Please be sure to give proper credit when presenting non-original material in the essay questions (4, 12, 17, and 29). You don't need to adhere to APA style citations, but you do need to credit non-original ideas. If you are going to cite the text, just a quick (Mishkin, p. xxx)
1. A plot of the interest rates on default-free government bonds with different terms to maturity is called
(a) a yield curve
(b) a default-free curve
(c) an interest-rate curve
(d) A risk-structure-curve
2. The higher a securities price in the secondary market the ________ funds a firm can raise by selling securities in the ________ market.
(a) More; secondary
(b) Less ; secondary
(c) Less ; primary
(d) More ; primary
3. he U.S. banking system is considered to be a dual system because
(a) banks offer both checking and savings accounts
(b) It actually includes both banks and thrift institutions.
(c) It was established before the Civil War, requiring separate regulatory bodies for the North and South.
(d) It is regulated by both state and federal governments.
4. Keynes titled his famous book The General Theory of Employment, Interest and Money, suggesting that the case of an economy reaching long-term equilibrium at full-employment was just a special case that could incorporated into his general theory. He argued that it is possible for the economy to reach a long-run equilibrium at less than full employment, as occurred in the US in the 1930s. His theory, as it relates to countercyclical fiscal policy is controversial to this day. Interest in Keynes' theory was rekindled in the wake of the financial crisis of 2008. Discuss the US policy response to the 2008 financial crisis in terms of Keynesian theory, and how the US experience of The Great Depression informed the Fed's response in 2008-current. You may wish to include a discussion of fiscal policy as well.
5. The amount of assets per dollar of equity capital is called the
(a) equity ratio
(b) Equity multiplier
(c) Asset multiplier.
(d) Asset ratio.
6. Financial markets have the basic function of
(a) Assuring that the swings in the business cycle are less pronounced.
(b) Assuring that governments need never resort to printing money.
(c) Getting people with funds to lend together with people who want to borrow funds.
(d) Providing a risk-free repository of spending power.
7. When the interest rate is ________, ________ investments in physical capital will earn more than the cost of borrowed funds, so planned investment spending is ________.
(a) low; few; high
(b) high ; many ; high
(c) low ; many ; low
(d) high ; few ; low
(e) high ; few high
8. Which of the following would a bank not hold as insurance against the highest cost of deposit outflow-bank failure?
(a) Bank capital
(b) Mortgages
(c) Secondary reserves
(d) Excess reserves
9. Which of the following are true concerning the distinction between interest rates and returns?
(a) The return can be expressed as the sum ...
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Please be sure to give proper credit when presenting .docx
1. Please be sure to give proper credit when presenting non-
original material in the essay questions (4, 12, 17, and 29). You
don't need to adhere to APA style citations, but you do need to
credit non-original ideas. If you are going to cite the text, just
a quick (Mishkin, p. xxx)
1. A plot of the interest rates on default-free government bonds
with different terms to maturity is called
(a) a yield curve
(b) a default-free curve
(c) an interest-rate curve
(d) A risk-structure-curve
2. The higher a securities price in the secondary market the
________ funds a firm can raise by selling securities in the
________ market.
(a) More; secondary
(b) Less ; secondary
(c) Less ; primary
(d) More ; primary
3. he U.S. banking system is considered to be a dual system
because
(a) banks offer both checking and savings accounts
(b) It actually includes both banks and thrift institutions.
(c) It was established before the Civil War, requiring separate
2. regulatory bodies for the North and South.
(d) It is regulated by both state and federal governments.
4. Keynes titled his famous book The General Theory of
Employment, Interest and Money, suggesting that the case of an
economy reaching long-term equilibrium at full-employment
was just a special case that could incorporated into his general
theory. He argued that it is possible for the economy to reach a
long-run equilibrium at less than full employment, as occurred
in the US in the 1930s. His theory, as it relates to
countercyclical fiscal policy is controversial to this day.
Interest in Keynes' theory was rekindled in the wake of the
financial crisis of 2008. Discuss the US policy response to the
2008 financial crisis in terms of Keynesian theory, and how the
US experience of The Great Depression informed the Fed's
response in 2008-current. You may wish to include a discussion
of fiscal policy as well.
5. The amount of assets per dollar of equity capital is called the
(a) equity ratio
(b) Equity multiplier
(c) Asset multiplier.
(d) Asset ratio.
6. Financial markets have the basic function of
(a) Assuring that the swings in the business cycle are less
pronounced.
(b) Assuring that governments need never resort to printing
money.
(c) Getting people with funds to lend together with people who
want to borrow funds.
3. (d) Providing a risk-free repository of spending power.
7. When the interest rate is ________, ________ investments in
physical capital will earn more than the cost of borrowed funds,
so planned investment spending is ________.
(a) low; few; high
(b) high ; many ; high
(c) low ; many ; low
(d) high ; few ; low
(e) high ; few high
8. Which of the following would a bank not hold as insurance
against the highest cost of deposit outflow-bank failure?
(a) Bank capital
(b) Mortgages
(c) Secondary reserves
(d) Excess reserves
9. Which of the following are true concerning the distinction
between interest rates and returns?
(a) The return can be expressed as the sum of the discount yield
and the rate of capital gains.
(b) The rate of return will be greater than the interest rate when
the price of the bond falls between time t and time t + 1.
(c) The return can be expressed as the difference between the
current yield and the rate of capital gains.
(d) The rate of return on a bond will not necessarily equal the
interest rate on that bond.
10. According to the expectations theory of the term structure,
the interest rate on a long-term bond will equal the ________ of
4. the short-term interest rates that people expect to occur over the
life of the long-term bond.
(a) Sum
(b) Difference
(c) Average
(d) multiple
11. Banks that actively manage liabilities will most likely meet
a reserve shortfall by
(a) Calling in loans.
(b) Seeking new deposits.
(c) Borrowing federal funds
(d) Selling municipal bonds
12. Your bank has the following balance sheet: Assets
Liabilities Reserves $ 50 million Checkable deposits $200
million Securities 50 million Loans 150 million Bank capital 50
million If the required reserve ratio is 10%, what actions should
the bank manager take if there is an unexpected deposit outflow
of $50 million?
13. If borrowers with the most risky investment projects seek
bank loans in higher proportion to those borrowers with the
safest investment projects, banks are said to face the problem of
(a) Adverse selection
(b) moral hazard
(c) Lemon lenders.
(d) Adverse credit risk.
14. The ________ traces out the points for which total quantity
of goods produced equals total quantity of goods demanded.
(a) investment schedule
(b) IS curve
5. (c) LM curve
(d) consumption function
15. As the costs associated with deposit outflows ________, the
banks willingness to hold excess reserves will ________.
(a) decrease; increase
(b) increase; increase
(c) increase; decrease
(d) decrease; not be affected
16. Of the following, which would be the first choice for a bank
facing a reserve deficiency?
(a) Call in loans
(b) Borrow from the Fed
(c) Sell securities
(d) Borrow from other banks
17. Throughout the course it has been stressed that depository
institutions, primarily banks. are especially important to the
financial health of the communities they serve and that bank
failures can have a major detrimental effect on local economies.
This fact has formed the basis for the development of many US
banking laws and regulations. One such regulation, the
development of the FDIC is particularly important. Discuss
some of the events that led to the FDIC and how it has affected
the management of banks, the implementation of monetary
policy and the issue of "moral hazard"
18. According to the liquidity premium theory of the term
structure
(a) because buyers of bonds may prefer bonds of one maturity
over another, interest rates on bonds of different maturities do
not move together over time
6. (b) Because of the positive term premium, the yield curve will
not be observed to be downward sloping.
(c) The interest rate on long-term bonds will equal an average
of short-term interest rates that people expect to occur over the
life of the long-term bonds plus a term premium.
(d) The interest rate for each maturity bond is determined by
supply and demand for that maturity bond.
19. Which of the following would not be a way to increase the
return on equity?
(a) Buy back bank stock
(b) Acquire new funds by selling negotiable CDs and increase
assets with them
(c) Sell more bank stock
(d) Pay higher dividends
20. A serious consequence of a financial crisis is
(a) a contraction in economic activity
(b) an increase in asset prices
(c) financial globalization
(d) financial engineering
21. If a bank has excess reserves greater than the amount of a
deposit outflow, the outflow will result in equal reductions in
(a) Deposits and loans.
(b) deposits and reserves
(c) capital and reserves
(d) capital and loans
7. 22. The classical economists' conclusion that nominal income is
determined by movements in the money supply rested on their
belief that ________ could be treated as ________ in the short
run
(a) money; variable
(b) money; constant
(c) velocity; variable
(d) velocity; constant
23. A bond with default risk will always have a ________ risk
premium and an increase in its default risk will ________ the
risk premium.
(a) negative; raise
(b) negative; lower
(c) positive; raise
(d) positive; lower
24. Empirical evidence shows that the quantity theory of money
is a good theory of inflation
(a) in the short run, but not in the long run
(b) in both the long run and the short run
(c) not in either the long run nor the short run
(d) in the long run, but not in the short run
25. Asset transformation can be described as
(a) borrowing short and lending long
(b) borrowing and lending for the long term
(c) borrowing long and lending short
(d) borrowing and lending only for the short term
26. Keynes hypothesized that the speculative component of
money demand was primarily determined by the level of
8. (a) stock market prices
(b) income
(c) interest rates
(d) velocity
27. Conditions that likely contributed to a credit crunch during
the global financial crisis include:
(a) increases in reserve requirements
(b) falling interest rates that raised interest rate risk, causing
banks to choose to hold more capital
(c) capital shortfalls caused in part by falling real estate prices
(d) Regulated hikes in bank capital requirements.
28. From before the financial crisis began in September of 2007
to when the crisis was over at the end of 2009, the huge
expansion in the Fed's balance sheet and the monetary base did
not result in a large increase in monetary supply because
(a) the discount loan decreased
(b) most of it just flowed into holdings of excess reserve
(c) the Fed also increased the required reserve ratio
(d) the Fed also conducted open market sales
29. Explain the Keynesian theory of money demand. What
motives did Keynes think determined money demand? What are
the two reasons why Keynes thought velocity could not be
treated as a constant?
30. The ________ of a coupon bond and the yield to maturity
are inversely related
(a) Term
(b) par value
(c) price
(d) maturity date
9. 31. When bad storms slow the check-clearing process, float
tends to ________ causing the Fed to initiate ________ open
market ________.
(a) decrease; defensive; sales
(b) increase; defensive; sales
(c) increase; dynamic; purchases
(d) decrease; dynamic; purchases
32. From before the financial crisis began in September of 2007
to when the crisis was over at the end of 2009, amount of
Federal Reserve assets rose, leading to
(a) a huge expansion of the money supply
(b) a high inflation
(c) a huge increase in the monetary base
(d) an economic expansion
33. Monetary aggregates are
(a) never redefined since "money" never changes
(b) measures of the money supply reported by the Federal
Reserve
(c) measures of the wealth of individuals.
(d) reported by the Treasury Department annually
34. In the early 1930s, the currency ratio rose, as did the level
of excess reserves. Money supply analysis predicts that,
everything else held constant, the money supply should have
(a) Fallen
(b) remain unchanged
10. (c) risen
(d) either risen, fallen, or remain unchanged
35. The Keynesian theory of money demand predicts that people
will increase their money holdings if they believe that
(a) bond prices are about to rise
(b) interest rates are about to fall
(c) bond prices are about to fall
(d) expected inflation is about to fall
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