Q&A Hero

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: Why are policymakers reluctant to make unconventional tools part of their regular arsenal of policy tools?

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: Possible explanations that have been offered for the Great Moderation experienced in the United States include all of the following except: A. good fortune.B. economies that have become more flexible in absorbing shocks.C. calm financial markets.D. better understanding and use of monetary policy.

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: Most economists attribute the Great Moderation experienced in the United States during the 1990s mainly to: A. good fortune.B. slowing productivity growth.C. aggressive fiscal policy.D. better understanding and use of monetary policy.

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: During the Great Moderation experienced in the United States during the 1990s the volatility of inflation and growth: A. moved in opposite directions.B. both dropped significantly.C. both increased but only slightly.D. disappeared.

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: If a positive inflation shock occurs and monetary policymakers do not change the inflation target: A. output will eventually return to potential output and inflation will equal the inflation target.B. output will eventually rise above potential output while inflation will equal the inflation target.C. output will eventually fall below potential output while inflation will equal the inflation target.D. output will eventually return to potential output but inflation will exceed the inflation target.

Q: Credit Unions get slight competitive advantage over commercial banks and thrifts because they a. get their charter from the Comptroller of the Currency.b. get tax exemptions as they are often run as non-profit organizations. c. are insured by the Federal Deposit Insurance Corporation.d. can rely on the funds from the Federal Reserve at times of emergency.

Q: Monetary policymakers can respond to the impact that positive inflation shocks have on output by shifting the: A. monetary policy reaction curve left.B. monetary policy reaction curve right.C. short-run aggregate supply curve to the left.D. short-run aggregate supply curve to the right.

Q: Monetary policy has the following advantage(s) over fiscal policy: A. it is less influenced by politics.B. it can be implemented faster.C. it can usually be fine-tuned.D. all of the answers given are correct.

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: Fiscal policy suffers from the problem of: A. being formulated and implemented by politicians subject to short-run incentives.B. being slow to implement.C. being influenced by special interest groups.D. all of the answers given are correct.

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: Comparing monetary and fiscal policy: A. fiscal policy has an advantage because it is faster to implement than monetary policy.B. fiscal policy is easier to implement.C. monetary policy is easier to implement.D. history has shown fiscal policy to be more effective at stabilization.

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: Tax cuts would have the same directional effect on the dynamic aggregate demand curve as: A. decreases in government purchases.B. the Federal Reserve selling U.S. treasury securities.C. the Federal Reserve buying U.S. treasury securities.D. temporary tax increases.

Q: A thrift institution that obtains a federal charter obtains its charter from which government agency?a. The Federal Savings and Loan Insurance Corporation b. Federal Reservec. The Office of Thrift Supervisiond. The Office of Comptroller of Currency

Q: The dynamic aggregate demand curve shifts as a result of: A. discretionary fiscal policy.B. automatic fiscal policy.C. either discretionary or automatic fiscal policy.D. fiscal policy but only when it's used in conjunction with monetary policy.

Q: Which of the following illustrates a difference between the Federal Reserve and the Federal Deposit InsuranceCorporation?a. The Fed supervises most of the largest banks; whereas the Federal Deposit Insurance Corporation has mostlyvery small banks under its supervision.b. The Fed supervises state banks that do are not the members of the Federal Reserve System; whereas theFederal Deposit Insurance Corporation supervises all financial holding companies.c. The Fed supervises national banks that are not in Financial Holding Companies or bank holding companies;whereas the Federal Deposit Insurance Corporation supervises bank holding companies.d. The Fed supervises credit unions; whereas the Federal Deposit Insurance Corporation supervises thriftinstitutions.

Q: Unemployment insurance and the proportional nature of the tax system are examples of: A. discretionary fiscal policy.B. automatic fiscal policy.C. both discretionary and automatic fiscal policy.D. expansionary fiscal policy.

Q: The Federal Deposit Insurance Corporation is the main supervisor fora. national banks that are part of a financial holding company or a bank holding company. b. national banks that are not in a financial holding company or a bank holding company. c. state banks that are not members of the Federal Reserve System.d. state banks that do not have Federal Deposit Insurance Corporation insurance.

Q: Which of the following is not correct with regard to the definition of a recession as used by the NBER? A. A recession occurs whenever there is a dip in the growth rate.B. The exact length of time needed for a downturn to be declared a recession is not specified.C. Many key economic indicators are used, some of which may move in opposite directions.D. A recession is characterized by lower levels of economic activity.

Q: The Office of the Comptroller of the Currency is the main supervisor fora. national banks that are part of a financial holding company or a bank holding company. b. national banks that are not in a financial holding company or a bank holding company.c. state banks that are not members of the Federal Reserve and are not in a financial holding company or a bank holding company.d. state banks that are members of the Federal Reserve System.

Q: A state bank that is a member of the Federal Reserve System and is not in a financial holding company or a bank holding company is mainly supervised by thea. Federal Deposit Insurance Corporation. b. Federal Reserve.c. Office of the Comptroller of the Currency. d. National Credit Union Administration.

Q: Almost all recessions identified by the NBER are characterized by: A. declining real GDP.B. higher interest rates.C. durations exceeding two years.D. higher rates of inflation.

Q: "Official" recessions in the United States are declared by: A. the Federal Reserve.B. the U.S. department of the Treasury.C. the National Bureau of Economic Research.D. Congress.

Q: A national bank that is part of a financial holding company or a bank holding company is mainly supervised by the a. Federal Deposit Insurance Corporation.b. Federal Reserve.c. Office of the Comptroller of the Currency. d. National Credit Union Administration.

Q: A national bank that is not in a financial holding company or a bank holding company is mainly supervised by the a. Federal Deposit Insurance Corporation.b. Federal Reserve.c. Office of the Comptroller of the Currency. d. National Credit Union Administration.

Q: Which of the following statements is most correct? A. A recession is officially defined as two consecutive quarters where the real growth rate is negative.B. A recession officially begins when unemployment exceeds 5.0 percent.C. There is no hard and fast definition of a recession.D. The official date of a recession is determined by the Federal Reserve Board, but usually with at least a three-month delay.

Q: A national bank is supervised by all of the following agencies EXCEPTa. the Federal Deposit Insurance Corporation. b. the Federal Reserve.c. the Office of the Comptroller of the Currency. d. the National Credit Union Administration.

Q: An inflation shock that shifts the short-run aggregate supply curve leftward and leaves the long-run supply curve unchanged means the economy's potential level of output will: A. increase.B. not change.C. decrease.D. decrease only if monetary policymakers do not respond.

Q: An increase in the rate of inflation: A. can only result from increases in aggregate demand.B. can only result from upward shifts in the short-run aggregate supply curve.C. will result only if the long-run aggregate supply curve is vertical.D. can result from shifts in either the dynamic aggregate demand curve or the short-run aggregate supply curve.

Q: A financial holding company (FHC) is the a financial structure that can a. own a bank and an insurance underwriting firm.b. own either an insurance underwriting firm or an insurance agency. c. own either an insurance agency or a securities agency.d. own either a securities agency or a securities underwriting firm.

Q: Stagflation occurs when: A. the inflation rate decreases and current output decreases.B. the inflation rate increases and current output decreases.C. the inflation rate decreases and current output increases.D. the inflation rate increases and current output increases.

Q: The Gramm-Leach Bliley Act was passed in the year a. 1930.b. 1999. c. 1956. d. 1977.

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: The law that allowed banks to engage in investment banking was the a. Gramm-Leach-Bliley Act.b. Glass-Steagall Act. c. McFadden Act.d. Garn-St. Germain Act.

Q: The proponents of repeal of the Glass-Steagall Act argued that repeal will a. lead to an increase in operational and information costs of banks.b. increase externalities because of banking problems.c. reduce the international competitiveness of the commercial banks.d. lead to the generation of a higher capital level.

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: Which of the following is true of the Glass-Steagall Act?a. The act provides authority to the Federal Reserve to regulate bank holding companies and prevent them from branching out.b. The act enables banks to engage in more non-banking activities by operating subsidiaries.c. The act prohibits banks to own subsidiary firms that sold products other than banking services.d. The act encourages banks to meet the credit needs of their communities.

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: During the time that the Glass-Steagall Act was in effect, which banking authority wanted to allow banks to be able to engage in more nonbanking activities through operating subsidiaries?a. The Federal Reserveb. The Office of Comptroller of the Currency c. The U.S. Treasury Departmentd. The Federal Deposit Insurance Corporation

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: An enterprise that either take deposits or make loans but do not perform both the activities together, and therefore is not subject to the same restrictions as banks is known asa. non­governmental organizations.b. corporations.c. nonbanks.d. business firms.

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: To oppose the Glass-Steagall Act, banks argued that theya. would be forced to extend deposit insurance coverage to firms that were not banks.b. would have a conflict of interest between their needs to underwrite stocks and to serve their customers. c. could gain greater monopoly power by lending only to big businesses.d. could take advantage of economies of scope if they were able to underwrite securities and sell them directly to their customers.

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: The law that prohibited banks from engaging in investment banking was the a. Gramm-Leach-Bliley Act.b. Glass-Steagall Act. c. McFadden Act.d. Garn-St. Germain Act.

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: The Glass-Steagall Act was passed into law in the year a. 1999.b. 1913. c. 1933. d. 1980.

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: Which of the following is an error made by commercial banks in 1920s that caused depositors to lose money andforced regulators to impose restrictions?a. Banks sold securities in the primary market.b. Smaller banks merged to form larger banks.c. Banks issued loans to a number of firms that went bankrupt during the Great depression.d. Banks did not diversify their activities and were engaged only in banking activities.

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: Which of the following is NOT included in the call report filed by a commercial bank?a. A report on a bank's assetsb. A report on a bank's liabilitiesc. A report on a bank's compliance with the Fair Lending Act d. A report on a bank's profits

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: The document that a bank must fill out quarterly, reporting its assets, liabilities, and profits to the government, is called aa. balance-sheet analysis. b. P&L statement.c. white paper. d. call report.

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: Which of the following is a government regulation that enables the government to achieve its goals for the bankingsystem?a. A government regulation that allows for mergers in order to help increase the size of a bank.b. A government regulation that provides complete discretion to banks to manage the supply of money.c. Banks are required to hold reserves in order to control the money supply.d. Banks are penalized in case of inefficient functioning.

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: The mechanisms by which cash, checks, and electronic payments flow from buyers to sellers are called a. the transactions system.b. float.c. the payments system. d. ACH.

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: Which of the following is a possible drawback of a bank run?a. It leaves the banks with excess reserves.b. It leads to a fall in investment activities because of lack of loans available to business firms.c. It leads to a fall in the demand for loans by the business firms.d. It leads to an excessive increase in the supply of money by the banks.

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: The fact that the Fed is willing to pay interest on reserves gives the Fed another mechanism for affecting the money supply and the amount of reserves that banks hold. How might a very low interest rate paid on reserves increase the money supply? (Hint: Consider the possible uses of excess reserves.)

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: In a recent year, a bank earned $36 million in interest on its assets of $523 million, it paid out $9 million in interest on its liabilities (excluding capital) of $470 million, and it paid its workers $21.5 million in total compensation. Calculate the bank's spread and 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: Reserve requirements for banks are currently:Amount of Bank's Requirement Transaction Deposits ReserveThe first $6.6 million 0 percentAmounts from $6.6 to $45.4 million 3 percentAmounts over $45.4 million 10 percentCalculate the reserve requirements for three banks with the following amounts of transaction deposits.a. $38.8 millionb. $95.6 millionc. $3,400 million

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: The reserve requirement is 0 percent on the first $6.0 million in transaction deposits, 3 percent on amounts between $6.0 million and $42.1 million, and 10 percent on amounts above $42.1 million.The First Bank of Boston has the following assets and liabilities (all amounts in millions of dollars): AssetsReserves $5.0Loans $345.0Securities $70.0 Liabilities + CapitalTransaction deposits $75.0Nontransaction deposits $315.0Equity capital $30.0a. Calculate the bank's excess reserves.Show your work.b.Suppose First Bank makes a loan to a customer equal to the amount of the excess reserves you found in part a. Calculate the bank's excess reserves before the customer spends the proceeds of the loan.Show your work.c. Now suppose the customer spends the proceeds of the loan. Calculate the bank's excess reserves. Show your work.

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: A bank offers credit cards with a 24 percent interest rate, when its competitors' cards have just a 18 percent interest rate. What do you predict will happen? Will the bank profit from its offer?

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: Which of the following measures by the Federal Reserve led to an increase in bank reserves between 2009 and 2013?a. Moral Suasionb. Open market operationsc. Haircutd. Quantitative easing

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: In order to manipulate the money supply, the Fed can change the interest rate that it pays on reserves in comparison to the ____ rate.a. federal funds b. primec. 30-year fixed mortgage d. credit card interest

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