Q&A Hero

Q: What are federally chartered banks called? A) federal banks B) Federal Reserve banks C) national banks D) central banks

Q: What is the primary reason for the differences between the U.S. banking system and those in other major industrial countries? A) Economies of scale are greater in banking in the United States than in banking in other countries. B) legislation that led to the development of state and national banks C) the Federal Reserve System D) the National Bank

Q: Which of the following would shift the short-run aggregate supply curve to the right? A. An increase in oil pricesB. A reduction in the minimum wageC. A change in the law requiring overtime pay for anyone working more than 30 hours a weekD. An increase in payroll taxes

Q: If policymakers are not aggressive about keeping inflation close to the target rate, the slope of the monetary policy reaction curve would be: A. steep.B. relatively flat.C. horizontal.D. negative.

Q: Research by Stock and Watson on the cause of the increased stability of output growth in the long boom suggests that the main cause of the stabilitya. was improved monetary policy. b. was efficient financial markets. c. was unknown.d. was better inventory management by firms.

Q: Labor productivity multiplied by the number of hours worked gives a. the hourly wage rate.b. the average product of labor. c. total factor productivity.d. total output.

Q: Which of the following is NOT an example of off-balance-sheet lending? A) a swap B) a standby letter of credit C) a loan commitment D) a loan sale

Q: Stagflation is a term that usually describes an economy experiencing: A. low inflation.B. low inflation coupled with low growth.C. high inflation with a recessionary gap.D. low unemployment rates and low inflation rates.

Q: The slope of the monetary policy reaction curve is determined by: A. how strongly the economy reacts to changes in the nominal interest rate.B. how strongly the inflation rate impacts peoples' decisions.C. how aggressively policymakers change interest rates in response to deviations between current and target inflation rates.D. people's expectations for inflation.

Q: Output and employment in Country Y has fallen below its equilibrium level. Which of the following groups of economists is likely to believe that output and employment will return to its equilibrium level without government intervention?a. Keynesian economistsb. Post-modern economists c. Monetaristsd. Classical economists

Q: Labor productivity is calculated as a. output minus net exports.b. the average product of labor minus the marginal product of labor. c. total factor productivity divided by the amount of capital.d. output produced by labor divided by hours worked.

Q: By 2012, what share of U.S. assets were held by the 10 largest banks in the United States? A) 10% B) 29% C) 55% D) 68%

Q: Negative supply shocks cause shifts in: A. only the short-run aggregate supply curve.B. the dynamic aggregate demand curve.C. the monetary policy reaction curve but only if policymakers do not change their inflation target.D. the short-run aggregate supply curve and, possibly, the long-run aggregate supply curve.

Q: If a point lies on the monetary policy reaction curve, and at this point the inflation rate equals the target rate of inflation, we know that: A. the real interest rate corresponding to this point is above the long-run real interest rate.B. the real interest rate corresponding to this point is equal to the long-run real interest rate.C. the real interest rate corresponding to this point is below the long-run real interest rate.D. current output is above potential output.

Q: Classical economists believe that the economya. is unable to return to equilibrium because wages and prices are sticky and do not adjust right away. b. will not return to equilibrium without government intervention.c. is unable to return to equilibrium because wages and prices are flexible.d. will return to equilibrium quickly without the need for government intervention.

Q: In 2001, the number of people in the working-age population in a country increased from 212.6 million to 215.1 million, while the labor force increased from 141.5 million to 142.3 million. By how much did the labor-force participation rate change?a. −0.4 percentage point b. −0.2 percentage point c. 0.0 percentage point d. 0.2 percentage point

Q: As of 2012, about how many banks were there in the United States? A) 57 B) 2000 C) 6200 D) 14,000

Q: An increase in the price of oil should cause the short-run aggregate supply curve to: A. shift to the right.B. become vertical.C. become horizontal.D. shift to the left.

Q: If policymakers are aggressive in keeping current inflation near the target inflation rate then the monetary policy reaction curve will: A. be steep.B. be flat.C. have an undefined slope.D. be vertical.

Q: IIn 2004, the number of people in the working-age population in a country increased from 221.2 million to 223.4 million, while the labor force increased from 146.5 million to 147.4 million. By how much did the labor-force participation rate change?a. −0.2 percentage point b. 0.0 percentage point c. 0.2 percentage point d. 0.4 percentage point

Q: Banks in the United States have been prohibited from investing deposits in significant equity holdings since the passage of the A) Bank Reform Act of 1980. B) Securities and Exchange Acts of 1933 and 1934. C) National Banking Acts of 1863 and 1864. D) Sherman Antitrust Act of 1890.

Q: In managing its liabilities to deal with liquidity problems, banks trade off A) credit risk against interest rate risk. B) adverse selection against moral hazard. C) the need for available funds to meet deposit outflows against the desire for greater profit. D) present tax liabilities against future tax liabilities.

Q: The point where the central bank's target inflation rate is consistent with the long-run real interest rate lies: A. above the monetary policy reaction curve.B. below the monetary policy reaction curve.C. on the monetary policy reaction curve.D. on the horizontal (inflation) axis.

Q: In 2004, the number of unemployed people in a country decreased from 8.8 million to 8.1 million, while the labor force increased from 146.5 million to 147.4 million. By how much did the unemployment rate decrease?a. 0.5 percentage point b. 0.7 percentage point c. 0.9 percentage point d. 1.1 percentage point

Q: How can banks measure interest-rate risk?

Q: Suppose First National Bank has $200 million of assets and $20 million of equity capital. If First National has a 2% return on assets (ROA), what is its return on equity (ROE)? Suppose First National's equity capital declines to $10 million, while its assets and ROA are unchanged. What is First National's ROE now?

Q: If the axes in the model for the monetary policy reaction curve are the real interest rate (vertical axis) and the rate of inflation (horizontal axis), then the monetary policy reaction curve would: A. have a positive slope.B. have a negative slope.C. have a zero slope.D. be vertical.

Q: In a market with six banks of equal size, two of the banks propose merging. Does the merger violate the U.S.Department of Justice's guidelines?

Q: How do banks manage credit risk?

Q: How does moral hazard contribute to high bank leverage?

Q: A monetary policy reaction curve requires the central bank to have a(n): A. money growth target.B. inflation target.C. unemployment target.D. economic growth target.

Q: Suppose a banking market consists of banks that have the following shares of the market: 34 percent, 28 percent, 16 percent, 10 percent, 8 percent, and 4 percent. Calculate the HHI.

Q: The Community Reinvestment Act attempts to prevent a banking practice known as a. redlining.b. credit scoring. c. credit diving.d. term intermediation.

Q: What steps can a bank take to deal with a significant outflow of deposits?

Q: The monetary policy reaction curve: A. is the guideline the Fed publishes in setting their interest rate target.B. approximates the behavior of central bankers.C. has remained fairly constant over the years.D. is set by Congress and given to the Fed as a guideline to follow.

Q: Suppose a bank has assets of $500 million and capital of $100 million. Its return on assets is -3%. What is its leverage ratio? What is its return on equity?

Q: With the economy at its potential level of output, the federal government undertakes a large military buildup; all other things equal, the impact on the long-run real interest rate will be to: A. increase.B. decrease.C. remain constant since output is at its potential level.D. change at the same rate as inflation.

Q: a.What measure is used by banking authorities who wish to calculate the degree of monopoly power in a banking market (give the name or the acronym)? Write the equation that is used and describe what each term means.b.Suppose the banking market in Charlottesville consists of five banks that each having a market share of 15 percent and five more banks each having a market share of 5 percent.Calculate the measure of monopolypower.c.Three of the banks that currently have 15 percent of the market would like to merge and form First Super Bank of Charlottesville. If the merger were allowed, calculate the new measure of monopolypower.d.Under the standard set of guidelines of the U.S. Department of Justice, would the merger be allowed? Explain why or why not, describing the guidelines and your results from parts (b) and(c).

Q: The agreement concluded in 2010 imposed higher capital requirements on banks all over the world. a. Basel III.b. Basel II. c. Basel I.d. Basel IV.

Q: Suppose a bank has $10 million in capital, $100 million in assets, and after-tax profit of $2 million? what is its return on assets? What is its return on equity?

Q: In the U.S., most of the recessions are associated with: A. ill-timed fiscal policy.B. decreasing net exports.C. decreases in investment.D. large decreases in consumption.

Q: The relationship between the long-run real interest rate and potential output: A. is direct.B. is inverse.C. is constant since the long-run real interest rate is primarily determined by risk.D. depends on the actions of central bankers.

Q: What is the Basel III Accord?

Q: Bank supervisors around the world use a common measurement standard for capital adequacy, based on agreement known as the .a. Bank Holding Recordb. balance sheet c. Redliningd. Basel Accord

Q: Describe the three ways that banks normally earn revenue.

Q: Which of the following statements is correct? A. The long-run real interest rate varies directly with changes in non-interest sensitive components of aggregate demand and inversely with potential output.B. The long-run real interest rate varies inversely with changes in non-interest sensitive components of aggregate demand and inversely with potential output.C. The long-run real interest rate varies directly with changes in non-interest sensitive components of aggregate demand and directly with potential output.D. The long-run real interest rate varies directly with changes in non-interest sensitive components of aggregate demand and does not vary with potential output.

Q: If government purchases increase and as a result push current output above potential output, monetary policymakers are likely to: A. lower the real interest rate.B. raise the real interest rate.C. keep the real interest rate constant and focus on only changing the nominal interest rate.D. purchase Treasury securities.

Q: Describe the moral hazard problem of deposit insurance.

Q: Which of the following is NOT a component evaluated under the CAMELS rating system?a. Managementb. Sensitivity to risk c. Strategic planning d. Asset quality

Q: It has been argued that the information technology age has greatly increased productivity and potential output. If this is true: A. the long-run real interest rate is also higher as a result.B. nominal long-run interest rates should have increased.C. we should have seen lower short-run interest rates than we have seen.D. the long-run real interest rate is lower as a result.

Q: Limits on the value of the assets that commercial banks can acquire relative to their capital is known as: A) equity requirements B) capital requirements C) required reserves D) asset requirements

Q: If the level of current output suddenly falls below the potential level of output, central bankers would: A. lower the real interest rate.B. raise the real interest rate.C. keep the real interest rate constant and focus on only changing the nominal interest rate.D. attempt to shift the aggregate expenditures curve.

Q: In the CAMELS rating system, the letter L stands for a. liquidity.b. losses.c. legal environment.d. loan documentation.

Q: A cash item in the process of collection is A) a U.S. Treasury bill that has matured, but for which the bank has not yet received payment. B) a car loan payment that is due but not yet received by the bank. C) a check drawn against another bank, from whom the funds have not yet been collected. D) currency that has been deposited in the bank, but not yet formally counted and entered into the bank's balance sheet.

Q: Banks have responded to new regulations resulting from the Dodd-Frank Act in all of the following ways EXCEPT: A) raising minimum balances on free checking accounts B) closing branches in low-income neighborhoods C) raising overdraft fees D) increased marketing of securities and financial advice to high-income customers

Q: Which of the following would not shift the aggregate expenditures curve? A. A change in the real interest rateB. Changes in consumer or business confidenceC. Fiscal policy changesD. Changes in net exports that result from exchange rate changes

Q: The letter E, in the CAMELS rating system, which is used to assess the health of the banks, represents the _____for a bank.a. elasticity of demand.b. equal opportunity compliance. c. earnings.d. elements of risk.

Q: Required reserves are A) the portion of demand deposits and NOW accounts banks must hold. B) zero on demand deposits. C) zero on NOW accounts. D) imposed on all deposits at commercial banks.

Q: In order to reduce the likelihood of excessive leverage in the banking system, governments have traditionally A) imposed capital requirements on commercial banks. B) imposed capital requirement on investment banks. C) imposed capital requirements on both commercial and investment banks. D) imposed asset requirements on all banks.

Q: What should be the impact on aggregate expenditures from an increase in the real interest rate? A. It should increaseB. It should decreaseC. It should remain constantD. The impact is indeterminate

Q: Which of the following is NOT considered a cash item by banks? A) U.S. Treasury bills B) deposits at other banks C) deposits at the Federal Reserve D) vault cash

Q: The letter M, in the CAMELS rating system, which is used to assess the health of the banks, stands for _____. a. managementb. money market account c. mortgaged. maturity

Q: If a bank's ratio of assets to capital is 25 and it's return on assets is -5%, what is its return on equity? A) -0.2% B) -5% C) -30% D) -125%

Q: A decrease in the real interest rate in the U.S. will cause net exports to: A. increase because exports will remain constant but imports will decrease.B. decrease because exports will decrease and imports will increase.C. decrease because exports will increase but imports will increase.D. increase because exports will increase and imports will decrease.

Q: Which of the following is a bank asset? A) checkable deposits B) savings deposits C) borrowings in the federal funds market D) cash items in the process of collection

Q: In the CAMELS rating system, which is used to assess the health of the banks, the letter A stands for a. accounting practices.b. auditing procedures. c. analysis of risk.d. asset quality.

Q: Which of the following serves as the lender of last resort for credit unions?a. The Federal Deposit Insurance Corporationb. The Federal Reservec. National Credit Union Administration's Credit Liquidity Facilityd. The National Credit Union Share Insurance Fund

Q: Moral hazard can contribute to high bank leverage in all of the following ways EXCEPT A) having high capital requirements. B) bank managers are compensated in part on providing shareholders with high returns on equity. C) high bank leverage provides shareholders with a potential for a higher return on equity. D) federal deposit insurance has reduced the incentive of depositors to monitor the behavior of bank managers.

Q: Why is it necessary to understand fluctuations in investment if we want to understand the fluctuations in the business cycle?

Q: Increases in the real interest rate in the U.S. will cause net exports to: A. decrease, because the dollar depreciates.B. increase, because the dollar depreciates.C. decrease, because the dollar appreciates.D. increase, because the dollar appreciates.

Q: Banks use repurchase agreements to A) ensure that payments on consumer loans are made on time. B) borrow funds from business firms or other banks. C) guard against price fluctuations on long-term bonds. D) ensure that they always have enough funds on hand to meet their federal tax liabilities.

Q: Thrifts can have a maximum of 20 percent of their assets in the form of____and must have____percent of their assets in the form of mortgage or consumer loans in order to qualify for special funding from a Federal HomeLoan bank.a. bank holding companies; 60b. commercial loans; 65c. securities; 75d. government bonds; 70

Q: In the CAMELS rating system, which is used to assess the health of the banks, the letter C stands for a. controls.b. currency reserves. c. capital adequacy.d. compliance with regulations.

Q: Which of the following statements is most correct? A. When the real interest rate increases the reward for saving decreases.B. When the real interest rate decreases current consumption becomes less expensive and the reward for saving decreases.C. When the real interest rate decreases the cost of current consumption increases.D. When the real interest rate increases the level of saving always decreases.

Q: What distinguishes the short-run real interest rate from the long-run real interest rate?

Q: A thrift institution_____have Federal Deposit Insurance Corporation insurance and, in general,_____own or be owned by a commercial firm. a. must; cannotb. is not required to; cannot c. must; cand. is not required to; can

Q: The Dodd-Frank Act requires that the FDIC restore its Deposit Insurance Fund to a healthy level by the year a. 2040.b. 2020. c. 2018. d. 2012.

Q: The interest rate on unsecured loans between banks is called the A) discount rate. B) repurchase rate. C) T-bill rate. D) federal funds rate.

Q: Consumption can be sensitive to changes in the real interest rate because: A. higher interest rates can increase the cost of durable goods like automobiles.B. higher interest rates will result in less saving.C. lower real interest rates will decrease spending on durable goods and increase spending on non-durable goods.D. lower interest rates increase savings.

Q: Why would central bankers have to pay attention to forecasts regarding consumer sentiment and expectations of business owners and managers?