Q&A Hero

Q: All other factors equal, if the costs of converting bonds and other financial securities to a means of payment increase: A. the transactions demand for money should increase.B. the transactions demand for money should decrease.C. it shouldn't impact the transactions demand for money.D. nominal interest rates should decrease.

Q: The interest rate in the market for loans of reserves between banks is the a. three-month Treasury bill rate.b. reserve ratio. c. discount rate.d. federal funds rate.

Q: Suppose that investors perceive a higher risk of investing in Europe as a result of a sovereign debt crisis. Make use of a graph of the foreign exchange market to show how this will affect the value of the euro.

Q: Which of the following statements best completes the sentence, "All other factors constant, as the nominal interest rate increases, the opportunity cost of money..."? A. decreases, the velocity of money decreases, and the quantity of money people want to hold decreases.B. increases, the velocity of money decreases, and the quantity of money people want to hold decreases.C. decreases, the velocity of money increases, and the quantity of money people want to hold decreases.D. increases, the velocity of money increases, and the quantity of money people want to hold decreases.

Q: The fact that people can write drafts (checks) from many stock and money market accounts has: A. increased the transactions demand for money.B. decreased the transactions demand for money.C. not affected the transactions demand for money.D. increased the cost of converting non-money assets to a means of payment.

Q: A bank is said to have when its average costs decline as its volume of sales increases. a. economies of scope.b. economies of scale. c. cost diminution.d. decreasing returns to scale.

Q: The is a place where banks can request loans from the Federal Reserve. a. money marketb. domestic trading desk c. Treasuryd. discount window

Q: Suppose the Federal Reserve reduces interest rates while interest rates in Europe do not change. Make use of a graph of the foreign exchange market to show how this will affect the value of the dollar.

Q: If you were going to write a function for money demand, you would say that the demand for money holdings: A. varies directly with both the nominal interest rate and nominal income.B. varies inversely with both the nominal interest rate and nominal income.C. varies inversely with nominal income and directly with the nominal interest rate.D. varies inversely with the nominal interest rate and directly with nominal income.

Q: The opportunity cost of holding money is: A. the nominal interest rate.B. the real interest rate.C. the nominal interest rate less the cost of converting a bond to cash.D. the rate of inflation.

Q: The federal funds rate is the interest rate in the market for a. mortgage loans.b. loans of reserves between banks. c. loans of government securities.d. federal agency securities.

Q: Suppose interest rates in the U.S. are 3% while interest rates on comparable bonds in Japan are 1%. By how much is the exchange rate between the yen and dollar expected to change according to the interest-rate parity condition?

Q: Suppose that the one-year Treasury bill rate in the United States is 6%, the one-year government bond rate in Canada is 4%, and investors expect the U.S. dollar to depreciate against the Canadian dollar by 4% over the coming year. Is the nominal interest rate parity condition violated?

Q: The higher the nominal interest rate: A. the less money individuals will hold for any given level of transactions and the higher the velocity of money.B. the more money individuals will hold for any given level of transactions and the higher the velocity of money.C. the more money individuals will hold for any given level of transactions and the lower the velocity of money.D. the less money individuals will hold for any given level of transactions and the lower the velocity of money.

Q: The market in which banks with excess reserves lend them to banks that desire additional reserves is known as the________ market.a. capital reservesb. excess reservesc. federal fundsd. excess funds

Q: What are three reasons that the interest-rate parity condition may not always hold?

Q: Suppose that short-term real interest rates fall in Japan. Is this likely to be good news or bad news for the tourism industry in Hawaii?

Q: If real GDP stays the same but the price level increases: A. nominal money demand should remain the same.B. nominal money demand should decrease.C. nominal money demand should increase.D. real money demand should decrease.

Q: Under which of the following options does the Fed offer reserves to banks through a competitive auction process?a. Term deposit facility b. Discount lendingc. Quantitative easing d. Safety vault facility

Q: Suppose you invest $5,000 in a one-year Japanese bond that pays 1% interest. At the time of your purchase, 85 yen equals $1 while one year later, 80 yen equals $1. What will be the value of your investment in one year when measured in dollars?

Q: If the interest rate on a U.S. one-year bond is 1%, the interest rate on a Mexican one-year bond is 5%, and investors expect the dollar to appreciate by 1% versus the peso, what is the currency premium for U.S. investors to hold Mexican pesos? A) -3% B) 3% C) 4% D) 7%

Q: Which of the following would reflect the transactions demand for money? A. Keeping funds in your checking account to pay your rentB. Keeping funds in your savings account because the interest rate looks relatively attractiveC. Selling common stocks you own and increasing the money in your savings account because you think stock prices will fall soonD. Buying a U.S. Treasury security using funds from your checking account

Q: Suppose a bank's excess reserves are equal to $100 million. The bank is required to hold $50 million as reserves. The bank currently holds as reserves.a. $50 million b. $100 million c. $150 million d. $200 million

Q: In 2010, fears were growing that the dollar would experience a significant decline in value. What are the likely implications for the euro-dollar exchange rate?

Q: The reserve requirement is 0 percent on the first $8 million in transaction deposits, 3 percent on amounts between $8 million and $50 million, and 10 percent on amounts above $50 million. A bank with transaction deposits totaling $7 million has required reserves equal toa. $0.00 million. b. $0.21 million. c. $0.70 million. d. $1.17 million.

Q: If the interest rate on a U.S. one-year bond is 2%, the interest rate on a Brazilian one-year bond is 8%, and the currency premium on reals (Brazilian currency) is 3%, what is the expected rate of appreciation of the U.S. dollar according to interest-rate parity? A) -3% B) 3% C) 5% D) 6%

Q: During economic slowdowns (recessions) the velocity of money tends to: A. remain relatively stable.B. increase slightly.C. increase dramatically.D. decrease.

Q: In May of 2003, the European Central Bank (ECB) decided to: A. focus almost exclusively on money growth as their target.B. downgrade the role of money growth in their policymaking strategy.C. limit the role of interest rate targeting to be second in importance to money growth targeting.D. switch from an inflation target to a money growth target.

Q: Suppose a bank has $200 million as transaction deposits, and holds $25 million as reserves. If the reserve requirement is uniformly 10% on any positive amount, the bank's excess reserves equalsa. $25 million. b. $10 million. c. $5 million. d. $1 million.

Q: A bank with transaction deposits totaling $45 million had reserves equal to $0.98 million. The reserve requirement for this bank is percent. (Hint: use the cutoff amounts as per the reserve requirements for the year 2013)a. 10b. 8c. 3d. 2

Q: Which of the following has the largest impact on short-run movements in exchange rates? A) growth rate of exports B) growth rate of imports C) investment opportunities D) changes in the trade deficit

Q: If the nominal interest rate increases: A. the cost of holding money decreases.B. the cost of holding money increases.C. the velocity of money should decrease.D. the cost of holding money increases and the velocity of money should decrease.

Q: If money growth and real output growth are both zero, the change in the price level will: A. also be zero.B. equal the percentage change in velocity.C. be indeterminate.D. be the inverse of the percentage change in velocity.

Q: A bank's excess reserves equal itsa. vault cash plus deposits at the Federal Reserve. b. total reserves minus required reserves.c. reserve requirement times transactions deposits. d. vault cash plus required reserves.

Q: A bank has currency and coins equal to $20 million in its vaults. It has securities worth $10 million, has borrowings equal to $5 million, and has given out loans equal to $2 million. It also has deposits with the Federal Reserve equal to $4 million. The total reserves of the bank equalsa. $12 million.b. $22 million.c. $24 million.d. $36 million.

Q: Which of the following is most likely to lead to an increase in the value of the dollar? A) decline in U.S. interest rates B) increase in imports to the United States C) decrease in exports from the United States D) increase in U.S. interest rates compared to foreign interest rates

Q: Which of the following statements is most correct? A. The velocity of M2 is relatively stable across all time periods.B. The velocity of M2 is less stable than the velocity of M1.C. The velocity of M2 is more volatile in the short run than the long run.D. Fisher's assumption about money velocity being stable in the long run was incorrect.

Q: In the late 1970s and early 1980s, the velocity of money increased significantly. The main reason(s) for the increase was: A. as presidential election years near the velocity of money increases.B. the introduction of stock and bond mutual funds with draft writing privileges and low nominal interest rates.C. high nominal interest rates.D. the introduction of stock and bond mutual funds with draft writing privileges along with high nominal interest rates.

Q: The reserve requirement is 0 percent on the first $8 million in transaction deposits, 3 percent on amounts between $8 million and $50 million, and 10 percent on amounts above $50 million. A bank with transaction deposits totaling $83 million has required reserves equal toa. $2.49 million. b. $4.56 million. c. $6.54 million. d. $8.30 million.

Q: Sarah, a customer of a bank, transfers $10,000 from her checking account to her money-market deposit account.Which of the following changes will be reflected in Sarah's bank's balance sheet?a. Reserves decrease by $10,000.b. Transactions deposits increase by $10,000.c. Nontransactions deposits decrease by $10,000. d. Borrowings increase by $10,000.

Q: Which of the following will take place in the foreign exchange market if there is an increase in the demand for products made in the United States? A) The supply of dollars will decrease. B) The demand for dollars will decrease. C) The demand for dollars will increase. D) The dollar will decrease in value.

Q: When nominal interest rates are high, the velocity of money should: A. be low.B. also be high.C. not change; the velocity of money does not vary with the interest rate.D. decrease by the same percent that the nominal interest rate has increased.

Q: The empirical data reveals the velocity of M2 to be: A. relatively stable in the long run.B. highly volatile in the long run.C. stable only when measured annually.D. higher than the velocity of M1.

Q: Paul, a customer of a bank, writes a check for $50,000 to a customer of another bank. Which of the following changes will be reflected in Paul's bank's balance sheet?a. Reserves decrease by $50,000.b. Transactions deposits increase by $50,000.c. Nontransactions deposits increase by $50,000.d. Borrowings increase by $50,000.

Q: The situation in which investors choose to put their funds in a safe asset during uncertain times is known as A) hedging. B) speculation. C) flight to quality. D) arbitrage.

Q: Suppose that you expect during the next year the dollar will appreciate against the pound from 0.5 pound to the dollar to 0.75 pound to the dollar. How much will you expect to make on an investment of $10,000 in British government securities that will mature in one year and pay interest of 8%? A) -59.5% B) -28% C) 8% D) 28%

Q: Control of money growth to stabilize inflation only works if velocity were constant. In practice, changes in velocity: A. can safely be ignored in countries with relatively low inflation rates.B. are important when inflation is low.C. must be taken into account no matter what the inflation rate.D. can always safely be ignored.

Q: A bank's reserves equal its a. government securities.b. transactions deposits.c. vault cash plus deposits at the Federal Reserve. d. cash assets plus government securities.

Q: The currency premium in foreign-exchange markets A) helps to offset anticipated declines in exchange rates. B) helps to offset anticipated increases in exchange rates. C) indicates investors' collective preference for financial instruments denominated in one currency relative to those denominated in another. D) rises as domestic interest rates fall.

Q: The demand for U.S. dollars represents: A) the demand for U.S. goods and financial assets by households and firms outside the United States. B) the demand for foreign goods and financial assets by households and firms within the United States. C) the demand for U.S. goods and financial assets by households and firms within the United States. D) the willingness of households and firms that own dollars to exchange them for foreign currency.

Q: Nobel-laureate economist Milton Friedman suggested that policymakers strive to ensure that the monetary aggregates: A. grow at a rate equal to the rate of inflation.B. grow at a rate equal to the rate of real growth plus the desired level of inflation.C. grow at a rate equal to the rate of real growth less the desired level of inflation.D. remain constant in terms of dollar amounts.

Q: Which of the following is recorded under the liabilities side of a bank's balance sheet?a. Transaction deposits b. Securitiesc. Reserves d. Loans

Q: All of the following are reasons for caution when considering investing in emerging markets EXCEPT: A) in rapidly growing economies, expectations of future growth are already reflected in stock prices. B) economies experiencing rapid growth typically experience a dilution effect. C) fees for investing in funds that specialize in emerging markets tend to be higher than other funds. D) most economists expect the economies of emerging markets to grow more slowly than that of more advanced economies.

Q: What real-world complications keep purchasing power parity from being a complete explanation of exchange rates ?

Q: A rate of inflation that exceeds the growth rate of money for a country could be explained by: A. a growing real economy.B. a constant velocity of money.C. an increasing velocity of money.D. a decreasing velocity of money.

Q: An investor buys a stock for $10,000 and earns dividends of $250 during the course of the year. At the end of the year, the stock is worth $9,300. The total return for the year isa. 2.5 percent. b. −2.5 percent. c. −4.5 percent. d. −7.0 percent.

Q: Which of the following is recorded under the asset side of a bank's balance sheet?a. Transaction deposits b. Equity capitalc. Borrowings d. Reserves

Q: What would happen to the value of the dollar if prices in the U.S. increased more rapidly relative to prices in other countries?

Q: Which of the following statements about the supply of dollars in the foreign exchange market is true? A) It is equal to the money supply. B) It represents the demand for U.S. goods and financial assets by firms and households outside the United States. C) It represents the supply of U.S. goods and financial assets by firms and households within the United States. D) It is determined by the willingness of households and firms that own dollars to exchange them for foreign currency.

Q: Milton Friedman's assertion that "inflation is a monetary phenomenon" is based on: A. the quantity theory of money.B. the assumption of constant nominal GDP growth.C. the assumption that the price level grows at the same rate as real GDP.D. the assumption that the central bank increases the money supply by a constant rate every year.

Q: The quantity theory of money along with the assumption of a constant velocity can explain which of the following? A. At a given level of money growth, the higher the level of real growth the higher the level of inflation will be.B. At a given level of money growth, the higher the level of real growth the lower the level of inflation will be.C. If real growth is higher than money growth, the price level must be rising.D. If real growth equals money growth, the price level is falling.

Q: An investor buys a stock for $10,000 and earns dividends of $250 during the course of the year. At the end of the year, the stock is worth $9,300. The capital-gains yield for the year isa. 2.5 percent. b. −2.5 percent. c. −4.5 percent. d. −7.0 percent.

Q: Accounting rules require that a bank's equals its________.a. equity capital; assets plus liabilities.b. assets; liabilities minus equity capital.c. liabilities; assets plus equity capital.d. liabilities; assets minus equity capital.

Q: If the price of a Toyota Camry is Y2,000,000 and the price of a Ford Fusion is $20,000, according to the law of one price, the exchange rate between the yen and the dollar should be: A) Y100 = $1 B) $100 = Y1 C) Y1,980,000=$1 D) the law of one price does not apply since the goods are differentiated

Q: Key assumptions behind the quantity theory of money include: A. the money supply is fixed.B. the velocity of money is constant.C. the percentage change in the price level equals the percentage change in real GDP.D. the change in nominal GDP is zero.

Q: The quantity theory of money can explain which of the following? A. If the %ΔY > 0 and the %ΔV = 0; the %ΔP < %ΔMB. If the %ΔV = 0 and the %ΔM = 0; the %ΔP must be = 0C. If %ΔY and the %ΔV = 0; the %ΔP > %ΔMD. If the %ΔP > 0; the %ΔM must also be > 0

Q: An investor buys a stock for $10,000 and earns dividends of $250 during the course of the year. At the end of the year, the stock is worth $9,300. The dividend yield for the year isa. −2.5 percent. b. 5 percent. c. 5 percent. d. −7.0 percent.

Q: Banks earn profit bya. borrowing from depositors at a lower interest rate, and lending those funds at a higher interest rate. b. reducing the service charges for safety vaults and ATM facilities.c. lending more loans to non-risky business firms. d. reducing the amount of transaction deposits.

Q: If U.S. inflation is 2%, Japanese inflation is 1%, and Mexican inflation is 3%, which of the following is true according to the theory of purchasing power parity? A) The dollar should rise by 1% versus the yen and fall by 1% versus the peso. B) The dollar should rise by 1% versus the peso and fall by 1% versus the yen. C) The dollar should rise by 1% versus both the peso and the yen. D) The dollar should fall by 1% versus both the peso and the yen.

Q: Based on the analysis of the equation of exchange, Irving Fisher, derived the quantity theory of money which states that: A. velocity changes always offset changes in the supply of money.B. changes in the aggregate price level are caused solely by changes in velocity.C. changes in the aggregate price level are caused solely by changes in the quantity of money.D. none of the answers given is correct.

Q: Equilibrium in the money market would be expressed by which of the following? A. Ms = (1/V)YB. Ms = MdC. Ms = (1/V)PD. Md = (1/V)P

Q: A stock which was bought for $1,000 pays annual dividends of $250. The first quarter dividend yield of the stock can be calculated ata. 1.75 percent. b. 3 percent.c. 5.25 percent. d. 6.25 percent.

Q: Which of the following is the main reason behind the financial crisis of 2008?a. There was a sharp decline in the growth rate of money supply.b. There was a sharp increase in the quantity of exports from the U.S. to Asian countries. c. Banks in the U.S. made subprime mortgage loans.d. Banks had much higher requirements for borrowers to qualify for loans than normal.

Q: A quota refers to: A) a tax on imported goods B) a limit on the amount of a good that can be imported C) the range within which an exchange rate is allowed to fluctuate D) a limit on the size of a trade deficit

Q: Differences in price levels A) explain well actual exchange rate movements. B) are not capable of explaining well actual exchange rate movements, particularly in the short run. C) have been small for most countries in the post-World War II period. D) only can be explained by the fact that little foreign trade actually takes place.

Q: If we look at the equation for money demand from Irving Fisher, which of the following statements is true? A. Velocity does not play any role in the equationB. Money demand is not a factor of nominal incomeC. The price level does not impact money demandD. There isn't an explicit role for the interest rate in the equation

Q: If we let Md reflect money demand, then we can write the equation for money demand as: A. Md = VY.B. Md = PY.C. Md = (1/V) PY.D. Md = V(Y/P).

Q: Which of the following statements is true?a. Dividend payments of firms are independent of how much profit the firm is making.b. Stock prices of firms are independent of how much profit the firm is making.c. A share of stock gives an investor complete ownership of the corporation that issued the stock.d. A share of stock gives an investor partial ownership of the corporation that issued the stock.

Q: Which of the following is NOT an implication of the theory of purchasing power parity? A) Exchange rates move to equalize the purchasing power of different currencies. B) Exchange rates should be at a level that makes it possible to buy the same amount of goods and services with the equivalent amount of any country's currency in the long run. C) A country with a higher inflation rate should experience an appreciation of its currency. D) The real exchange rate should equal one.

Q: If on average, a dollar is spent 4 times each year to purchase real output, the velocity of money is: A. one-fourth.B. four.C. the money supply divided by 4.D. nominal GDP divided by four.