Term
1. The term structure of interest rates is
A) the relationship among interest rates of different bonds with the same risk and maturity.
B) the structure of how interest rates move over time.
C) the relationship among the terms to maturity of different bonds from different issuers.
D) the relationship among interest rates on bonds with different maturities but similar risk. |
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Definition
| D) the relationship among interest rates on bonds with different maturities but similar risk. |
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Term
2. The risk structure of interest rates is
A) the structure of how interest rates move over time.
B) the relationship among interest rates of different bonds with the same maturity.
C) the relationship among the terms to maturity of different bonds.
D) the relationship among interest rates on bonds with different maturities. |
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Definition
| B) the relationship among interest rates of different bonds with the same maturity. |
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Term
3. The risk premium on corporate bonds becomes smaller if
A) the riskiness of corporate bonds increases.
B) the liquidity of corporate bonds increases.
C) the liquidity of corporate bonds decreases.
D) the riskiness of corporate bonds decreases.
E) either B or D of the above occur. |
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Definition
| E) either B or D of the above occur. |
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Term
4. Bonds with relatively low risk of default are called
A) zero coupon bonds.
B) junk bonds.
C) investment-grade bonds.
D) none of the above. |
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Definition
| C) investment-grade bonds. |
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Term
5. A corporation suffering big losses might be more likely to suspend interest payments on its bonds, thereby
A) raising the default risk and causing the demand for its bonds to rise.
B) raising the default risk and causing the demand for its bonds to fall.
C) lowering the default risk and causing the demand for its bonds to rise.
D) lowering the default risk and causing the demand for its bonds to fall.
Answer: B |
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Definition
| B) raising the default risk and causing the demand for its bonds to fall. |
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Term
6. Holding everything else the same, if a corporation's earnings rise, then the default risk on its bonds will ________ and the expected return on those bonds will ________.
A) increase; decrease
B) decrease; decrease
C) increase; increase
D) decrease; increase |
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Definition
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Term
7. When the default risk on corporate bonds decreases, other things equal, the demand curve for corporate bonds shifts to the ________ and the demand curve for Treasury bonds shifts to the ________.
A) right; right
B) right; left
C) left; left
D) left; right |
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Definition
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Term
8. The spread between interest rates on low-quality corporate bonds and U.S. government bonds ________ during the Great Depression.
A) was reversed
B) narrowed significantly
C) widened significantly
D) did not change |
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Definition
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Term
9. As a result of the subprime collapse, the demand for low -quality corporate bonds ________, the demand for high-quality Treasury bonds ________, and the risk spread ________.
A) increased; decreased; was unchanged
B) decreased; increased; increased
C) increased; decreased; decreased
D) decreased; increased; was unchanged |
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Definition
| B) decreased; increased; increased |
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Term
10. Moody's and Standard and Poor's are agencies that
A) help investors collect when corporations default on their bonds.
B) advise municipal bond issuers on the tax exempt status of their bonds.
C) produce information about the probability of default on corporate bonds.
D) maintain liquid markets for corporate bonds. |
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Definition
| C) produce information about the probability of default on corporate bonds. |
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Term
11. If Moody's or Standard and Poor's downgrades its rating on a corporate bond, the demand for the bond ________ and its yield ________.
A) increases; decreases
B) decreases; increases
C) increases; increases
D) decreases; decreases |
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Definition
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Term
12. Corporate bonds are not as liquid as government bonds because
A) fewer bonds for any one corporation are traded, making them more costly to sell.
B) the corporate bond rating must be calculated each time they are traded.
C) corporate bonds are not callable.
D) all of the above.
E) only A and B of the above |
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Definition
| A) fewer bonds for any one corporation are traded, making them more costly to sell. |
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Term
13. When the corporate bond market becomes less liquid, other things equal, the demand curve for corporate bonds shifts to the ________ and the demand curve for Treasury bonds shifts to the ________.
A) right; right
B) right; left
C) left; left
D) left; right |
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Definition
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Term
14. If income tax rates were lowered, then
A) the interest rate on municipal bonds would fall.
B) the interest rate on Treasury bonds would rise.
C) the interest rate on municipal bonds would rise.
D) the price of Treasury bonds would fall. |
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Definition
| C) the interest rate on municipal bonds would rise |
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Term
15. Which of the following statements are true?
A) Because coupon payments on municipal bonds are exempt from federal income tax, the expected after-tax return on them will be higher for individuals in higher income tax brackets.
B) An increase in tax rates will increase the demand for municipal bonds, lowering their interest rates.
C) Interest rates on municipal bonds will be lower than on comparable bonds without the tax exemption.
D) All of the above are true statements.
E) Only A and B are true statements |
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Definition
| D) All of the above are true statements |
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Term
16. When a municipal bond is given tax-free status, the demand for municipal bonds shifts ________, causing the interest rate on the bond to ________.
A) leftward; rise
B) leftward; fall
C) rightward; rise
D) rightward; fall |
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Definition
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Term
17. The Bush tax cut passed in 2001 reduces the top income tax bracket from 39 percent to 35 percent over the next ten years. As a result of this tax cut, the demand for municipal bonds should shift to the ________ and the interest rate on municipal bonds should ________.
A) right; decline
B) right; increase
C) left; decline
D) left; increase |
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Definition
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Term
18. The relationship among interest rates on bonds with identical default risk but different maturities is called the
A) time-risk structure of interest rates.
B) liquidity structure of interest rates.
C) yield curve.
D) bond demand curve |
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Definition
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Term
19. Typically, yield curves are
A) gently upward-sloping.
B) gently downward-sloping.
C) flat.
D) bowl shaped.
E) mound shaped. |
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Definition
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Term
20. When yield curves are steeply upward-sloping,
A) long-term interest rates are above short-term interest rates.
B) short-term interest rates are above long-term interest rates.
C) short-term interest rates are about the same as long-term interest rates.
D) medium-term interest rates are above both short-term and long-term interest rates.
E) medium-term interest rates are below both short-term and long-term interest rates. |
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Definition
| A) long-term interest rates are above short-term interest rates. |
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Term
21. According to the expectations theory of the term structure,
A) when the yield curve is steeply upward-sloping, short-term interest rates are expected to rise in the future.
B) when the yield curve is downward-sloping, short-term interest rates are expected to remain relatively stable in the future.
C) investors have strong preferences for short-term relative to long-term bonds, explaining why yield curves typically slope upward.
D) all of the above.
E) only A and B of the above. |
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Definition
| A) when the yield curve is steeply upward-sloping, short-term interest rates are expected to rise in the future. |
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Term
22. If the expected path of one-year interest rates over the next four years is 5 percent, 4 percent, 2 percent, and 1 percent, then the pure expectations theory predicts that today's interest rate on the four-year bond is
A) 1 percent.
B) 2 percent.
C) 4 percent.
D) none of the above. |
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Definition
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Term
23. If the expected path of one-year interest rates over the next five years is 1 percent, 2 percent, 3 percent, 4 percent, and 5 percent, then the pure expectations theory predicts that the bond with the highest interest rate today is the one with a maturity of
A) one year.
B) two years.
C) three years.
D) four years.
E) five years. |
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Definition
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Term
24. According to the market segmentation theory of the term structure,
A) the interest rate for bonds of one maturity is determined by the supply and demand for bonds of that maturity.
B) bonds of one maturity are not substitutes for bonds of other maturities; therefore, interest rates on bonds of different maturities do not move together over time.
C) investors' strong preference for short-term relative to long-term bonds explains why yield curves typically slope upward.
D) all of the above.
E) none of the above. |
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Definition
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Term
25. The liquidity premium theory of the term structure
A) indicates that today's long-term interest rate equals the average of short-term interest rates that people expect to occur over the life of the long-term bond.
B) assumes that bonds of different maturities are perfect substitutes.
C) suggests that markets for bonds of different maturities are completely separate because people have different preferences.
D) does none of the above. |
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Definition
| D) does none of the above. |
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Term
26. According to the liquidity premium theory of the term structure,
A) because buyers of bonds may prefer bonds of one maturity over another, interest rates on bonds of different maturities do not move together over time.
B) the interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds plus a term premium.
C) because of the positive term premium, the yield curve cannot be downward-sloping.
D) all of the above.
E) only A and B of the above. |
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Definition
| B) the interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds plus a term premium |
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Term
27. If the yield curve slope is flat, the liquidity premium theory indicates that the market is predicting
A) a mild rise in short-term interest rates in the near future and a mild decline further out in the future.
B) constant short-term interest rates in the near future and further out in the future.
C) a mild decline in short-term interest rates in the near future and a continuing mild decline further out in the future.
D) constant short-term interest rates in the near future and a mild decline further out in the future. |
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Definition
| C) a mild decline in short-term interest rates in the near future and a continuing mild decline further out in the future. |
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Term
28. According to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expects
A) short-term interest rates to rise sharply.
B) short-term interest rates to drop sharply.
C) short-term interest rates to stay near their current levels.
D) none of the above |
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Definition
| C) short-term interest rates to stay near their current levels. |
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Term
29. In actual practice, short-term interest rates are just as likely to fall as to rise; this is the major shortcoming of the
A) market segmentation theory.
B) expectations theory.
C) liquidity premium theory.
D) separable markets theory |
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Definition
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Term
30. Since yield curves are usually upward sloping, the ________ indicates that, on average, people tend to prefer holding short-term bonds to long-term bonds.
A) market segmentation theory
B) expectations theory
C) liquidity premium theory
D) both A and B of the above
E) both A and C of the above |
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Definition
| E) both A and C of the above |
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Term
31. A moderately upward-sloping yield curve indicates that short-term interest rates are expected to
A) neither rise nor fall in the near future.
B) remain relatively unchanged, but that long-term rates are expected to fall.
C) neither rise nor fall, but that long-term rates are expected to rise moderately.
D) rise moderately in the near future. |
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Definition
| A) neither rise nor fall in the near future. |
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Term
32. ________ bonds are exempt from federal income taxes.
A) Corporate Aaa
B) U.S. Treasury
C) Corporate Baa
D) Municipal |
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Definition
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Term
33. According to the efficient market hypothesis, the current price of a financial security
A) is the discounted net present value of future interest payments.
B) is determined by the highest successful bidder.
C) fully reflects all available relevant information.
D) is a result of none of the above. |
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Definition
| C) fully reflects all available relevant information. |
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Term
34. The efficient market hypothesis
A) is based on the assumption that prices of securities fully reflect all available information.
B) holds that the expected return on a security equals the equilibrium return.
C) both A and B.
D) neither A nor B. |
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Definition
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Term
35. If the optimal forecast of the return on a security exceeds the equilibrium return, then
A) the market is inefficient.
B) an unexploited profit opportunity exists.
C) the market is in equilibrium.
D) only A and B of the above are true. |
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Definition
| D) only A and B of the above are true. |
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Term
36. Another way to state the efficient market condition is that in an efficient market,
A) unexploited profit opportunities will be quickly eliminated.
B) unexploited profit opportunities will never exist.
C) arbitrageurs guarantee that unexploited profit opportunities never exist.
D) both A and C of the above occur. |
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Definition
| A) unexploited profit opportunities will be quickly eliminated. |
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Term
37. A situation in which the price of an asset differs from its fundamental market value is called
A) an unexploited profit opportunity.
B) a bubble.
C) a correction.
D) a mean reversion. |
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Definition
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Term
38. Studies of mutual fund performance indicate that mutual funds that outperformed the market in one time period
A) usually beat the market in the next time period.
B) usually beat the market in the next two subsequent time periods.
C) usually beat the market in the next three subsequent time periods.
D) usually do not beat the market in the next time period. |
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Definition
| D) usually do not beat the market in the next time period. |
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Term
39. The efficient market hypothesis suggests that allocating your funds in the financial markets on the advice of a financial analyst
A) will certainly mean higher returns than if you had made selections by throwing darts at the financial page.
B) will always mean lower returns than if you had made selections by throwing darts at the financial page.
C) is not likely to prove superior to a strategy of making selections by throwing darts at the financial page.
D) is good for the economy. |
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Definition
| C) is not likely to prove superior to a strategy of making selections by throwing darts at the financial page. |
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Term
40. To say that stock prices follow a "random walk" is to argue that
A) stock prices rise, then fall.
B) stock prices rise, then fall in a predictable fashion.
C) stock prices tend to follow trends.
D) stock prices are, for all practical purposes, unpredictable |
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Definition
| D) stock prices are, for all practical purposes, unpredictable. |
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Term
41. Rules used to predict movements in stock prices based on past patterns are, according to the efficient markets theory,
A) a waste of time.
B) profitably employed by all financial analysts.
C) the most efficient rules to employ.
D) consistent with the random walk hypothesis. |
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Definition
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Term
42. Tests used to rate the performance of rules developed in technical analysis conclude that
A) technical analysis outperforms the overall market.
B) technical analysis far outperforms the overall market, suggesting that stockbrokers provide valuable services.
C) technical analysis does not outperform the overall market.
D) technical analysis does not outperform the overall market, suggesting that stockbrokers do not provide services of any value. |
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Definition
| C) technical analysis does not outperform the overall market. |
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Term
43. The advantage of a "buy and hold strategy" is that
A) net profits will tend to be higher because there will be fewer brokerage commissions.
B) losses will eventually be eliminated.
C) the longer a stock is held, the higher its price will be.
D) only B and C of the above are true. |
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Definition
| A) net profits will tend to be higher because there will be fewer brokerage commissions. |
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Term
44. The efficient market hypothesis applies to
A) both the stock market and the foreign exchange market.
B) the stock market but not the foreign exchange market.
C) the foreign exchange market but not the stock market.
D) neither the stock market nor the foreign exchange market |
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Definition
| A) both the stock market and the foreign exchange market. |
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Term
45. According to the January effect, stock prices
A) experience an abnormal price rise from December to January.
B) experience an abnormal price decline from December to January.
C) follow a random walk during January.
D) set the pattern for the entire year in January. |
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Definition
| A) experience an abnormal price rise from December to January. |
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Term
46. The small-firm effect refers to the observation that small firms' stocks
A) follow a random walk but large firms' stocks do not.
B) have earned abnormally low returns given their greater risk.
C) have earned abnormally high returns even taking into account their greater risk.
D) sell for lower prices than do large firms' stocks. |
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Definition
| C) have earned abnormally high returns even taking into account their greater risk. |
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Term
47. Mean reversion refers to the observation that
A) stock prices overact to news announcements.
B) stocks prices are more volatile than fluctuations in their fundamental value would predict.
C) stocks with low returns are likely to have high returns in the future.
D) stocks with low returns are likely to have even lower returns in the future. |
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Definition
| C) stocks with low returns are likely to have high returns in the future. |
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Term
48. Evidence against market efficiency does not include
A) the small-firm effect.
B) technical analysis.
C) excessive volatility.
D) mean reversion. |
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Definition
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Term
49. Evidence in favor of market efficiency does not include
A) random-walk behavior.
B) technical analysis.
C) performance of investment analysts and mutual funds.
D) the January effect. |
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Definition
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Term
50. The elimination of a riskless profit opportunity in a market is called
A) the efficient market hypothesis.
B) random walk.
C) arbitrage.
D) market fundamentals. |
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Definition
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Term
| 51. If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries, then financial intermediaries face the problem of |
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Definition
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Term
52. If borrowers take on big risks after obtaining a loan, then lenders face the problem of
A) free-riding.
B) adverse selection.
C) moral hazard.
D) costly state verification. |
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Definition
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Term
53. Because of the lemons problem in the used car market, the average quality of the used cars offered for sale will be ________, which gives rise to the problem of ________.
A) low; moral hazard
B) low; adverse selection
C) high; moral hazard
D) high; adverse selection |
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Definition
| B) low; adverse selection |
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Term
54. In the used car market, asymmetric information leads to the lemons problem because the price that buyers are willing to pay will
A) reflect the highest quality of used cars in the market.
B) reflect the lowest quality of used cars in the market.
C) reflect the average quality of used cars in the market.
D) none of the above. |
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Definition
| C) reflect the average quality of used cars in the market. |
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Term
55. The problem created by asymmetric information before the transaction occurs is called ________, while the problem created after the transaction occurs is called ________.
A) adverse selection; moral hazard
B) moral hazard; adverse selection
C) costly state verification; free-riding
D) free-riding; costly state verification |
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Definition
| A) adverse selection; moral hazard |
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Term
56. Adverse selection is a problem associated with equity and debt contracts arising from
A) the lender's relative lack of information about the borrower's potential returns and risks of his investment activities.
B) the lender's inability to legally require sufficient collateral to cover a 100 percent loss if the borrower defaults.
C) the borrower's lack of incentive to seek a loan for highly risky investments.
D) none of the above. |
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Definition
| A) the lender's relative lack of information about the borrower's potential returns and risks of his investment activities. |
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Term
57. Moral hazard is a problem associated with debt and equity contracts arising from
A) the borrower's incentive to undertake highly risky investments.
B) the owners' inability to ensure that managers will act in the owners' interest.
C) the difficulty lenders have in sorting out good credit risks from bad credit risks.
D) all of the above.
E) only A and B of the above. |
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Definition
| E) only A and B of the above. |
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Term
58. The problem of adverse selection helps to explain
A) which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from securities markets.
B) why collateral is an important feature of consumer, but not business, debt contracts.
C) why direct finance is more important than indirect finance as a source of business finance.
D) only A and B of the above. |
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Definition
| A) which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from securities markets. |
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Term
59. That most used cars are sold by intermediaries (i.e., used car dealers) provides evidence that these intermediaries
A) provide information that is valued by consumers of used cars.
B) are able to prevent others from free-riding off the information that they provide.
C) can profit by becoming experts in determining whether an automobile is a good car or a lemon.
D) do all of the above. |
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Definition
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Term
60. In the United States, the government agency requiring that firms, which sell securities in public markets, adhere to standard accounting principles and disclose information about their sales, assets, and earnings is the
A) Federal Corporate Securities Commission.
B) Federal Trade Commission.
C) Securities and Exchange Commission.
D) U.S. Treasury Department.
E) Federal Reserve System.
Answer: C |
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Definition
| C) Securities and Exchange Commission. |
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Term
61. Financial intermediaries (banks in particular) have the ability to avoid the free-rider problem as long as they primarily
A) make private loans.
B) acquire a diversified portfolio of stocks.
C) buy junk bonds.
D) do a balanced combination of A and B of the above. |
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Definition
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Term
62. The majority of household debt in the United States consists of
A) credit card debt.
B) consumer installment debt.
C) collateralized loans.
D) unsecured loans, such as student loans. |
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Definition
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Term
63. Because of the moral hazard problem,
A) lenders will write debt contracts that restrict certain activities of borrowers.
B) lenders will more readily lend to borrowers with high net worth.
C) debt contracts are used less frequently to raise capital than equity contracts.
D) all of the above.
E) only A and B of the above. |
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Definition
| E) only A and B of the above. |
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Term
64. Moral hazard in equity contracts is known as the ________ problem because the manager of the firm has fewer incentives to maximize profits than the stockholders might ideally prefer.
A) principal-agent
B) adverse selection
C) free-rider
D) debt deflation |
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Definition
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Term
65. Because managers (________) have less incentive to maximize profits than the stockholders-owners (________) do, stockholders find it costly to monitor managers; thus, stockholders are reluctant to purchase equities.
A) principals; agents
B) principals; principals
C) agents; agents
D) agents; principals |
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Definition
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Term
66. The principal-agent problem
A) occurs when managers have more incentive to maximize profits than the stockholders-owners do.
B) would not arise if the owners of the firm had complete information about the activities of the managers.
C) in financial markets helps to explain why equity is a relatively important source of finance for American businesses.
D) all of the above.
E) only A and B of the above. |
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Definition
| B) would not arise if the owners of the firm had complete information about the activities of the managers. |
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Term
67. Adverse selection
A) is a problem created by asymmetrical information after the transaction.
B) can be solved by eliminating asymmetrical information.
C) occurs when people who do not pay for information take advantage of the information other people have to pay for.
D) all of the above. |
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Definition
| B) can be solved by eliminating asymmetrical information. |
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Term
68. The free-rider problem
A) occurs when people who do not pay for information take advantage of the information other people have to pay for.
B) suggests that the private sale of information will only be a partial solution to the lemons problem.
C) prevents the private market from producing enough information to eliminate all the asymmetric information that leads to adverse selection.
D) all of the above. |
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Definition
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Term
69. A conflict of interest occurs when
A) a financial firm sells a service to its customers for a price that exceeds the cost of producing the service.
B) lenders prefer higher interest rates and borrowers prefer lower interest rates.
C) riskier borrowers are the ones who are more likely to apply for loans.
D) people expected to provide reliable information to the public have incentives not to do so. |
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Definition
| D) people expected to provide reliable information to the public have incentives not to do so. |
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Term
70. A conflict of interest between providing impartial research about companies issuing securities and selling those same securities arises in
A) investment banking.
B) commercial banking.
C) accounting firms.
D) mutual funds. |
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Definition
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Term
71. Conflicts of interest in the Arthur Andersen accounting firm intensified when ________ became the firm's largest source of profits and large clients pressured ________ office managers to give favorable audits.
A) consulting; regional
B) consulting; national
C) auditing; regional
D) auditing; national |
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Definition
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Term
72. The conflict of interest in credit-rating agencies arises because ________ pay to have securities rated and, as a result, the agencies' ratings may be biased ________.
A) security issuers; downward
B) security issuers; upward
C) investors; downward
D) regulators; upward |
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Definition
| B) security issuers; upward |
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Term
73. Since firms issuing new securities pay to have these securities rated, the credit-rating agencies have incentive to ________ to attract more business.
A) give favorable ratings
B) give impartial ratings
C) lower the fees they charge
D) practice spinning |
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Definition
| A) give favorable ratings |
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Term
74. The Sarbanes-Oxley Act of 2002 dealt with conflicts of interest in
A) investment banks.
B) accounting firms.
C) credit-rating agencies.
D) all of the above. |
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Definition
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Term
75. The unusual structure of the Federal Reserve System is perhaps best explained by
A) Americans' fear of centralized power.
B) the traditional American distrust of moneyed interests.
C) Americans' desire to remove control of the money supply from the U.S. Treasury.
D) all of the above.
E) only A and B of the above. |
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Definition
| E) only A and B of the above. |
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Term
76. Which of the following is an element of the Federal Reserve System?
A) The Federal Reserve banks
B) The Board of Governors
C) The FDIC
D) All of the above
E) Only A and B of the above |
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Definition
| E) Only A and B of the above |
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Term
77. Which of the following functions are not performed by any of the twelve regional Federal Reserve banks?
A) Check clearing
B) Conducting economic research
C) Setting interest rates payable on time deposits
D) Issuing new currency |
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Definition
| C) Setting interest rates payable on time deposits |
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Term
78. Which Federal Reserve Bank president always has a vote in the Federal Open Market Committee?
A) Philadelphia
B) New York
C) Boston
D) San Francisco |
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Definition
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Term
79. Which of the following are duties of the Board of Governors of the Federal Reserve System?
A) Setting margin requirements, the fraction of the purchase price of securities that has to be paid for with cash.
B) Setting the maximum interest rates payable on certain types of time deposits under Regulation Q.
C) Regulating credit with the approval of the President under the Credit Control Act of 1969.
D) None of the above has been a duty of the Board since the mid-1980s. |
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Definition
| A) Setting margin requirements, the fraction of the purchase price of securities that has to be paid for with cash. |
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Term
80. Members of the Board of Governors are
A) chosen by the Federal Reserve Bank presidents.
B) appointed by the newly elected president of the United States, as are cabinet positions.
C) appointed by the president of the United States and confirmed by the Senate as members resign.
D) never allowed to serve more than seven-year terms. |
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Definition
| C) appointed by the president of the United States and confirmed by the Senate as members resign. |
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Term
81. Each member of the seven-member Board of Governors is appointed by the president and confirmed by the Senate to serve
A) 4-year terms.
B) 6-year terms.
C) 14-year terms.
D) as long as the appointing president remains in office. |
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Definition
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Term
82. The Federal Reserve entity that determines monetary policy strategy is the
A) Board of Governors.
B) Federal Open Market Committee.
C) Chairman of the Board of Governors.
D) Shadow Open Market Committee |
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Definition
| B) Federal Open Market Committee. |
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Term
83. Which of the following are true statements?
A) The FOMC usually meets every six weeks to set monetary policy.
B) The FOMC issues directives to the trading desk at the New York Fed.
C) Designers of the Federal Reserve Act did not envision the use of discount lending as a monetary policy tool.
D) All of the above are true statements.
E) Only A and B of the above are true statements. |
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Definition
| E) Only A and B of the above are true statements. |
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Term
84. Factors that provide the Federal Reserve with a high degree of independence include
A) 14-year terms for members of the Board of Governors.
B) a four-year term for the chairman of the Board of Governors that is not coincident with the president's term of office.
C) constitutional independence from Congress and the president.
D) all of the above.
E) only A and B of the above. |
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Definition
| E) only A and B of the above. |
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Term
85. Federal Reserve independence is thought to
A) introduce a short-term bias to monetary policymaking.
B) lead to better fiscal and monetary policy coordination.
C) introduce longer-run considerations to monetary policymaking.
D) do both A and B of the above. |
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Definition
| C) introduce longer-run considerations to monetary policymaking. |
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Term
86. Although it enjoys a high degree of autonomy, the Fed is still subject to the influence of Congress because
A) Congress can pass legislation that would restrict the Fed's independence.
B) Congress can withhold the Fed's budget requests.
C) Congress can remove members of the Board of Governors whose views on policy differ from those of key members of Congress.
D) All of the above. |
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Definition
| A) Congress can pass legislation that would restrict the Fed's independence. |
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Term
87. A trend in recent years is that more and more governments
A) have been granting greater independence to their central banks.
B) have been reducing the independence of their central banks to make them more accountable for poor economic performance.
C) have mandated that their central banks give up multiple policy goals to focus strictly on inflation.
D) have required their central banks to coordinate policies with their ministers of finance. |
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Definition
| A) have been granting greater independence to their central banks. |
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