Eco Test Bank #1
219. After three years, a deposit of $1000 that compounds annually at an interest rate of 20% returns: a. $1000. b. $1200. c. $1440. d. $1728.
$1440.
12. 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.
demand deposits
227. 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.
demand; fall.
124. 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 c. Only the cash that is withdrawn at a depository institution by depositors.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.
Anything the bank owns that has a market value.
136. 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.
The Fed was granted total independence from Congress.
155. 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.
The Federal Funds rate.
164. 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.
The amount of time between the need for a policy action and the realization of that need
194. Which of the following is not one of Woods' "culprits" in the housing bubble? a. The Community Reinvestment Act. b. The anti-ownership nature of our tax code. c. The Federal Reserve's cheap credit. d. The "too big to fail" mentality. e. The government's artificial stimulus of speculation in this market.
The anti-ownership nature of our tax code.
94. This economist won a Nobel prize in economics for his work on business cycle theory: a. Lionel Robbins. b. F. A. Hayek. c. J. M. Keynes. d. Ludwig von Mises. e. Karl Marx.
F. A. Hayek.
152. 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.
Falls by $150.
54. 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
Federal Reserve Notes
141. 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.
Federal Reserve notes.
145. Which of the following are liabilities of the Fed? a. Federal Reserve notes. b. Bank reserves. c. Discount loans. d. Gold certificates. e. Both A and B are liabilities of the Fed.
Federal Reserve notes.
156. Which Federal Reserve operating procedure generally leads to large variations interest rates relative to variations in bank reserves? a. Federal funds rate targeting. b. Total reserves targeting. c. Borrowed reserves targeting. d. Nominal income targeting.
Federal funds rate targeting***
158. What is not a characteristic of intermediate targets? a. Consistent with end goals b. Unmeasurable c. Frequently observable d. Controllable e. Definable
Unmeasurable
44. According to Woods, the second largest "industry" to contribute to members of Congress is/are: a. lawyers. b. doctors. c. union members. d. securities and investments. e. environmentalists.
securities and investments.
8. 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.
a US savings bond
79. 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.
seigniorage
21. During a period of hyperinflation, money is not functioning well as a: a. medium of exchange. b. unit of account. c. store of value. d. all of the above.
store of value
76. 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.
store of value
114. The "elephant" in the room that Woods is alluding to in the first chapter is: a. the Federal Reserve System. b. the Congress. c. the powerful House Banking Committee. d. President Bush. e. President Obama.
the Federal Reserve System.
133. 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.
the First Bank of the United States.
143. 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.
the U.S. Treasury Department.
229. 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.
downward sloping
229. 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.
downward sloping.
146. 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
equal to, greater than
82. 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
fast; medium of exchange; full market value
116. 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.
gap analysis
117. 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.
gap analysis
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.
gold
49. 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.
gold and silver
123. The first form of depository financial institutions were: a. national banks. b. commercial banks. c. goldsmiths. d. Italian merchant stores. e. fractional-reserve banks.
goldsmiths.
138. 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.
government securities.
209. 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.
greater than $1000
208. 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.
greater than 5%.
202. 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
rise; fall; rise; rise
88. 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.
risen to about $4 trillion
148. 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.
rises by $1000.
125. 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.
savings and loans.
67. 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."
"Not worth a Continental."
98. 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.
$10 million in excess reserves.
221. 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
$1058.25
198. 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
$250,000
151. The Fed sells $400 in bonds, half to the public and half to the banking system, which means the monetary base falls by _____ and the quantity of reserves falls by ____. a. $200, $200 b. $200, $400 c. $400, $400 d. $600, $600 e. $400, $200
$400, $200
220. 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
$461.92
218. 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
$9,245.56
97. 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.
$900.
217. 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
$952.38
205. 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).
(coupon return)/(face amount of the bond).
74. Fractional reserve banking is not inflationary if they hold ___ reserves. a. 10% b. 25% c. 50% d. 75% e. 100%
100%
134. The Federal Reserve was established in: a. 1766. b. 1836. c. 1913. d. 1936. e. 1966.
1913
80. 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.
1933
108. 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 m* is a. 0. b. 1. c. 2. d. 3. e. It cannot be determined from the information available.
2
99. 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.
2 percent
109. 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 excess reserves is $200, then m* is a. 3.75 b. 3.5 c. 3.25 d. 3.0 e. 2.75
2.75
211. 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.
20 percent.
207. 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.
5 percent.
193. By 2008, Fannie and Freddie were acquiring about ____ of all new mortgages in order to bundle them into MBS. a. 75% b. 60% c. 50% d. 35% e. 20%
75%
204. 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.
All of the above.
206. Who is interested in, and/or affected by, changing interest rates? a. Savers. b. Borrowers. c. Policymakers. d. Forecasters. e. All of the above.
All of the above.
192. The highest rating on mortgage-backed securities (MBS) by bond rating agencies is: a. A+ b. AA+ c. A d. ABC e. AAA
AAA
203. 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.
Albert Einstein
61. 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.
All of the above
64. 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
All of the above
The money measure M2 includes: a. savings deposits b. currency c. traveler's checks d. demand deposits at financial institutions e. all of the above
All of the above
102. 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.
All of the above.
147. 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.
All of the above.
162. 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.
All of the above.
166. 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.
All of the above.
180. 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
All of the above.
199. 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.
All of the above.
113. What group of economists were well aware of the impending housing bubble? a. Marxist economists. b. Austrian economists. c. Keynesian economists. d. Monetary economists. e. All of the above.
Austrian economists.
112. Woods mentions some "government sponsored enterprises" that have unique privileges that led them to draw far more resources into housing than the free market would have. These include: a. Fannie Mae. b. Freddie Mac. c. Felicity Monk. d. Both A and B are correct. e. Both B and C are correct.
Both A and B are correct.
149. A change in the monetary base 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.
Banks lend excess reserves, which become deposits.
2. The functions of money include all one 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.
Barter
179. 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.
Both A and B are true
65. 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.
Both A and B are true.
140. 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.
Both A and B of the above.
181. 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.
Both A and C are true.
73. 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.
Both B and C are true
157. 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.
Both a discount rate increase and a cut in the required reserve ratio.
222. 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.
Both bonds fall in value but Christina's falls more.
101. 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.
C+R.
31. 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.
Checking credit ratings.
57. 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
Currency School
224. 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.
Fisher equation.
41. 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.
Gap Analysis
40. 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.
Gap analysis
75. 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.
Hayek
234. 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.
Hugo Chavez.
39. 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.
Increasing borrowings
187. 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.
Independent Treasury System.
5. 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.
It cannot be done to representative money.
135. 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.
It increased control of the Federal Reserve System by the Board of Governors.
230. According to the Austrian business cycle theory which of the following is true about the economy? a. The fact that there is widespread business failure does not mesh with our understanding of how markets work. b. The broad disturbance in our economy points to a monetary cause. c. It is long-term capital investments that suffer the most. d. All of the above. e. None of the above.
It is long-term capital investments that suffer the most.
4. 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.
It is portable
188. 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.
It replaced the earlier Bank of Mutual Redemption.
191. How bad can the housing market get? Woods cites the fact that in _____ housing prices, following the bursting of their bubble, fell by some _____. a. China; 30% b. Australia; 40% c. Germany; 50% d. Brazil; 70% e. Japan; 80%
Japan; 80%
237. Should we respond to a recession with massive public works projects, massive infusions of money and enormous debt? That has been tried and spectacularly failed in: a. Russia b. Japan c. Brazil d. Italy e. South Korea
Japan?
232. 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
Lehman Brothers; Bear Stearns
122. 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.
Loans, securities, and cash assets.
55. 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.
Ludwig von Mises
3. 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.
M1
83. 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.
M1 and M2 will remain the same.
34. 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.
Moral Hazard
213. 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.
National Banking Act.
231. To illustrate the dot-com boom Woods cites the example of: a. Microsoft, whose stock prices fell by 23%. b. Apple, whose innovative Ipod caused its stock prices to triple. c. Home Depot, whose IPO was very disappointing, with prices at two-thirds of that expected. d. Toys-R-Us, which was bankrupt before the bust even began. e. Netscape, whose IPO made owners multimillionaires even though it had never made a profit.
Netscape, whose IPO made owners multimillionaires even though it had never made a profit.
77. 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.
Only A and B of the above
175. 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.
Only A and B of the above.
38. 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.
Only A and B of the above.
139. 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.
Only A and C of the above.
24. Diamonds would 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.
Only B and C
126. 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.
Only B and C of the above.
68. 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.
Only with regard to paper money
153. 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.
Open market sale or purchase.
196. Treasury Secretary _____ proposed and pushed for many bailouts in 2008. a. Woods b. Paulson c. Bernanke d. Dodd e. Chavez
Paulson
45. Woods discusses the role that Treasury Secretary _____ played, as part of the Bush Administration, in crafting government policy to respond to this crisis, including a $700 "rescue plan." a. Geithner b. Mellon c. Paulson d. McCain e. Merkel
Paulson
170. 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.
Policy rule.
118. 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.
Reserves and loans.
163. 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.
Response lag.
Which of the following is not included in M1? a. Currency. b. Traveler's checks. c. Transaction deposits. d. Savings deposits. e. Checking accounts.
Savings Deposits
130. 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.
Shiftability theory.
132. 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.
Silver
212. Which of the following is an example of rational expectations? a. Stock market participants rely on only past stock prices to forecast future stock prices. b. Stock market participants believe today's stock price is the same as yesterday's stock price. c. Stock market participants use all information available to them to forecast future stock prices. d. Stock market participants never use past stock price to forecast future stock prices. e. None of the above.
Stock market participants use all information available to them to forecast future stock prices.
195. What was the major cause of the bursting of the housing bubble? a. The size of the sub-prime market. b. The fact that the MBS were spread over a wide geographic area. c. The existence of ARMs (adjustable rate mortgages) on prime loans. d. The lower standards for mortgage lenders. e. The lack of down payments for new homes.
The existence of ARMs (adjustable rate mortgages) on prime loans.
201. 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.
The yield to maturity.
184. 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.
Their notes didn't become legal tender until the 1830s.
71. 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.
They can raise funds by selling bonds and selling stock.
197. 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.
Too Big To Fail.
15. 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.
You borrow money from a friend for lunch.
37. 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.
a cartelizing device that limits entry into banking.
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
a double coincidence of wants
111. Despite what we generally hear from the "experts" and press, the cause of our economic problems, according to Woods, is: a. a failure of capitalism. b. a failure of government. c. a failure of international trade. d. a failure due to unions. e. balanced government budgets.
a failure of government.
91. Persistent inflation can arise from: a. a persistent increase in the supply of money. b. a persistent increase in the demand for money. c. a persistent increase in the supply of goods. d. All of the above. e. Only B and C of the above.
a persistent increase in the supply of money.
47. 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.
a pound of silver
51. 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 shortage; rise in the PPM
52. 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 shortage; rise in the PPM
50. 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
a surplus; fall in the PPM
62. 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
a surplus; fall in the PPM
17. 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.
adverse selection
10. 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.
all of the above
115. Default risk is a potential problem for which of the following form(s) of money? a. Commodity. b. Representative. c. Credit. d. All of the above. e. None of the above.
all of the above
120. 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.
all of the above
16. 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.
all of the above
177. 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.
all of the above
18. 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.
all of the above
19. 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.
all of the above
20. 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.
all of the above
215. 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.
all of the above
28. Which of the following is/are desirable attributes of a medium of exchange? a. Durability. b. Elasticity of supply. c. Divisibility. d. Portability. e. All of the above
all of the above
32. 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.
all of the above
33. 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.
all of the above
42. 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.
all of the above
53. Suppose we observe the following prices: eggs - $1/dozen, butter - $2/pound, shoes - $50/pair, MP3 player - $100. Which of the following is true about 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.
all of the above
56. 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
all of the above
72. 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.
all of the above
78. 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.
all of the above
84. 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.
all of the above
85. 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.
all of the above
89. 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.
all of the above
128. 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.
anticipated income
142. 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.
are a liability to both the Fed and the depository institutions.
172. 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.
average inflation.
25. 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.
be halved
60. According to Rothbard, the term "dollar" came from a coin minted in: a. Brazil. b. Botswana. c. Belize. d. Burma. e. Bohemia.
bohemia
154. The Fed's discount window policy aims at directly affecting the amount of a. borrowed reserves. b. nonborrowed reserves. c. capital in depository institutions. d. foreign reserves.
borrowed reserves
173. 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.
business cycles variation may be dampened.
159. Variations in real GDP relative to its long-run growth path are known as: a. expansions. b. peaks. c. business cycles. d. Natural GDP.
business cycles.
100. 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.
26. 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.
cash
23. Cigarettes are an example of _____ money. a. fiat b. representative c. credit d. commodity e. None of the above.
commodity
110. An increase in the excess reserve ratio will cause m* to: a. increase. b. decrease. c. stay the same. d. change in an uncertain direction.
decrease
150. If the Fed were to sell gold, the money supply would: a. Increase. b. Decrease. c. Stay the same. d. Cannot be determined.
decrease
225. 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.
default risk.
200. 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.
discounted present value.
171. 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.
discretionary policy
161. 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.
dislikes inflation more than the average citizen and is more willing to risk a recession.
96. 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.
has a required reserves deficiency of $10 million.
59. 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.
heavy demand
167. The use of a monetary aggregate as an intermediate target will cause: a. the interest rate to fluctuate. b. the use of an interest rate as an ultimate target. c. the use of an interest rate as an operating target. d. high real output growth over time. e. low real output growth over time.
high real output growth over time.
165. In an environment of discretionary 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.
higher inflation rate.
235. To illustrate the investment problem during a bust, Mises cites the example of a: a. home builder who finds out that he doesn't have enough bricks to finish his project. b. cattle rancher who finds out that he doesn't have enough cowboys to keep his herd together. c. cattle rancher who finds out that he doesn't have enough cattle and must set them free. d. circus owner who forgot to bring nets for his trapeze artists. e. rowboat with one fixed oar.
home builder who finds out that he doesn't have enough bricks to finish his project.
176. 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.
increases the money supply.
169. Which of the following potential targets can the Federal Reserve observe with the highest frequency? a. M1. b. Interest rates. c. Real GDP. d. Nominal GDP. e. Inflation.
interest rates
168. 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.
intermediate targets.
14. 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.
internal finance
186. 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.
it applied for, and received, a state charter to stay in business.
95. 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 .
it has used all of its excess reserves to make loans
36. 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.
least appreciated work
223. Short maturity bonds have ____ interest rate risk than long maturity bonds. a. more b. less c. equal d. an undetermined amount of
less
119. 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
liquidity
183. 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. d. selling bonds to the central bank. e. foreign borrowing.
literally printing money.
69. 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.
loan bank
92. 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.
loan bank
236. According to the Austrian view, the boom-bust problem originates with: a. low interest rates during the bust. b. low interest rates during the boom. c. high interest rates during the boom. d. high interest rates during the bust. e. high interest rates during both the boom and the bust.
low interest rates during the boom.
144. 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.
make loans to solvent but illiquid banks.
185. 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.
may have seen the end of inflation, perhaps forever
11. 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.
measures of differing weights of gold or silver
63. 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.
none of the above
81. 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.
none of the above
86. 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.
none of the above
87. 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.
none of the above
93. 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
none of the above
160. 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
none of the above? what is required for the elimination of fluctuations is for the central-bank policy makers to aim at a fixed rate of growth of the money supply:
43. As Rothbard describes, in the market for an good, the supply is ___ and the demand is ___. a. objective; objective b. objective; subjective c. subjective; objective d. subjective; subjective
objective; subjective
58. 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.
only A and B
190. According to Woods, the greatest intervention into the economy by the federal government is: a. the building of federal highways. b. Social Security. c. Medicare. d. our central bank. e. the Environmental Protection Agency.
our central bank.
46. 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.
pigs
48. 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.
required reserves and excess reserves
174. 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.
placing constitutional limits on discretionary monetary policy.
129. 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.
real bills doctrine
22. 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.
representative
121. Which of the following do NOT generate fees for banks? a. Credit cards. b. Securitized loans. c. Reserves. d. The use of ATMs.
reserves
226. 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.
the demand for bonds.
27. In his commentary in Meltdown, Ron Paul claims that the usual economic policies that are proposed to fix our economic problems are based on: a. the correct idea that the free market fails. b. the false idea that the free market fails. c. the correct idea that government can solve our problems. d. Both A and C are correct. e. Both B and C are correct.
the false idea that the free market fails
137. 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.
the federal open market committee.
131. 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.
the government made it illegal to use gold as money.
189. 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.
the proliferation of banks printing up their own notes.
182. 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.
the required reserve ratio.
216. 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.
the time to maturity.
214. 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.
the yield to maturity.
178. 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.
there are many, smaller banks.
66. 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.
there are winners and losers, unlike in the Angel Gabriel model.
29. 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.
to pay soldiers when they failed to loot enough from the French.
127. 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.
total deposits rose to about 70% of the total.
70. 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.
warehouse bank
233. 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.
was banned for a period of time during the financial crisis.
90. 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.
we have economic growth.
13. 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.
with a reputation for integrity, their receipts will be traded as money
228. 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.
with different times to maturity
30. 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.
withheld earnings
210. 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
yield to maturity.
107. 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.
ΔMS = m · ΔMB
