{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

EXAM2 CH 7,17,10,13_001

EXAM2 CH 7,17,10,13_001 - Exam#2 Economics 2035—3...

Info icon This preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: /. Exam #2 Economics 2035—3 Chapters 7, 17, 10, 13 Mishkin 9th ed. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In the one—period valuation model, an increase in the required return on investments in equity A) increases the current price of a stock. KB.) reduces the expected sales price of a stock. @educes the current price of a stock. ') increases the expected sales price of a stock. 2) Using the Gordon growth model, a stock’s price will increase if A) the growth rate of dividends falls. / 'B) the dividend growth rate increases. C) the expected sales price rises. D) the required rate of return on equity rises. 3) New information that might lead to a decrease in an asset‘s price might be A) an expected increase in the future sales price. B) an expected increase in the dividend growth rate. ’ C) an expected decrease in the level of future dividends. D) a decrease in the required rate of return. 4) A monetary expansion stock prices due to a decrease in the _______ and an increase in the , everything else held constant. A) reduces; current dividend; expected rate of return I B) increases; required rate of return; dividend growth rate C) reduces; future sales price; expected rate of return D) increases; required rate of return; future sales price 5) If during the past decade the average rate of monetary growth has been 5% and the average inflation rate has been 5%, everything else held constant, when the Federal Reserve announces that the new rate of monetary growth will be 10%, the adaptive expectation forecast of the inflation rate will be A) between 5 and 10%. B) more than 10%. C) 10%. ’ D) 5%. 6) An expectation may fail to be rational if A) information was available to insiders only. B) relevant information was not available at the time the forecast is made. / C) relevant information is available but ignored at the time the forecast is made. D) information changes after the forecast is made. 7) If market participants notice that a variable behaves differently now than in the past, then, according to rational expectations theory, we can expect market participants to IA) change the way they form expectations about future values of the variable. B) give up trying to forecast this variable. C) begin to make systematic mistakes. D) no longer pay close attention to movements in this variable. 8) You have observed that the forecasts of an investment advisor consistently outperform the other reported forecasts. The efficient markets hypothesis says that future forecasts by this advisor A) will always be the best of the group. B) will be worse in the near future, but improve over time. C) will definitely be worse in the future. What goes up must come down. ID) may or may not be better than the other forecasts. Past performance is no guarantee of the future. ‘ ' 9) You read a story in the newspaper announcing the proposed merger of Dell Computer and Gateway. The merger is expected to greatly increase Gateway's profitability. If you decide to invest in Gateway stock, you can expect to earn A) below average returns since computer makers have low profit rates. '13.) a normal return since stock prices adjust to reflect expected changes in profitability almost immediately. C) above average returns since you will share in the higher profits. D) above average returns since your stock price will definitely appreciate as higher profits are earned. DC. ml 10) Evidence against market efficiency includes 10) L A) the inability of mutual fund managers to consistently beat the market. B) the random walk behavior of stock prices. C) the January effect. D) failure of technical analysis to outperform the market. . ' Jr 11) Everythlng else held constant, when a country's currency depreciates, its goods abroad become 11) A expensive while foreign goods in that country become expensive. I A) less; more B) more; less C) less; less D) more; more 12) According to the law of one price, if the price of Colombian coffee is 100 Colombian pesos per 12) A pound and the price of Brazilian coffee is 4 Brazilian reals per pound, then the exchange rate between the Colombian peso and the Brazilian real should be: 00 \A) 25 pesos per real. B) 100 pesos per real. l {4, 2937) C) 0.4 pesos per real. D) 40 pesos per real. i 13) The theory of purchasing power parity cannot fully explain exchange rate movements because 13) A \A) some goods are not traded between countries. B) fiscal policy differs across countries. C) all goods are identical even if produced in different countries. D) monetary policy differs across countries. 14) Assume that the following are the predicted inflation rates in these countries for the year: 2% for 14) ( " the United States, 3% for Canada; 4% for Mexico, and 5% for Brazil. According to the purchasing power parity and everything else held constant, which of the following would we expect to happen? A) The US. dollar will depreciate against the Canadian dollar. B) The Canadian dollar will depreciate against the Mexican peso. ‘C) The Brazilian real will depreciate against the US. dollar. D) The Mexican peso will depreciate against the Brazilian real. 15) A decrease in the domestic interest rate causes the demand for domestic assets to and 15) the domestic currency to everything ,else held constant. A) increase; appreciate ‘ B) increase; depreciate ‘ C) decrease; depreciate ' D) decrease; appreciate 16) A 16) An increase in the expected future domestic exchange ratecauses the demand for domestic assets to and the domestic currency to , everything else held constant. \ A) increase; appreciate ‘ B) decrease; depreciate C) decrease; appreciate D) increase; depreciate ("£0 17) in the foreign interest rate causes the demand for domestic assets to shift to the left and 17) j2__ the domestic currency to (everything else held constant. A) An increase; appreciate . B) A decrease; depreciate C) A decrease; appreciate ’ D) An increase; depreciate 18) Suppose the Federal Reserve releases a policy statement today which leads people to believe that 18) ‘ l2 the Fed will be enacting expansionary monetary policy in the near future. Everything else held constant, the release of this statement should cause the demand for US. assets to and the US. dollar to . A) increase; depreciate B) increase; appreciate C) decrease; appreciate \D) decrease; depreciate 19) Which of the following statements is false? 19) fi A) Checkable deposits are payable on demand. ' B) Checkable deposits are the primary source of bank funds. C) Checkable deposits interest—bearing and noninterest—bearing accounts. D) Checkable deposits are usually the lowest cost source of bank funds. 20) K?) 20) Banks' asset portfolios include state and local government securities because A) the Federal Reserve requires member banks to buy securities from state and local governments located within their respective Federal Reserve districts. l B) their interest payments are tax deductible for federal income taxes. C) banks consider them helpful in attracting accounts of Federal employees. D) there is no default-risk with state and local government securities. 21) In general, banks make profits by selling low cost liabilities and buying higher earning assets. A) long—term; shorter—term B) risky; risk-free C) illiquid; liquid I D) short-term; longer—term 22) When you deposit $50 in your account at First National Bank and a $100 check you have written on this account is cashed at Chemical Bank, then“ A) the liabilities at Chemical Bank rise by $50. B) the assets of First National rise by $50. \ C) the reserves at First National fall by $50. D) the assets of Chemical Bank rise by $50. 23) Which of the following are primary concerns of the bank manager? A) Acquiring funds at a relatively high cost, so that profitable lending opportunities can be realized \B) Maintaining sufficient reserves to minimize the cost to the bank of deposit outflows C) Extending loans to borrowers who will pay low interest rates, but who are poor credit risks D) Maintaining high levels of capital and thus maximizing the returns to the owners. 24) If, after a deposit outflow, a bank needs an additional $3 million to meet its reserve requirements, the bank can . A) sell $3 million of securities. B) repay its discount loans from the Fed. C) reduce deposits by $3 million. D) increase loans by $3 million. 25) Banks that actively manage liabilities will most likely meet an immediate reserve shortfall by A) seeking new deposits. B) selling municipal bonds. \ C) borrowing federal funds. D) calling in loans. 26) Bank capital has both benefits and costs for the bank owners. Higher bank capital the likelihood of bankruptcy, but higher bank capital the return on equity for a given return on assets. A) increases; increases B) increases; reduces C) reduces; increases \ D) reduces; reduces 27) From the standpoint of , specialization in lending is surprising but makes perfect sense when one considers the problem. A) adverse selection; diversification B) diversification; moral hazard \ C) diversification; adverse selection D) moral hazard; diversification 28) Long—term customer relationships the cost of information collection and make it easier to credit risks. A) reduce; increase B) increase; screen ‘ C) reduce; screen D) increase; increase 29) If the First National Bank has a gap equal to a negative $30 million (rate—sensitive assets minus rate—sensitive liabilities), then a 5 percentage point increase in interest rates will cause profits to A) decline by $15 million. B) increase by $1.5 million. C) increase by $15 million. \ D) decline by $1.5 million. 30) A nominal anchor promotes price stability by \A) keeping inflation expectations low. B) keeping economic growth low. C) stabilizing interest rates. D) outlawing inflation. 31) Even if the Fed could completely control the money supply, monetary policy would have critics because \A) the Fed is asked to achieve many goals, some of which are incompatible with others. B) it is required to keep Treasury security prices high. I C) the Fed's primary goal is exchange rate stability, causing it to ignore domestic economic conditions. D) the Fed‘s goals do not include high employment, making labor unions a critic of the Fed. 21) ’D 22) 23) B 27) C so) A 31) (S 32) Which of the following functions are not performed by any of the twelve regional Federal Reserve Banks? A) Issuing new currency B) Conducting economic research C) Check clearing \D) Setting interest rates payable on time deposits 33) Banks subject to reserve requirements set by the Federal Reserve System include A) only banks with assets less than $500 million. B) only banks with assets less than $100 million. \ C) all banks whether or not they are members of the Federal Reserve System. D) only nationally chartered banks. 34) Which of the following are not current duties of the Board of Governors of the Federal Reserve System? “A) Setting margin requirements, the fraction of the purchase price of the securities that has to be paid for with cash. B) Setting the maximum interest rates banks can charge their borrowing customers C) Representing the United States in negotiations with foreign governments on economic matters. D) Approving the discount rate "established" by the Federal Reserve banks. 35) The Federal Open Market Committee's "balance of risks statements" is an assessment of whether, in the future, its primary concern will be A) lower inflation or a stronger economy. B) higher exchange rates or higher unemployment. \ C) higher inflation or a weaker economy. D) higher inflation or a stronger economy. ' 36) Members of Congress are able to influence monetary policy, albeit indirectly, through their ability to A) withhold appropriations from the Board of Governors. B) withhold appropriations from the Federal Open Market Committee. C) instruct the General Accounting Office to audit the foreign exchange market functions of the Federal Reserve. \D) propose legislation that would force the Fed to submit budget requests to Congress, as must other government agencies. , m 37) The strongest argument for an independent Federal Reserve rests on the View that subjecting the Fed to more political pressures would impart A) a disinflationary bias to monetary policy. B) an inflationary bias to monetary policy. A C) a deflationary bias to monetary policy. D) a countercyclical bias to monetary policy. 38) Under the European System of Central Banks, the National Central Banks have the same role as the of the Federal Reserve System. \A) Federal Reserve District Banks B) Board of Governors C) Federal Advisory Council D) Federal Open Market Committee 39) The trend in recent years is that more and more governments A) have required their central banks to cooperate more with their Ministers of Finance. B) have mandated that their central banks focus on controlling inflation. \C) have been granting greater independence to their central banks. D) have been reducing the independence of their central banks to make them more accountable for poor economic performance. 32) ‘2 33) C 35) Cl 39) ...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern