money and banking 2 Flashcards
1- Which set of goals can, at times, conflict in the short run?
A: high employment and economic growth
B: Interest rate stability and financial market stability
C: High employment and price level stability.
D: Exchange rate stability and financial market stability.
C: High employment and price level stability.
2- When a corporation announces a major decline in earnings, the stock price may initially decline significantly and then rise back to normal levels over the next few weeks. This impact is called * A:the January effect. B: mean reversion. C: market overreaction. D: the small-firm effect.
C: market overreaction.
3- The Federal Reserve System was created to *
A: make it easier to finance budget deficits.
B: promote financial market stability.
C: lower the unemployment rate.
D: promote rapid economic growth.
B: promote financial market stability.
4- ……….. is the field of study that applies concepts from social sciences such as psychology and sociology to help understand the behavior of securities prices. * A: Behavioral finance B: Strategical finance C: Methodical finance D: Procedural finance
A: Behavioral finance
5- Inflation results in * A: ease of planning for the future. B: ease of comparing prices over time. C: lower nominal interest rates. D: difficulty interpreting relative price movements
D: difficulty interpreting relative price movements
6- Either a dual or hierarchical mandate is acceptable as long as ……… is the primary goal in the ………
A: price stability; short run
B: price stability; long run
C: reducing business-cycle fluctuations; short run
D: reducing business-cycle fluctuations; long run
B: price stability; long run
7- Stockholders are residual claimants, meaning that they *
A: have the first priority claim on all of a company’s assets.
B: are liable for all of a company’s debts.
C: will never share in a company’s profits
D: Receive the remaining cash flow after all other claims are paid.
D: Receive the remaining cash flow after all other claims are paid.
8- Monetary policy is considered time-inconsistent because*
A: Of the lag times associated with the implementation of monetary policy and its effect on the economy.
B: Policymakers are tempted to pursue discretionary policy that is more contractionary in the short run. Option 2
C: policymakers are tempted to pursue discretionary policy that is more expansionary in the short run.
D: of the lag times associated with the recognition of a potential economic problem and the implementation of monetary policy.
C: policymakers are tempted to pursue discretionary policy that is more expansionary in the short run.
9- A stockholder’s ownership of a company’s stock gives her the right to *
O vote and be the primary claimant of all cash flows
O vote and be the residual claimant of all cash flows.
O manage and assume responsibility for all liabilities.
O vote and assume responsibility for all liabilities
O vote and be the residual claimant of all cash flows.
10- A central feature of monetary policy strategies in all countries is the use of a nominal variable that monetary policymakers use as an intermediate target to achieve an ultimate goal such as price stability. Such a variable is called a nominal" * A: anchor. B: benchmark. C: tether. D: guideline.
A: anchor.
11- The time-inconsistency problem in monetary policy can occur when the central bank conducts policy * A: using a nominal anchor. B: using a strict and inflexible rule. C: on a discretionary, day-by-day basis D: using a flexible, discretionary rule
C: on a discretionary, day-by-day basis
12- 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: the Fed’s goals do not include high employment, making labor unions a critic of the Fed.
C: the Fed’s primary goal is exchange rate stability, causing it to ignore domestic economic conditionsion
D: it is required to keep Treasury security prices high
A: the Fed is asked to achieve many goals, some of which are incompatible with others.
13- Economists believe that countries recently suffering hyperinflation have experienced * A: reduced growth. B: increased growth C:reduced prices D: lower interest rates.
A: reduced growth.
14- The value of any investment is found by computing the *
A: present value of all future sales.
B: present value of all future liabilities.
C: future value of all future expenses
D: present value of all future cash flows
D: present value of all future cash flows
15- Having interest rate stability *
A: allows for less uncertainty about future planning.
B: leads to demands to curtail the Fed’s power.
C: guarantees full employment.
D: leads to problems in financial markets.
A: allows for less uncertainty about future planning.
