ECO473 final exam

Which of the following is true, according to Murphy?

Deflation does not eliminate the profitability of investment

It was only after Roosevelt took office as President that any states declared bank holidays.

False

James Cox, Democratic candidate for President in 1920, said that every socialist would be voting for Warren Harding, his opponent.

False

To maximize profits, bank managers need only concern themselves with asset management.

False

Under normal conditions we expect the yield curve to be inverted.

False

According to Smiley, the lesson of the Great Depression is that "governments failed, not markets."

True

Suppose that one U.S. dollar is exchanged for 100 yen in the foreign exchange market. If so, then a toy selling for 1,000 yen in Japan has a U.S. dollar price of

$10

If the euro/dollar exchange rate is 1.25 euro/dollar, and a French bottle of wine costs 20 euros, assuming no trade barriers or transportation costs, what is the dollar price of the bottle of wine?

$16

Suppose that we observe the following prices in the market: loaf of bread= $3; pair of shoes= $20; an apple= $0.50; a newspaper= $1; a pay-per-view movie= $5. Which of the following does not show the purchasing power of a dollar?

0.5 apples

The Glass-Stegall Act that regulated banking was passed in the

1930s

The FDIC was created in

1933

The U.S. was on a full gold standard, where our currency was freely redeemable for gold by anyone up until

1933

If the foreign interest rate is 15%, the current exchange rate is 10 and the expected future exchange rate is 11, what is the domestic interest rate according to the interest parity condition?

25%

In the late 1900s American banks typically had an equity-to-asset ratio of about

5%-10%

What could cause a shift in the (U.S.) demand for British pounds?

A change in our tastes and preferences for their goods, a change in our income, a change in trade restrictions, a change in monetary policy (all of the above)

Which of the following is a money market instrument

A federal funds loan

Which system has the most inherently volatile exchange rates?

An unmanaged free float system

This bank management stratrgy relies on a predictable stream of income generated by installment loans

Anticipated income

Consider the supply and demand for money as presented by Rothbard, with an equilibrium "price" at PPM* at a supply of money equal to $1 billion. If the supply of money increases by $100 million, which of the following accurately describes what would occur in order to restore equilibrium?

At PPM* there would be a surplus of money, as people wouldn't want to hold as much as was available. In order to rid themselves of these excess money balances, people will spend this money. As this continues, the surplus shrinks until equilibrium is achieved at a new lower PPM at the money supply of $1.1 billion

Which of the following is false?

At the FOMC meeting from this past January, they reiterated their policy of pursuing a goal of 4% inflation per year

Among the possible solutions to the Fed having created over a trillion dollars of excess reserves is to raise the required reserve ratio.

True

Among the videos is "Fear the Boom and the Bust"

True

One of the most devastating losses in the derivatives market led to the bankduptcy of the

Barings bank

Which of the following is an accurate depiction of Continental Illinois

Continental Illinois was founded during the Civil War era. It survived the Great Depression with the help of loans from the federal government. In the early 1970s this bank had a rather conservative reputation. A change in management in the later 1970s sent the bank on a new path as they pursued a goal of being a leader in commercial loans. By the early 1980d, they were the largest lender of commercial loans and had become the 7th largest bank in the U.S. In the early 1980s they faced some problems with large commercial customers defaulting, losses suffered from the collapse of the Penn Square Bank and the default crisis in Latin America loans. Additionally, to maintain their dominant position in lending they were rolling over their loan portfolio to lower interest rates (reducing their income) and using increasingly costly sources of fund (e.g., borrowed funds versus checking deposits). In 1984 a run on the bank precipitated its demise despite the infusion of over $15 billion of funds from the Federal Reserve, the FDIC and various other banks.

Which of the following is not one of the books required for the class

Dollars and Cents

The prerequisite for the class is

ECO285 and Junior Level status

If the euro appreciates against the U.S. dollar then

European consumers will buy more American goods, Americans will buy fewer European goods, Europeans will likely travel to, and visit the United States (all of the above)

Two countries-- Umber and Catalan-- are on gold standards. The currency in Umber is called the florin (F) and is defined as 3F= 1oz. of gold. The currency in Catalan is called escudo (E) and is defined as 6E=1 oz. of gold. Trade has suddenly become unbalanced between the two countries as exporters from Umber send F5 million worth of goods to Catalan and exporters from Catalan send E12 million worth of goods to Umber. Which of the following will occur?

Exporters from Catalan will be unable to convert all of the florins they earn back into escudos as the fixed exchange rate. This will result in the purchase of gold in Umber and it will literally be shipped to Catalan. Over time this will lead to a decline in the money supply of Umber and a decline in their prices. In Catalan this will cause an increase in the money supply and an increase in prices. Due to both effects, exports from Catalan will fall to something less than E12 million worth of goods while exports from Umber will rise to something more then F5 million worth of goods, until trade is once again balanced.

"Primary" markets are where people trade their stocks and bonds with one another, such as the New York Stock Exchange.

False

A bank's assets would include demand deposits (e.g. checking accounts) held at the bank.

False

A forward exchange rate is the price of one currency in terms of another currency today.

False

A major feature of the Austrian theory is that higher interest rates stimulate investment which can't be sustained over time

False

According the authors of the text, deposit insurance is essentially cost-free and has been successful at decreasing asymmetric information problems.

False

According to Brook, it is only in recent times that moneylenders have been looked upon as scourges of society.

False

According to Christoff-Kurapouna, Napoleon founded both the Bank of France and Switzerland's central bank, the National Bank.

False

According to Federal Reserve rules, a bank may require at least fourteen days' notice before withdrawal from a savings account.

False

According to Friedman, the most important factor in determining our demand for money is the interest rate.

False

According to Rothbard, even if a central bank is on the gold standard it cannot go bankrupt.

False

According to Rothbard, free banking is likely to be quite inflationary.

False

According to the Keynesian view, when interest rates are relatively low, it is a good time to buy and hold bonds.

False

According to the quantity theory of money, if the money supply is $3 trillion, the price level is 1.5 and the velocity is 2, then the level of real (or aggregate) output is $6 trillion.

False

After WWI, a "gold exchange" standard developed where most countries around the world could hold only gold or U.S. dollars as the reserve for their own domestic currency

False

After the NRA and AAA were deemed unconstitutional by the Supreme Court, President Roosevelt convinced Congress to impeach the so-called "Four Horsemen" on the court that were consistently ruling against his New Deal programs.

False

All fiduciary money is a money substitute and all money substitutes are fiduciary money.

False

Although many people think of the Great Depression as lasting throughout the entire 1930s, it is really dated from the summer of 1929 to the first quarter of 1935.

False

Among the characteristics of the business cycle that a coherent theory must explain is why the depression is more than intense in the retail goods industry

False

As Smiley shows, the purpose of production really is to just produce things.

False

As noted by Rothbard, a loan bank is both unproductive and inflationary.

False

As of 1920, U.S. Steel was employing about one million workers.

False

As of March of 2007, U.S. commercial bank holdings of U.S. Treasuries (and other government agency debt) accounted for about 37% of their assets.

False

As pointed out by the Austrian theory, if we want to consume at a higher standard of living we must save less

False

As pointed out in the article, all of the market "trading pits" are closing down, to be replaced by strictly computer-based trading.

False

As the M&B text shows, in the most advanced economies the stock market supplies about 40% of external finance to the business sector.

False

As the U.S. economy began to face the challenges following the stock market crash of 1929, President Hoover followed a policy of keeping government spending low and encouraging prices to fall as had happened during the depression of 1921.

False

At the FOMC meeting from January 31, they voted to keep their target for the federal funds rate of interest to a range of 1.25% to 1.5%, although the Vice Chairman, William Dudley, dissented.

False

At the beginning of 1923, it took 18,000 German marks to buy one U.S. dollar. By the end of the year, after a severe hyperinflation, it took about 2 billion marks to buy one U.S. dollar.

False

Auerback argues that it was the huge fiscal stimulus of our involvement in WWII that led us out of the Great Depression.

False

Because interest rates are forward looking there is no difference between nominal and real rates.

False

Before the Great Depression, federal budget deficits were normal.

False

Bernie Madoff was sentenced to 15 years in prison for his role in defrauding investors.

False

Both adverse selection and moral hazard are post-contractual information problems.

False

Both the specie standard and the free float utilize fixed exchange rates.

False

By the end of the 1920s, there were about 1.12 cars for every household.

False

Continental Illinois lost nearly $1 billion due to the failure of Penn Square Bank, which was heavily involved in making loans for agricultural development in Asia.

False

Continental Illinois was the 17th largest bank in the U.S. at the time that it failed.

False

Continental Illinois' share price between 1980 and 1984 peaked at more than $80.

False

During World War II, consumption by civilians rose dramatically, indicating that economic prosperity was real.

False

During the 1920s, the sector of the American economy that performed the best and led the way in terms of economic growth was agriculture.

False

During the initial stages of the Great Depression, President Hoover convinced many American industrialists to raise wages by at least 5% per year.

False

Even if currencies appreciate or depreciate against each other the interest rate parity condition tells us that interest rates will be the same in two countries.

False

Even if we get paid more frequently, as long as our income remains the same we will still demand the same amount of money.

False

Excess reserves added to required reserves sum to total revenues.

False

Exporters are likely to be made much more profitable if we have a strong domestic currency.

False

FDR claimed that inefficient government programs were the main cause of the 1937-1938 depression.

False

FDR's second New Deal policies were so popular that Democrats made major gains in the 1938 elections.

False

Forging long term relations with customers can decrease interest rate risk.

False

From June 1920 to June 1921, hundreds of both state banks and national banks failed.

False

Herbert Hoover had become president with little actual political experience

False

If firms decide to raise more funds through the sale of bonds, interest rates will fall.

False

If our time preference falls, then interest rates will rise

False

If the money supply is $10 million and if the monetary base is $4 million, then the money multiplier must be 0.4 [that is, $10 million x 0.4 = $4 million].

False

If the nominal rate of interest id 5% in the U.S. and 6.5% in France, then in choosing between buying bonds of equal risk in the two countries you would always prefer France

False

If we expect future inflation, the short run AS will increase.

False

If you had an annual income of $120,000 and you spent all of it uniformly over the course of the year, then we would say that your average money holdings (or, money demand) would be $10,000 if you were paid four times a year

False

In 1919, Richard Nixon (future U.S. president) started a haberdashery business in Kansas City

False

In solving for equilibrium in the banking system, if there are undesired excess reserves, then the bank's reserves will change by and equal amount as the change in the currency held by the public; for example, if the currency held rises by $1000, so too do bank reserves.

False

International standards for bank capitalization are known by the acronym DROMEDARY.

False

It was Fed Governor W.P.G. Harding's view that the 7% discount rate of interest charged by the Federal Reserve was a mistake in that it caused so much financial calamity.

False

John Skelton Williams was a member of the Board of Governors of the Federal Reserve System due to his position as the Secretary of the Treasury.

False

Like most economists, Keynes studied the Great Depression by studying markets.

False

Like the Cambridge equation, the inventory model assumes that interest rates play a role in determining money demand

False

Mises laid out the framework that leads to hyperinflation over four distinct phases.

False

Money demand is negatively related to income

False

Most of the goods traded among the P.O.W.s were goods that they produced themselves.

False

Murphy chastises Milton Friedman's support for a monetary growth rule by noting that the fixed growth rate would be far too high to be non-inflationary.

False

Murphy contends that a deflationary bias that comes with a gold standard is a curse.

False

One problem area of the 1920s (for the U.S.) was the brief, but severe, recession of 1923-24.

False

People primarily "buy" money because it is a requirement of legal tender laws

False

Poulson contends that the economic policies used to fight the recession of 2008 are much more like the policies used in the early 1920s than those used in the 1930s.

False

President Roosevelt was very much opposed to a "bank holiday" but was finally convinced of doing this by President Hoover

False

Savings & Loans were especially at risk in the 1970s due to their very large holdings of U.S. Treasury securities during a time of high inflation.

False

Since credit cards are not money, their use has no effect on the demand for money.

False

Social welfare programs started during the Great Depression were usually solely federal programs with no state support/contribution.

False

Someone who enjoys taking risks is referred to as a "hedger."

False

State chartered banks were strong vocal opponents of the re-chartering of the First Bank of the U.S.

False

The "public choice" model assumes that government officials work in the interest of the public.

False

The FOMC's long run goal for inflation is to get it to 1%.

False

The Fed's ceiling on interest rates a bank could pay is known as "Special Regulation K."

False

The Fed's primary policymaking body is the Federally Organized Monetary Council.

False

The First National Bank of Keystone was located in the western portion of Pennsylvania.

False

The Law of One Price will hold even if transportation costs are positive in getting goods between two countries

False

The U.S. Congress passed the Glass-Steagall Act which dramatically raised tariffs on imported goods and helped lead to a drastic decline in world trade.

False

The ability to engage in discretionary monetary policy is maximized under a specie standard.

False

The aggregate supply (AS) - aggregate demand (AD) model can be used to analyze short run economic events, but not long run changes.`

False

The authors of the M&B text suggest that financiers get a bad image in popular culture, as exhibited by Shakespeare's "Romeo and Juliet."

False

The bears talk about how the Fed buys Treasury bonds from "the J. P. Morgan."

False

The buying and selling of bonds by the Fed is conducted through its Washington, D.C. headquarters.

False

The collapse of the gold standard during the Great Depression was quite surprising as the world had successfully transitioned back to the gold standard following WWI

False

The credit default swap involves four parties - the seller, the buyer, the issuer and the judge.

False

The currency that we use is considered as a liability of our central bank, which in the case of the Bank of America.

False

The depression of 1937-38 was attributed, in part, to the Fed's reduction in the required reserve ratio

False

The first New Deal saved capitalism, while the second New Deal had no effect

False

The first president ("governor") of the New York Federal Reserve Bank was Irving Fisher.

False

The highest rate for the 30 year mortgage since 1971 was 17.6% in February of 1982.

False

The preferred method of showing the interest return between competing instruments is to look at their coupon values.

False

The problems at the First National Bank of Keystone can be traced to a rather simple clerical error.

False

The term "bankrupt" comes from the old French and means broken bench.

False

The world-wide influenza panic of 1919 killed about 10 million people.

False

There were two especially poorly performing sectors of the economy during the 1920s- agriculture and the stock market

False

To Woods' comment that we no longer see such dramatic declines in production like we saw back in 1920-1921 as validating the Keynesian policies of today, Grant argues that today we have both less income security and less dynamism in our economy.

False

Urbain Ledoux theatrically highlighted the plight of the unemployed in Boston by portraying an unemployed man as being seduced by a serpent with an apple in the Garden of Eden.

False

WW2 decisicely ended the Great Depression and the fear that unemployment would rise back to very high levels evaporated

False

What is especially interesting about the Madoff case is that government oversight agencies like the SEC had absolutely no idea that he was defrauding his clients.

False

When shifts occur to the short run AS there is no self-correcting mechanism that will restore long run equilibrium.

False

When we reach a point where constant increases in the money supply are completely offset by decreases in money demand, generating hyperinflation, Mises referred to this as Phase I

False

While John Skelton Williams had lost his job as Comptroller of the Currency, the newly elected President Harding nominated him to be the Treasury Secretary.

False

While there are differences between the two schools of thought, both Keynesians and monetarists believe that we should first use fiscal policies to stabilize an economy.

False

Woods argues that short-selling stock is a sign of failing financial markets and when emergency conditions dictate, it should be banned.

False

The investment choices available to you in the simulation are $2 mill., $4 mill., $6 mill., $8 mill. and $10 mill.

False, 10 instead of 8 and 12

Woods contends that the first culprit in the housing bubble were the mortgage giants Fannie Mae and Franklin Mac.

False, Freddie Mac

Woods strongly argues that our economic problems largely stem from a failure of capitalism.

False, he blames it on the government and government intervention

In Murphy's opinion, the claim that deflation is bad because it cripples investment is, in fact, not a myth.

False, he does not think it is a myth

Rothbard says that there "optimal" amount of money is the level that keeps prices constant.

False, he says that "any M is as good at performing monetary functions as any other"

Adam Smith used the analogy of the "invisible foot" that helps propel our economy.

False, it was the invisible hand`

At the time Rothbard wrote, the measures of the money supply went up to M3.

False, it went up to M8

According to the text, in the example where Rob and Barb wanted to sell their car, they faced a problem doing so because the Federal Reserve raised interest rates.

False, they were selling their house, not their car

If the price of a loaf of bread were $1.50, then we would say that the purchasing power of a dollar was 1 loaf of bread.

False, we would say that the purchasing power of a loaf of bread is 1/1.50

According to the Fisher equation, expected inflation is unrelated to the interest rate.

Fasle

In 2007, the largest valued liability item on the eFed's balance sheet was:

Federal Reserve Notes

To keep farm incomes up, the AAA killed off 6 million piglets to bolster pork prices

True

In lamenting the problem of inflation, who wrote that, "A wagon load of money will scarcely purchase a wagon load of provision"?

George Washington

Central banking generally is associated with:

Having a monopoly on the issuance of notes

To get credit for a homework assignment, which of the following is true?

It must be typed out, you must be present to get credit, you must be on time to receive credit, they must be done as individual assignments

Of the following, who is not associated with the Austrian School?

John Maynard Keynes

Suppose that the owners of a bank want to rearrange their balance sheet so they can manage interest rate risk in a way that helps to neutralize the effects of any change in interest rates and they've hired you for advice.

Let $10 million in auto loans be paid off and roll them over into 3 month UST, Let $8 million of 30 year mortgages get paid off and roll those funds into credit card loans, Aggressively sell $5 million of 5 year CDs and draw an equivalent amount down from the 30 day borrowed funds liability (II, III, V)

Tom works at the Naboo National Bank. One day he decides to steal $1000 from the cash drawer and spends it (probably on a new Samsung TV). As a result we can say that

M1 has risen and M2 has risen

Suppose that Jack takes $1000 in cash and deposits it into his savings account. Which of the following is/are true?

M1 will fall; M2 will remain the same

Suppose that you take $100 out of your savings account and use it to buy some groceries. This will cause

M1 will rise and M2 will remain unchanged

Currency in circulation is a component of

M1, M2 and MB

The phrase that "inflation is always and everywhere a monetary phenomenon" comes from:

Milton Friedman

Which of the following is true about commercial bank revenues and costs?

Most of their revenue is interest income

"The Mystery of Banking" is a book written by

Murray Rothbard

The author of the book, "The Mystery of Banking" is

Murray Rothbard

After World War I, a "gold exchange" standard developed where some countries held both gold and foreign currencies (dollars and pounds) in reserve to back their money supply.

True

After the war, with no gold standard to enforce discipline, the Fed destabilized our economy with inflationary policies.

True

In between QEII and QEIII, the Fed conducted a policy known as

Operation Twist

This bank management strategy involves highly liquid loans, made at a rather low interest rate, mainly to finance the shipment of goods

Real bills doctrine

Which of the following is not a policy that would mitigate inflation by increasing the short run aggregate supply?

Reducing the money supply

Among bank assets are loans to securities dealers.

True

Among the consequences of the Great Depression is the growth in the welfare state

True

Which of the following was a provision of the Monetary Control Act of 1980?

The Act began a phase out of interest rate ceilings on deposits

Capital flows are restricted under

The Bretton Woods System

What is the most important policy-making group within the Federal Reserve?

The Federal Open Market Committee

Which of the following laws was most restrictive in its effect on the banking industry?

The Glass-Steagall Act

According to Smiley, which of the following are important lessons to learn from the Great Depression?

The Great Depression led to a rise in federalism

This chart shows the change in what variable from about 1985 to 2017?

The M1 money multiplier

Since 2008, which of the following has been true?

The M1 multiplier has fallen to less than one

According to Rothbard, the Federal Reserve Act of 1913 was, in large part, precipitated by the Bank Panic of 1907.

True

According to Rothbard, the more layers there are in the banking system the more the money supply can be expanded.

True

What conclusion(s) are drawn from the Austrian Business Cycle theory?

There is no market mechanism that causes inflation, there is no market mechanism that causes business cycles, inflation is a symptom of the problem we face, not the problem itself. (all of the above)

According to Rothbard, which of the following is true about loan banks?

They can raise funds by selling bonds and selling stock

Among the limited resources we as individuals face is time.

True

Which of the following did not happen during the Great Depression of 1920-1921

Trade increased by about 180%

Which of the following is the smallest component of money either by M1 or M2?

Traveler's checks

"Capital" markets involve exchanges motivated differently than those in "money" markets.

True

"Real" GNP figures during the war years are suspect because they actually include hidden inflation.

True

A NOW account stands for "negotiable order of withdrawal."

True

A bank's earnings largely come from its loans.

True

A key argument against fractional-reserve banking, as Polleit explains, is that two people can't simultaneously have ownership of the same item (i.e., money).

True

A primary lesson of the Great Depression is that "governments failed, not markets"

True

A restrictive covenant may be imposed on a borrower to minimize moral hazard.

True

A rise in the fee paid to convert from bonds to money will increase the amount of money that people demand to hold

True

According the posting on HansEconomics, there is a perfectly logical explanation of business cycles and that is Austrian economics.

True

According to Alloway, index based credit default swaps suffer from inability to hedge against specific defaults

True

According to Brook, interest-based lending is ethical, including payday loans.

True

According to Christoff-Kurapouna, Bretton Woods effectively eliminated the gold standard.

True

According to Friedman, Keynes argued that the most insidious way to destroy a nation is to destroy its money.

True

According to Friedman, money demand is negatively related to inflationary expectations

True

According to Friedman, temporary changes in our incomes will not affect our demand for money.

True

According to McKenna, based on her experience at Continental Illinois, an internal audit that points out problems rarely gets to top management if it means slowing down revenue growth.

True

According to Rothbard, President Van Buren set up the Independent Treasury System to mute criticism of U.S. Treasury deposits held at "pet" banks.

True

Aristotle believe that money was unproductive as it was only a medium of exchange and as such it was unnatural and unethical to charge interest on it.

True

As President Wilson's term ended, so too did John Skelton William's position on the Federal Reserve Board of Governors.

True

As Rothbard points out, warehouse receipts were bank notes, as we understand them.

True

As of 2017, any investor with Bernie Madoff that had an account of less than $1.25 million has received back all of their funds.

True

Bank liquidity management involves insuring withdrawals don't reduce reserves to less than required.

True

Bank managers think interest will soon rise. A reasonable response to this would be to sell more CDs.

True

Banks found their situations increasingly precarious from 1931 to 1932 in part because depositors wanted to hold more currency.

True

Because of relatively high liquidity, investors earn a lower yield on U.S. Treasuries relative to corporate stock.

True

Both the ten dollar bill in your pocket and the twenty dollar bill being held in the cashier's drawer at Walmart are considered to be part of the "adjusted monetary base."

True

By law, the percentage of gold that the Fed was required to hold as a reserve against their Federal Reserve Notes was 40%.

True

Decisions in the business simulation are made twice a year.

True

During the 1920s, Great Britain suffered extended unemployment due to wages not falling as much as prices fell.

True

During the 1920s, the source of much of our growth was commercially generated electricity.

True

Early forms of interest arose from the lending of seeds and animals that could reproduce in order to pay off the interest.

True

External finance refers just to funds that come from outside of a firm.

True

FDR believed that businesses would be hurt by the loss of the NRA and would exert pressure for a new version of the NRA.

True

FDR's acceptance speech for his party's nomination for a second term was characterized as an attack on free enterprise.

True

Firms were once again allowed to engage in both commercial and investment banking with the repeal of Glass-Steagall in 1999.

True

Following WWII millions of men re-entered the labor force while millions of women exited from it

True

For all intents and purposes, the banking crisis during the Great Depression lasted until 1933

True

Friedman contends that Keynes was a bad influence on the intellectual climate by arguing for government to solve all our problems.

True

Friedman's views on the importance of money in our economy is referred to as the modern quantity theory of money.

True

Grant argues that following the end of WWI prices continued to rise and fueled an expectation of continues increases, unlike what had happened after past wars.

True

Grant attributes part of the credit for the recovery in 1922 to businesses boosting production to replenish depleted inventories.

True

Grant describes the depression of 1920-1921 as the last governmentally unmedicated depression.

True

Grant refers to Andrew Melon's philosophy about managing government finance as being Hamiltonian.

True

Hunter Lewis suggests that the Fed's QE programs may have really been aimed at bailing out the government in the face of the resistance of foreign banks to buying more U.S. debt.

True

If it takes fewer dollars to buy one euro, then we'd say that the dollar is "strong."

True

If the government guaranteed the payment on a bond, all else equal, we would expect the price to rise.

True

If the interest rate is 6%, then the future value of a two year investment of $1000 is $1123.60.

True

If we follow Laura Tyson's advice, we should be saving less of our income at least in the short run.

True

Improvements in the clearing system tend to reduce our demand for money.

True

In 1931, to stop the outflow of gold from the U.S., the Federal Reserve raised the discount rate of interest.

True

In late November of 1920, as deflation took hold in America, the New York Times noted that the depression had been unusual in that there wasn't also a bank panic.

True

In the Wickard v. Filburn case the Supreme Court agreed that Congress could control agricultural producation on the grounds of "interstate commerce" even if the produce was grown and consumed by its owner

True

In the early 1800s when there was no legal reserve requirement, U.S. banks typically held 20%-30% reserves.

True

It was Robert Higgs who proposed that the length of the Great Depression was due to "regime uncertainty."

True

J. Knox McConnell ran the First National Bank of Keystone with an "all-woman" workforce.

True

Keynes identified the demand for money as coming from the demand for transactions purposes, precautionary purposes and speculative purposes.

True

Keynesian views on managing aggregate demand broke down during the economic instability that occurred in the 1970s.

True

Madoff's secrecy about his investment strategy was overlooked by many investors seemingly because he was offering such good returns on their funds.

True

Murphy argues that, impossible as it sounds, bankers create money "out of thin air."

True

One might argue that the depression of 1929 became "great" in part due to the Smoot-Hawley tariffs

True

One of the major sources of economic growth in the U.S. during the 1920s was the spread of electricification

True

Peter Klein argues that during a recession it would be bad policy to bail out banks, stop foreclosures and to stimulate the economy.

True

President Harding said that in the history of mankind it is only saving and work that leads to recovery from the waste and disruptions of war.

True

President Roosevelt's "Brain Trust" seemed more interested in reforming our economic system than in finding ways to recover from the Great Depression

True

President Wilson's incapacitation began while on a railroad trip across the country to promote the League of Nations treaty.

True

Prior to the Great Depression, the states received very little of their revenue from the federal government.

True

Recent scholarship points to interference with the gold standard as a "primary" cause of the Great Depression.

True

Rothbard contends that the biggest influence on our demand for money are our inflationary expectations.

True

Selgin argues for fractional-reserve banking although he acknowledges that it is riskier than a one hundred percent reserve banking system.

True

Suppose that I trade some bricks that I made for a pig and that I then trade the pig for a used cart, which I can use to more easily transport my bricks. The pig is a medium of exchange although it is unlikely to be considered as money.

True

That a person with a riskier business project wants to borrow money illustrates the problem of adverse selection.

True

The "Law of One Price" tells us that under rather ideal circumstances the price of a good in two different countries will be the same.

True

The Austrian theory of business cycle has its roots in a theory of the trade cycle laid out in the 1700s by David Ricardo and David Hume

True

The Bretton Woods system can be described as a managed, fixed exchange rate system.

True

The Fed raised the required reserve ratio on banks in 1936 and 1937 that led to a severe decrease in the money supply.

True

The Fed's FOMC holds 8 regularly scheduled meetings per year.

True

The M2 money multiplier will never be smaller than the M1 money multiplier.

True

The Peel Act (1844) failed to stem inflationary pressure from banks because it ignored the fact that demand deposits were also money.

True

The Smoot-Hawley tariffs and the Congress' raising of taxes helped make this depression "great"

True

The authors of the text believe that banking is so complex that government must regulate them.

True

The beginning of the unsustainable boom in the business cycle is initiated by the actions of the Federal Reserve to lower interest rates

True

The confusion over the pronunciation of "comptroller" was illustrated by the political race for the office of that name in New York City.

True

The differential treatment of a large bank like Continental Illinois has been referred to as TBTF.

True

The founder of the monetarist school of thought was Milton Friedman.

True

The idea behind using fiscal policy to combat a depression is that low interest rates are insufficient to boost investment by enough to restore full employment.

True

The interest rate is a price signal that coordinates production across time

True

The introduction of paper money in 12th century Persia was unsuccessful.

True

The money multiplier is denoted as "m*".

True

The notion that the economy suffers from "underconsumption" was put forth by Malthus, Marx and Keynes

True

The oldest merchant bank in the U.K. was Barings Bank.

True

The proper way to price out a debt instrument with future payments is to find its present value.

True

The sub-title if this lecture is "The Madness of Monetary Policy"

True

The text refers to central banks as "the last bastions of central planning."

True

The undesired excess reserves of a bank may be negative.

True

There was a mini-economic recovery in the 2nd quarter of 1933, where we observed significant increases in durable goods production and declines in the unemployment rate

True

There was a short, but dramatic, recovery of the economy in the late spring/early summer of 1933, until the NRA and AAA took effect

True

To add support to his contention that free markets would support fractional-reserve banking, Selgin points to the example of Switzerland.

True

To finance spending a (sovereign) government can both raise taxes and borrow from the public.

True

We studied money demand based, in part, on the motive that people hold money as a medium of exchange.

True

When U.S. banks borrow from the central bank they do so through the Fed's discount window.

True

When a central bank sells foreign exchange they decrease their monetary base and appreciate their currency.

True

While the Bretton Woods system was to usher in a new era of foreign trade, it restricted capital movements across countries.

True

While the Fed's holding of gold had been perilously close to its 40% requirement for circulating currency, in 1920, by May of 1921 it was at about 80%.

True

While there is an argument put forth by many that the Federal Reserve's policy failed during 1920-21, Grant contends that the depression succeeded.

True

With the creation of the Fed there was a decrease in the required reserve ratio for time deposits held at banks, fueling their increase.

True

Woods makes the analogy that to say that greed caused the housing bubble is like saying gravity causes airplane accidents.

True

Woods notes that it is conventional wisdom that failing to use countercyclical policies in the face of a recession/depression will lead to an intolerably long delay in economic recovery.

True

Yamada shows past interest rate changes as a series of sharp downturns but slower and more drawn out upturns.

True

Suppose that, on average, our time preferences rises. As detailed by the Austrian School of economic thought, what will be the consequences of this?

We will save less and try to consume more. Interest rates will rise which serve as a signal to entreprenuers that fewer of their investment projects, especially their longer-term ones, will be profitable. So, investment will fall. At the same time, due to the increased demand for consumer goods, their prices will rise, signaling to producers that they should shift resources toward these goods. Resources will get reallocated from investment to consumption and the production of goods and services shift from the future toward the present.

Suppose that you are involved in an investment in Europe that will pay you 4 million euros on May 1, 2019. You want to be able to convert these euros into dollars, but that you fear the exchange rate between may move against you between now and then. As of today one euro trades for $1.23. What can you do to hedge against this risk?

You can execute a futures contract to sell 4 million euros on May 1, 2019 at the rate of $1.21/1 euro. While there is no risk to you that someone who has agreed to buy will default, you may have to make payments to the exchange if the contract price doesn't turn out to be the market price. As the date nears, the exchange rate is still $1.23/1 euro. Consequently, you will have to pay the difference- two cents per euro, or $80,000- to the exchange in order to meet the obligations of the contract

Persistent inflation can arise from

a persistent increase in the supply of money

To combat the current recession, Nobel prize winning economist Paul Krugman has suggested that we should create a spending bubble based on

a space alien invasion

The functions that money serves does not include

a unit weight of some precious metal

The difference between a futures contract and a forward contract is

the former is conducted in a market, while the latter is a party-to-party transaction

A favorable characteristic of money would not include:

abundance

The problem for lenders, that highest risk borrowers tend to be the most eager to take out loans, is an example of:

adverse selection

Cameron has a boyfriend that works at a local bank. He is able to get her a loan by misrepresenting her credit score. The asymmetric information problems present in this problem include:

adverse selection, principal-agent (Both A and C)

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

are not portable

There were fixed exchange rates with

the gold standard, the Bretton Woods System (A and B)

The argument that fractional reserve banking represents fraud is based on:

the idea that two people can't simultaneously own the same good

The "holiday" that was declared by FDR in his first days in office applied to the enforced closing of

banks

In the example of the capital structure used in class, Robinson Crusoe had to save ___ in order to acquire capital

berries

As Rothbard points out, money originates from:

the market

The existence of money solves problems, like

calculation of profits and losses

Reducing inflation at full unemployment with a fast, sharp break in inflationary expectations is called the

cold turkey policy

What does a typical central bank do?

control the money supply, have a monopoly on the issuance of currency, help prevent the failure of individual banks (all of the above)

The choice of a good intermediate target is one that is

controllable

According to the Austrian Business Cycle theory, interest rates

coordinate production across time

The meaning of a "fractional reserve" banking system is that banks need only hold a fraction of their ___ as reserves in the bank

demand deposits

Disintermediation occurs when

depositors move their savings from one bank to another bank

Numerous court cases in the early 1800s in the U.S. declared that

deposits were not a "bailment" of the bank

According to the Austrian Business Cycle theory, adding more money to our economy:

doesn't create more resources

The cause of the Great Depression of 1920-1921 was

inflation during WW1

To deal with a presumed "underconsumption" problem, the AAA

established parity prices for certain agricultural crops, killed off farm animals to keep prices from falling, plowed under 25% of the nation's cotton crop to keep prices from falling (al of the above)

Which of the following were key provisions of the Glass-Steagall Act of 1933?

establishment of interest rate ceilings on checking deposits, creation of the FDIC, separation of commercial and investment banking (all of the above)

If inflation in Japan is 5% and in the U.S. it is 3%, then we would predict that the exchange rate (from the U.S. perspective) will

fall by 2%

According to the real balances effect, a ___ in prices will ___ our wealth

fall; increase

Since 1913, the value of the dollar has

fallen by about 95%

Liquidity is defined as how ___ an asset can be converted into ___ at its ___.

fast, a medium of exchange, full market value

Selgin argues that critiques of fractional reserve banking are not persuasive, including that:

it fuels the business cycle

Alternatives to a country producing its own currency would include

joining a currency union, dollarization (only A and B of the above)

Aggregate Demand is composed of spending by households, businesses, government and

foreigners

Suppose that we begin at a long run stable equilibrium. If government spending rises, we would shift in the curve(s) such that we move:

from W to X

Following the event in the previous problem, after a lag we would see a shift in the curve(s) such that we move

from X to Y

Consider the exchange between two currencies- the euro and the dollar. If the Europeans erect trade barriers that make it harder for Europeans to buy American goods then

from the U.S. perspective the dollar will appreciate in value, from the U.S. perspective, the supply of foreign exchange will decrease. (only A and B)

The gold standard was replaced by the ___ during the 1920s

gold exchange standard

Relative to Keynesians, Monetarists would tend to argue that:

if monetary policies are used to fight a recession, they should be rules-based, not discretionary

There will be a simulation assignment for this class where you will be in a group making decisions

in class on various Fridays

Only two specific changes can cause persistent inflation. One of these would be persistent

increase in the money supply

Banks can reduce the transaction costs of external finance because:

many of the costs are fixed, the bank can take advantage of economies of scale, bank assets are highly liquid (All of the above)

The "dual mandate" of the Fed is to

minimize inflation and minimize unemployment

The largest of the discussed financial institutions are

money center banks

The exchange economy within the POW camp would experience price fluctuations whenL

new prisoners would arrive, new Red Cross packages would arrive, the camp was subject to bombing raids (All of the above)

According to Rothbard, it can be said that:

none of the aboce

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?

none of the above

The POW camps used to illustrate the use of money were mostly in

none of the above

The bank of England, begun in the late 1600's

none of the above

The term "comptroller" comes from the ___ which was the term for the person that audits government records

none of the above

When the Federal Reserve buys and sells securities, this is called a/an:

open market operation

According to the Austrian view, money arises

out of a market setting

Relative to Keynesians, Monetarists would tend to argue that a decline in AD will:

primarily lower the price level

Newly issued financial instruments are sold mainly in

primary markets

The time it takes to realize that economic conditions have changed is called the

recognition lag

Discretionary monetary policy may be counterproductive if it:

reduces the long-run trend line for economic growth, makes business cycles more volatile, creates uncertainty among economic agents (all of the above)

Suppose that bank depositors cash out some of their demanded deposits for cash. In a free banking environment the money supply will ___, while in an environment with central banking, the money supply will ___

remain unchanged; fall

From 2007 to 2014, the share of the equity in commercial banks in the U.S.

remained unchanged at about 10%

the term structure of interest rates

represents the variation in yields for similar instruments differing only in maturity

Banks might be more efficient than individual lenders due to

returns to scale, expertise in accounting tasks, expertise in advertising to borrowers, ability to assess risk (all of the above)

When the Fed buys bonds, their price will ___ and interest rates will ___

rise;fall

Since 2008, when the monetary base was about $800 billion, it has

risen to about $4 trillion

These institutions lost about fifty percent of their deposits from 1989 to 2001

savings & loans

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 cuased half of all deposits to exit from

savings and loans

Which of the following attempts to explain the term structure of interest rates

segmented markets, expectations, preferred habit, unanticipated inflation premium (all of the above)

Suppose that trade barriers are reduced around the world, leading to rapid growth in both exports and imports. As a result we would expect the equilibrium real rate of interest to

shift to point A

With the onset of a recession we would most expect that the equilibrium real rate of interest to

shift to point C

If the working age population grows, holding other factors constant, we would expect the equilibrium of real rate of interest to

shift to point D

In the early 1920s, the United States experienced a huge inflow of gold. As a result we would expect the equilibrium real rate of interest to

shift to point D

An inverted yield curve means

short-term yields are higher than long-term yields

When inflation in the future is expected to be higher than it currently is, then the yield curve is likely to

slope upward

A presumed "advantage" of having a weak currency is it

stimulates the demand for exports

Instead of midterm exams, we will be having

super-quizzes

The "model" that Rothbard uses to show the effects of changing the money supply is

the "Angel Gabriel" model

Since 2008, which of the following is true?

the "effective" reserve ratio has risen over 100%, The M1 money multiplier has fallen to less than one (only A and C)

The use of "secondary" reserves to leverage a higher proportion of a bank's assets into longer term, higher interest earning, loans is known as

the Shiftability Theory

Following the reorganization of the Fed during the Great Depression:

the Treasury Secretary was no longer a member of the Board of Governors, the Comptroller of the Currency was no longer a member of the Board of Governors, the FOMC was created to conduct open market operations (All of the above)

The current yield on a bond is equal to

the coupon divided by the price

With the wave of deregulation in the banking industry from 1980 to 1999, we saw:

the creation of money market deposit accounts, the FDIC became more proactive in dealing with problem banks, an elimination of interest rate ceilings (all of the above)

According to Rothbard, a barter system limits:

the division of labor, the production of goods and services, the ability of businesses to calculate profits and losses (all of the above)

If the price of a British pound falls from $1.50 to $1.00, we can say that

the dollar price of British goods has fallen

Among the problems solved by the existence of money is/are:

the double coincidence of wants, which limits our ability to specialize labor. indivisibilities so that we can trade with fractional amounts, the ability to calculate whether a business makes a profit or a loss. (all of the above)

Interest can be thought of as

the embodiment of our expectations about the future

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:

the peso is the unit of account, the dollar is a medium of exchange, the peso is a medium of exchange. (all of the above)

Free banking would not be characterized by:

the presence of inflation

In the market for loanable funds

the real interest rate is determined by the interaction between supply and demand, the supply comes from saving plus net capital flows (Both A and C)

In the market for any good, we will note that:

the supply is an objective fact

As Rothbard points out, what is an "objective fact" of the world?

the supply of goods

Interest rates are determined by

the time value of money, the liquidity of the instrument, the default risk, term premiums for anticipated inflation (all of the above)

The characteristics of a warehouse type of bank include

the treating of deposits as bailment

Which of the following is/are true about credit default swaps?

they are essentially insurance policies on a bond in case the issuing firm goes bankrupt

Among the purposes of hedging is/are

to reduce one's exposure to risk due to price fluctuations

The discounted present value of a payment is the value ___ of the payment ___

today; made tomorrow

Is President Obama a Keynesian? Most of the people we saw in the video who were asked that question said "No," and cited as their reason that he:

was born in Hawaii

The foreign exchange market exists because, fundamentally

we want to buy their goods

According to the Austrians, a coherent business cycle theory needs to explain:

why these cycles are repetitive, why it is more severe in capital goods industries. (Only A and B)

Which of the following accurately characterizes a warehouse bank?

with a reputation for integrity, their receipts will be traded as money