ECO 473 Test Bank 1, ECO473 - EXAM #2, ECO 473 Test Bank 3
As compared to 2008, at the end of 2014 among the major changes in the liability side of the balance sheet for commercial banks in the United States was: a. total deposits rose to about 70% of the total. b. borrowed funds fell by about 2% of the total. c. equity rose to nearly 30% of the total. d. All of the above. e. Only B and C of the above.
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Banks can reduce the transaction costs of external finance because: a. many of the costs are fixed. b. the bank can take advantage of economies of scale. c. bank assets are highly liquid. d. All of the above. e. None of the above.
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From the 1960s until the early 2000s, the commercial banking sector in the U.S. has experienced: a. growth in loans relative to other assets. b. growth in cash relative to other assets. c. growth in deposits relative to other liabilities. d. a decline in equity relative to their liabilities and equity. e. a leveling off of their other liabilities besides deposits.
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The government set maximum interest rates that could be paid to depositors in the 1930s. With inflation in the 1970s, this adversely affected the banking sector and eventually caused half of all ___ to close down or merge with other institutions. a. credit unions. b. savings and loans. c. community banks. d. regional banks. e. money center banks.
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Until the Great Depression, banks tended to rely on this management strategy to raise their return with riskier loans but offset that with larger holdings of government securities: a. Real bills doctrine. b. Shiftability theory. c. Anticipated income. d. Conversion of funds. e. Gap management.
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Since 2008, when the monetary base was about $800 billion, it has: a. fallen to about $600 billion. b. stayed constant, more or less. c. risen to about $1 trillion. d. risen to about $4 trillion. e. risen to about $14 trillion.
D. risen to about $4 trillion
In the 2000s, the value of money market instruments outstanding peaked at about: a. $4 billion. b. $40 billion. c. $400 billion. d. $4 trillion. e. $40 trillion.
a. $4 billion
Your rich uncle Albert gives you a savings bond that pays $500 four years from now. If the relevant interest rate for you is 2%, what is the present value of the bond? a. $461.92 b. $490.19 c. $510.00 d. $541.21
a. $461.92
In 2008 the FDIC increased covered deposits from $100,000 to: a. $250,000. b. $300,000. c. $500,000. d. $750,000. e. $1 million
a. $250,000.
Assets Reserves $60 Bonds $400 Loans $600 Liabilities Checking accounts $500 CDs $300 Equity $260 If $100 in checking accounts were withdrawn and the bank sold the minimum amount of bonds to meet the reserve requirement, what is the value of the bonds remaining on the balance sheet if there were no other changes? a. $320 b. $340 c. $400 d. $200 e. It cannot be determined precisely, but it would be less than $100.
a. $320
The present value of a bond with one year to maturity, face value $1000 and yield to maturity of 5% is: a. $952.38 b. $1,000.00 c. $1,005.00 d. $1,050.00 e. $555.00
a. $952.38
Without money illusion, a 10% increase in the price level will lead to a: a. 10% increase in the nominal wage. b. less than 10% increase in the nominal wage. c. more than 10% increase in the nominal wage. d. 10% increase in the real wage. e. a 10% decrease in the price level.
a. 10% increase in the nominal wage
Suppose that depository institutions hold no excess reserves and all money is held as transactions accounts at banks. If the banking system has $20 million in total reserves and the total quantity of money is $1,000 million, then we can conclude that the required reserves ration is equal to: a. 2 percent. b. 5 percent. c. 20 percent. d. 50 percent. e. The information provided is insufficient to allow this to be calculated.
a. 2 percent
Suppose that depository institutions hold no excess reserves and all money is held as transactions accounts at banks. If the banking system has $20 million in total reserves and the total quantity of money is $1,000 million, then we can conclude that the required reserves ration is equal to: a. 2 percent. b. 5 percent. c. 20 percent. d. 50 percent. e. The information provided is insufficient to allow this to be calculated.
a. 2 percent.
Which of the following is not a derivative financial instrument? a. A 30 year mortgage. b. A 60 day call option. c. A 16 month futures contract to buy foreign currency. d. A 16 month futures contract to sell foreign currency. e. A credit default swap on a 15 year bond.
a. A 30 year mortgage.
What is a bank "asset"? a. Anything the bank owns that has a market value. b. Only loans that commercial banks and other depository institutions make to businesses. c. Only the cash that is withdrawn at a depository institution by depositors. d. Only the reserves that are held in excess of what is required. e. All of the above.
a. Anything the bank owns that has a market value
One of the most devastating losses in the derivatives market lead to the bankruptcy of the: a. Barings Bank. b. Bank of Singapore. c. Leeson exchange. d. SIMEX. e. Conex-Killeen.
a. Barings Bank.
Brittany and Christina both buy bonds with yield to maturity of 4%, but Brittany's bond has 2 years to maturity and Christina's has 5. After one year, yields for these bonds rise to 7%. Which of the following is true? a. Both bonds rise in value but Brittany's rises more. b. Both bonds rise in value but Christina's rises more. c. Both bonds fall in value but Brittany's falls more. d. Both bonds fall in value but Christina's falls more.
a. Both bonds rise in value but Brittany's rises more
The monetary base is equal to: a. C+R. b. c*D. c. C+D. c. rr*D. e. c*D + rr*D + e*D.
a. C+R
The monetary base is equal to: a. C+R. b. c*D. c. C+D. c. rr*D. e. c*D + rr*D + e*D.
a. C+R.
Which of the following is part of any measure of the money supply? a. Cash. b. Mutual funds. c. Bank reserves. d. Commercial loans. e. Bank equity.
a. Cash
Which of the following is a technique lenders use to alleviate the adverse selection problem? a. Checking credit ratings. b. Monitoring borrower activity. c. Restrictive covenants. d. All of the above. e. None of the above.
a. Checking credit ratings
According to Rothbard, classical economists associated with the _____ did not understand that checking accounts (bank deposits) were part of the money supply. a. Currency School b. Money Standard School c. Fiat School of Money d. Gold Standard e. Continental Club
a. Currency School
According to Rothbard, which of the following is true? a. Demand deposits were historically used for large transactions. b. Even before WWI, most people used demand deposits. c. It is harder for a bank to create a demand deposit than to create a bank note. d. The check written on a demand deposit is, in fact, money. e. All of the above.
a. Demand deposits were historically used for large transactions.
What is the name of the condition in which depositors withdraw their savings from banks and use them to purchase financial instruments directly? a. Disintermediation. b. Securitization. c. Arbitrage. d. Hedging. e. Adverse selection.
a. Disintermediation
The required reserve ratio is 0.2, the level of deposits is $1000, the level of currency held by the public is $500, the level of excess reserves is $300, the level of money market funds is $500 and the level of time deposits is $1500. If the Fed lowers the monetary base by $100, what is the change in M1? a. Falls by $350. b. Falls by $244. c. Falls by $150. d. Rises by $250. e. None of the above.
a. Falls by $350.
Which of the following is part of the monetary base? a. Federal Reserve notes. b. Bonds. c. Discount loans. d. Gold certificates. e. None of the above
a. Federal Reserve notes
To decrease the political fallout from the "pet bank" controversy, President Van Buren established the: a. Independent Treasury System. b. Federal Reserve System. c. national bank charter. d. International Monetary Fund. e. None of the above.
a. Independent Treasury System
Which of the following changes were made to the banking industry in the 1980s? a. Interest rate ceilings were abolished. b. The Resolution Trust Corporation was created to liquidate failed savings & loans. c. The FDIC was created to protect depositor's funds. d. All of the above. e. Only A and B of the above.
a. Interest rate ceilings were abolished
Which of the following is false about Continental Illinois? a. It was a relatively small bank failure. b. The bank was especially at risk from low interest-earning loans. c. In the early 1980's they were the nation's largest lender of commercial loans. d. They had a declining share of their liabilities come from "core" deposits. e. They suffered huge losses when the Penn Square Bank failed.
a. It was a relatively small bank failure
Which of the following is false about Continental Illinois? a. It was a relatively small bank failure. b. The bank was especially at risk from low interest-earning loans. c. In the early 1980's they were the nation's largest lender of commercial loans. d. They had a declining share of their liabilities come from "core" deposits. e. They suffered huge losses when the Penn Square Bank failed.
a. It was a relatively small bank failure.
What are the two main categories of profit making assets on a bank's balance sheet? a. Loans and securities. b. Reserves and loans. c. Bonds and deposits. d. Borrowings and deposits. e. Loans and deposits.
a. Loans and securities
Monetary aggregates are groupings of financial assets that are combined based on their degree of liquidity. Which of the following is most liquid? a. M1 b. M2 c. M3 d. Both M1 and M2 are equally liquid, and more so than M3. e. M1, M2 and M3 are all equally liquid.
a. M1
Which of the following potential targets can the Federal Reserve observe with the greatest frequency? a. M1. b. Interest rates. c. Real GDP. d. Nominal GDP. e. Inflation.
a. M1
What act laid the groundwork for today's two-tiered system of both state and nationally chartered banks? a. National Banking Act. b. Free-Banking Act. c. Glass-Steagall Act. d. The Federal Credit Union Act. e. The New Banking Act.
a. National Banking Act
Which of the following can make monetary policy credible? a. The imposition of constitutional limits on monetary policy. b. The appointment of conservative policymakers. c. The willingness to react and respond to changing economic conditions. d. All of the above. e. Only A and B of the above.
a. Only A and B of the above
What is the term for a central bank pre-commitment to following a specific monetary policy strategy without regard to changing economic conditions? a. Policy rule. b. Discretionary policy. c. Laissez faire policy. d. Inflationary policy. e. All of the above.
a. Policy rule
This bank management strategy involves highly liquid loans, made at a rather low interest rate, mainly to finance the shipment of goods: a. Real bills doctrine. b. Shiftability theory. c. Anticipated income. d. Conversion of funds. e. Gap management.
a. Real bills doctrine
Currently, the largest form of liabilities on the Fed's balance sheet is: a. Reserves of member banks. b. Federal Reserve notes. c. Loans to banks. d. Government securities. e. Gold certificates.
a. Reserves of member banks
During the late 1800s, what was proposed as a form of backing for paper money alongside gold? a. Silver. b. Platinum. c. Copper. d. Nickel. e. Latinum.
a. Silver
Which of the following is NOT a method banks use to control credit risk? a. Specialization. b. Credit rationing. c. Gap analysis. d. Collateral requirements. e. Client screening.
a. Specialization
Which of the following is/are true about credit default swaps? a. They are essentially insurance policies on a bond in case the issuing firm goes bankrupt. b. This is a very small market with little, to no, activity. c. They can only be bought if you own the bonds that are being protected. d. They require the seller to keep a 5% reserve against potential losses. e. All of the above are true.
a. They are essentially insurance policies on a bond in case the issuing firm goes bankrupt
Which of the following is/are true about credit default swaps? a. They are essentially insurance policies on a bond in case the issuing firm goes bankrupt. b. This is a very small market with little, to no, activity. c. They can only be bought if you own the bonds that are being protected. d. They require the seller to keep a 5% reserve against potential losses. e. All of the above are true.
a. They are essentially insurance policies on a bond in case the issuing firm goes bankrupt.
In the "market" for money, a decrease in supply will create ___ and lead to a ___. a. a shortage; rise in the PPM b. a shortage; fall in the PPM c. a surplus; rise in the PPM d. a surplus; fall in the PPM
a. a shortage; rise in the PPM
In the "market" for money, an increase in demand will create ___ and lead to a ___. a. a shortage; rise in the PPM b. a shortage; fall in the PPM c. a surplus; rise in the PPM d. a surplus; fall in the PPM
a. a shortage; rise in the PPM
The problem for lenders, that highest risk borrowers tend to be the most eager to take loans, is an example of: a. adverse selection. b. moral hazard. c. internal finance. d. asymmetric hazard. e. the "too big to fail" dilemma.
a. adverse selection
Banks are said to ration credit when they refuse to lend above a certain interest rate. The purpose of such a policy is to minimize _____ of lending. a. adverse selection problems b. moral hazard problems c. transactions costs d. All of the above. e. None of the above.
a. adverse selection problems
Rothbard argues that the optimal level of money is: a. an amount that just keeps up with population growth. b. an amount that just keeps up with economic growth. c. an amount that just keeps up with technological change. d. All of the above. e. None of the above.
a. an amount that just keeps up with population growth
The deposits of depository institutions held by the Fed: a. are a liability to the Fed but an asset to the depository institutions. b. are an asset to the Fed but a liability to the depository institutions. c. are an asset to both the Fed and the depository institutions. d. are a liability to both the Fed and the depository institutions. e. do not show up at all in the balance sheet for the Federal Reserve.
a. are a liability to the Fed but an asset to the depository institutions
The FDIC is intended to alleviate asymmetric information problems between: a. banks and the public. b. regulators and banks. c. politicians and regulators. d. the public and politicians. e. big banks and small banks.
a. banks and the public
The FDIC is intended to alleviate asymmetric information problems between: a. banks and the public. b. regulators and banks. c. politicians and regulators. d. the public and politicians. e. big banks and small banks.
a. banks and the public.
The "too big to fail" policy exacerbates the moral hazard problem of: a. banks. b. regulators. c. politicians. d. the public. e. small banks, but generally not large banks.
a. banks.
As Rothbard relates, historically governments have debased their money: a. because they can profit from this. b. because these precious metals are scarce. c. because growing economies need more money. d. by raising the amount of gold, or silver, that the monetary unit represented. e. All of the above.
a. because they can profit from this
The chance that a bond issuer won't make promised payments is called: a. default risk. b. credit risk. c. interest rate risk. d. representation risk. e. None of the above.
a. default risk
The best way to find out the worth of an investment that yields a future income stream is by calculating its: a. discounted present value. b. nominal yield. c. yield to maturity. d. current yield. e. market price.
a. discounted present value
A conservative central banker is one who: a. dislikes inflation more than the average citizen and is more willing to risk a recession. b. has a performance based contract with the government. c. is willing to tolerate increased inflation in order to reduce unemployment. d. likes to have more political influence in the monetary policymaking process.
a. dislikes inflation more than the average citizen and is more willing to risk a recession
According to Rothbard, sound financial management of a bank would show that the time structure of assets was: a. equal to or less than the time structure of liabilities. b. equal to or greater than the time structure of liabilities. c. normally distributed around the average time of liabilities. d. equal to or less than one year. e. equal to or greater than one year.
a. equal to or less than the time structure of liabilities.
Since 1913, the value of the dollar has: a. fallen by about 95%. b. fallen by about 50%. c. fallen by about 30%. d. remained stable. e. risen by about 15%.
a. fallen by about 95%
When U.S. Steel accesses a line of credit (for short term borrowing), it is using: a. financial intermediaries. b. the OTC market. c. the bond market. d. the primary equities market. e. None of the above.
a. financial intermediaries
When U.S. Steel accesses a line of credit (for short term borrowing), it is using: a. financial intermediaries. b. the OTC market. c. the bond market. d. the primary equities market. e. None of the above.
a. financial intermediaries.
When the interest rate is 5%, the present value of $1,000, that will be received in five years, is: a. greater than $1000. b. equal to $1000. c. less than $1000. d. It cannot be determined from the information given.
a. greater than $1,000
A bond has a $2,000 face value, has a $100 annual coupon, and is now sold in the market for $1,900. From this we know that the current yield on this bond is: a. greater than 5%. b. equal to 5%. c. less than 5%. d. It cannot be determined from the information given.
a. greater than 5%
Unit banks: a. have no branches. b. have a local monopoly. c. have little incentive to innovate. d. All of the above. e. None of the above.
a. have no branches
The classical long run view of the economy shows that changes in AD will: a. have no effect on the level of production. b. have no effect on the price level. c. have an unpredictable effect on the price level. d. Both A and B are true. e. Both A and C are true.
a. have no effect on the level of production
Monetary policy can affect the price level: a. in both the short run and the long run. b. neither in the short run nor the long run. c. only in the short run. d. only in the long run.
a. in both the short run and the long run
When a corporation forgoes paying a dividend to expand its business, it is engaging in: a. internal finance. b. external finance. c. hybrid finance. d. international finance. e. All of the above.
a. internal finance
When a corporation forgoes paying a dividend to expand its business, it is engaging in: a. internal finance. b. external finance. c. hybrid finance. d. international finance. e. All of the above.
a. internal finance.
Which of the following would be consistent with a "fiat" money? a. It is portable. b. It is a commodity money. c. It can be converted into a precious metal. d. All of the above. e. None of the above.
a. it is portable
An employee who is primarily concerned with making sure the bank has enough reserves is concerned about the bank's: a. liquidity. b. liability. c. asset status. d. capital adequacy. e. None of the above.
a. liquidity
This bank cannot affect the money supply through its actions nor does it accept deposits. a. loan bank. b. warehouse bank. c. modern banks. d. All of the above. e. None of the above.
a. loan bank
According to Tamny, the idea of a ___ is fanciful. a. money multiplier b. monetary base c. reserve requirement d. desired excess reserve ratio e. fractional reserve banking system
a. money multiplier
An example of instruments that are sold in primary markets include: a. newly issued Dell Computer stocks. b. newly constructed houses. c. IBM stocks sold by a current investor. d. retail store sales over a fiscal quarter (i.e., three months). e. All of the above.
a. newly issued Dell Computer stocks
An example of instruments that are sold in primary markets include: a. newly issued Dell Computer stocks. b. newly constructed houses. c. IBM stocks sold by a current investor. d. retail store sales over a fiscal quarter (i.e., three months). e. All of the above.
a. newly issued Dell Computer stocks.
During the Revolutionary and Civil wars we observed inflation: a. only with regard to paper money. b. only with regard to gold and silver coins. c. with regard to both paper currency and metal coins. d. None of the above, as prices actually fell during those times.
a. only with regard to paper money
Making policy rules credible is essential to making them successful. Some ways in which this may be done include: a. placing constitutional limits on discretionary monetary policy. b. keeping the Fed's intentions secret. c. tying the Fed's policy more closely with Congressional intent. d. tying the Fed's policy more closely with Presidential intent. e. appointing central bankers that are unconcerned with the problems of inflation.
a. placing constitutional limits on discretionary monetary policy
The recent purchases of large-scale assets by the Federal Reserve is called: a. quantitative easing. b. qualitative easing. c. quantity leasing. d. quotient borrowing. e. surprisingly, "large-scale asset purchases."
a. quantitative easing
As a general rule one can say that as risk rises: a. returns fall and liquidity falls. b. returns fall and liquidity rises. c. returns rise and liquidity rises. d. returns rise and liquidity falls. e. neither returns nor liquidity changes.
a. returns fall and liquidity falls.
According to theory, when the Fed buys bonds, their price will _____, interest rates will _____, spending in the economy will _____ and the GDP will _____. a. rise; fall; rise; rise b. rise; rise; fall; fall c. fall; rise; fall; fall d. fall; fall; fall; fall e. rise; rise; rise; rise
a. rise; fall; rise; rise
You have $25 million worth of U.S. Treasuries that will mature in three years, but you only want to hold them for one more year. You face the risk that interest rates will _____ and so you are inclined to execute a forward contract to _____ these bonds at a predetermined price in one year. a. rise; sell b. rise; buy c. fall; sell d. fall; buy e. remain unchanged; lower the interest rate of
a. rise; sell
A central bank can prevent deflation by conducting monetary policy that: a. shifts the aggregate supply schedule rightward. b. shifts the aggregate supply schedule leftward. c. shifts the aggregate demand schedule rightward. d. shifts the aggregate demand schedule leftward. e. Both B and C are true.
a. shifts the aggregate supply schedule rightward
Among the changes brought about by the American Civil War was/were: a. the creation of nationally-chartered banks. b. the creation of nationally-chartered credit unions. c. the elimination of small country banks. d. the proliferation of banks printing up their own notes. e. All of the above.
a. the creation of nationally-chartered banks
Household wealth affects the equilibrium yield on bonds due to its impact on: a. the demand for bonds. b. the supply of bonds. c. both the supply and demand for bonds. d. None of the above.
a. the demand for bonds
The major way in which the Fed affects bank reserves is through: a. the federal funds market. b. cash advances to banks. c. the discount rate of interest. d. the required reserve ratio. e. the capital requirements imposed on banks.
a. the federal funds market
The difference between a futures contract and a forward contract is: a. the futures contract is a commitment to deliver the commodity while the forward contract is an option to buy or sell the futures contract. b. the former is conducted in a market, while the latter is a party-to-party transaction. c. the former is used for hedging while the latter is used for speculating. d. strictly a matter of the duration involved in the instruments. e. All of the above.
a. the futures contract is a commitment to deliver the commodity while the forward contract is an option to buy or sell the futures contract.
The aggregate demand schedule represents the relationship between the quantity of goods and services demanded and: a. the overall price level. b. the market interest rate. c. the quantity of money balances. d. the bond price. e. the level of default risk.
a. the overall price level
According to Rothbard, paper money was issued and used in the 1600s in the Massachusetts colony: a. to pay soldiers when they failed to loot enough from the French. b. and issued in only small amounts that were quickly redeemed. c. only once prior to the Revolutionary War. d. All of the above. e. None of the above.
a. to pay soldiers when they failed to loot enough from the French
Which of the following accurately characterizes a warehouse bank? a. With a reputation for integrity, their receipts will be traded as money. b. The deposits they hold are considered an asset of the bank. c. They first emerged in the western parts of the U.S. during the 1850s. d. They earn an income by charging interest on the loans they give out. e. All of the above.
a. with a reputation for integrity, their receipts will be traded as money
The relatively famous saying about the worthlessness of paper money is: a. "Not worth a plug nickel." b. "Not worth a Continental." c. "Not worth a convertible." d. "Not worth a Greenback." e. "Not worth a brass button."
b. "Not worth a Continental"
Suppose that Bank A has $50 million in reserves and $300 million in loans and securities. Suppose further that it has $400 million in transactions-deposit liabilities. If the required reserve ratio is 10 percent, then it may be concluded that Bank A presently has: a. $5 million in excess reserves. b. $10 million in excess reserves. c. a required reserve deficiency of $5 million. d. a required reserve deficiency of $10 million. e. None of the above.
b. $10 million in excess reserves
Suppose that Bank A has $50 million in reserves and $300 million in loans and securities. Suppose further that it has $400 million in transactions-deposit liabilities. If the required reserve ratio is 10 percent, then it may be concluded that Bank A presently has: a. $5 million in excess reserves. b. $10 million in excess reserves. c. a required reserve deficiency of $5 million. d. a required reserve deficiency of $10 million. e. None of the above.
b. $10 million in excess reserves.
Assets Reserves $60 Bonds $400 Loans $600 Liabilities Checking accounts $500 CDs $300 Equity $260 What is the maximum amount of write-downs (defaults) the bank could sustain without becoming insolvent (i.e., bankrupt)? a. $0 b. $260 c. $600 d. $1060 e. $1200
b. $260
The present value of a bond with two years to maturity, face value of $10,000 and yield to maturity of 4% is: a. $7,142.86 b. $9,245.56 c. $9,615.38 d. $10,400.00 e. $11,312.45
b. $9,245.56
If the quantity of money is $100 million, real GDP is $200 million and the overall price index is 1.5, then income velocity of money equals: a. 1.5 b. 2.0 c. 3.0 d. 4.5 e. 6.0
b. 2.0
A simple loan that requires a principal payment of $2,000, plus $400 in interest, one year from now has a yield of: a. 2 percent. b. 20 percent. c. 200 percent. d. 40 percent. e. 400 percent.
b. 20 percent
Suppose that a corporate bond is issued in an amount of $2,000 with a coupon return of $100 every year, then the nominal yield on the bond is: a. 0.05 percent. b. 5 percent. c. 10 percent. d. 100 percent. e. It cannot be determined from the information given.
b. 5 percent
Which of the following does not affect long run aggregate supply? a. A change in labor force participation. b. An outward movement of aggregate demand. c. A negative trend in labor productivity. d. An increase in the marginal tax rates on wages. e. A new provision of government benefits that affect household incentives.
b. An outward movement of aggregate demand
Bill has chickens that lay eggs. Bob has pigs that can be turned into tasty bacon. Joe has materials to make 3-legged stools. Bill wants a stool, but Joe wants bacon. Lucky for Bill, Bob wants eggs. In order for Bill to acquire a 3-legged stool what must serve as a medium of exchange? a. Eggs. b. Bacon. c. 3-legged stools. d. Chickens. e. Pigs.
b. Bacon
A change in the monetary base generally leads to a larger change in the money supply since: a. Reserves earn interest for the bank. b. Banks lend excess reserves, which become deposits. c. A change in the monetary base changes the currency ratio of households. d. None of the above.
b. Banks lend excess reserves, which become deposits
A change in the monetary base generally leads to a larger change in the money supply since: a. Reserves earn interest for the bank. b. Banks lend excess reserves, which become deposits. c. A change in the monetary base changes the currency ratio of households. d. None of the above.
b. Banks lend excess reserves, which become deposits.
If the Fed were to sell gold, the money supply would: a. Increase. b. Decrease. c. Stay the same. d. Cannot be determined.
b. Decrease
The relationship between real and nominal rates is described in the: a. inflation relation. b. Fisher equation. c. Friedman equation. d. equation of exchange. e. None of the above.
b. Fisher equation
Which of the following economists won the Nobel Prize in Economics? a. Carl Menger. b. Friedrich Hayek. c. Ludwig von Mises. d. Murray Rothbard. e. John Maynard Keynes.
b. Friedrich Hayek
The idea that regulators are captured by the industry that they regulate is associated with: a. Adam Smith. b. George Stigler. c. Milton Friedman. d. John Maynard Keynes. e. Friedrich Hayek.
b. George Stigler.
Which of the following would likely best serve as a commodity money? a. U.S. dollar bills. b. Gold c. Tomatoes. d. Feathers. e. Hydrogen gas.
b. Gold
How can a bank increase its level of reserves? a. Buying securities. b. Increasing borrowings. c. Making loans. d. All of the above. e. None of the above.
b. Increasing borrowings
The liquidity trap is a consequence of _____ theory of money demand. a. Rothbard b. Keynes c. Friedman d. Mises e. All of the above.
b. Keynes
Which of the following are examples of transactions costs faced by lenders? a. Accounting fees. b. Legal fees. c. Monitoring costs. d. All of the above. e. None of the above.
b. Legal fees
Who does Rothbard claim demonstrated that money could not have been created by the state? a. John Maynard Keynes. b. Ludwig von Mises. c. Friedrich Hayek. d. Adam Smith. e. Karl Marx.
b. Lugwig von Mises
Which of the following is most important for providing liquidity to firms? a. Capital markets. b. Money markets. c. Equity markets. d. Stock markets. e. None of the above.
b. Money markets
Which of the following is most important for providing liquidity to firms? a. Capital markets. b. Money markets. c. Equity markets. d. Stock markets. e. None of the above.
b. Money markets.
Restrictive covenants are required by lenders to help solve the problem of: a. Adverse selection. b. Moral hazard. c. Transactions costs. d. All of the above. e. None of the above.
b. Moral hazard
Treasury Secretary _____ proposed and pushed for many bailouts in 2008. a. Woods b. Paulson c. Bernanke d. Dodd e. Chavez
b. Paulson
What is the name of the condition in which depositors withdraw their savings from banks and use them to purchase financial instruments directly? a. Disintermediation. b. Securitization. c. Arbitrage. d. Hedging. e. Adverse selection.
b. Securitization.
Which of the following are traded in capital markets? a. T-bills that have terms to maturity of 182 days. b. Shares of Ford Motor Company. c. Three month commercial paper. d. Federal funds. e. All commercial paper.
b. Shares of Ford Motor Company
Which of the following are traded in capital markets? a. T-bills that have terms to maturity of 182 days. b. Shares of Ford Motor Company. c. Three month commercial paper. d. Federal funds. e. All commercial paper.
b. Shares of Ford Motor Company.
Which of the following represents the recognition lag? a. The amount of time between the realization of the need for a policy action and the actual implementation of that policy. b. The amount of time between the need for a policy action and the realization of that need. c. The amount of time between the implementation of a policy action and its macroeconomic effects. d. None of the above.
b. The amount of time between the need for a policy action and the realization of that need
What is the key interest rate that banking institutions can lend or borrow reserves among each other, from day to day to meet reserve requirements or to fund their extensions of credit? a. The discount rate. b. The Federal Funds rate. c. The real exchange rate. d. The real interest rate. e. None of the above.
b. The federal Funds rate
According to Rothbard, which of the following is true about loan banks? a. They are unproductive in that they waste resources. b. They can raise funds by selling bonds and selling stock. c. They are inherently inflationary. d. If a bank of this type fails, the money supply will fall. e. All of the above.
b. They can raise funds by selling bonds and selling stock
What is not a characteristic of intermediate targets? a. Consistent with end goals b. Unmeasurable c. Frequently observable d. Controllable e. Definable
b. Unmeasurable
Which of the following is an example of a source of internal finance? a. Corporate bonds. b. Withheld earnings. c. Commercial loans. d. Commercial paper. e. None of the above.
b. Withheld earnings
Which of the following is an example of a source of internal finance? a. Corporate bonds. b. Withheld earnings. c. Commercial loans. d. Commercial paper. e. None of the above.
b. Withheld earnings.
Which of the following is an example of direct finance? a. A home buyer takes a mortgage. b. You borrow money from a friend for lunch. c. Your parents buy life insurance. d. All of the above. e. None of the above.
b. You borrow money from a friend for lunch
Which of the following is an example of direct finance? a. A home buyer takes a mortgage. b. You borrow money from a friend for lunch. c. Your parents buy life insurance. d. All of the above. e. None of the above.
b. You borrow money from a friend for lunch.
Persistent and sustained inflation can be the result of: a. a continuous fall in the supply of goods. b. a continuous rise in the supply of money. c. a continuous fall in the demand for goods. d. All of the above. e. Only A and B of the above.
b. a continuous rise in the supply of money
Among the problems that Continental Illinois faced in the early 1980s was: a. a rising return on equity (ROE). b. a decrease in core deposits. c. a decreased reliance on long-term certificates of deposit (CDs) for funding. d. All of the above. e. None of the above.
b. a decrease in core deposits
Among the problems that Continental Illinois faced in the early 1980s was: a. a rising return on equity (ROE). b. a decrease in core deposits. c. a decreased reliance on long-term certificates of deposit (CDs) for funding. d. All of the above. e. None of the above.
b. a decrease in core deposits.
A barter system requires: a. a medium of exchange. b. a double coincidence of wants. c. use of a commodity money. d. prices measured in nominal terms. e. All of the above.
b. a double coicidence of wants
The real balance effect results in: a. an upward slope of the aggregate demand schedule. b. a downward slope of the aggregate demand schedule. c. an upward slope of aggregate supply schedule. d. a vertical aggregate supply schedule. e. a downward slope of the aggregate supply schedule.
b. a downward slope of the aggregate demand schedule
According to the quantity theory of money, an increase in the quantity of money results in a: a. leftward movement along the aggregate demand schedule. b. rightward movement along the aggregate demand schedule. c. leftward shift of the aggregate demand schedule. d. rightward shift of the aggregate demand schedule. e. shifts in the aggregate demand that cannot be predicted.
b. a rightward movement along the aggregate demand schedule
Rationales for bank regulation include: a. discouraging depository institution liquidity. b. assuring bank solvency by limiting failures. c. providing assistance to make it easier to get a state charter. d. All of the above. e. None of the above.
b. assuring bank solvency by limiting failures
Rationales for bank regulation include: a. discouraging depository institution liquidity. b. assuring bank solvency by limiting failures. c. providing assistance to make it easier to get a state charter. d. All of the above. e. None of the above.
b. assuring bank solvency by limiting failures.
The problem with time lags, insofar as monetary policy is concerned, is that: a. business cycles variation may be dampened. b. business cycles variation may be worsened. c. business cycles variation may be unaffected. d. inflation is generally the less serious problem our economy faces. e. unemployment never responds to monetary policy.
b. business cycles variations may be worsened
An increase in the excess reserve ratio will cause the money multiplier (m*) to: a. increase. b. decrease. c. stay the same. d. change in an uncertain direction.
b. decrease
An increase in the excess reserve ratio will cause the money multiplier (m*) to: a. increase. b. decrease. c. stay the same. d. change in an uncertain direction.
b. decrease.
If S&P upgrades a corporate bond the _____ for the bond will shift and its risk premium will _____. a. demand; rise. b. demand; fall. c. supply; rise. d. supply; fall.
b. demand; fall
A specific monetary policy strategy that departs from a pre-announced policy strategy because of changes in economic conditions is known as: a. a policy rule. b. discretionary policy. c. laissez faire policy. d. inflationary policy.
b. discretionary policy
The Glass-Steagall Act of 1933 had far-reaching effects on the depository institution industry including: a. strengthening interstate branching restrictions. b. establishing the first federal deposit insurance fund. c. prohibiting the payment of interest on demand deposits at commercial banks. d. All of the above. e. Only A and B of the above.
b. establishing the first federal deposit insurance fund.
U.S. equities are traded in all following except the: a. New York Stock Exchange. b. federal funds market. c. NASDAQ. d. American Stock Exchange. e. The OTC exchange.
b. federal funds market
U.S. equities are traded in all following except the: a. New York Stock Exchange. b. federal funds market. c. NASDAQ. d. American Stock Exchange. e. The OTC exchange.
b. federal funds market.
If a bank needs to have $100 million in order to meet its reserve requirements, but has $90 million to total reserves, then it: a. has excess reserves of $10 million. b. has a required reserves deficiency of $10 million. c. can extend its loans by $10 million. d. has a required reserve deposit of $10 million. e. will have to borrow money from the Federal Reserve.
b. has a required reserves deficiency of $10 million
If a bank needs to have $100 million in order to meet its reserve requirements, but has $90 million to total reserves, then it: a. has excess reserves of $10 million. b. has a required reserves deficiency of $10 million. c. can extend its loans by $10 million. d. has a required reserve deposit of $10 million. e. will have to borrow money from the Federal Reserve.
b. has a required reserves deficiency of $10 million.
In order to raise the money supply the Fed will want to: a. sell Treasury securities. b. have bank reserves fall. c. have bank excess reserves fall. d. have banks decrease their loans. e. None of the above.
b. have bank reserves fall.
If the required reserve ratio is 0.1, the level of deposits is $1000, the level of currency held by the public is $200 and the level of excess reserves is $300, then the money multiplier (m*) is a. 0. b. 1. c. 2. d. 3. e. It cannot be determined from the information available.
c. 2
According to the authors of the text, the Glass-Steagall Act: a. hurt the financial system but not the U.S. economy. b. hurt both the financial system and the U.S. economy. c. hurt neither the financial system nor the U.S. economy. d. hurt the U.S. economy but not the financial system. e. helped the financial system but hurt the U.S. economy.
b. hurt both the financial system and the U.S. economy.
The problems of moral hazard created by the failure of Continental Illinois stemmed from: a. its huge holdings of derivatives. b. it being "too big to fail." c. the large amount of off-balance-sheet activity. d. its inability to meet the requirements of SOX. e. All of the above.
b. it being "too big to fail."
Which of the following is true about "debasing?" a. If anything, it will cause deflation. b. It promotes the circulation of less popular metals. c. It cannot be done to commodity money. d. It cannot be done to representative money. e. All of the above are true.
b. it promotes the circulation of less popular metals
According to Salerno, the Mystery of Banking is considered Murray Rothbard's: a. most important work. b. least appreciated work. c. longest work. d. most widely cited work. e. most difficult to understand work
b. least appreciated work
Short maturity bonds have ____ interest rate risk than long maturity bonds. a. more b. less c. equal d. an undetermined amount of
b. less
Over the last four recessions (1982, 1991, 2001, 2008) the Federal Reserve has: a. lowered the federal funds rate to a low of 1% each time. b. lowered the federal funds rate more and more each time and now it is about zero. c. lowered the federal funds rate by less and less each time and now it is about 5%. d. refused to change the federal funds rate, allowing the market to determine its value. e. always sold bonds to try and stem the forces of recession
b. lowered the federal funds rate more and more each time and now it is about zero
As Rothbard points out, the monetary units that nations have used were: a. arbitrarily created by kings, emperors, or other national leaders. b. measures of differing weights of gold or silver. c. never exchangeable for a commodity. d. always based on a metric-like system. e. None of the above.
b. measures of differing weights of gold and silver
In Mises' Phase I of inflation, _____ along with _____, mitigating much of the expected _____. a. money demand falls; increases in the money supply; rise in the purchasing power of money. b. money demand rises; increases in the money supply; declines in the purchasing power of money. c. money demand rises; decreases in the money supply; declines in the purchasing power of money. d. money demand falls; decreases in the money supply; declines in the purchasing power of money. e. money demand falls; decreases in the money supply; rise in the purchasing power of money.
b. money demand rises; increases in the money supply; declines in the purchasing power of money
When the Fed buys securities, how much banks hold as excess reserves affects the: a. monetary base. b. money supply. c. maximum money multiplier. d. All of the above. e. None of the above.
b. money supply
Depository institutions include all of the following except: a. banks. b. mutual funds. c. credit unions. d. thrifts. e. savings banks.
b. mutual funds
Depository institutions include all of the following except: a. banks. b. mutual funds. c. credit unions. d. thrifts. e. savings banks.
b. mutual funds.
As Rothbard describes, in the market for any good, the supply is ___ and the demand is ___. a. objective; objective b. objective; subjective c. subjective; objective d. subjective; subjective
b. objective; subjective
The Google IPO was conducted as a Dutch auction, meaning that: a. prices were bid up from a predetermined floor. b. prices were bid down from a predetermined ceiling. c. prices were randomly selected. d. every time you bid you had to increase your offer by 10%. e. every time you were outbid, to re-enter you had to increase your offer by 25%.
b. prices were bid down from a predetermined ceiling.
In order for a government to enjoy the widespread use of paper as money, according to Rothbard, the most important thing it needs to do is: a. convince people to use to pay their taxes. b. promise to redeem it for what is being used as money (i.e., gold). c. compel some to accept it through legal tender laws. d. All of the above. e. None of the above.
b. promise to redeem it for what is being used as money (i.e., gold)
The Google IPO: a. proved that investment banks were unfairly keeping stock prices low. b. raised about $1.7 billion for the firm. c. was wildly successful, with the stock selling for a hefty 20% premium over expectations. d. was conducted through an auction at Sotheby's in Amsterdam. e. All of the above.
b. raised about $1.7 billion for the firm
The Google IPO: a. proved that investment banks were unfairly keeping stock prices low. b. raised about $1.7 billion for the firm. c. was wildly successful, with the stock selling for a hefty 20% premium over expectations. d. was conducted through an auction at Sotheby's in Amsterdam. e. All of the above.
b. raised about $1.7 billion for the firm.
The "too big to fail" policy exacerbates the moral hazard problem between: a. banks and borrowers. b. regulators and banks. c. politicians and regulators. d. the public and politicians. e. big banks and small banks.
b. regulators and banks
Slips representing gold deposits with a bank are an example of _____ money. a. fiat b. representative c. credit d. commodity e. None of the above.
b. representative
A depository institution's total reserves consist of: a. excess reserves and loans. b. required reserves and excess reserves. c. excess reserves and equity. d. required reserves and transactions deposits. e. required reserves and treasury securities.
b. required reserves and excess reserves
The first central bank of the U.S., which received a federal charter of 20 years, was: a. the Bank of North America. b. the First Bank of the United States. c. the National Bank of the United States. d. the Federal Reserve Bank of the United States. e. Continental Illinois.
b. the First Bank of the United States
All of the following were key provisions of the Glass-Steagall Act of 1933 except for: a. the creation of the Federal Deposit Insurance Corporation. b. the creation of Federal Reserve notes. c. the prohibition of interest earnings on checking deposits. d. the separation of commercial and investment banking. e. the establishment of interest rate ceilings on savings deposits.
b. the creation of Federal Reserve notes.
The monetary base is determined exclusively by: a. commercial banks. b. the entire banking system. c. the Federal Reserve System. d. Congressional action. e. None of the above.
b. the entire banking system.
The difference between a futures contract and a forward contract is: a. the futures contract is a commitment to deliver the commodity while the forward contract is an option to buy or sell the futures contract. b. the former is conducted in a market, while the latter is a party-to-party transaction. c. the former is used for hedging while the latter is used for speculating. d. strictly a matter of the duration involved in the instruments. e. All of the above
b. the former is conducted in a market, while the latter is a party-to-party transaction
In a system of free banking, credit expansion will be most magnified if: a. there is just one bank. b. there are just a few large banks. c. there are many, smaller banks. d. there are no banks. e. None of the above, as credit expansion has nothing to do with banks.
b. there are just a few large banks
When nominal wages adjust more slowly than changes in the price level, then the aggregate supply schedule is: a. downward sloping. b. upward sloping. c. horizontal. d. vertical. e. shaped like a parabola.
b. upward sloping
In this kind of bank, you deposit money and get a receipt (or, many of them) acknowledging your claim to these funds, which are then merely stored in the bank. a. fractional reserve bank. b. warehouse bank. c. loan bank. d. state-chartered bank. e. credit union.
b. warehouse bank
Term structure models the yields of bonds with: a. with the same times to maturity. b. with different times to maturity. c. with different liquidity risks. d. with different default risks. e. Answers B, C and D are correct.
b. with different times to maturity
Money illusion arises when: a. workers work harder when they know that layoffs are increasing. b. workers work harder when inflation has raised their nominal wage, even though their real wage is lower. c. workers work harder when they think their wages have fallen. d. workers are paid in a unit of account that is different from the medium of exchange. e. All of the above.
b. workers work harder when inflation has raised their nominal wage, even though their real wage is lower
Which of the following equations is correct? a. ΔMB = m x ΔMS b. ΔMS = m x ΔMB c. MS = C + R d. MS = D + R e. All of the above are correct.
b. ΔMS = m x ΔMB
Assets Reserves $60 Bonds $400 Loans $600 Liabilities Checking accounts $500 CDs $300 Equity $260 If the reserve requirement is 10%, the bank has _____ in excess reserves. a. $0 b. $5 c. $10 d. $50 e. $450
c. $10
If the required reserve ratio is 0.1, how much can lending be increase by, in the entire banking system, if the Fed buys $1,000 worth of bonds? [Assume that banks do not desire to hold any excess reserves and that the public does not desire to hold any currency.] a. $100. b. $1,000. c. $10,000. d. $100,000. e. None of the above.
c. $10,000
If the required reserve ratio is 0.1, how much can lending be increase by, in the entire banking system, if the Fed buys $1,000 worth of bonds? [Assume that banks do not desire to hold any excess reserves and that the public does not desire to hold any currency.] a. $100. b. $1,000. c. $10,000. d. $100,000. e. None of the above.
c. $10,000.
A two-year coupon bond has a face value of $1000, a coupon rate of 5% and a yield to maturity of 2%. What is the price of the bond? a. $944.21 b. $1000 c. $1058.25 d. $1078.43
c. $1058.25
Assume that the required reserve ratio is 10%. How much more can an individual bank lend if a saver deposits $1,000 into her checking account (assuming that the bank was not short of required reserves)? a. $100. b. $600. c. $900. d. $1,000. e. $100,000.
c. $900
Assume that the required reserve ratio is 10%. How much more can an individual bank lend if a saver deposits $1,000 into her checking account (assuming that the bank was not short of required reserves)? a. $100. b. $600. c. $900. d. $1,000. e. $100,000.
c. $900.
All of the following are money market instruments except for: a. 6 month certificates of deposit. b. 3 month T-bills. c. 10 year municipal bonds. d. repurchase agreements. e. federal funds.
c. 10 year municipal bonds
All of the following are money market instruments except for: a. 6 month certificates of deposit. b. 3 month T-bills. c. 10 year municipal bonds. d. repurchase agreements. e. federal funds.
c. 10 year municipal bonds.
The Federal Reserve was established in: a. 1766. b. 1836. c. 1913. d. 1936. e. 1966.
c. 1913
Investment banking was separated from commercial banking as a result of legislation passed in Congress in the: a. 1860s. b. 1910s. c. 1930s. d. 1970s. e. 1990s.
c. 1930s.
The U.S. was on a full gold standard, where our currency was freely redeemable for gold by anyone, up until: a. 1879. b. 1913. c. 1933. d. 1945. e. 1971.
c. 1933
If the required reserve ratio is 0.1, the level of deposits is $1000, the level of currency held by the public is $200 and the level of excess reserves is $300, then the money multiplier (m*) is a. 0. b. 1. c. 2. d. 3. e. It cannot be determined from the information available.
c. 2.
Since 1980, the ratio of financial assets to GDP in the U.S. has been: a. above 300%. b. above 200%. c. above 150%. d. below 250%. e. below 100%.
c. Above 150%
Which of the following is a financial intermediary? a. A mutual fund. b. A pension fund. c. An insurance company. d. All of the above. e. None of the above.
c. An insurance company
This bank management strategy relies on a predicable stream of income generated by installment loans: a. Real bills doctrine. b. Shiftability theory. c. Anticipated income. d. Conversion of funds. e. Gap management.
c. Anticipated income
What types of liabilities will a successful bank have? a. Reserves (vault cash). b. Loans. c. Demand deposits. d. All of the above. e. None of the above.
c. Demand deposits
Which of the following is the least liquid financial asset? a. Currency in your pocket. b. A savings deposit. c. Diamonds. d. Traveler's checks. e. A U.S. Savings Bond.
c. Diamonds
The last of the monetary deregulatory/reform acts that began in 1980 was: a. Garn-St. Germain. b. Glass-Steagall. c. FIRREA. d. DIDMCA. e. Gramm-Leach-Bliley.
c. FIRREA.
The required reserve ratio is 0.2, the level of deposits is $1000, the level of currency held by the public is $500, the level of excess reserves is $300, the level of money market funds is $500 and the level of time deposits is $1500. If the Fed lowers the monetary base by $100, what is the change in M1? a. Falls by $350. b. Falls by $244. c. Falls by $150. d. Rises by $250. e. None of the above.
c. Falls by $150
What suggestion does Milton Friedman offer to eliminate economic instability? a. Increased use of discretionary policy b. Increased use of fiscal policy c. Implementation of policy rules d. All of the above e. None of the above
c. Implementation of policy rules
Which are examples of external finance? a. Issuing commercial paper. b. Stock sales. c. Issuing bonds. d. All of the above e. None of the above.
c. Issuing bonds.
Following the recession of 2007-2008 ____ was sold off to the Bank of America. a. Bear Stearns. b. Lehman Brothers. c. Merrill Lynch. d. Goldman Sachs. e. None of the above.
c. Merrill Lynch.
Which of the following is the key monetary policy tool on a day-to-day basis? a. Changing reserve requirements. b. Changing the money multiplier. c. Open market sale or purchase. d. Discount window lending.
c. Open market sale or purcahse
Which of the following is a technique lenders use to alleviate moral hazard problems? a. Specialized lending. b. Diversified lending. c. Requiring collateral. d. Checking credit ratings e. All of the above.
c. Requiring collateral
Which of the following are unlikely to generate fees for banks? a. Credit cards. b. Personal loans. c. Reserves. d. The use of ATMs. e. Home mortgages.
c. Reserves
Inflation begins to rise in the U.S. After three weeks, policymakers notice the increase and spend six weeks deciding what course of action to take. The six week time gap is known as the: a. Recognition lag. b. Foreign lag. c. Response lag. d. Transmission lag. e. Refurbishing lag.
c. Response lag
The text authors liken the image of financiers in popular culture to: a. Shakespeare's "Romeo and Juliet." b. Shakespeare's "King Lear." c. Shakespeare's "The Merchant of Venice." d. Milton's "Paradise Lost." e. Huxley's "Brave New World."
c. Shakespeare's "The Merchant of Venice."
Which of the following reduces the incentive for consumers to monitor the health and well-being of banks? a. Online banking. b. Swaps. c. The FDIC. d. All of the above. e. None of the above.
c. The FDIC
Which of the following reduces the incentive for consumers to monitor the health and well-being of banks? a. Online banking. b. Swaps. c. The FDIC. d. All of the above. e. None of the above.
c. The FDIC.
What was the significance of the Federal Reserve-Treasury Accord of 1951? a. The Fed agreed to begin purchasing government securities to keep yields on government securities low. b. The Fed agreed to purchase all government securities that the Treasury issued. c. The Fed was granted total independence from Congress. d. The Fed was granted partial independence from Congress. e. None of the above
c. The Fed was granted total independence from Congress
Which of the following is the best measure of the opportunity cost of holding real money balances? a. The return on cash holdings. b. The rate of inflation. c. The market interest rate. d. The rate of growth in nominal income. e. The rate of growth in real income.
c. The market interest rate
Which concept of interest best identifies the rate of return on a bond if, once purchased, it is held until it matures? a. The capital gains rate of interest. b. The coupon return. c. The yield to maturity. d. The nominal yield. e. The current yield.
c. The yield to maturity
Why do people "buy" money? a. It is a measure of one's social status. b. It is a requirement of legal tender laws. c. They need to do this if they want to buy goods and services. d. All of the above. e. None of the above.
c. They need to do this if they want to buy goods and services
Which of the following is not true with regard to the Suffolk System? a. Country banks were required to hold gold deposits with Suffolk. b. Suffolk would redeem country bank notes at par. c. This insulated banks in New England from the bank panic of 1837. d. Its strength led to specie redemption throughout the panic of 1837. e. It replaced the earlier Bank of Mutual Redemption.
c. This insulated banks in New England from the bank panic of 1837
The interest rate at which the present value of an asset's return is equal to its price today is the: a. principal value. b. coupon return. c. nominal yield. d. yield to maturity. e. federal funds rate minus the real rate of interest.
c. nominal yield
Which of the following is not a rationale for the regulation of depository institutions? a. To maintain depository institution liquidity. b. To maintain the solvency of depository institutions. c. To maintain high profitability of depository institutions. d. To promote a sound banking market for consumers. e. To prevent, or lessen, bank panics.
c. To maintain high profitability of depository institutions
Which of the following is not a rationale for the regulation of depository institutions? a. To maintain depository institution liquidity. b. To maintain the solvency of depository institutions. c. To maintain high profitability of depository institutions. d. To promote a sound banking market for consumers. e. To prevent, or lessen, bank panics.
c. To maintain high profitability of depository institutions.
The British "pound sterling" originally was a monetary unit that represented: a. a pound of bronze. b. a pound of gold. c. a pound of silver. d. a pound of copper. e. an ounce of gold.
c. a pound of silver
In the short run, an increase in the quantity of money results in: a. a leftward shift of the aggregate demand schedule, a lower price level, and a higher real GDP. b. a rightward shift of the aggregate demand schedule, a higher price level, and a higher real GDP. c. a rightward shift of the aggregate supply schedule, a lower price level, and a higher real GDP. d. a leftward shift of the aggregate demand schedule, a higher price level, and a lower real GDP. e. shifts in both the curves leaving prices at a lower level.
c. a rightward shift of the aggregate supply schedule, a lower price level, and a higher real GDP
Greater central bank independence has the beneficial effect of lowering which of the following: a. real GDP. b. nominal GDP. c. average inflation. d. the inherent bias of monetary policy towards lower inflation. e. All of the above.
c. average inflation
The functions of money include all of the following, except as a: a. medium of exchange. b. store of value. c. barter. d. unit of account. e. standard of deferred payment.
c. barter
Variations in real GDP relative to its long-run growth path are known as: a. expansions. b. peaks. c. business cycles. d. Natural GDP. e. Hayekian slippages.
c. business cycles
When it comes to financial matters, the views of Aristotle can be stated as: a. usury is nature's way of helping each other. b. the fact that money is barren makes it the ideal medium of exchange. c. charging interest is immoral because money is not productive. d. when you lend money, it grows more money. e. interest is too high if it can't be paid back.
c. charging interest is immoral because money is not productive
The yield curve indicates a possible future recession if it is: a. upward sloping. b. flat. c. downward sloping. d. erratic. e. None of the above.
c. downward sloping
When the Fed sells $100 of bonds, the monetary base falls by an amount _____ $100 and the money supply falls by an amount _____ $100. a. less than, equal to b. equal to, equal to c. equal to, greater than d. greater than, greater than e. greater than, equal to
c. equal to; greater than
You have $25 million worth of U.S. Treasuries that will mature in three years, but you only want to hold them for one more year. You face the risk that interest rates will _____ and so you are inclined to execute a forward contract to _____ these bonds at a predetermined price in one year. a. rise; sell b. rise; buy c. fall; sell d. fall; buy e. remain unchanged; lower the interest rate of
c. fall; sell
Liquidity is defined as how ___ an asset can be converted into ___ at its ___ . a. fast; store of value; discounted present value b. slow; gold; discretion c. fast; medium of exchange; full market value d. slow; a unit of account; fixed exchange rate e. fast; gold; nominal rate of interest
c. fast; medium of exchange; full market value
According to Rothbard, the two commodities that have dominated as money over time have been: a. gold and bronze. b. silver and bronze. c. gold and silver. d. gold and wheat. e. silver and fish.
c. gold and silver
In Mises' Phase III of inflation, if policymakers refuse to accommodate a depression, they will end up promoting: a. slowly rising inflation. b. slowly falling deflation. c. hyperinflation. d. hyperdeflation. e. stable prices.
c. hyperinflation
The expansion of credit by fractional reserve banks: a. mostly benefits those who receive the credit late as prices rise. b. must match, dollar for dollar, with the amount held in reserve. c. increases the money supply. d. All of the above. e. None of the above.
c. increases the money supply
The expansion of credit by fractional reserve banks: a. mostly benefits those who receive the credit late as prices rise. b. must match, dollar for dollar, with the amount held in reserve. c. increases the money supply. d. All of the above. e. None of the above.
c. increases the money supply.
As described by Murphy, Austrian economists argue that when the Fed creates new money, it pushes _____ below its natural rate. a. unemployment b. inflation c. interest d. the money supply e. the national debt
c. interest
A bank that channels deposits into investments is known as a: a. fractional reserve bank. b. warehouse bank. c. loan bank. d. state-chartered bank. e. credit union.
c. loan bank
In an environment of discretionary monetary policymaking, lower policy credibility will likely result in a: a. lower inflation rate. b. higher inflation rate. c. lower real output level. d. higher real output level.
c. lower real output level
The purpose of the lender of last resort is to: a. raise bank profitability . b. make loans to insolvent but liquid banks. c. make loans to solvent but illiquid banks. d. make loans to individuals and corporations that request them. e. provide needed funding for the building of resorts.
c. make loans to solvent but illiquid banks
Rothbard speculates that without the Second Bank of the U.S., then we (in the U.S.): a. would have gotten off the gold standard much sooner. b. would have seen the money supply grow by exponential amounts. c. may have seen the end of inflation, perhaps forever. d. All of the above. e. None of the above.
c. may have seen the end of inflation, perhaps forever
The dramatic growth of the First National Bank of Keystone was begun by: a. heavy involvement in foreign currency exchanges. b. participations in oil and gas exploration loans. c. securitization of federally insured home improvement loans. d. pioneering credit default swaps for bonds issued by medical facilities. e. All of the above.
c. securitization of federally insured home improvement loans.
The phrase "monetize the debt" refers to a situation in which the federal government finances its spending by: a. raising taxes. b. selling bonds to the public. c. selling bonds to the central bank. d. foreign borrowing. e. All of the above.
c. selling bonds to the central bank
During a period of hyperinflation, a country's money ceases to become a good: a. medium of exchange. b. unit of account. c. store of value. d. standard of deferred payment. e. final means of payment.
c. store of value
Continental Illinois had its roots in: a. the Revolutionary War. b. the War of 1812. c. the Civil War. d. World War I. e. World War II.
c. the Civil War.
The money supply is determined exclusively by: a. commercial banks. b. the entire banking system. c. the Federal Reserve System. d. Congressional action. e. None of the above.
c. the Federal Reserve System
The price of a bond is inversely related to: a. the time to maturity. b. the yield to maturity. c. the coupon value of the bond. d. All of the above. e. Only A and B of the above.
c. the coupon value of the bond
Rothbard argues that every business cycle is begun through: a. the contraction of bank reserves. b. the contraction of bank credit. c. the expansion of bank credit. d. Both A and B are correct. e. Both A and C are correct.
c. the expansion of bank credit.
If the public doesn't want to hold currency and banks don't want to hold any excess reserves, then the money supply will be: a. the inverse of the required reserve ratio times total deposits. a. the inverse of the required reserve ratio times total assets. a. the inverse of the required reserve ratio times total reserves. a. the inverse of the required reserve ratio times demand deposits. a. the required reserve ratio times total deposits.
c. the inverse of the required reserve ratio times total reserves.
All of the following were key provisions of the Glass-Steagall Act of 1933 except for: a. the creation of the Federal Deposit Insurance Corporation. b. the creation of Federal Reserve notes. c. the prohibition of interest earnings on checking deposits. d. the separation of commercial and investment banking. e. the establishment of interest rate ceilings on savings deposits.
c. the prohibition of interest earnings on checking deposits
Deposit insurance was initially introduced in response to: a. the demise of the First Bank of the United States in 1811. b. the demise of the Second Bank of the United States in 1836. c. the widespread collapse of banks in the early 1930s. d. the savings-and-loan crisis of the 1980s. e. None of the above.
c. the widespread collapse of banks in the early 1930s
Deposit insurance was initially introduced in response to: a. the demise of the First Bank of the United States in 1811. b. the demise of the Second Bank of the United States in 1836. c. the widespread collapse of banks in the early 1930s. d. the savings-and-loan crisis of the 1980s. e. None of the above.
c. the widespread collapse of banks in the early 1930s.
According to Woods, the "credit crunch" of 2008: a. meant businesses couldn't acquire short term funds. b. led to dramatic declines in consumer credit. c. was mostly an illusion. d. was confirmed by a report issued by the Federal Reserve Bank of Minneapolis. e. All of the above.
c. was mostly an illusion.
Assets Reserves $60 Bonds $400 Loans $600 Liabilities Checking accounts $500 CDs $300 Equity $260 If $100 in checking accounts were withdrawn as cash, what is the minimum amount the bank would have to borrow and still be able to meet the reserve requirement of 10%, if there were no other changes to the balance sheet? a. $30 b. $50 c. $80 d. $100 e. It cannot be determined.
d. $100
A deposit of $1000 is made into an account that earns 20% per year. After three years, the (future) value will be: a. $1000. b. $1200. c. $1440. d. $1728. 3. $3000.
d. $1728
In the 2000s, the value of money market instruments outstanding peaked at about: a. $4 billion. b. $40 billion. c. $400 billion. d. $4 trillion. e. $40 trillion.
d. $4 trillion.
Which of the following is a money market instrument? a. Common stock. b. A 30-year corporate bond. c. Currency held by the public. d. A 3-month certificate of deposit. e. A 5-year CD that has three years left before maturing.
d. A 3-month certificate of deposit
Which of the following is a money market instrument? a. Common stock. b. A 30-year corporate bond. c. Currency held by the public. d. A 3-month certificate of deposit. e. A 5-year CD that has three years left before maturing.
d. A 3-month certificate of deposit.
Which of the following will facilitate your purchase of McDonald's shares in the secondary market? a. An employee of McDonald. b. A loan officer. c. An investment bank. d. A broker. e. All of the above.
d. A broker
Which of the following will facilitate your purchase of McDonald's shares in the secondary market? a. An employee of McDonald. b. A loan officer. c. An investment bank. d. A broker. e. All of the above.
d. A broker.
Who said, "The most powerful force in the universe is compound interest."? a. George Washington. b. Alan Greenspan. c. Warren Buffet. d. Albert Einstein. e. Murray Rothbard.
d. Albert Einstein
A bank can get more reserves from: a. the public if they can attract more deposits. b. other banks if they can borrow funds from them. c. the central bank. d. All of the above. e. None of the above.
d. All of the above
According to Rothbard, a barter system limits: a. the division of labor. b. the production of goods and services. c. the ability of businesses to calculate profits and losses. d. All of the above. e. Only A and B of the above.
d. All of the above
Among the purposes of hedging is/are: a. to speculate on anticipated changes in prices. b. to reduce one's exposure to risk due to price fluctuations. c. to increase market liquidity. d. All of the above. e. None of the above.
d. All of the above
Funds in your checking account count as part of the measured: a. monetary base. b. M1. c. M2. d. All of the above. e. Only B and C of the above
d. All of the above
If a society doesn't have/use money, then: a. it is not likely to be able to specialize its labor. b. there is an indivisibility problem. c. it is very difficult/impossible to determine whether a business makes a profit or incurs a loss. d. All of the above. e. Only A and C of the above
d. All of the above
In the absence of money, people: a. must barter to trade. b. produce a greater variety of goods themselves. c. face the problem of "double coincidence of wants." d. All of the above. e. None of the above.
d. All of the above
Money: a. is anything generally accepted for trade. b. does not have to be valuable except as a means of trade. c. can allow people to save more easily. d. All of the above. e. None of the above.
d. All of the above
Suppose we observe the following prices: eggs - $1/dozen, butter - $2/pound, shoes - $50/pair, MP3 player - $100. Which of the following represents the purchasing power of $1? a. 1 dozen eggs. b. ½ pound of butter. c. 1/50 pair of shoes. d. All of the above. e. None of the above.
d. All of the above
The existence of "sweep" programs has led to: a. an underestimate of the true value of M1. b. a decreased reliance on M2 as the best single measure of the money supply. c. banks having to hold more reserves for their transaction deposits. d. All of the above. e. None of the above.
d. All of the above
The price of a bond is directly related to: a. the face value. b. the yield to maturity. c. the time to maturity. d. All of the above. d. None of the above.
d. All of the above
Theories about the demand for money differ largely: a. on the motives for holding money. b. on money demand as a medium of exchange versus as a store of value. c. between the Keynesian versus Monetarist schools of thought. d. All of the above. e. None of the above.
d. All of the above
What affects the rate of interest? a. The time value of money. b. Our desire for liquidity. c. Risk. d. All of the above. e. None of the above.
d. All of the above
What factors influence the money multiplier? a. The amount of currency that consumers and businesses desire to hold relative to transactions deposits. b. The quantity of excess reserves that depository institutions wish to keep on hand relative to transactions deposits. c. The required reserve ratio set by the Federal Reserve. d. All of the above. e. None of the above.
d. All of the above
Which of the following factors could explain difference in yields on bonds with the same time to maturity? a. Default risk. b. Tax considerations. c. Liquidity. d. All of the above. e. None of the above.
d. All of the above
Which of the following involves a financial intermediary? a. A credit card purchase. b. Buying stock online. c. Buying renter's insurance. d. All of the above. e. None of the above.
d. All of the above
Which of the following is a desirable characteristic of an intermediate target? a. It is frequently observable. b. It is definable and measurable. c. It is controllable. d. All of the above. e. None of the above.
d. All of the above
Which of the following is an example of a loan bank? a. A finance company. b. An investment bank. c. In ancient times, what we call "moneylenders." d. All of the above. e. None of the above.
d. All of the above
You walk into a store in Mexico. The prices are in pesos. The owner will accept pesos or dollars. In this case, we can say that: a. the peso is the unit of account. b. the dollar is a medium of exchange. c. the peso is a medium of exchange. d. All of the above. e. None of the above.
d. All of the above
A non-depository source of funds in the financial sector would include: a. pensions. b. insurance companies. c. finance companies. d. All of the above. e. None of the above.
d. All of the above.
Among the purposes of hedging is/are: a. to speculate on anticipated changes in prices. b. to reduce one's exposure to risk due to price fluctuations. c. to increase market liquidity. d. All of the above. e. None of the above.
d. All of the above.
Among the sources of AIG's problems were: a. its heavy involvement in credit default swaps. b. its heavy involvement in lending securities. c. the downgrading of their credit rating. d. All of the above. e. Only A and B of the above.
d. All of the above.
The policy generally followed with regard to troubled financial giants was: a. Too Large a Mess. b. A Stitch in Time. c. One More Brick in the Wall. d. Too Big To Fail. e. Too Many Cooks Spoil the Stew.
d. Too Big To Fail.
As McKenna relates about the failure of Continental Illinois: a. the bank run began with a withdrawal of $1 billion from Asian depositors. b. that upper management at CI were deaf to problems at the bank. c. that a leading figure in the Enron scandal years later worked for Continental Illinois. d. All of the above. e. Only A and B of the above.
d. All of the above.
Unlike a hedge fund, a mutual fund: a. is subject to very little government regulation and oversight. b. can trade in derivative instruments. c. caters to small individual savers. d. All of the above. e. None of the above.
d. All of the above.
What factors influence the money multiplier? a. The amount of currency that consumers and businesses desire to hold relative to transactions deposits. b. The quantity of excess reserves that depository institutions wish to keep on hand relative to transactions deposits. c. The required reserve ratio set by the Federal Reserve. d. All of the above. e. None of the above.
d. All of the above.
When the Fed buys securities from banks, how much banks hold as excess reserves will affect the: a. monetary base. b. money supply. c. maximum money multiplier. d. All of the above. e. None of the above.
d. All of the above.
Which of the following involves a financial intermediary? a. A credit card purchase. b. Buying stock online. c. Buying renter's insurance. d. All of the above. e. None of the above.
d. All of the above.
Which of the following is a financial intermediary? a. A mutual fund. b. A pension fund. c. An insurance company. d. All of the above. e. None of the above.
d. All of the above.
Rothbard tells a story where Angel Gabriel, hearing the people complain about a lack of money, magically doubles everyone's money holdings. The result is that: a. everyone is happy and feels richer, at first. b. everyone will try to spend their money and find they are no better off. c. everyone will try to save their money, thinking that they will be better off in the future. d. Both A and B are true. e. Both A and C are true.
d. Both A and B are true
Which of the following are liabilities of the Federal Reserve? a. Reserve deposits of depository institutions. b. Federal Reserve notes. c. Government securities. d. Both A and B of the above. e. Both B and C of the above.
d. Both A and B of the above
Which of the following is a method banks use to deal with interest rate risk? a. Gap analysis. b. Restrictive covenants. c. Specialization. d. Compensating balances. e. All of the above.
d. Compensating balances
The first of the monetary deregulatory/reform acts of the 1980s was: a. Garn-St. Germain. b. Glass-Steagall. c. FIRREA. d. DIDMCA. e. Gramm-Leach-Bliley.
d. DIDMCA
The last of the monetary deregulatory/reform acts that began in 1980 was: a. Garn-St. Germain. b. Glass-Steagall. c. FIRREA. d. DIDMCA. e. Gramm-Leach-Bliley.
d. DIDMCA
The first of the monetary deregulatory/reform acts of the 1980s was: a. Garn-St. Germain. b. Glass-Steagall. c. FIRREA. d. DIDMCA. e. Gramm-Leach-Bliley.
d. DIDMCA.
Which of the following is true about the Bank of England? a. It was founded in the late 1700s. b. It never had to suspend specie payment. c. During its first hundred years, it faced stiff competition from the National Land Bank. d. During its first hundred years, it didn't buy any government debt. e. Their notes didn't become legal tender until the 1830s.
d. During its first hundred years, it didn't buy any government debt
Can you beat the market and profit from individual stock picks? Not according to the: a. Effective Money Theorem. b. Essential Market Paradigm. c. Easy Money Rule. d. Efficient Market Hypothesis. e. Equilibrium Money Market.
d. Efficient Market Hypothesis.
The Federal Deposit Insurance Corporation was created under the: a. National Banking Act of 1863. b. Depository Institutions Deregulation and Monetary Control Act of 1980. c. Federal Depository Insurance Corporation Improvement Act of 1991. d. Glass-Steagall Act of 1933. e. None of the above.
d. Glass-Steagall Act of 1933
The Federal Deposit Insurance Corporation was created under the: a. National Banking Act of 1863. b. Depository Institutions Deregulation and Monetary Control Act of 1980. c. Federal Depository Insurance Corporation Improvement Act of 1991. d. Glass-Steagall Act of 1933. e. None of the above.
d. Glass-Steagall Act of 1933.
Who said, "[President] Bush is to the left of me now"? a. Barack Obama. b. Harry Reid. c. Fidel Castro. d. Hugo Chavez. e. Tony Blair.
d. Hugo Chavez.
Which of the following was a key feature of the changes made to the Federal Reserve in 1935? a. It doubled the number of Federal Reserve districts to twelve. b. It made the Secretary of the Treasury a member of the Board of Governors. c. It eliminated the authority of the Board of Governors to set reserve requirements. d. It increased control of the Federal Reserve System by the Board of Governors. e. All of the above.
d. It increased control of the Federal Reserve System by the Board of Governors
What are the three main assets of commercial banks? a. Cash assets, vault cash, and reserve deposits. b. Installment credit, revolving credit, and term federal funds. c. Consumer loans, real estate loans, and federal funds. d. Loans, securities, and cash assets. e. Loans, liabilities and liquidity.
d. Loans, securities, and cash assets
Which of the following schedules is vertical? a. Short-run aggregate demand. b. Long-run aggregate demand. c. Short-run aggregate supply. d. Long-run aggregate supply. e. Both B and C are true.
d. Long-run aggregate supply
The structure of the Fed includes: a. ten Federal Reserve District Banks. b. a Board of Governors located in New York City, the financial capital of America. c. budgetary control in the hands of the U.S. House of Representatives. d. the Federal Open Market Committee. e. All of the above.
d. The Federal Open Market Committee
The role of the Fed as a fiscal agent to the government refers to the Fed's services for: a. the Congress. b. the White House. c. the Internal Revenue Service. d. the U.S. Treasury Department. e. the twelve Federal Reserve district banks.
d. The U.S. Treasury Department
According to Salerno, Rothbard viewed the Federal Reserve as: a. a bolstering of the banking system. b. the outcome of public spirited responses to shocks to our economy. c. an almost perfect example of an institution that works on behalf of the general public interest. d. a cartelizing device that limits entry into banking. e. All of the above.
d. a cartelizing device that limits entry into banking
In the "market" for money, a decrease in demand will create ___ and lead to a ___. a. a shortage; rise in the PPM b. a shortage; fall in the PPM c. a surplus; rise in the PPM d. a surplus; fall in the PPM
d. a surplus; fall in the PPM
In the "market" for money, an increase in supply will create ___ and lead to a ___. a. a shortage; rise in the PPM b. a shortage; fall in the PPM c. a surplus; rise in the PPM d. a surplus; fall in the PPM
d. a surplus; fall in the PPM
The accounting identity that describes the banking system balance sheet is: a. assets plus liabilities equals equity. b. assets time equity equals liabilities. c. assets plus equity equals liabilities. d. assets minus liabilities minus equity equals zero. e. None of the above.
d. assets minus liabilities minus equity equals zero.
A newly issued 10-year corporate bond is traded in: a. both the secondary market and the capital market. b. both the secondary market and the money market. c. both the primary market and the money market. d. both the primary market and the capital market.
d. both the primary market and the capital market
A newly issued 10-year corporate bond is traded in: a. both the secondary market and the capital market. b. both the secondary market and the money market. c. both the primary market and the money market. d. both the primary market and the capital market.
d. both the primary market and the capital market.
Cigarettes are an example of _____ money. a. fiat b. representative c. credit d. commodity e. None of the above.
d. commodity
In the model of money creation, if bank reserves rise by $1,000 then it must be true that currency held by the public: a. also rises by $1000. b. rises by more than $1000. c. rises, but by less than $1000. d. does not change. e. falls by $1000.
d. does not change.
The largest asset on the Fed's balance sheet consists of: a. reserves of member banks. b. loans to corporations. c. loans to banks. d. government securities. e. Federal Reserve notes.
d. government securities
. If the frequency of payment of our incomes falls (say, from once a month to every other month), this will: a. reduce the money supply. b. increase the money supply. c. reduce the money demand. d. increase the money demand. e. Have uncertain effects on both the supply and demand for money.
d. increase the money demand
A depository institution that is fully "loaned up" means that: a. it lacks sufficient cash required to meet requests for a depositor's withdrawal. b. its total assets are less than its total liabilities. c. it has too many bad loans. d. it has used all of its excess reserves to make loans. e. None of the above .
d. it has used all of its excess reserves to make loans
A depository institution that is fully "loaned up" means that: a. it lacks sufficient cash required to meet requests for a depositor's withdrawal. b. its total assets are less than its total liabilities. c. it has too many bad loans. d. it has used all of its excess reserves to make loans. e. None of the above .
d. it has used all of its excess reserves to make loans.
Long term capital markets: a. are used to facilitate liquidity demands. b. trade instruments that mature within one year. c. generally involve loans from one bank to another bank. d. raise funds used for capital purchases. e. All of the above.
d. raise funds used for capital purchases
Long term capital markets: a. are used to facilitate liquidity demands. b. trade instruments that mature within one year. c. generally involve loans from one bank to another bank. d. raise funds used for capital purchases. e. All of the above.
d. raise funds used for capital purchases.
Since 2008, when the monetary base was about $800 billion, it has: a. fallen to about $600 billion. b. stayed constant, more or less. c. risen to about $1 trillion. d. risen to about $4 trillion. e. risen to about $14 trillion.
d. risen to about $4 trillion
If the Fed buys $100 in securities and the reserve requirement is 10%, according to the simple formula for the money multiplier, the money supply: a. falls by $100. b. falls by $1000. c. rises by $100. d. rises by $1000. e. remains unchanged, as the simple multiplier is zero.
d. rises by $1,000
All of the following are non-depository institutions except: a. pension companies. b. insurance companies. c. mortgage brokers. d. savings and loans. e. investment bankers.
d. savings and loans
All of the following are non-depository institutions except: a. pension companies. b. insurance companies. c. mortgage brokers. d. savings and loans. e. investment bankers.
d. savings and loans.
Which of the following is not included in M1? a. Currency. b. Traveler's checks. c. Transaction deposits. d. Savings deposits. e. Checking accounts.
d. savings deposits
A six month Treasury bill that was issued one month ago is now traded in: a. wholesale markets. b. discount markets. c. primary markets. d. secondary markets. e. capital markets.
d. secondary markets
A six month Treasury bill that was issued one month ago is now traded in: a. wholesale markets. b. discount markets. c. primary markets. d. secondary markets. e. capital markets.
d. secondary markets.
The income that accrues to the government from its involvement in the production of money is called: a. debasement. b. barter. c. a bill of attainder. d. seigniorage. e. fiat funds.
d. seigniorage
Michael Milken is famous for having created _____ bonds. a. junk b. trash c. ugly d. super high-yielding e. $500
d. super high-yielding
According to Rothbard, it can be said that: a. we are worse off with a lower supply of money. b. we are better off with a higher supply of money. c. we are better off with a lower supply of money. d. Both A and B are true. e. None of the above.
e. None of the above
The reason we no longer have a gold standard is because: a. banks refused to accept gold for deposit. b. banks refused to issue gold for paper money. c. people grew tired of using gold. d. the government made it illegal to use gold as money. e. Both A and B of the above are true.
d. the government made it illegal to use gold as money
When the Second Bank of the U.S. failed to get a 20 year extension on its life: a. it failed immediately. b. it applied for, and received, a state charter to stay in business. c. it was purchased by the Bank of England. d. the national sentiment was so negative that the Congress nearly impeached President Jackson. e. All of the above.
d. the national sentiment was so negative that the Congress nearly impeached President Jackson
The nominal yield is calculated as the: a. (coupon return)/(current market price). b. (coupon return)/(face amount of the bond). c. (coupon return)/(annual interest rate). d. (face value of the bond)/(current market price). e. (annual interest rate)/(coupon return).
e. (annual interest rate)/(coupon return)
Fractional reserve banking is not inflationary if they hold ___ reserves. a. 10% b. 25% c. 50% d. 75% e. 100%
e. 100%
If the required reserve ratio is 0.2, the level of deposits is $2000, the level of currency held by the public is $200 and the level of desired excess reserves is $200, then the money multiplier (m*) is a. 3.75 b. 3.5 c. 3.25 d. 3.0 e. 2.75
e. 2.75
According to Rothbard, which of the following have historically been used as money? a. Cowrie shells. b. Beaver. c. Tobacco. d. Iron hoes. e. All of the above.
e. All of the above
Banks might be more efficient than individual lenders due to: a. returns to scale. b. expertise in accounting tasks. c. expertise in advertising to borrowers. d. ability to assess risk. e. All of the above.
e. All of the above
During the Great Depression, federal regulation of banking included: a. mandatory deposit insurance. b. the separation of commercial and investment banking activities. c. branching restrictions. d. interest rate ceilings. e. All of the above.
e. All of the above
In a system of free banking, what serves as a day-to-day constraint on a bank's expansion of credit? a. The trust that depositors have in the bank. b. The extent to which bank notes are used as money. c. The contribution this makes to the boom-bust cycle. d. The limited clientele of the bank. e. All of the above.
e. All of the above
Short term money market instruments include: a. commercial paper. b. repurchase agreements. c. federal funds. d. bankers' acceptances e. All of the above.
e. All of the above
The money measure M2 includes: a. savings deposits. b. currency. c. travelers checks. d. demand deposits at financial institutions. e. All of the above.
e. All of the above
What are some of the potential intermediate target variables? a. Interest rate. b. Credit aggregates. c. Nominal GDP. d. Monetary aggregates. e. All of the above.
e. All of the above
When the price level falls, the level of AD rises, as illustrated by the downward sloping curve shown on a graph. This is because as the average price falls: a. our fixed income buys more stuff. b. our fixed wages buys more stuff. c. our fixed money holdings buy more stuff. d. our fixed savings frees up resources to buy more stuff. e. All of the above
e. All of the above
Which of the following has been used as money in America? a. Continentals. b. Silver certificates. c. Federal Reserve Notes. d. Gold coins. e. All of the above.
e. All of the above
Which of the following is included in our M1 measure of the money supply? a. Coins in circulation. b. Currency held in the cash drawer at Wal Mart. c. The value of your checking account. d. The value of travelers' checks circulating. e. All of the above.
e. All of the above
Which of the following is most associated with Monetarism? a. Flaws in the market are the cause of economic disruption. b. Investment falls because of a lack of "animal spirits." c. Monetary rules are preferred to discretionary policy. d. Increasing government spending is the most reliable way to a successful economic recovery. e. All of the above.
e. All of the above
Which of the following is/are desirable attributes of a medium of exchange? a. Durability. b. Recognizability. c. Divisibility. d. Portability. e. All of the above
e. All of the above
Who is interested in, and/or affected by, changing interest rates? a. Savers. b. Borrowers. c. Policymakers. d. Forecasters. e. All of the above.
e. All of the above
As explained in the Kellogg study, AIG's involvement in securities lending was risky because: a. these securities were lent out to companies with a high degree of risk. b. they used income from this on high yield, and high risk, assets. c. they lent out their most safe mortgage-backed securities. d. those borrowing the securities would often not return them to AIG. e. All of the above.
e. All of the above.
During the Great Depression, federal regulation of banking included: a. mandatory deposit insurance. b. the separation of commercial and investment banking activities. c. branching restrictions. d. interest rate ceilings. e. All of the above.
e. All of the above.
In a simple world where there is no equity, the banking system is in equilibrium when: a. assets equal liabilities. b. liabilities times the required reserve ratio equals required reserves. c. liabilities times the desired excess reserve ratio equals desired excess reserves. d. total reserves equal the sum of required reserves and desired excess reserves. e. All of the above.
e. All of the above.
In critiquing AIG, Davidson notes that: a. they typically only sold CDS instruments, while most banks both bought and sold them. b. they had written CDS instruments to cover over $400 billion in bonds. c. to improve their liquidity, they sold off profitable assets, weakening their stock price. d. a decline in their bond rating automatically required them to boost their collateral as part of their guarantee on the CDS instruments that they sold. e. All of the above.
e. All of the above.
Short term money market instruments include: a. commercial paper. b. repurchase agreements. c. federal funds. d. bankers' acceptances e. All of the above.
e. All of the above.
The "short sale" of stock: a. involves borrowing stock today, selling it now and buying it back later. b. is the way that markets identify weak and troubled firms. c. was banned for a period of time during the financial crisis. d. can be reasonably viewed as an indicator of regulatory failure. e. All of the above.
e. All of the above.
According to Rothbard, the term "dollar" came from a coin minted in: a. Brazil. b. Botswana. c. Belize. d. Burma. e. Bohemia.
e. Bohemia
The creation of a central bank tends to: a. hurt smaller banks that must meet new regulatory requirements. b. hurt banks by taking away their ability to print up bank notes. c. help banks by allowing them all to expand credit together. d. help banks by raising their required reserve ratio. e. Both A and B are true.
e. Both A and B are true
Because of the creation of the FDIC, a. banks are less likely to suffer from bank runs. b. banks are less likely to inflate credit. c. banks are more likely to inflate credit. d. Both A and B are true. e. Both A and C are true.
e. Both A and C are true
Numerous court cases in the early 1800s in the U.S. declared that: a. deposits were a "bailment" of the bank. b. deposits were not a "bailment" of the bank. c. deposits were not an asset of the bank. d. Both A and C are true. e. Both B and C are true.
e. Both B and C are true
In 2008, the Fed and the U.S. Treasury let ___ fail but saved ___. a. Lehman Brothers; Bank of America b. Enron; AIG c. Bear Stearns; Enron d. Bank of America; AIG e. Lehman Brothers; Bear Stearns
e. Lehman Brothers; Bear Stearns
Suppose that Jack takes $1000 out of his checking account at an ATM machine (i.e., he receives cash). Which of the following is/are true? a. M1 will rise; M2 will rise. b. M1 will remain the same; M2 will rise. c. M1 will fall; M2 will remain the same. d. M1 will rise; M2 will fall. e. M1 and M2 will remain the same.
e. M1 and M2 will remain the same
Eve has a bad credit history, but it was under another name (somehow she got it changed). She has a steady job and wants to buy a house. She applies at a bank, honestly detailing her past history and is able to borrow $100,000. Two years later she hasn't missed a mortgage payment. What asymmetric information problems are present in this story? a. Adverse selection. b. Moral hazard. c. Principal-agent. d. All of the above. e. None of the above.
e. None of the above
In describing the effects of counterfeiting, Rothbard writes of a ripple effect where: a. there are winners and losers, unlike in the Angel Gabriel model. b. those at the beginning of the ripple lose. c. those at the end of the ripple gain. d. All of the above. e. None of the above.
e. None of the above
Increases in the demand for money would occur due to: a. increases in the frequency of payments. b. improvements in the clearing system. c. decreased confidence in money. d. All of the above. e. None of the above.
e. None of the above
It can be said that the Federal Reserve has perfect control over the size of: a. M1. b. M2. c. MZM. d. All of the above. e. None of the above.
e. None of the above
The AS/AD model is unable to show a situation in which we have _____ and _____. a. inflation; growth b. deflation; growth c. inflation; depression d. deflation; depression e. None of the above.
e. None of the above
The limestone wheels that served as money on the South Pacific island nation of Yap would seem, at first glance, to be a poor form of money because they: a. are not durable. b. are not easily recognized. c. are not scarce. e. All of the above. e. None of the above.
e. None of the above
What qualities would lend themselves to using a particular commodity as money? a. Heavy demand. b. Indivisibility. c. Low value per unit weight. d. All of the above. e. None of the above.
e. None of the above
Which are examples of external finance? a. Issuing commercial paper. b. Stock sales. c. Issuing bonds. d. All of the above e. None of the above.
e. None of the above
Which of the following cannot be shown on the AS/AD model? a. Inflation and growth. b. Deflation and growth. c. Inflation and depression. d. Deflation and depression. e. None of the above.
e. None of the above
Which of the following has been relatively stable over the last thirty years? a. The velocity of M1. b. The velocity of M2. c. The velocity of MZM. d. All of the above. e. None of the above.
e. None of the above
Which of the following monetary policy actions would lower the equilibrium federal funds rate? a. An open market purchase. b. A discount rate increase. c. Both an open market purchase and a discount rate increase. d. Both a discount rate increase and a cut in the required reserve ratio. e. None of the above.
e. None of the above
Which of the following is true about credit default swaps? a. If sold, it must cover the entire duration of the instrument in question. b. There are a minimum of two parties involved in situations involving CDS instruments. c. CDS instruments can be traded in formal markets, subject to government oversight. d. All of the above. e. None of the above.
e. None of the above.
Among the problems solved by the existence of money is/are: a. indivisibilities so that we can trade with fractional amounts. b. the ability to calculate whether a business makes a profit or a loss. c. the triple coincidence of wants, which promotes the ability to specialize our labor. d. All of the above. e. Only A and B of the above.
e. Only A and B of the above
As Rothbard explains, while if some people in a community use fish as a medium of exchange, we would say that: a. fish serve as an instrument of indirect exchange. b. fish cannot yet be considered as money. c. these people must not have any gold. d. All of the above. e. Only A and B of the above.
e. Only A and B of the above
Demand can increase for all goods across the economy if: a. the money supply shrinks. b. we have economic growth. c. there is a persistent fall in our standard of living. d. All of the above. e. Only A and B of the above.
e. Only A and B of the above
The Glass-Steagall Act of 1933 had far-reaching effects on the depository institution industry including: a. strengthening interstate branching restrictions. b. establishing the first federal deposit insurance fund. c. prohibiting the payment of interest on demand deposits at commercial banks. d. All of the above. e. Only A and B of the above.
e. Only A and B of the above
The demand for money will increase if: a. real income increases. b. the real interest rate falls. c. the cost of converting bonds into cash rises. d. All of the above. e. Only A and B of the above.
e. Only A and B of the above
As noted in the article about trading pits, a. futures pits in Chicago were closing down. b. futures pits in New York were closing down. c. floor trading on the New York Stock Exchange were closing down. d. All of the above. e. Only A and B of the above.
e. Only A and B of the above.
As part of the deal to save AIG: a. the Fed made available to them a loan for up to $85 billion. b. the Fed took control of almost 80% of AIG. c. the Treasury purchased $40 billion in AIG stock. d. All of the above. e. Only A and B of the above.
e. Only A and B of the above.
In an attempt to prevent the collapse of Savings & Loans, the government passed many laws that were designed to help them by: a. removing interest rate ceilings from what they pay their depositors. b. allowing them to devote increasing amounts of their assets to consumer loans. c. giving them the authority to issue junk bonds. d. All of the above. e. Only A and B of the above.
e. Only A and B of the above.
The banking system asset side of their balance sheet would include: a. Treasury bills. b. loans. c. checking accounts. d. All of the above. e. Only A and B of the above.
e. Only A and B of the above.
The futures market may be viewed as less risky than a forward contract as: a. there is an active market. b. defaults can't harm another party. c. settlements are made at maturity. d. All of the above. e. Only A and B of the above.
e. Only A and B of the above.
To counter the assertion about money made by Tamny, Jeremy Hammond cites money creation examples illustrated: a. by Rothbard in "The Mystery of Banking." b. by the Federal Reserve Bank of Chicago in "Modern Money Mechanics." c. by Ludwig von Mises in "Money and Credit." d. All of the above. e. Only A and B of the above.
e. Only A and B of the above.
Which of the following changes were made to the banking industry in the 1980s? a. Interest rate ceilings were abolished. b. The Resolution Trust Corporation was created to liquidate failed savings & loans. c. The FDIC was created to protect depositor's funds. d. All of the above. e. Only A and B of the above.
e. Only A and B of the above.
Which of the following are assets of the Federal Reserve? a. Foreign currency reserves. b. Federal Reserve notes. c. Government securities. d. All of the above. e. Only A and C of the above.
e. Only A and C of the above
As compared to 2008, at the end of 2014, on the asset side of the balance sheet for commercial banks: a. total loans shrank to about 40% of the total. b. holdings of U.S. government securities rose to over $2 trillion. c. cash holdings soared to nearly 20% of the total. d. All of the above. e. Only B and C of the above.
e. Only B and C of the above
Diamonds might be good to use as money because they are: a. divisible. b. durable. c. portable. d. All of the above. e. Only B and C of the above.
e. Only B and C of the above
If an economy uses furs as money and the supply is suddenly cut in half, then prices of other goods in terms of furs will: a. double. b. be halved. c. stay the same. d. rise, but to an uncertain extent. e. fall, but to an uncertain extent.
e. fall, but to an uncertain extent
Aggregate Demand is composed of spending by households, businesses, foreigners and: a. investors. b. savers. c. bankers. d. non-profits. e. government.
e. government
Because policymakers have limited long-term information about the economy, they typically will set: a. no targets. b. autonomous targets. c. hidden targets. d. ultimate targets. e. intermediate targets.
e. intermediate targets
