The Neoclassical short run impact of a rise in the savings rate of households under floating exchange rates is illustrated in the AD-AS model as: a)...

Other Assets                                   26,000

Equity                                                        12,800

Piggy Bank is earning 4.00 percent interest on its asset portfolio and is paying 3.5 percent interest on its financial liabilities. Twenty percent of the bank’s assets and sixty percent of the bank’s financial liabilities are interest sensitive. The (McCauley) duration of its assets is 5.2 and the duration of its financial liabilities is 4.14.  The required reserve ratio for Demand Deposits is 5 percent and the required reserve ratio for Time Deposits is 1 percent.

32.  The capital to asset ratio, k, for Piggy Bank is _____.

          a) 0.075      *     b) 0.080 c) 0.085            d) 0.090 e) None of the above are correct.

33.  Return on Equity (ROE) for Piggy Bank’s shareholders equals ________ percent.

          a) 6.25           b) 7.50               c) 8.60           *   d) 9.75               e) None of the above are correct.

34.          If interest rates rise by 25 basis points the change in Piggy Bank’s net worth will be ______ thousand dollars.

      * a) – 528.0         b) – 400.0        c) 0            d) 400.0 e) 528.0

35.        If interest rates fall by 30 basis points the change in Piggy Bank’s profit will be __________thousand dollars.

                 a) – 168.96         b) – 84.48        c) 0            d) 84.48        *         e) 168.96

36.          Currently, Piggy Bank is holding ________ thousand dollars in excess reserves.

    *   a) 0           b) 200                c) 400                 d) 800                e) None of the above are correct.

Consider the following tilt in the Treasury Yield Curve:

37.          The tilt in the Treasury Yield Curve shown above could be explained under the preferred habitat or liquidity premium hypothesis by:

          a) a decrease in the average term to maturity of the national debt.

          b) an increase in the expected interest yields to bonds issued in the future.

       * c) a decrease in term premiums offered on long term bonds.

             d) Both b) and c) are correct.

          e)  None of the above are correct.

38.          The tilt in the Treasury Yield Curve shown above could be explained under the market segmentation hypothesis by:

        *        a) a decrease in the average term to maturity of the national debt.

          b) a decrease in the expected interest yields to bonds issued in the future.

          c) an increase in term premiums offered on long term bonds.

          d) Both b) and c) are correct.

          e) None of the above are correct

39.          FED Chairman Alan Greenspan argued that low interest rates which contributed to the housing and real estate boom around the world between 2003 and 2007 were the result of:

          a) excessive easing of credit by world central banks.

          b) irrational trading by speculators caught up in speculative bubble.

    *        c) increased saving with lower real interest rates.

          d) all of the above.

40.          John Taylor argues that low interest rates which contributed to the housing and real estate boom around the world between 2003 and 2007 were the result of:

     *     a) excessive easing of credit by world central banks.

          b) irrational trading by speculators caught up in speculative bubble.

            c) increased saving with lower real interest rates.

          d) all of the above.