Q&A Hero

Q: Which president failed to renew the charter of the Second Bank of the United States? A) George Washington B) Andrew Jackson C) Franklin Roosevelt D) Lyndon Johnson

Q: In broad nominal terms, the dollara. depreciated against other currencies from 1988 to 2001 and from 2001 to 2008b. depreciated against other currencies from 1988 to 2001 and appreciated against those currencies from 2001 to 2008c. appreciated against other currencies from 1988 to 2001 and from 2001 to 2008d. appreciated against other currencies from 1988 to 2001 and depreciated against those currencies from 2001 to 2008

Q: Which groups were opposed to the Bank of the United States? A) northeastern industrial interests B) northeastern financial interests C) southern and western agrarian and small-business interests D) exporters

Q: Who organized the Bank of the United States? A) Alexander Hamilton B) George Washington C) Andrew Jackson D) Woodrow Wilson

Q: An investor bought a one-year government bond of Country X with a nominal interest rate of 6 percent. If the current exchange rate between the U.S. dollar and Country X's currency is 50 units per dollar and the expected exchange rate after a year is 48 units per dollar, what is the expected dollar return of investing in Country X's bond? a. 4 percentb. 3 percent c. 8 percent d. 12 percent

Q: If interest-rate parity holds and the interest rate in Japan is 3 percent while in France it is 5 percent, then we would expect the yen per euro exchange rate to percent.a. appreciate by 8 b. appreciate by 2 c. depreciate by 2 d. depreciate by 8

Q: Suppose the interest rate in Japan is 2 percent and the yen per euro exchange rate is expected to appreciate by 1 percent. If interest-rate parity holds, then the interest rate in France isa. 3 percent.b. 1 percent.c. −1 percent.d. −3 percent.

Q: Why has the Federal Reserve chairman often been called the second most important person in terms of affecting the economy? A) The Fed chairman has veto power over all federal spending. B) The Fed is in control of monetary policy. C) The Fed chairman draws the second highest salary of any official of the federal government. D) The Fed has regulatory power over all financial markets.

Q: If the annual inflation rate is 3 percent in France and 5 percent in Italy, by how much will the real exchange rate change over a year? Assume that both countries use the euro so their nominal exchange rate cannot change.a. 2 percentb. 3/5 percent c. −3/5 percent d. −2 percent

Q: In January 2010, President Obama appointed which of the following to be chair of the Federal Reserve? A) Greenspan B) Bernanke C) Geithner D) Trichet

Q: Suppose the inflation rate in Canada is 1 percent and the inflation rate in Mexico is 3 percent. If the nominal exchange rate in terms of Mexican pesos per Canadian dollar falls by 4 percent, by how much will the real exchange rate (in terms of Mexican goods per Canadian good) change?a. +6 percentb. +2 percentc. −2 percentd. −6 percent

Q: Describe the four stages of the financial regulatory pattern.

Q: The real exchange rate between the domestic currency of a country and the foreign currency increases by 2 percent. If the domestic price level increases by 4 percent while the foreign price level increases by 3 percent, the nominal exchange rate willa. increase by 1 percent. b. decrease by 3 percent c. increase by 5 percent d. decrease by 3 percent

Q: Which aspects of a bank's operations are evaluated as part of the CAMELS rating system?

Q: A bushel of rice costs 500 yen in Japan and 100 pesos in Mexico. If someone could sell a bushel of rice in Japan for yen, take those yen and exchange them for pesos, then buy a bushel of rice in Mexico, the nominal exchange rate would be and the real exchange rate would be .a. 5 pesos per yen; 6 pesos per yen. b. 1 peso per yen; 4 pesos per yen. c. 1 peso per yen; 2 pesos per yen. d. 5 pesos per yen; 1 peso per yen.

Q: What are the primary reasons for and against a policy of "too big to fail."

Q: Under relative purchasing-power parity,a. the exchange rate equals the ratio of price indexes in two countries.b. interest-rate parity holds.c. absolute purchasing-power parity also holds.d. a currency depreciates relative to another currency by the amount by which the inflation rate is higher in the first country than in the second country.

Q: When did Regulation Q finally disappear? A) 1934 B) 1945 C) 1986 D) 2000

Q: As of 2012, what portion of bank assets were owned by the five largest bank holding companies? A) 10% B) 25% C) 50% D) 80%

Q: Under absolute purchasing-power parity,a. the exchange rate equals 1 if both the countries have equal price indices.b. interest-rate parity holds.c. relative purchasing-power parity cannot hold.d. a currency depreciates relative to another currency by the amount by which the inflation rate is lower in the first country than in the second country.

Q: An ATS account A) converts a corporation's checking account balance at the end of the day into an overnight repurchase agreement. B) is the name given to NOW accounts outside of New England. C) are negotiable certificates of deposit of less than $100,000. D) were used during the Great Depression by depositors who had lost faith in conventional checking accounts.

Q: If the exchange rate equals the ratio of price indexes in two countries, there is said to be a. one price fits all.b. absolute purchasing-power parity. c. relative purchasing-power parity. d. interest-rate parity.

Q: The usual response of the banking system to new government regulations is A) evasion through whatever means are necessary. B) strict compliance. C) an attempt to circumvent the regulations through financial innovation. D) bankruptcy.

Q: The primary motive for financial innovation during the regulatory process is A) profit. B) adherence to the new regulations. C) return to the way business was conducted prior to the new regulations. D) increase coordination with other financial institutions.

Q: If only one good is traded between two countries and the price of the good is the same in both countries when expressed in units of the same currency, thena. people have rational expectations.b. both countries have the same monetary policy. c. there is interest-rate parity.d. the law of one price holds.

Q: If the supply of dollars in exchange for euro increases,a. the dollar depreciates against the euro.b. the dollar appreciates against the euro.c. the exports of U.S. to Europe becomes costlier.d. the demand for European goods increase in the U.S.

Q: The fourth stage in the regulatory process is A) a crisis. B) response by the financial system. C) regulation. D) regulatory response.

Q: A correlation of_____ between output growth in two regions would mean that output growth in both regions changed at exactly the same time and by the same proportionate amount. a. 0b. less than 0 c. 1.0d. 100

Q: Suppose, that participants in the underground economy in Europe suddenly decide to switch from using dollars to using euros. Thus, they supply a huge volume of dollars to the market in exchange for euros. As a result,a. the dollar appreciates and the euro depreciates. b. the dollar and the euro both appreciate.c. the dollar depreciates and the euro appreciates. d. the dollar and the euro both depreciate.

Q: The third stage in the regulatory process is A) a crisis. B) response by the financial system. C) regulation. D) regulatory response.

Q: A correlation of______between output growth in two regions would mean that output in the two regions are inversely related.a. 0b. 1c. 100d. less than 0

Q: The second stage in the regulatory process is A) a crisis. B) regulation. C) response by the financial system. D) regulatory response.

Q: In 2005, exchange rates were 1.74 U.S. dollars per British pound, 112 Japanese yen per U.S. dollar, and 1.20 dollars per euro. In 2000, the exchange rates were 1.62 U.S. dollars per British pound, 102 Japanese yen per U.S. dollar, and 0.94 dollars per euro. For each currency, explain whether it appreciated or depreciated from 2000 to 2005 versus the other two currencies.

Q: The first stage in the regulatory process is A) a crisis. B) response by the financial system. C) regulation. D) regulatory response.

Q: A country's net foriegn investment is equal to the amount?a. the domestic country invests in other countries, minus what other countries invest in the domestic country.b. Other countries invest in the domestic country, minus what the domestic country invests in other countries.c. of the current-account balance plus the capital-account balance.d. of portfolio investment made by the domestic country in other countries, minus the amount of portfolio investment other countries make in the domestic country.

Q: What other markets were affected by the decline in the housing market beginning in 2006? Briefly explain why.

Q: Can VARs be used to analyze the effects of monetary policy?

Q: How does the relationship between housing prices and rental rates provide evidence for or against the existence of a housing bubble?

Q: Describe the new neoclassical synthesis.

Q: A stress test of banks, such as that undertaken in the Spring of 2009, is designed to: A) ensure that banks have followed proper accounting standards B) make sure that banks are properly managed C) gauge how well banks would fare if the economy worsens D) estimate the impact of a bank panic on the overall economy

Q: Losses in which holding resulted in BNP Paribas not allowing investors to redeem shares from three of its investment funds? A) mortgage-backed securities B) Lehman Brothers C) Bear Stearns D) Real Estate Investment Trusts

Q: What are the advantages and disadvantages of VAR models?

Q: When prices of new houses rise significantly faster than rent prices, this is evidence of a: A) debt-deflation process B) bubble C) financial crisis D) sovereign debt crisis

Q: Most of the TARP funds were used to A) fund a stimulus package. B) pay for losses incurred by Fannie Mae and Freddie Mac. C) finance the operations of the Federal Reserve. D) make direct purchases of preferred stock in banks to increase their capital.

Q: A model that is based on the decisions of economic agents is known asa. a rational-expectations model.b. a decision-theoretic model.c. a model with microeconomic foundations.d. a fully compatible real business cycle model.

Q: What was the purpose of the stress test administered by the Treasury in 2009? A) Evaluate potential losses of Fannie Mae and Freddie Mac. B) Assess the viability of AIG. C) Gauge how well the largest financial firms would fare if the recession deepened. D) Evaluate the solvency of the major investment banks.

Q: A model that focuses on what is happening at just one point in time is known as a. a dynamic model.b. a static model.c. a general-equilibrium model. d. a partial-equilibrium model.

Q: All of the following were actions taken by the government or the Fed in response to the Financial Crisis of 2007-2009 EXCEPT A) purchasing of most toxic assets such as mortgage-backed securities. B) reducing the federal funds rate to near zero. C) insuring deposits in money market mutual funds. D) effective nationalization of Fannie Mae and Freddie Mac.

Q: A model in which actions that occur at one time affect what happens at other times is known asa. a dynamic model.b. a static model.c. a general-equilibrium model.d. a partial-equilibrium model.

Q: In the two-period model, suppose a household's income in the first period is $40,000, income in the second period is $50,000, and the real interest rate is 25 percent. The government proposes to give the household a tax rebate of $5,000 in the first period, but will tax the household an additional $5,000 × 25 = $6,250 in the second period. The household is____ under the government's tax rebate plan compared with before.a. better offb. worse offc. equally well offd. possibly better off and possibly worse off

Q: Which investment caused the Reserve Primary Fund to incur heavy losses? A) mortgage-backed securities B) real estate investment trusts C) commercial paper issued by Bear Stearns D) commercial paper issued by Lehman Brothers

Q: Describe the general procedures followed by DSGE researchers creating a new model.

Q: In a two-period model, assume that there are 20 households each with an income of $35,000 in period one and an income of $45,000 in period two. The equilibrium rate of interest faced by the household is 50 percent. The government decides to offer each household a tax rebate of $1,500 in period one. As a rational economic agent you know that the government will tax the households in period two, in order to repay its borrowing. With the interest rate unaffected by the government's action, the government will impose a tax of ______per household, in period two.a. $2,600b. $3,265c. $1,500d. $2,250

Q: What does it mean for a money market mutual fund to "break the buck"? A) The value of its share declines below $1. B) It incurs losses on its investments. C) It increases its fees to more than 1% of net asset value. D) It is unable to meet the demand for withdrawals by investors.

Q: Economic research over the last 20 years suggests that expectations are best modeled as variables.a. dummyb. ordinalc. endogenousd. preference

Q: By the summer of 2008, about what percent of subprime mortgages were overdue by at least 30 days? A) 10% B) 25% C) 34% D) 50%

Q: If people form their expectations using all the information available to them, they are said to have a. informed expectations.b. rational expectations. c. irrational forecasts.d. an information set.

Q: Which investment bank avoided bankruptcy by being purchased by JP Morgan Chase in March 2008? A) Morgan Stanley B) Lehman Brothers C) Bear Stearns D) Merrill Lynch

Q: People's beliefs about future economic variables are known as a. microeconomic foundations.b. real interest rates. c. expectations.d. permutations.

Q: What are the four explanations given as to why the Fed did not intervene to stabilize the banking system during the Great Depression?

Q: An economy has 100 households. The forty rich households each have incomes of $50,000 in period 1 and $75,000 in period The sixty poor households each have incomes of $20,000 in period 1 and $25,000 in period Assume that the price of the good is $1 in both periods. Also assume that the households borrow from each other. Suppose that each household decides that its consumption in period 1 will equal 50 percent of the present value of its income from both periods. The equilibrium real interest rate is abouta. 20 percent.b. 30 percent.c. 40 percent.d. 50 percent.

Q: How does deflation affect those with debt?

Q: Which of the following is NOT an accurate description of the recession that accompanied the financial crisis of 2007-2009? A) GDP declined by more than twice the rate of the average recession. B) Inflation rose at nearly twice the rate as the average recession. C) It lasted just under twice as long as the typical recession. D) Peak unemployment was about one-third higher than usual.

Q: An economy has 100 households. The ten rich households each have incomes of $50,000 in period 1 and $75,000 in period The ninety poor households each have incomes of $20,000 in period 1 and $25,000 in period Assume that the price of the good is $1 in both periods. Also assume that the households borrow from each other. Suppose that each household decides that its consumption in period 1 will equal 50 percent of the present value of its income from both periods. The equilibrium real interest rate is abouta. 20 percent.b. 30 percent.c. 40 percent.d. 50 percent.

Q: Describe the debt-deflation process.

Q: Which of the following led to a "bank jog" in Greece? A) high unemployment B) high inflation C) speculation that Greece would abandon the euro D) the default of several Greek banks

Q: A situation in which all markets are in equilibrium and all economic agents have made decisions in their own best interest is calleda. general equilibrium.b. the liquidity effect.c. the real wealth effect. d. dynamic equilibrium.

Q: Which of the following did NOT play a role in keeping Greece from defaulting between 2010 and 2012? A) International Monetary Fund B) United Nations C) European Union D) European Central Bank

Q: Precautionary savings isa. forced savings, which occurs when the government implicitly saves for people through the Social Security system.b. additional savings people make in order to profit from the high returns to the stock market. c. savings made by the poor.d. the extra amount of savings a household maintains because of uncertainty about its future income.

Q: Research by Reinhart and Rogoff indicate that most of the increase in national debt as a result of a financial crisis is due to A) government bail outs of financial institutions. B) increase spending on social welfare programs. C) government stimulus programs. D) sharp declines in tax revenues.

Q: Describe the arguement put forward by the Nobel laurete Robert E. Lucas about the flaws in the large structural macroeconomic models.

Q: In a two-period model, a household has an income of $20,000 in period one and an income of $25,000 in period two.The household faces an interest rate of 50 percent. What is the present value of the household's income if the income in period one increases to $30,000?a. $39,000b. $46,666.66c. $40,555.65d. $50,000

Q: Sovereign debt refers to A) debt owned by the government. B) bonds issued by the government. C) debt owed to the government. D) debt only issued by nations with kings or queens.

Q: Describe what monetary policymakers should do if they want to keep the price level in an economy permanentlylow.

Q: In the two-period model, suppose a household's income in period one is $30,000 and its income in period two is $40,000. Also assume that the household face the real interest rate of 25 percent. What is the present value of the household's income?a. $62,000b. $46,000c. $20,000d. $30,000

Q: Why might a nation seek to maintain a pegged exchange rate? A) It makes business planning easier for firms involved in the global economy. B) It removes the need to intervene in the foreign exchange market. C) It ensures that the exchange rate will remain at its equilibrium. D) It makes their currency more attractive on the foreign exchange market.

Q: Describe the effect of expansionary monetary policy in a recession. Contrast the results with no monetary policy action.

Q: The era of bank panics in the United States was effectively ended by A) establishing the Fed as lender of last resort. B) implementing the gold standard. C) abandoning the gold standard. D) introducing deposit insurance.

Q: Suppose another breakthrough in computer technology greatly increases total factor productivity. Explain how this would affect aggregate supply, output, and the price level in the short run and the long run.

Q: The original intention of the Fed's role as lender of last resort was to make loans to banks that were A) not illiquid nor insolvent. B) illiquid, but not insolvent. C) insolvent, but not illiquid. D) both illiquid and insolvent.