Q&A Hero

Q: Why isn't the right to vote at FOMC meetings considered to be very important within the Fed?

Q: Conflicts of interest are a type of ________ problem that can happen when an institution provides multiple services. A. adverse selection B. free-riding C. discounting D. moral hazard

Q: Describe the roles of the Federal Reserve governors other than the chairman.

Q: Banks can lower the cost of information production by applying one information resource to many different services. This process is called A. economies of scale. B. asset transformation. C. economies of scope. D. asymmetric information.

Q: Comment on the success of various Fed chairmen in reducing inflation.

Q: Which of the following instruments are traded in a money market? A. state and local government bonds B. U.S. Treasury bills C. corporate bonds D. U.S. government agency securities

Q: A Federal Reserve policymaker voting to tighten monetary policy is most likely voting for optiona. A.b. B. c. C. d. D.

Q: Which of the following are short-term financial instruments? A. a repurchase agreement B. a share of Walt Disney Corporation stock C. a Treasury note with a maturity of four years D. a residential mortgage

Q: The Fed document that shows different policy options is called the a. Beigebook.b. Greenbook. c. Bluebook.d. Redbook.

Q: An important source of short-term funds for commercial banks are ________ which can be resold on the secondary market. A. negotiable CDs B. commercial paper C. mortgage-backed securities D. municipal bonds

Q: The Federal Reserve publication that discusses forecasts for the economy is known as the a. Redbook.b. Beigebook. c. Bluebook.d. Greenbook.

Q: Federal funds are A. funds raised by the federal government in the bond market. B. loans made by the Federal Reserve System to banks. C. loans made by banks to the Federal Reserve System. D. loans made by banks to each other.

Q: One half of a percentage point equals_____ basis points.a.0.5b. 5c. 50d. 500

Q: Collateral is ________ the lender receives if the borrower does not pay back the loan. A. a liability B. an asset C. a present D. an offering

Q: One-hundredth of a percentage point is called a(n)____ point.a. stockb. basicc. basisd. federal interest

Q: ________ are short-term loans in which Treasury bills serve as collateral. A. Repurchase agreements B. Negotiable certificates of deposit C. Federal funds D. U.S. government agency securities

Q: The main object of FOMC voting is to set the target a. inflation rate.b. federal funds rate. c. unemployment rate.d. foreign exchange rate.

Q: A short-term debt instrument issued by well-known corporations is called A. commercial paper. B. corporate bonds. C. municipal bonds. D. commercial mortgages.

Q: When the Fed engages in an overnight reverse repoa. a bank agrees to hold a certain amount of clearing balances at the Fed. b. the fed sells securities and agrees to buy them back in one day.c. a primary government securities dealer agrees to sell a security to the Fed one day and buy it back the next day.d. The Fed repossesses property that a bank owns as punishment for the bank's failure to pay off a discount loan.

Q: A debt instrument sold by a bank to its depositors that pays annual interest of a given amount and at maturity pays back the original purchase price is called A. commercial paper. B. a certificate of deposit. C. a municipal bond. D. federal funds.

Q: When the Fed engages in an overnight repoa. a bank agrees to hold a certain amount of clearing balances at the Fed.b. a secondary government securities dealer agrees to buy a security from the Fed one day and sell it back the next day.c. a primary government securities dealer agrees to sell a security to the Fed one day and buy it back the next day.d. The Fed repossesses property that a bank owns as punishment for the bank's failure to pay off a discount loan.

Q: U.S. Treasury bills are considered the safest of all money market instruments because there is a low probability of A. defeat. B. default. C. desertion. D. demarcation.

Q: Primary government securities dealers are____that meet certain capital requirements and agree to actively transact with the Fed when it engages in open-market operations. a. small investment banks and brokersb. large stockbrokersc. large investment banks and brokers d. community banks and credit unions

Q: U.S. Treasury bills pay no interest but are sold at a ________. That is, you will pay a lower purchase price than the amount you receive at maturity. A. premium B. collateral C. default D. discount

Q: Open-market operations are carried out between the Open Market Desk of the Fed and a. foreign central banks.b. the U.S. government.c. citizens residing in the U.S.d. primary government securities dealers.

Q: Prices of money market instruments undergo the least price fluctuations because of A. the short terms to maturity for the securities. B. the heavy regulations in the industry. C. the price ceiling imposed by government regulators. D. the lack of competition in the market.

Q: The interest rate on short-term loans between banks is known as the a. primary credit discount rate.b. federal funds rate.c. commercial paper rate. d. T-bill rate.

Q: Describe the two methods of organizing a secondary market.

Q: In 2006, Chairman Greenspan left the Fed because a. President Bush wanted him to resign.b. he reached mandatory retirement age. c. his term as Governor expired.d. his term as Chairman expired.

Q: Corporations receive funds when their stock is sold in the primary market. Why do corporations pay attention to what is happening to their stock in the secondary market?

Q: What are the two major drawbacks of the International Monetary Fund that prevents it from bailing out countries incrises?

Q: Because these securities are more liquid and generally have smaller price fluctuations, corporations and banks use the ________ securities to earn interest on temporary surplus funds. A. money market B. capital market C. bond market D. stock market

Q: How should a country respond when foreign investors withdraw investments from that country?

Q: Equity instruments are traded in the ________ market. A. money B. bond C. capital D. commodities

Q: Suppose the U.S. has domestic savings of $50 billion, domestic investment of $120 billion, and a government budget deficit of $150 billion. Japan has domestic savings of 25 trillion yen, domestic investment of 10 trillion yen, and a government budget deficit of 8 trillion yen. Calculate the amounts of net foreign investment by the U.S. and by Japan.

Q: A financial market in which only short-term debt instruments are traded is called the ________ market. A. bond B. money C. capital D. stock

Q: Assume that relative purchasing-power parity holds. In 2004, the price level in Japan is 120 and the price level in the U.S. is In 2005, the price level in Japan is 121 and the price level in the U.S. is The exchange rate in 2004 is 112 yen per dollar. Calculate the exchange rate in

Q: Also assume that the current nominal exchange rates are 115 yen per dollar and 4 pesos per dollar. Calculate the real exchange rates between each pair of countries.

Q: Which of the following statements about financial markets and securities is TRUE? A. Many common stocks are traded over-the-counter, although the largest corporations usually have their shares traded at organized stock exchanges such as the New York Stock Exchange. B. As a corporation gets a share of the broker's commission, a corporation acquires new funds whenever its securities are sold. C. Capital market securities are usually more widely traded than shorter-term securities and so tend to be more liquid. D. Prices of capital market securities are usually more stable than prices of money market securities, and so are often used to hold temporary surplus funds of corporations.

Q: Assume that the price level in Japan is 120, the price level in the U.S. is 145, and the price level in Mexico is110. Also assume that the current nominal exchange rates are 115 yen per dollar and 4 pesos per dollar. Calculate the real exchange rates between each pair of countries.

Q: Forty or so dealers establish a "market" in these securities by standing ready to buy and sell them. A. secondary stocks B. surplus stocks C. U.S. government bonds D. common stocks

Q: Assume that the only good traded between Mexico, the U.S., and Canada is chicken, which is produced by all three countries. If the cost of producing a pound of chicken is 5 pesos in Mexico, 1 U.S. dollar in the U.S., and 2 Canadian dollars in Canada, and if the law of one price holds, what are each of the exchange rates between the three countries?

Q: In a(n) ________ market, dealers in different locations buy and sell securities to anyone who comes to them and is willing to accept their prices. A. exchange B. over-the-counter C. common D. barter

Q: When secondary market buyers and sellers of securities meet in one central location to conduct trades the market is called a(n) A. exchange. B. over-the-counter market. C. common market. D. barter market.

Q: Suppose the exchange rate adjusts so that interest-rate parity holds. Also assume that the interest rate on a one-year Canadian bond is 3 percent and the interest rate on a one-year U.S. bond is 5 percent.a. If the exchange rate today is 1.40 Canadian dollars per U.S. dollar, what do you expect the exchange rate to be one year from now?b. Suppose relative purchasing-power parity holds, and the inflation rate in Canada is expected to be 1 percent over the next year. What is the expected inflation rate in the United States?

Q: The higher a security's price in the secondary market the ________ funds a firm can raise by selling securities in the ________ market. A. more; primary B. more; secondary C. less; primary D. less; secondary

Q: Answer the questions below. a.Suppose the Federal Reserve raises the federal funds rate in the United States but people believe that the inflation rate will rise by more than the Fed raised the federal funds rate.What do you expect to happen to the exchange rate? Explain why. b.As the exchange rate changes in the direction you determined in part a, what happens to the prices of imports and exports in the United States and in other countries? Explain. c. What happens to net exports in the United States and in other countries that trade with theUnited States in the short run? In the long run? Explain.

Q: Suppose you are an investor who is considering buying a one-year British government bond that has a 4 percent interest rate or a one-year French government bond with a 7 percent interest rate. The exchange rate today is 2.00 euros per pound and you expect the exchange rate to be 2.10 euros per pound one year from now.a.Which bond would you purchase? Why? Show your calculations.b.Suppose you expect the exchange rate to be 2.05 euros per pound in one year, instead of 2.10 euros per pound. Would you change your decision about which bond to buy? Explain and show your calculations.

Q: A liquid asset is A. an asset that can easily and quickly be sold to raise cash. B. a share of an ocean resort. C. difficult to resell. D. always sold in an over-the-counter market.

Q: The measure of the aggregate price level that is most frequently reported in the media is the A. GDP deflator. B. producer price index. C. consumer price index. D. household price index.

Q: Investment in foreign countries that occurs by installing capital goods and using them to produce output is referred to asa. directed capital.b. direct investment. c. capital investiture.d. portfolio investment.

Q: When prices are measured in terms of fixed (base-year) prices they are called ________ prices. A) nominal A. B) real B. C) inflated C. D) aggregate

Q: Investment in foreign countries that occurs by purchasing financial securities is referred to as a. directed capital.b. direct investment. c. capital investiture.d. portfolio investment.

Q: If nominal GDP in 2001 is $9 trillion, and 2001 real GDP in 1996 prices is $6 trillion, the GDP deflator price index is A. 7. B. 100. C. 150. D. 200.

Q: Foreign investment is composed of______ investment plus______ investment.a. inventory; financialb. portfolio; directc. portfolio; indirectd. inventory; physical capital

Q: To convert a nominal GDP to a real GDP, you would use A. the PCE deflator. B. the CPI measure. C. the GDP deflator. D. the PPI measure.

Q: U.S. citizens invested $10 billion in foreign securities during a certain year and $21 billion in acquiring capital goods in foreign countries while foreigners invested only $27.5 billion in U.S. during that year. The net foreign investment of U.S. during that year was .a. -$3.5 billion. b. -$58.5 billion. c. $1.2 billion.d. $3.5 billion.

Q: If your nominal income in 2014 is $50,000, and prices increase by 50% between 2014 and 2017, then to have the same real income, your nominal income in 2017 must be A. $50,000. B. $75,000. C. $100,000. D. $150,000.

Q: The balance on the current account plus the balance on the capital and financial account equals a.0b. 1 . c. -1. d.100

Q: If your nominal income in 2014 was $50,000, and prices doubled between 2014 and 2017, to have the same real income, your nominal income in 2017 must be A. $50,000. B. $75,000. C. $90,000. D. $100,000.

Q: The amount foreign citizens, firms, and governments invest in a country minus the amount that the country's citizens, firms, and governments invest abroad isa. the trade balance.b. the balance on current account. c. the capital-account balance.d. the balance on capital and financial account.

Q: GDP measured with constant prices is referred to as A. real GDP. B. nominal GDP. C. the GDP deflator. D. industrial production.

Q: The sum of net exports of goods and services plus net income from abroad plus net unilateral current transfers equalsa. the trade balance.b. the balance on current account. c. the capital account balance.d. the capital and financial account balance.

Q: Nominal GDP is output measured in ________ prices while real GDP is output measured in ________ prices. A. current; current B. current; fixed C. fixed; fixed D. fixed; current

Q: During the 2008 financial crisis, the dollar_____ in nominal terms.a. appreciated sharplyb. appreciated slightlyc. depreciated slightlyd. depreciated sharply

Q: When the total value of final goods and services is calculated using current prices, the resulting measure is referred to as A. real GDP. B. the GDP deflator. C. nominal GDP. D. the index of leading indicators.

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: 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 an economy has aggregate output of $20 trillion, then aggregate income is A. $10 trillion. B. $20 trillion. C. $30 trillion. D. $40 trillion.

Q: Which of the following items are NOT counted in U.S. GDP? A. your purchase of a new Ford Mustang B. your purchase of new tires for your old car C. GM's purchase of tires for new cars D. a foreign consumer's purchase of a new Ford Mustang

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: From 1980 to 1985 the dollar appreciated relative to the British pound. Holding everything else constant, one would expect that, when compared to 1980 A. fewer Britons traveled to the United States in 1985. B. Britons imported more wine from California in 1985. C. Americans exported more wheat to England in 1985. D. more Britons traveled to the United States in 1985.

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: From 1980 to early 1985 the dollar ________ in value, thereby benefiting American ________. A. appreciated; consumers B. appreciated, businesses C. depreciated; consumers D. depreciated, businesses

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: 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: Everything else held constant, a stronger dollar benefits ________ and hurts ________. A. American businesses; American consumers B. American businesses; foreign businesses C. American consumers; American businesses D. foreign businesses; American consumers

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: Everything else held constant, a weaker dollar will likely hurt A. textile exporters in South Carolina. B. wheat farmers in Montana that sell domestically. C. automobile manufacturers in Michigan that use domestically produced inputs. D. furniture importers in California.

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.