Analysis: Economic Analysis Review Questions

The interest rate charged from the banks to broker-dealers on loans where securities are collateral is the: A: Discount Rate B: Federal Funds Rate C: Broker Loan Rate D: Prime Rate

C: Broker Loan Rate

During extended periods of high inflation, it can be expected that which of the following will happen? A: Interest rates will fall and stock prices will fall B: Interest rates will fall and stock prices will rise C: Interest rates will rise and stock prices will fall D: Interest rates will rise and stock prices will rise

C: Interest rates will rise and stock prices will fall

The interest rate that fluctuates the least is the: A: Federal Funds Rate B: Call Loan Rate C: Passbook Savings Rate D: London Interbank Rate

C: Passbook Savings Rate

To slow down economic growth using Fiscal Policy, which of the following actions could be taken? A: Tax rates could be reduced and Government spending could be reduced B: Tax rates could be reduced and Government spending could be increased C: Tax rates could be increased and Government spending could be reduced D: Tax rates could be increased and Government spending could be increased

C: Tax rates could be increased and Government spending could be reduced

Which statement is TRUE? A: The Prime Rate is lower than the Discount Rate B: The Fed Funds Rate is higher than the Call Loan Rate C: The Discount Rate is higher than the Fed Funds Rate D: The Call Loan Rate is higher than the Prime Rate

C: The Discount Rate is higher than the Fed Funds Rate

The Federal Reserve has been aggressively expanding the money supply by using repurchase agreements in its open market operations. Ignoring other factors, this is likely to result in: A: increased interest rates and increased inflation B: increased interest rates and decreased inflation C: decreased interest rates and increased inflation D: decreased interest rates and decreased inflation

C: decreased interest rates and increased inflation

In a period of deflation, all of the following statements about fixed income securities are true EXCEPT: A: holders receive payments on fixed income securities that buy more in real terms B: holders are likely to realize capital appreciation on fixed income securities that are not close to maturity C: issuers are less likely to sell fixed income securities because interest rates will rise D: issuers are likely to sell non-callable issues

C: issuers are less likely to sell fixed income securities because interest rates will rise

Inflation has been running at the annualized rate of 5%. You have just received a distribution from a mutual fund investment that has increased by 5%. Your purchasing power has: A: increased B: decreased C: stayed the same D: become more variable

C: stayed the same

Monetarist Theory states that: A: increased government spending will stimulate the economy B: tax rate reductions and lower government spending will stimulate the economy C: the actions of the Federal Reserve control the level of economic output D: tax rate increases and increased transfer payments will stimulate the economy

C: the actions of the Federal Reserve control the level of economic output

Gross Domestic Product is production: A: within U.S. borders as measured in inflated dollars B: outside of U.S. borders as measured in inflated dollars C: within U.S. borders as measured in constant dollars D: outside of U.S. borders as measured in constant dollars

C: within U.S. borders as measured in constant dollars

Which statement is FALSE about GDP? A: Increasing exports indicate that a country's GDP is increasing B: Increasing production levels indicate that a country's GDP is increasing C: Increasing population levels indicate that a country's GDP is increasing D: Increasing inflation levels indicate that a country's GDP is increasing

D: Increasing inflation levels indicate that a country's GDP is increasing

The use of which tool of the Federal Reserve has the smallest impact on money supply levels? A: Open market operations B: Discount rate C: Reserve requirements D: Margin on securities

D: Margin on securities

The speed with which deposits clear from bank to bank is known as which of the following? A: Discount Rate Expediter B: Federal Funds Rate Accelerator C: Money Multiplier D: Money Velocity

D: Money Velocity

The Federal Reserve open market trading activities affect all of the following EXCEPT: A: M 1 levels B: GDP growth C: Treasury's accounts D: National debt levels

D: National debt levels

All of the following tools are used by the Federal Reserve to control the money supply EXCEPT: A: Setting reserve requirements B: Setting margin requirements C: Setting the discount rate D: Setting foreign exchange rates

D: Setting foreign exchange rates

The prime rate is current 4%. What would be deducted to find the real interest rate? A: The discount rate B: The fed funds rate C: The broker loan rate D: The inflation rate

D: The inflation rate

If the FOMC directs the Federal Reserve trading desk to tighten credit, which of the following will happen? A: The trading desk will engage in repurchase agreements with banks and cash reserves will be injected into the banking system B: The trading desk will engage in reverse repurchase agreements with banks and cash reserves will be injected into the banking system C: The trading desk will engage in repurchase agreements with banks and cash reserves will be drained from the banking system D: The trading desk will engage in reverse repurchase agreements with banks and cash reserves will be drained from the banking system

D: The trading desk will engage in reverse repurchase agreements with banks and cash reserves will be drained from the banking system

After a period when prices have been rising rapidly, the Federal Reserve tightens credit and over a period of 2 years, the inflation rate falls from 4% to 2%. This is an example of: A: deflation B: depression C: recession D: disinflation

D: disinflation

Decreasing inventory levels are an indication of all of the following EXCEPT: A: consumer demand is increasing B: economic expansion is occurring C: consumer demand is high D: economic conditions are deteriorating

D: economic conditions are deteriorating

During the recession phase of an economic cycle, all of the following occur EXCEPT: A: output falls B: demand for goods and services falls C: deflation can occur D: employment levels increase

D: employment levels increase

If the federal funds rate has just risen to an all-time high, all of the following are true EXCEPT: A: the Federal Reserve is pursuing a tight money policy B: the yield curve is flattening C: banks may have difficulty obtaining required reserves D: long term interest rates have risen

D: long term interest rates have risen

The rate of inflation as measured by the Consumer Price Index has been rising rapidly over the last months. Ignoring other factors, the effect will be to: A: lower bond market values and raise stock market values B: raise bond market values and lower stock market values C: raise bond market values and raise stock market values D: lower bond market values and lower stock market values

D: lower bond market values and lower stock market values -rising inflation rate normally means rising interest rate

The "effective" Federal Funds Rate is the: A: daily average rate of all commercial banks B: daily average rate of member banks of the Reserve System C: weekly average rate of all commercial banks D: weekly average rate of member banks of the reserve system

B: daily average rate of member banks of the Reserve System

All of the following are lagging economic indicators EXCEPT: A: Building Permits B: Corporate Profits C: Commercial Loans Outstanding D: Employment Duration

A: Building Permits -leading indicator, showing expected production

Which statement is TRUE regarding the "help wanted" advertising index? A: If the number of advertisements is increasing, the economy is growing B: If the number of advertisements is increasing, the economy is signaling deflation C: The index is a a coincident economic indicator D: The index is a lagging economic indicator

A: If the number of advertisements is increasing, the economy is growing

Open market operations of the Federal Reserve Board cause direct changes in: A: M 1 levels B: velocity of money C: dollar exchange rate D: short term interest rates

A: M 1 levels

A change in each of the following is a coincident economic indicator EXCEPT: A: Money Supply as measured by M-2 B: Personal income levels C: Gross Domestic Product D: Employment levels

A: Money Supply as measured by M-2

Which one of the following is a monetary policy tool of the Federal Reserve? A: Setting the Reserve Requirement B: Setting the Federal Funds Rate C: Setting the Repo Rate D: Setting the Prime Rate

A: Setting the Reserve Requirement

If the Federal Reserve Board tightens credit via open market operations, which of the following will also increase? A: Treasury Bill Discount Rate B: Checking Account Rates C: Passbook Savings Rate D: Lending levels at financial institutions

A: Treasury Bill Discount Rate

An increasing Consumer Confidence Index indicates that: A: consumers are confident in the overall economy and future spending is likely to increase B: consumers are not confident in the current overall economy but future spending is likely to fall C: consumers are likely to curtail spending on credit D: consumers plan on saving more money

A: consumers are confident in the overall economy and future spending is likely to increase

If interest rates decline continuously for 3 consecutive quarters, this is known as a period of: A: deflation B: depression C: recession D: disinflation

A: deflation

If the Federal Reserve is worried about increasing inflation due to extremely rapid economic expansion, it would take a: A: hawkish tone B: dovish tone C: bullish tone D: bearish tone

A: hawkish tone

If interest rates increase continuously for 3 consecutive quarters, this is known as a period of: A: inflation B: expansion C: prosperity D: disinflation

A: inflation

During the expansion phase of an economic cycle all of the following are true EXCEPT: A: output falls B: demand for goods and services increases C: inflation occurs D: employment levels increase

A: output falls

Declines in all of the following would likely result in the FOMC making net purchases of government securities in the open market EXCEPT a decline in (the): A: unemployment levels B: Consumer Price Index C: Gross Domestic Product D: bond prices

A: unemployment levels

During the normal sequence of the economic cycle, after a period of recession, the economy will move to a period of: A: depression B: recovery C: expansion D: prosperity

B: recovery

Supply Side Theory states that: A: increased government spending will stimulate the economy B: tax rate reductions and lower government spending will stimulate the economy C: the actions of the Federal Reserve are the driving force behind the economy D: tax rate increases will stimulate the economy

B: tax rate reductions and lower government spending will stimulate the economy

All of the following are components of M-1 EXCEPT: A: Currency in Circulation B: Demand Deposits C: Super NOW Accounts D: Certificates of Deposit and Time Deposits

D: Certificates of Deposit and Time Deposits

Monetary aggregates have increased over the last month. Which statement is TRUE? A: The Federal Funds rate is likely to increase B: Loans made by banks are likely to increase C: The prime rate is likely to increase D: Reserve requirements are likely to increase

B: Loans made by banks are likely to increase

All of the following actions taken by the Fed would increase interest rates EXCEPT: A: reverse repurchase agreements B: buying securities from government dealers C: draining reserves from the money supply D: raising the discount rate

B: buying securities from government dealers -to increase IR, money must be tightened

Real GDP is a: A: leading economic indicator B: coincident economic indicator C: lagging economic indicator D: lagging/coincident economic indicator

B: coincident economic indicator

The Federal Reserve will lend funds at the discount rate to: A: savings and loans B: commercial banks C: investment banks D: insurance companies

B: commercial banks

Which of the following is a leading economic indicator? A: Personal Income B: Employment Duration C: Labor Cost Per Manufactured Unit D: Contracts for plant and equipment

D: Contracts for plant and equipment

Monetary policy is set by: A: Supreme Court decisions B: Congressional action C: Presidential edict D: Federal Reserve action

D: Federal Reserve action

Keynesian Economic Theory postulates that production and economic growth are stimulated by: A: Lower government spending and decreased government borrowing B: Higher government spending and decreased government borrowing C: Lower government spending and increased government borrowing D: Higher government spending and increased government borrowing

D: Higher government spending and increased government borrowing