2024 – 1 TCO 1 Which of the following would tend to hold corporate bonds in significant

1. (TCO 1) Which of the following would tend to hold corporate bonds in significant amounts? (Points : 4)

        Life insurance company

        Credit union

        Mutual savings bank

        Commercial bank

 

 

Question 2.2. (TCO 1) The DSU receives the funds in the primary market; the SSU sells the claim in the ______. (Points : 4)

        intermediation market

        direct financial market

        federal funds market

        secondary market

 

 

Question 3.3. (TCO 1) Which of the following is not a characteristic of money market instruments? (Points : 4)

        Short-term to maturity

        Small denomination

        Low default risk

        High marketability

 

 

Question 4.4. (TCO 1) The difference between “capital spending” and “real investment” is chiefly a difference in ______. (Points : 4)

        essential nature and purpose of the assets created or acquired

        relative cost of the assets created or acquired

        susceptibility of the assets created or acquired to amortization or depreciation

        semantics

 

 

Question 5.5. (TCO 1) Which of the following is not a debt security? (Points : 4)

        Corporate bonds

        U.S. Government securities

        Federal agency securities

        Common stock

 

 

Question 6.6. (TCO 1) A conditional contract granting its holder the right to buy assets in the future is a ______. (Points : 4)

        put

        forward contract

        futures contract

        call

 

 

Question 7.7. (TCO 1) The ease with which a financial claim can be resold is its ______. (Points : 4)

        quality

        risk

        marketability

        perpetuity

 

 

Question 8.8. (TCO 2) Who has a permanent vote on the FOMC? (Points : 4)

        President of the Federal Reserve Bank of New York

        Federal Advisory Council

        President of the Federal Reserve Bank of San Francisco

        Congress

 

 

Question 9.9. (TCO 2) Reforms and regulatory changes in U.S. financial institutions are best associated with ______. (Points : 4)

        international events affecting U.S. financial institutions

        periods of severe economic and financial problems in the U.S. economy

        voters changing the majority party in Congress

        recommendations of presidential commissions

 

 

Question 10.10. (TCO 2) Which of the following Fed actions does not directly increase total reserves in the banking system? (Points : 4)

        Lowering the Discount Rate

        Lowering reserve requirements

        Buying U.S. government securities on the open market

        None of the above

 

 

Question 11.11. (TCO 3) Unemployment should fall if ______. (Points : 4)

        wages increase and people expect prices to rise as well

        wages increase and people expect prices to be stable

        interest rates rise more than prices are expected to rise

        the money supply increases

 

 

Question 12.12. (TCO 3) Monetarists believe that an increase in the money supply, all else equal, will cause ______. (Points : 4)

        consumption expenditures to rise

        investment spending to fall

        national income to fall

        government expenditures to rise

 

 

Question 13.13. (TCO 3) The “tools” of monetary policy, whether “viable” or not, include all the following except ______. (Points : 4)

        changing the discount rate

        open market operations

        changes in reserve requirements

        changes in the Federal Funds rate

 

 

Question 14.14. (TCO 3) Influence of monetary policy on the financial sector is ______. (Points : 4)

        negligible

        inevitable

        limited

        insignificant

 

 

Question 15.15. (TCO 2, 3) Which of the following was not a responsibility of the early Federal Reserve? (Points : 4)

        Replace the National Banking system

        Improve the payments system

        Establish more rigorous bank supervision

        Act as “lender of last resort”

 

 

Question 16.16. (TCO 4) An increase in the rate of expected inflation will (Points : 4)

        shift the demand for loanable funds to the left (down).

        shift the supply of loanable funds to the left (down).

        shift demand and supply for loanable funds to the right (up), decreasing interest rates.

        shift demand and supply for loanable funds to the right (up), increasing interest rates.

 

Question 17.17. (TCO 4) Interest rates should decrease if (Points : 4)

        the economy is in a boom.

        inflationary expectations have decreased.

        the Federal Reserve has decreased M1 and the supply of loanable funds.

        business investment demand has decreased significantly.

 

 

Question 18.18. (TCO 4) Price level changes affect ______. (Points : 4)

        the cost of borrowing money

        the price of goods but not services

        the realized return lenders receive

        the cost of borrowing money and the realized return lenders receive

 

 

Question 19.19. (TCO 4) If nominal interest rates are 10% and expected inflation is 5%, ______. (Points : 4)

        actual inflation exceeds 10%

        the real rate of interest is 5%

        market rates are expected to increase to 15%

        expected interest rates are 5%

 

 

Question 20.20. (TCO 4) With the real rate at 4%, most loans were made at 13% last year. This year, interest rates have declined to 8%. What was the expected inflation rate last year? (Points : 4)

        4%

        9%

        8%

        13%

1. (TCO 1) Explain how and why the secondary capital markets play an important role in our economy. How do secondary markets assist the primary market? (Points : 10)

      

 

 

Question 2.2. (TCO 2) Explain why the Federal Reserve is less “independent” than it appears to be. (Points : 10)

 

Question 3.3. (TCO 3) What exactly is the Fed Funds Rate, and why isn’t it considered a tool of monetary policy? (Points : 10)

   

 

Question 4.4. (TCO 4) Using loanable funds theory, discuss how changes in consumer savings, in business investment, and in the money supply by the Federal Reserve System can influence the level of interest rates. (Points : 10)