Econ Final Practice
Exam 1
Answers
Exam 2
Answers
You read a story in the New York Times that the federal reserve is purchasing large amount of treasury bills in the secondary market. What will happen to market interest rates and why? a.) interest rates will rise as bank reserves increase b.) interest rates will fall as the bank reserves increase c.) interest rates will fall as the level of bank capital increases d.) interest rates will rise as the level of bank reserves fall e.) interest rates will fall as the level of bank capital levels decline
Didn't answer
Which of the following bonds would sell at a premium? a.) A three year bond with a coupon rate of 5%, while market interest rates are 3.5% b.) A two year bond with a coupon rate of 4%, while market interest rates are at 5.5% c.) A six year bond with a coupon rate of 6.25%, while market interest rates are 6.25% d.) A five year bond with a coupon rate of 2%, while market interest rates are 3.25%
a.) A three year bond with a coupon rate of 5%, while market interest rates are 3.5%
John is studying finance in 2021. He has memorized that bonds with higher default risk carry a higher interest rate or yield. Yet when he looks that yield for US government war bonds issued during WW2 he sees they only paid 2.9%. John is perplexed. He asks you: "How can it be that these WW2 war bonds had a very high default risk and yet paid such a lower interest rate?" To help john out you explain: a.) Americans saw it as their patriotic duty to sacrifice, including sacrificing financially to help win the war b.) people who bought the bonds could then sue the US government at the global court to get compensated in case of non-repayment so default risk was in fact low c.) The difference between what the war bonds paid and what other US government issued debt paid could be used as a tax deduction by bond holders after the war ended d.) The US economy was suffering from deflation at the time, thus the real yield on the War bonds was very high
a.) Americans saw it as their patriotic duty to sacrifice, including sacrificing financially to help win the war
Following WW2, inflation became so bad that Germans stopped using Reichsmarks for transaction, and instead used cigarettes for small transactions and cognac for large transactions. Which of the following best describes the situation? a.) Cigarettes and cognac functioned as money in Germany in this period following WW2 b.) Cigarettes and cognac were more plentiful that Reichsmarks, so Germans found them more convenient to use for transactions c.) Germans wanted to disassociate themselves from the Third Reich d.) Reichsmarks were plentiful and valuable, but Germans preferred to barter
a.) Cigarettes and cognac functioned as money in Germany in this period following WW2
Economists often argue that bank runs are based on asymmetric information. What does this mean? a.) Depositors do not know the quality of the bank's assets, but bank management does b.) depositors will not get bailed out in case of a bank failure, but bank management does in that they will retain their jobs c.) depositors often do not know the interest rate the bank earns on its loan portfolio, but bank management does d.) depositors do not know how interest rates will change in the future, but banks are better informed thanks to their close ties with the central bank
a.) Depositors do not know the quality of the bank's assets, but bank management does
In 2021 some people see parallels between today and what was happening at the time the federal reserve was established. Which of the following played an important role in the delay in the founding of the fed? a.) Fighting within established political parties resulted in stalemates b.) large increase in Immigration into th eUS resulted in falling wages of american workers and led them to resist financial market reforms c.) the pandemic of the flu of 1913 resulted in a slowing of the economy and took attention away from much needed financial market reforms d.) russian influence in the american presidential election of 1912 negatively impacted the ability of the 2 main political parties to work together
a.) Fighting within established political parties resulted in stalemates
Which of the following are suppliers of euros in the FX market? a.) Klaus, a dutch citizen who plans on visiting the US and needs spending money for his trip b.) Nam, a korean businessperson who is planning a trip to madrid and needs funds to pay his hotel bill c.) Clorox, an american firm that want to hire workers in france d.) Peter, a british citizen who wants to buy a german made BMW
a.) Klaus, a dutch citizen who plans on visiting the US and needs spending money for his trip
You read in the New York Times how a financial panic in Bulgaria has led to outflow of money from that country. What is likely to happen to the economy in Bulgaria? a.) Output will decline rapidly as the money supply is contracting b.) Interest rates will fall to near zero, if not zero, due to the lack of money c.) The inflation rate in Bulgaria will increase due to lack of money d.) Money will flow into Bulgaria because today global financial markets are efficient and perfectly competitive, thus resources will flow to where they are most needed
a.) Output will decline rapidly as the money supply is contracting
Initially, in the wake of the Panic of 1907, the Federal Reserve was created by Congress for what primary function? a.) Serve as a lender of last resort b.) Print all currency for the US economy c.) Be a repository of all gold deposits in the US financial system d.) Serve as the chief monitor of economic activity in the US economy
a.) Serve as a lender of last resort
When did M2 run into trouble as being a useful monetary aggregate? a.) The 1980s and 1990s b.) Great depression of the 1930s c.) During the 2001 economic recession d.) The late 1890s and early 1900s
a.) The 1980s and 1990s
When did monetary aggregate M1 stop being a reliable monetary aggregate? a.) The early 1970s b.) During the Great Recession that began in 2008 c.) Immediately following the end of WW2 d.) Shortly after the US entered WW2 e.) During the Great Depression of the 1930s
a.) The early 1970s
As interest rates increase, American households increase the amount of funds they dedicate to retirement savings and reduce their level of spending. What impact does this have in terms of the loanable funds model? a.) The quantity supplied of loanable funds increases b.) The supply of loanable funds increases c.) The quantity demanded of loanable funds increases d.) The demand for loanable funds increases
a.) The quantity supplied of loanable funds increases
What do we refer to when we talk about Harry's time preference? a.) The rate at which Harry prefers to consume today as opposed to consuming in the future b.) The value of his time c.) The amount of time that Harry spends on financial transactions d.)The rate of interest she is willing to pay for a loan
a.) The rate at which Harry prefers to consume today as opposed to consuming in the future
Steve is very confused about the usefulness of financial market data. He does not understand why M1 which was such a useful statistic is no longer so useful. What do you tell him? a.) Since banks no longer hold mortgages the M1 statistic is of very little use b.) Globalization has reduced the usefulness of M1 c.) Financial market innovation has greatly reduced the usefulness of M1 d.) The raising of interest rates set by Regulation Q has greatly decreased the usefulness of M1
c.) Financial market innovation has greatly reduced the usefulness of M1
Greg does not understand why studying ancient money is important. In order to help greg out, you explain that the french experience with cowrie shells in west africa demonstrates to us" a.) a government authority can not dictate to the people what will be used as money b.) people will quickly switch to easier transportable money, such as paper money, if given the opportunity c.) if there is not sufficient amount of a curreny, the price of the currency will decline triggering rampant inflation d.) that only one asset at a time can function as money in a given economy
a.) a government authority can not dictate to the people what will be used as money
Since the founding of the country there have been economic and financial tensions between the states. Which of the following correctly describes these tensions? a.) agricultural south feared its financial capital would flow to the industrial north b.) the rapidly expanding west feared that their taxes would go to support the slower growing east c.) the capital rich east feared that is financial capital would flow from the money starved west d.) the fast-growing industrial east feared it would be dragged down by the slow growing agricultural centered west
a.) agricultural south feared its financial capital would flow to the industrial north
Argentine has seen its productivity fall compared to brazil. What will happen in terms of the foreign exchange market? a.) goods made in argentina will now be less expensive in brazil b.) interest rates in argentina will now be lower than in brazil c.) goods made in brazil will now be less expensive in argentina d.) The brazilian currency will depreciate against the argentine currency
a.) goods made in argentina will now be less expensive in brazil
Greg is trying to understand the economics of money but he is confused by all the acronyms. To help greg out you are going to explain to him why knowing the acronyms will help to understand how it all works. As an example you explain to the the FDIC is important because it: a.) helps to insure depositors have confidence in the american banking system b.) determines the rate of increase in the money supply in the US and thus helps to prevent inflation c.) works to make certain US banks do not hold too much bank capital as that it will lower the market value of the banks d.) buys up the debts of the US government thus insuring there is enough liquidity in th eUS financial system
a.) helps to insure depositors have confidence in the american banking system
One of the characteristics of Cowrie shells is that they functioned as a commodity money. What does this mean? a.) in addition to functioning as money the shells had other uses such as being used for jewelry b.) the shells were used as money between people who lived in different location and in different economic systems c.) people who spoke different languages could use the shells as money in the trading of similar goods d.) the shells were used as a go between in the buying and selling of goods
a.) in addition to functioning as money the shells had other uses such as being used for jewelry
Which of the following correctly explains the advise John Maynard Keynes gave to FDR in terms of how to increase the flow of money in the US economy during the great depression? a.) increase government spending by any means possible b.) impose wage and price controls c.) have the federal reserve buy gold from other countries in order to increase the US money supply under the gold standard d.) lower market interest rates by having the fed purchase government bonds
a.) increase government spending by any means possible
Kevin stares blankly at his econ text. He sees the word "coupon" relating to a bond and asks you what this has to do with getting a reduced price when buying something in a store. You explain to Kevin that a coupon rate of a bond refers to the: a.) interest rate to be paid to the holder of the bond b.) number of years until repayment of the bond principal c.) probability stated in a percentage rate that the borrower will default d.) original amount of money borrowed by the bond issuer
a.) interest rate to be paid to the holder of the bond
During WW2 the US imposed wage and price controls. What was the rationale for such policies? a.) it was believed that higher wages would lead to increases in the rate of inflation b.) There was a belief that if prices were market determined the economy could suffer from deflation given that households were no longer spending as much as they had previously. c.) it was believed that since so many women were in the labor force for the first time wages would fall since female productivity was lower than male productivity d.) policymakers believed that if workers were paid higher wages they would use the additional income for vacations and would not show up for work thus war production would fall
a.) it was believed that higher wages would lead to increases in the rate of inflation
Andy is rather confused about the historical evolution of the US. To help him out you explain the First bank of the US began operation ____ , while the second bank of the US began to function in response to the ____. a.) shortly after the ratification of the constitution, war of 1812 b.) to finance the US government debt created by the civil war, spanish-american war c.) during the presidential administration of John quincy Adams, the outbreak of the napoleonic wars in europe d.) at the outbreak of the revolutionary war, failure of the first bank of the US
a.) shortly after the ratification of the constitution, war of 1812
If americans want to buy more british made range rover SUVs, what happens in FX market? a.) supply of dollars increase while demand for British pounds increase b.) demand for dollar falls while supply of british pounds increase c.) supply for dollars falls while the demand for british pounds increase d.) quantity supplied of dollars increase while the supply of british pounds falls e.) demand for dollar increase while the supply of pounds fall
a.) supply of dollars increase while demand for British pounds increase
As is consistent with what has been experienced in fully developed economies during WW2 the markets developed in POW camps suffered from deflation when? a.) the amount of cigarettes in circulation decline b.) traders began to take revenge on middlemen in transaction and pushed prices downward c.) the amount of cigarettes in circulation increased faster than the amount of goods being traded d.) questions were raised about the quality or level of debasement of cigarettes being exchanged
a.) the amount of cigarettes in circulation decline
If the current annual market interest rate is 10%, how much is the promise of $100 in one year worth today? a.) less than $75 but more than $25 b.) more than $100 but less than $110 c.) less than $100 but more than $75 d.) more than $110 but less than $1,000
c.) less than $100 but more than $75
The federal reserve is often a market participant in the secondary market for government bonds. But during WW2 the fed was very active in supporting the selling of US government issued war bonds in the primary market. What was the fed's goal in doing so? a.) the fed wanted to mop up the excess liquidity that existed in the US economy b.) The fed wanted the american people to buy war bonds instead of putting money on deposit with banks, since the banks would then place these "excess reserves" on deposit with the fed c.) the fed worried that if americans did not buy war bonds foreigners might buy them and thus they could demand US gold in repayment d.) the fed worried that if people did not buy war bonds the fed would have to buy them and thus ran the risk of lising its political independence
a.) the fed wanted to mop up the excess liquidity that existed in the US economy
As described in the assigned reading, a crawling peg exhange rate system is one where: a.) there is a stated official exchange rate, that remains unchanged day to day, but the exchange rate is changed by the authorities when economic conditions warrant a change b.) the exchange rate is allowed to fluctuate to insure purchasing power parity holds at all times c.) the official exchange rate is determined by the real, risk-adjusted interest rate d.) the value of the currency is determined by the global market price of one ounce of gold
a.) there is a stated official exchange rate, that remains unchanged day to day, but the exchange rate is changed by the authorities when economic conditions warrant a change
Exam 3
answers
Which of the following economic schools o thought dominated during the 18th and 19th century resulting in high levels of exports and low levels of imports? a.) dynamic trade school b.) classicalists school c.) mercantilism d.) Keynesianism e.) institutionalism
c.) mercantilism
Dav does not understand monetary economics well. He states "the government determines what is money in our economy when it prints its own currency" Why is Dav wrong? a.) Inflation decreases the purchasing power of money b.) A currency is a money only if it preforms the functions of money c.) The money supply is determined by the government issuing bonds not currency d.) The central bank determines what is the medium of exchange not what is actual money
b.) A currency is a money only if it preforms the functions of money
The European central bank recently voted to cut interest rates. According to the discounted cash flow method that uses present value, what do you think will happen to stock prices in Europe and why? a.) As the present value of cash flows decrease stock prices will decrease b.) As the present value of cash flows increase stock prices will increase. c.) as the present value of cash flows decrease stock prices will increase. d.) As the present value of cash flow increase stock prices will decrease
b.) As the present value of cash flows increase stock prices will increase.
Throuhgout history people tended to use less valuable units of money for trading and they tended to hoard the higher valued units of money. And so it occured in POW camps during WW2. This behavior follows the rule of: a.) Cournot currency b.) Gresham's Law c.) Marshallian Demand d.) cagan elastic money demand
b.) Gresham's Law
During the 1960s the goal of economic policy was to keep interest rates low. What problem did this cause and by which economic principle? a.) Asset bubbles via flight to quality b.) High rates of inflation via the Fisher Effect c.) Excess production in agricultural via fallacy of composition d.) Growing unemployment via the marginal product of labor
b.) High rates of inflation via the Fisher Effect
"The oppurtunity cost of current consumption just decreased" As described in the assigned readings, in terms of the loanable funds framework, what just happened? a.) The price level decreased b.) Interest rates decreased c.) Inflationary expectation fell d.) Interest rates increased
b.) Interest rates decreased
How did the Fed contribute to the Great Depression of the 1930s? a.) It forced banks to sell equities thus trigger the stock market crash that lead to the Great Depression b.) It believed that now nominal or market interest rates were proof that financial markets were in a fine state c.) It caused the dollar to be undervalued by selling gold and thus made trade with Europe difficult d.) It erected trade barriers that triggered a trade war with Europe
b.) It believed that now nominal or market interest rates were proof that financial markets were in a fine state
Robert complains: "why do we study history in an economics course? Who cares about the Panic of 1907?" You explain to Robert the primary lesson to be learned from the Panic of 1907 is: a.) The importance of wealthy families in the banking industry. b.) The need for a central bank c.) The need to eliminate federal oversight of banks and return oversight to the level of states d.) The need for deregulation of financial markets and tighter control of monopolies
b.) The need for a central bank
Which of the following correctly describes the cowrie shells when they were used as money? a.) They were the first money to not suffer from inflation despite over production b.) They were the money most often used by the common people c.) There was an inverse relation between the value of the cowrie shell as money and distance from the maldives islands d.) They were the only form of money allowed to be used in european colonies in africa
b.) They were the money most often used by the common people
According to the assigned readings, money reduces the number the stated prices that are required in an economic system when the money preforms what function? a.) Medium of exchange b.) Unit of account c.) Legal tender d.) Store of value
b.) Unit of account
What was done in order to keep inflation from becoming a problem during WW2 in the US? a.) Pro-cyclical selling of gold b.) Wage and price controls c.) Balancing the US Federal Government's budget d.) Deregulation of the banking system
b.) Wage and price controls
You read a story in the Toronto Star that the candadian dollar, much like european currencies during the interwar period, is overvalued compared to the US dollar. What is likely the result in canada from this? a.) inflation in canada will increase due to the increase in demand for the canadian dollar b.) canadian producers will have a very difficult time selling their goods in the US c.) canadian unemployment will likely decline as imports from the US coming into canada will increase d.) US made goods will appear to be very expensive to canadian shoppers
b.) canadian producers will have a very difficult time selling their goods in the US
During the great depression many in america looked up to the highly successful Henry Ford. As described in the documentary "PBS Presentation: The great depression" how did henry ford view the great depression? a.) he was concerned that large government bond purchases by the federal reserve would not be enough to end the depression b.) he thought it was a good thing that many workers lost their jobs and had their wage cut as they were essentially all lazy c.) he feared that the growing unemployment could trigger a socialist revolution in the US d.) he called for wealthy americans like himself to sacrifice for the good of the country
b.) he thought it was a good thing that many workers lost their jobs and had their wage cut as they were essentially all lazy
As described in the assigned documentary, historians generally agree that Alexander Hamilton's great accomplishment that set the stage for american economic prosperity we enjoy today, was actually a compromise. What did Hamilton agree to? a.) in exchange for the southern states to be allowed to continue to sell their cotton in foreign markets, the nation's stock exchange would be located in the northern city of New York b.) in return for agreeing to allow the nation's capital to be moved to an area near virginia, Hamilton's national debt plan was passed by congress c.) by allowing the southern states to continue slavery, the first bank of th eUS was allowed to founded and located in Pihledelphia d.) in exchange for paying of the state's debts, the federal government would be granted the power to control monetary policy for the entire nation
b.) in return for agreeing to allow the nation's capital to be moved to an area near virginia, Hamilton's national debt plan was passed by congress
You read a story in the Financial Times that the economy of Australia is going through a financial crisis. wealth levels in australia are rapidly declining. There is also a flight to quality going on as investors in australia move their funds to the UK. In terms of the loanable funds framework if both of these changes are in the same proportion, what will happen to interest rates in australia and why? a.) interest rates will remain the same as the increase in supply of loanable funds is offset by the decrease in demand for laonable funds b.) interest rates will be increasing as the supply of loanable funds are decreasing c.) interest rates will decrease as the deman for loanable funds falls d.) interest rates will remain the same as decreases in supply of loanable funds are offset by increases in the supply of loanable funds
b.) interest rates will be increasing as the supply of loanable funds are decreasing
You read a story in the Austin American Statesman that the first national bank of Austin is at the discount window. What is the first national bank of austin doing? a.) it is writing down the value of some of its non-preforming assets to insure the accounting equation still holds b.) it using it assets as collateral and borrowing money from the US central bank c.) it is borrowing the reserves of other banks in the federal reserve system d.) it is issuing new stock in the equity market in order to build up its loan loss reserve account and thus reducing or discounting the ownership shares of current stockholders
b.) it using it assets as collateral and borrowing money from the US central bank
During the Gilded Age of the late 19th century and into the early 20th century in the US "trusts" or cartel-like corporate sturctures were very profitable. In microeconomics we call these profits: a.) box-jenkins conrer solutions b.) monopoly economic profits c.) nash equilibrium benefits d.) tragedy of the commons outcomes
b.) monopoly economic profits
As the US slid into the great depression, bank runs resulted in commercial banks wanting to borrow funds from the federal reserve. Yet the fed refused to lend them money. Why? a.) the fed was concerned that if it lent funds to banks, the banks in turn could give these funds to foreigners who would then redeem the dollars for US gold thus reducing the US gold supply b.) people at the fed were following the dogma of the Real Bills Doctrine c.) The fed feared that such rapid increases in the money supply would trigger infaltion d.) people at the federal reserve feared it would run out of money if it lent funds to all of the commercial banks that wanted to borrow funds at the time
b.) people at the fed were following the dogma of the Real Bills Doctrine
As explained in the documentary "Tulsa 1921: An american tragedy" why was it that large amounts of money were not enough to save the people in the Greenwood neighborhood of tulsa in 1921? a.) as fear spread through the neighborhood depositors pulled money out of local bank causing the money supply in the neighborhood to collapse b.) racist hatred led to a destruction of their neighborhood and cost many of them their lives c.) sudden deflation increased the real burden of debt and thus cause the economy to collapse d.) high rates of inflation brought on by excessive spending in the neighborhood resulted in the real rate of return to savings and business investment to plummet dramatically
b.) racist hatred led to a destruction of their neighborhood and cost many of them their lives
Approximately what is the present value of $5,000 recieved in 2 years if the current interest rate is 10% a.) somewhere between $40 and $45 b.) somewhere between $4,000 and $5,000 c.) somewhere between $5,000 and $6,000 d.) somewhere between $10,000 and $12,000
b.) somewhere between $4,000 and $5,000
In the assigned reading by gerald dwyer of the federal reserve bank, state banks during the free banking era had very different experiences. Which of the following correctly describes dwyer's argument? a.) state banks that had branches in a wide variety of states had much lower failure rates during this time period compared to state banks that limited their branches to their own original state b.) state chartered banks in some states, such as New York, were successful during this time period, while in other states such as Michigan the failure rate of banks were very high c.) state banks that underwrote stocks and bonds during this time period had a much lower failure rate compared to state banks that focused on "traditional banking" of taking deposits and making loans d.) state banks that engaged in international lending and the taking of foreign deposits, during this time period were much more stable compared to state banks that only lent locally and took deposits from local depositors
b.) state chartered banks in some states, such as New York, were successful during this time period, while in other states such as Michigan the failure rate of banks were very high
In his lecture, "A look back at the history of the federal reserve" FRB-Richmond president jeffrey lacker describes how one of the goals of the federal reserve was to create an elastic currency. What does this mean? a.) the dollar could be exchanged for a wide variety of foreign currencies at a pre-specified price or exchange rate b.) the amount of currency in circulation should adjust to meet the demand for currency c.) the dollar could be converted into either gold or silver depending on the needs of the person exchanging the dollar d.) the nominal or market interest rate would be able to change a monthly basis in response to changing market conditions
b.) the amount of currency in circulation should adjust to meet the demand for currency
Switzerland produces watches while Norway produces candy. You read in The Guardian that the productivity in Switzerland is increasing relative to productivity in Norway. Which of the following should occur? a.) the norwegian krone will appreciate and thus norwegian candy will be more expensive in switzerland b.) the norwegian krone will depreciate and thus swiss watches will be more expensive in norway c.) the swiss franc will depreciate and thus swiss made atches will be less expensive in norway d.) the swiss franc will appreciate and thus norwegian candy will be more expensive in switzerland
b.) the norwegian krone will depreciate and thus swiss watches will be more expensive in norway
In 1920-21 recession in the US would forever change the system of money in the country. What brought about this important recession in 1920 and 1921? a.) a massive outflow of US gold in response to fears that 1921 presidential election would result in stagnation of much needed economic reforms in the US b.) the wilson administration drastically cut government spending as the Fed raised interest rates c.) a major stock market crash combined with a widespread spanish flu pandemic pushed the economy into recession d.) Increased political uncertainty due in party to political bombings brought about significant drops in business and consumer spending
b.) the wilson administration drastically cut government spending as the Fed raised interest rates
When a coffee shop lists a tall coffee on its menu at 2.95 euros, the coffee shops is using Euros as a(n): a.) store of value b.) unit of account c.) source of profit d.) exchange rate
b.) unit of account
After helping the Longhorns win the NCAA tourney, Andrew is drafted in the first round of the NBA draft by the Bucks. The Bucks offer Andrew a $5 million dollar signing bonus that will be paid immediately, or a $5.25 million payment at the end of the year which is 12 months away. At what annual interest rate would Andrew be indifferent between the two offers? a.) 10% b.) 50% c.) 5% d.) 2%
c.) 5%
After the second world war, government policies were used to support which of the following financial markets in an attempt to keep the economy from sliding back into the Great Depression? a.) Bonds issued by small firms b.) Equities issued by newly formed firms c.) Corporate borrowing d.) Stocks sold in the primary market by technology companies
c.) Corporate borrowing
Keynes blamed the onset of the Great depression on what aspect of financial markets? a.) High amount of government borrowing can trigger inflation followed by economic stagnation b.) High interest rates pushed businesses to undertake risky investments c.) Financial market participants can act in a herd mentality triggering a market collapse d.) Low bond prices can result in an asset bubble in bonds as investors see a buying opportunity
c.) Financial market participants can act in a herd mentality triggering a market collapse
The European Central Bank is worried that price levels will fall and continue to fall. Don is perplexed by this and states "falling price levels would be awesome. Europe can be made great again if its price levels would just fall." How would you point out that Don is misinformed? a.) Describe how falling price levels will often lead to higher interest rates which, in turn, leads to lower levels of total spending and thus economic slowdowns. b.) Explain to him that falling price levels can trigger hyper-inflation thus causing savings to leave the economy. c.) Point out that falling price levels result in significant increases in the real burden of debt often triggering not just recessions but economic depression. d.) Explain that falling price levels most often result in lower real wages causing household spending levels to fall rapidly
c.) Point out that falling price levels result in significant increases in the real burden of debt often triggering not just recessions but economic depression.
As described in the assigned readings, if the European Central Bank pursues a contractionary policy, what happens in terms of the Loanable Funds market in Europe? a.) Demand for loanable funds decrease and interest rates decrease b.) Demand for loanable funds increase and interest rates rise c.) Supply of loanable funds decrease and interest rates rise d.) Supply of loanable funds increase and interest rates decrease
c.) Supply of loanable funds decrease and interest rates rise
Which of the following might be the result of a "flight to quality?" a.) The differences in yields between US government bonds and relative risky Mexican government bond decreases b.) The differences in yields between US government bonds and corporate bonds decreases c.) The differences in yields between low default risk corporate debt and speculative grade bonds increases d.) The differences in interest rates between bank loans and bank deposits increases
c.) The differences in yields between low default risk corporate debt and speculative grade bonds increases
What will happen according to David Ricardo if the money supply increases "too quickly?" a.) The market interest rates will become pro-cyclical b.) The economy will suffer from deflation and the real burden of debt will increase c.) The general level of prices will rise and continue to rise d.)The economy will slide into a recession and perhaps an economic depression
c.) The general level of prices will rise and continue to rise
Market interest rates have just increased. Which of the following will happen to a bond being sold in the secondary market as a result? a.) The face value will decline b.) The yield will decline. c.) The market price will decline d.) The coupon rate will increase
c.) The market price will decline
As described in the assigned documentary, two of the US founding fathers, Alexander Hamilton and George Washington agreed on a vision of the future of the country that clashed directly with the views of two other founding fathers: James Madison and Thomas Jefferson. What was the view shared by Hamilton and Washngton? a.) They both believed that low taxes would result in job creation and economic growth b.) they both wanted to the rights of the states to be greater than the rights of the federal government in order to insure peace and prosperity c.) They both wanted the US to become a world leader equal to England
c.) They both wanted the US to become a world leader equal to England
As described in the assigned readings, which of the following best describes what a foreign exchange intervention is? a.) Large influx of capital from overseas unwittingly cause a currency to appreciate b.) domestic consumers often acting irrationally undertake actions that influence the market determined exchange rate of their currency c.) central banks and/or national governments act to influence the market determined exchange rate of their currency d.) political factions lobby the governments of their country to influence the exchange rate of their country's currency
c.) central banks and/or national governments act to influence the market determined exchange rate of their currency
In the days before the founding of the federal reserve, clearing houses were good at ___ but premormed poorly in response to ___. a.) creating currency; high rates of inflation b.) converting foreign currency into local currency; monetization of the public debts c.) facilitating local payment systems; bank panics d.) funding local or state government budget deficits; deflationary triggered economic depressions
c.) facilitating local payment systems; bank panics
During his visit to china in 1275 Marco Polo was amazed to see for the first time which form of money that today we take for granted? a.) money market mutual funds b.) bankers acceptances agreements c.) government issued paper money d.) coins made of gold that weighed less than one ounce e.) checking accounts
c.) government issued paper money
Alexander Hamilton helped secure the financial stability of the new US government via the creation of the bank of the united states. How did he do that? a.) he made certain the bank collected the income taxes owed to the US government b.) he used the power of the new bank to renegotiate US federal government debts held by foreign governments c.) he required would-be buyers of the Bank's equities to pay for the stocks, in large part, with government bonds d.) he made certain that the new bank would set monetary policy to ensure interest rates remained low so the new US government could borrow funds cheaply
c.) he required would-be buyers of the Bank's equities to pay for the stocks, in large part, with government bonds
Sometimes one person can have a huge impact on the economics of money. Even is that one person dies. Such is the case with benjamin strong. Why did strong's unexpected death in 1928 have such a huge impact on the entire money system? a.) his death resulted in a purchasing of US gold as a hedge against inflation, but the resulting decrease in the US money supply pushed the American economy into the great depression b.) his assassination increased uncertainty in the financial markets leading to stock sell offs and massive withdrawals from commercial banks thus triggering the great depression c.) his death left the federal reserve without a leader d.) his death triggered a sell of stocks as many in the stock market followed his advice
c.) his death left the federal reserve without a leader
Due to changes in the banking system, inflationary worries in switzerland have increased relative to inflation rates in the UK. Using the supply and demand framework of exchange rates what will happen to the value of the swiss franc in terms of the british pounds and why? a.) the franc will appreciate as the supply of francs increases b.) the franc will appreciate as the supply of francs decreases c.) the franc will depreciate as the supply of francs increase d.) the franc will appreciate as the demand for francs decreases e.) the franc will depreciate as the demand for francs increases
c.) the franc will depreciate as the supply of francs increase
Clearing houses played a very important role in economics of money in the 19th century. But today they are almost unheard of. What lessons should we learn for the demise of the clearing houses? a.) growing government budget deficits and or increases in the amount of outstanding government debt will eventually lead the government to default on its debt b.) when the money supply increases faster than the growth of the economy, the rate of inflation is likely to increase c.) when bank runs turn into bank panics a central bank is needed d.) when currency values decrease there is little that can be done to prevent the economy from sliding into a recession and banks failing
c.) when bank runs turn into bank panics a central bank is needed
During the interwar period in the US inflation rates remained relatively low. Many credit the decline of organized labor during this time period for the low inflation. You buddy Chad is confused by this. To help chad out you explain: a.) radicals in the union movement were jauled due to their beliefs and thus the negotiation power of workers in setting wages declined b.) workers realized that labor unions were a socialist attempt to get rid of capitalism thus they left unions productivity increased and inflation was kept in check c.) since workers were no longer forced to pay union dues they did not continue to ask for wage Increases and thus costs for firms did not continue to increase d.) As workers left unions wages fell but more workers had jobs thus increasing total output and a lower price level
d.) As workers left unions wages fell but more workers had jobs thus increasing total output and a lower price level
Bob does not understand US financial markets very well. Bob asks you this question: "Why did it take the US so long to get a sustainable central bank?" What do you tell bob? a.) demonstrate that up until the 19th century the US did not need a central bank since financial crises were relatively rare b.) describe how state's rights proponents wanted a central bank however politically liberal power brokers in DC prevented it from happening for a very long time c.) Point out that immigrants have long held back american financial market development including the establishing of a central bank d.) Explain that a significant portion of Americans have long been fearful of a large, powerful, nationwide banking system
d.) Explain that a significant portion of Americans have long been fearful of a large, powerful, nationwide banking system
Kanye is completely clueless when it comes to financial economics. He sees the term 'Net Present Value' and tells you "This says net. Why are we talking about fishing equipment?" How do you help poor Kanye? a.) Describe to him that under these circumstances Net means after the payment of interest b.) Demonstrate to him that in this setting Net means controlling for inflation c.) Point out to him that in this case Net means after taxes d.) Explain to hime that here Net means revenues minus expenses
d.) Explain to hime that here Net means revenues minus expenses
As described in the documentary "PBS presentation: The great depression" how did the herbert hoover administration respond to the great depression? a.) Hoover believed the depression was started by communists and communist sympathizers in the US and thus he ordered that radicals be watched by the FBI b.) Hoover ordered banks to increase their lending to households and businesses, but banks could not as they were losing deposits c.) Hoover thought the economic slowdown was being blown out of proportion by the US press that did not want him to be president d.) Hoover believed markets would correct themselves and he called on the American people to be confident that tings would improve
d.) Hoover believed markets would correct themselves and he called on the American people to be confident that tings would improve
In Argentina during the late 1980s the inflation rate was over 2,000% a year. This is a problem because inflation causes what problem for a money? a.) It results in an increase in the real burden of debt b.) It triggers the moral hazard problem c.) It causes the people to suffer money illusion d.) It reduces the money's role as a store of value
d.) It reduces the money's role as a store of value
You read in the Financial Times that market interest rates in Lithuania have just increased. What will happen to projects at Lazzers, a laser manufacturing company in Lithuania, and why? a.) Lazzers will sell more bonds now that bond prices have fallen and fund more projects b.) Lazzers will fund more projects since the NPV of projects have increased c.) Lazzers will fund fewer projects now that stock prices will increase due to higher interest rates d.) Lazzers will fund fewer projects since the NPV of projects have fallen
d.) Lazzers will fund fewer projects since the NPV of projects have fallen
Controversies still rage over what caused the great depression in the US. some economists believe that austrian economist Friedrich von Hayek has the best explanation of why the great depression occurred. He blamed the great depression of the 1930s on what happen in the 1920s. What phrase did Hayek use and what was his explanation? a.) short squeezes in the equity markets in the late 1920s resulted in a collapse of the global economy in the 1930s b.) liquidity traps in the 1920s resulted in massive decreases in spending in the 1930s c.) Beggar-Thy-Neighbor policies in the 1920s resulted in huge imports of foreign goods into the US destroying american industries and triggering the great depression d.) Mal-investment created a booming economy that could not last
d.) Mal-investment created a booming economy that could not last
A described in the assigned readings, what innovation did the Federal Housing Administration develop that helped make mortgage loans more accesible? a.) The guaranteed interest rate mortgage b.) The 20-year, adjustable rate mortgage c.) The 30- year, 50% down payment mortgage d.) The 30-year, fixed rate mortgage
d.) The 30-year, fixed rate mortgage
Both the first and second bank of the US were very similar to the current federal reserve. as described in the assigned videos, one important difference between the 2 banks of the US and the current fed, is: a.) The fed is the US government's fiscal agent, while the first and second bank of the US were not b.) The first and second bank of the US was owned exclusively by private investors, while the fed is owned by the US government c.) The first and second bank of the US impacted the supply of credit in the US, while the federal reserve only concerns itself with monetary policy d.) The fed conducts monetary policy while the first and second bank of the US did not
d.) The fed conducts monetary policy while the first and second bank of the US did not
Jack recently graduated from UT and secured a job at Scotts Miracle-Gro. Jack works on a project to make grass grow faster. Jack sees news stories telling him interest rates are going to increase. Why should Jack be worried about his job? a.) the coupon payments on bonds previously issued by Scotts Miracle-Gro will now have to increase b.) the tax rate paid by Scotts Mircale-Gro may now be higher resulting in lay-offs c.) The discounting factor on the project he is working on may soon become negative d.) The net present value of the project he is now on may soon turn negative
d.) The net present value of the project he is now on may soon turn negative
Nick is very confused. He has no idea the face value of a bond, also known as the bond principal, is. You tell Nick it is: a.) The final amount of money collected by the bondholder b.) The rate of interest to be paid to the holder of the bond c.) The original amount of money borrowed by the bondholder + the first year's interest d.) The original amount of money borrowed by the bond issuer
d.) The original amount of money borrowed by the bond issuer
The end of the gold standard is yet another example of non-economic forces having an impact on money and economics. What non-economic event ended the gold standard? a.) the signing of the treaty of versailles that ended WW1 b.) hitler's invasion of poland and the start of WW2 c.) the surrender of japan and the ending of the second WW d.) The outbreak of the first WW
d.) The outbreak of the first WW
The panic of 1907 was instrumental in changing US financial market because of what ended it. What ended the Panic of 1907? a.) The first federal government bailout of "too large to fail" banks b.) The creation of the Federal Reserve c.) The outbreak of WW1 d.) The private resources of J. Pierpont Morgan
d.) The private resources of J. Pierpont Morgan
Often financial cirses are triggered by non-economic events. Such is the case of the panic of 1907/ What non-economic event sent in motion changes in money and financial markets that would lead to the panic of 1907 a.) charles lindbergh's transatlantic flight in 1906 b.) an unexpected result in the american presidential election of 1904 c.) a political assassination in europe in 1905 d.) a natural disaster in california in 1906
d.) a natural disaster in california in 1906
Mick is an anarchist in the early 20th century. What form of financial system does Mick support in the US? a.) a system where any market outcomes are viewed as efficient and in society's best interest b.) a system controlled by a few banks that are in thurn controlled by the well educated from chosen families c.) a system where funds are turned over to the government so that they can build a strong military to protect the country from outside force d.) a system where all customers are treated the same and there is no hierarchy in financial institutions
d.) a system where all customers are treated the same and there is no hierarchy in financial institutions
Mary is a part of a group of decision makers in the federal reserve that determines the future direcction of monetary policy in the US. The group that mary is part of is called: a.) committee on financial stability b.) the federal monetary decision panel c.) the bloomsbury group d.) federal open market committee e.) the G7
d.) federal open market committee
In the assigned reading historian Bin Yan argues that those interested in economics should study the history of cowrie shells as money since cowrie shells were the first: a.) money to be used by europeans in their colonies b.) non-european or non-western money to be developed c.) money to stop being money due to inflation d.) global money
d.) global money
During the 1970s excessively continuous expansionary monetary policy led to dramatic changes in market or nominal interest rates. What was this change and what is it called? a.) nominal interest rates fell due to liquidity preference b.) nominal interest rates rose due to capital forbearance c.) nominal interest rates fell due to a flight to quality d.) nominal interest rates rose due to the Fisher Effect
d.) nominal interest rates rose due to the Fisher Effect
In the early 20th century there was a large influx of immigrants into the US. What impact did these immigrants have on the monetary system of the US? a.) moderate since their arrival represented an increase in labor supply and thus pushed up the wages of unskilled workers b.) significant since when they arrived they immediately qualified for public assistance thus adding strain to the budgets of local governments c.) significant since their arrival meant an increase in the money supply in the US and thus triggered increases in inflation d.) small to none since these immigrants suffered from discrimination and were excluded from traditional financial markets in the US
d.) small to none since these immigrants suffered from discrimination and were excluded from traditional financial markets in the US
Jack does not understand the evolution of money in the US very well. For example, he has no idea what "Free" refers to in "the Free banking era" To help Jack out you explain that during the Free banking Era: a.) members of the federal reserve could enjoy membership in the Fed without needing to pay an annual membership charge b.) to entice deposits banks offered their services and account without charge to the bank's customers c.) since interest rates were so low due to so many banks being in the industry, borrowing funds was at such a low cost it was often viewed as costless d.) state chartered banks faced very little banking regulation at the state level and almost no federal oversight
d.) state chartered banks faced very little banking regulation at the state level and almost no federal oversight
Stefan is rather confused. He does not understand how exchange rates could have contributed to the economic boom in the US in the 1920s following WW1. To help Stefan out you explain: a.) The US dollar was overvalued compared to the european currencies which allowed americans to buy european made goods cheaply b.) the US dollar was undervalued compared to european currencies which allowed americans to buy european made goods cheaply c.) The US dollar was overvalued compared to european currencies which resulted in a US export boom d.) the US dollar was undervalued compared to european currencies which lead to a US export boom
d.) the US dollar was undervalued compared to european currencies which lead to a US export boom
The federal reserve was formed shortly before the US entered WW1. Yet the fed's policies during and after "The great war" had significant impacts. What policies did the fed follow during this time period and why? a.) the fed raised real, risk adjusted interest rates in the US during and after the war in order to draw foreign gold into the US. As a result the US dollar becomes the world's reserve currency b.) in an attempt to "return to normalcy" the fed raised interest rates before the armistice was signed ending the war and kept the interest rates high in the years following the end of the war c.) both during and for years after the great war, the fed refused to convert the US dollar into gold fearing that gold would leave the US and thus protected the US gold supply for decades into the future d.) the fed kept interest rates low to help the US government fund its wartime spending
d.) the fed kept interest rates low to help the US government fund its wartime spending
Toby is rather ignorant of the evolution of money. After reading about the Bretton Woods exchange rate system, he looks at you and asks: "Why did the Bretton Woods system fail?" To help Toby out, you explain: a.) countries refused to stop subsidizing their agricultural sectors b.) The west german central bank dramatically increased the interest rates it was paying on deposits c.) labor productivity in the US increased faster than it did in the rest of the world d.) there was excessively expansionary monetary policy in the US
d.) there was excessively expansionary monetary policy in the US
Jeff studies market determined prices, but he is puzzled by something. He knows that scrap rubber currently sells for about 3.30 per pound and a car tire weighs about 27 pounds. That means each car tire scraps for about $89 in today's prices or about $6 in 1943. Jeff sees families in the US during WW2 turning in used tires during scrap drives and he wonders how much they were paid. To help jeff out you explain to him that these families were not paid anything for their scrap rubber because: a.) They were entering into a financial derivative contract where they would receive a very high payment in 10 years time for supplying their rubber during the war years b.) the government controlled the price of rubber and pushed it down so low that it was not efficient for families to hold onto scrap rubber c.) it became illegal during WW2 in the US for private citizens to possess scrap rubber d.) they were donating the scrap rubber to the war effort
d.) they were donating the scrap rubber to the war effort
As described in the assigned readings the IMF and World Bank are described as "sister organizations". It has often been suggested that one of the best ways to resolve the problems the sister organizations face is to restructure the organizations so that: a.) have the IMF focus on resolving financial market disruptions, while the world bank would focus on helping poorer countries develop economically b.) there is a reduction in the size and complexity of both the IMF and World bank c.) US based multinational corporations have more say in how funds are allocated by both the IMF and world bank d.) in the future the US will have a supermajority in voting rights in both the IMF and world bank
didn't answer
When the federal reserve began operation in 1914 which of the following correctly describes the economic or "money situation" of most african-americans? a.) they benefitted greatly from increased spending of public assistance programs such as welfare and food tamps that began at the end of WW1 b.) they suffered from racial discrimination resulting in low wages, high unemployment and even violence such as lynchings, especially in southern US c.) they suffered from falling wages and increased unemployment as labor unions gained strength after the end of WW1 d.) benefitted from high prices in agricultural due to the high level of food exports to europe after WW1
didn't answer
Your good friend Ed is starting a new business and you decide to invest with $20,000. If you get back $2,000 what is your rate of return? a.) 5% b.) .01% c.) 20% d.) 4% e.) 10%
e.) 10%
As described in the assigned videos, the continental dollars in the US became worthless because: a.) these states issued currencies were replaced with a federal government issued currency b.) they were replaced with Federal reserve notes and thus no longer functioned as money c.) the high inflation brought about excessive growth in the money supply resulted in them ceasing to be money d.) a severe lack of continentals lead them to being replaced by bank notes issued by state chartered banks
not A
In the equation of exchange if velocity is assumed to be constant and the prices do not change due to "price stickiness" what will be the impact of decline in the money supply? a.) the economy will suffer from deflation b.) nominal or market interest rates will rise c.) the rate of inflation will increase d.) GDP will fall
not A
The european central bank just announced it will increase interest rates. In terms of the present value calculation of equity prices what do expect will happen to share prices on the Paris stock exchange and why? a.) prices will fall as the denominator in the present value calculation of future dividends decreases b.) prices will increase as the denominator in the present value calculation of future dividends increases c.) prices will increase as the denominator in the present value calculation of future dividends increases d.) prices will fall as the denominator in the present value calculation of future dividends increases
not A
If Swiss consumers buy more goods from japanese firms while swiss productivity increases faster than japanese productivity. What will happen to the value of the Swiss Franc in terms of the Jaoanese yen in the FX market and why, if the first is bigger than the second? a.) The swiss franc will rise against the Yen since the decrease in demand for Francs will be larger than increase in supply of francs b.) the swiss franc will fall against the Yen since the increase in supply of francs will be larger than the increase in demand for francs c.) the swiss franc will rise against the Yen since the increase in demand for francs will be larger than the decrease in supply of francs d.) the swiss franc will fall against the Yen since the decrease in supply of franc will be larger than the increase in demand for francs
not A, I think it is B
As described in the assigned reading, which of the following is NOT a characteristic of a target zone exchange rate regime? a.) central banks often do not have enough foreign reserves to defend the bottom of their target zone b.) the central bank will buy its currency in the FX market if the currency depreciates beyond a certain level c.) their central bank will exchange its currency for gold on demand d.) the central bank sells its currency in the exchange rate market if the currency appreciates above a certain level
not A, I think it is C
Alexander Hamilton wanted to create a national bank in the united states to do each of the following EXCEPT: a.) regulate trade with foreign nations to ensure exports were greater than imports in the US b.) issue a nationwide currency c.) function as a fiscal agent for the US federal government d.) expand the availability of credit to help the US become an economic power
not B might be C
As explained in the video "America goes to War" both the rich and the poor were subject to consumer good rationing, in part: a.) to make certain labor unions did not gain too much power in allocation of scarce resources b.) as a way to keep wealthy americans from shopping overseas for goods they could not purchase In the US c.) to insure there was no political uprising by people who might see the system as unfair d.) as a way to bring people together in a common sacrifice
not C
The federal reserve fears an economic downturn as gloom grips the US economy in response to the longhorns three game losing streak. To fend off the looming economic slowdown what will the federal open market committee do and why? a.) it will have the trading desk at the New York fed sell treasury bills in order to increase the level of bank reserves b.) it will require banks to hold more bank capital and thus push down interest rates c.) It will have the US federal government increase its spending and thus increase output and employment d.) it will have the fed buy up assets in order to encourage borrowing and spending
not C
As described in the assigned documentary, Alexander Hamilton is often described as "the founder of wall street". This is because Hamilton's actions created which important financial market? a.) the mortgage market that today helps to finance the "American dream" of homeownership b.) the US government primary and secondary bond market c.) the market for collateralized debt obligations d.) the financial instrument that today we call financial derivatives
not C, probably B
Thanks to brexit, the British pound has fallen 20% against the US dollar. Who of the following have benfitted from this? a.) Simon a british citizen, whol likes american made chocolate b.) sunita an american who loves imported british biscuits c.) american jeans, a US jeans manufacturer, that sells it jeans in the UK d.) range rover, a british manufacturer that uses american made parts
not C. Most likely B
Often times in economics, one action leads to many reaction. And so it was during WW2 in the US. As explained in the video "america goes to war" one of the reactions of war time rationing was the use of ___ increased to a level it has yet to ever see again in this country. a.) nylon b.) unrefined butter c.) natural gas d.) home heating oil e.) mass transit
not D
The federal reserve announced that it will raise interest rates. In doing so business confidence in the US increases significantly. What will happen to the level of business investment in terms of capital budgeting if the second change is significantly larger than the first? a.) business investment spending will fall as the decrease in the numerator will be larger than the increase in the denominator of the NPV calculation b.) business investment spending will increase as the increase in the numerator is greater than the decrease in the denominator in the NPV calculation c.) business investment spending will fall as the increase in the numerator is greater than the decrease in the denominator d.) business investment spending will increase as the increase in the numerator is greater than the increase in the denominator in the NPV calculation e.) Business investment spending will fall as the increase in the numerator is larger than the increase in the denominator in the NPV calculation
not E