; make loans c. take deposits; make profits d. print money; make profits

b. take deposits; make loans

A yield curve illustrates the relationship between the ___________. a. default risk associated with bonds of a given maturity and the interest rate they pay, at a particular point of time b. term to maturity of bonds and the interest rate they pay, at a particular point of time c. marginal tax rate and the after-tax interest rate of return on taxable bonds d. rate of inflation and the real rate of return on bonds

b. term to maturity of bonds and the interest rate they pay, at a particular point of time

The board of governors of the Federal Reserve has three primary responsibilities, which are __________. a. oversight of the printing of money, commercial bank regulation, and the operations of the fed b. the operations of the fed, commercial bank regulation, and monetary policy c. monetary policy, fiscal policy, and the operations of the fed d. maintenance of the gold standard, the operations of the fed, and monetary policy

b. the operations of the fed, commercial bank regulation, and monetary policy

Liquidity risk is the risk that a financial firm __________. a. faces from changing interest rates b. will not be able to meet its current and/or future cash needs c. faces from borrower defaults d. faces from changing regulatory structures

b. will not be able to meet its current and/or future cash needs

Aggregate demand is equal to __________. a. C+I+G+ (X+M) b. C+G+(X-M) c. C+I+G+(X-M) d. S+I+G+(X-M)

c. C+I+G+(X-M)

__________ proposed the aggregate supply/ aggregate demand framework to explain what was happening in the economy during the Great Depression. a. Karl Marx b. Vladimir Lenin c. Jean Maynard Keynes d. Jean Baptiste Say

c. Jean Maynard Keynes

Mandy goes to the grocery store to buy groceries, and at the checkout counter she pays cash. This is an example of money being used as __________. a. a store of value b. barter c. a medium of exchange d. a unit of account

c. a medium of exchange

One of the main reasons that banks exist is to deal with the issues of __________ and __________. a. morality; natural selection b. natural selection; moral hazard c. adverse selection; moral hazard d. biased selection; profiling

c. adverse selection; moral hazard

Interest rates __________. a. are artificially low b. are set by the government c. can represent the price of money d. are propped up by the Federal Reserve

c. can represent the price of money

Which of the following qualifies as a liability to a bank? a. a business loan b. a mortgage c. demand deposits d. a treasury bond

c. demand deposits

When stagflation began to appear in the US economy in the late 1960s, economists and policymakers were perplexed because they had never seen __________ and __________ at the same time. a. a stagnant economy; high unemployment rates b. high inflation rates; high interest rates c. high inflation rates; high unemployment rates d. high unemployment rates; high growth rates

c. high inflation rates; high unemployment rates

When there is too much money chasing too few goods, the likely impact is __________. a. unemployment b. stagflation c. inflation d. deflation

c. inflation

Within an economy, money gets created when banks __________. a. print currency b. accept demand deposits c. make loans d. accept saving deposits

c. make loans

The primary lesson learned from the Panic of 1907 was the __________. a. downside of government intervention in the economy b. value of a private banking system in the United States c. need in the United States for a central bank d. need for deregulation of financial markets in the United States

c. need in the United States for a central bank

The most often used of the Federal Reserve's monetary policy tools is __________. a. discount window lending b. changing the reserve requirement c. open market operations d. quantitative easing

c. open market operations

The business of banking can be described as __________. a. converting short-term liabilities into short-term assets b. converting long-term liabilities into long-term assets c. the business of asset transformation d. the business of liability creation

c. the business of asset transformation

Money is generally thought of as __________. a. whatever a nation's government declares it to be b. being printed by the government c. a measure of the wealth of a nation d. anything generally accepted in exchange for goods and services

d. anything generally accepted in exchange for goods and services

When a newly issued bond sells above its face value, it is said to sell __________. a. below par value b. at par value c. at a discount d. at a premium

d. at a premium

Among the assets on a bank's balance sheet are __________. a. demand deposits b. savings accounts c. bank capital d. consumer loans

d. consumer loans

Today, in the United States, several assets function as money. Which of the following would NOT be considered money? a. currency b. demand deposits c. checkable deposits d. credit cards

d. credit cards

The risk that a bond issuer will not be able to live up to the promise they make when they issue a bond is known as __________ risk. a. inflation b. yield c. interest rate d. default

d. default

When the economy is caught in a liquidity trap, expansionary monetary policy will __________. a. result in inflation b. result in a significant contraction in economic activity c. result in a significant expansion of economic activity d. have little impact on the economy

d. have little impact on the economy

The rise of Savings & Loans following World War II played a key role in the post-war __________ boom. a. savings b. employment c. stock market d. housing

d. housing

As the federal marginal tax rate rises, the advantage of municipal bonds over corporate bonds __________. a. is eliminated b. remains unchanged c. decreases d. increases

d. increases

Assets accepted for repayment of debt to the government as well as private transactions are known as __________. a. dollarization b. fiat money c. money aggregates d. legal tender

d. legal tender

As a country's financial markets become more highly developed, we can expect monetary policy to be __________. a. completely ineffective b. no more or less effective than before c. less effective d. more effective

d. more effective

The risk that a bank faces from the possibility of a foreign terrorist hacking into its computer network is known as __________ risk. a. liquidity b. country c. market d. operational

d. operational

By far, the largest asset on the Federal Reserve's balance sheet is __________. a. gold b. coin c. discount loans d. securities

d. securities

In order to overcome the stigma that might come from borrowing from the Federal Reserve following the 2007 financial crisis, the Federal Reserve created __________. a. the discount window b. quantitative easing c. the federal open market committee (FOMC) d. the term auction facility (TAF)

d. the term auction facility (TAF)

The banking legislation that ensures that borrowers know what they are getting themselves into when they agree to borrow money is known as the __________ Act. a. community reinvestment b. fair credit reporting c. dodd-frank wall street reform and consumer protection d. truth in lending

d. truth in lending