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MGT411 Money and Banking MCQs

MGT411 Money, Banking and Financial Markets Solved MCQs 30

Q#1 A central bank typically:
A) has a monopoly in issuing currency.
B) use monetary policy in attempts to stabilize economic growth and/or inflation.
C) serves as a "bankers' bank" that provides services to other banks.
D) All of the above are correct.
The Basics: How Central Banks Originated and Their Role Today.

Q#2 The primary reason for the existence of central banks today is to:
A) help finance wars.
B) serve as a bank for the government, accepting deposits and providing the government with checkable deposits.
C) control the money supply.
D) stabilize the prices of specific commodities.
The Basics: How Central Banks Originated and Their Role Today.

Q#3 Monetary policy in the countries that are part of the European Monetary Union is controlled by the:
A) European Central Bank.
B) central banks of each of the member countries.
C) Federal Reserve Board.
D) Bank ofEngland.
The Basics: How Central Banks Originated and Their Role Today.

Q#4 Which of the following tasks is NOT performed by a central bank as part of its role as a "bankers' bank?"
A) providing loans to banks during periods of financial stress
B) managing the payments system
C) controlling stock prices
D) accepting deposits from banks

Q#5 Central banks can serve as a lender of last resort because:
A) they have the ability to create money.
B) they are the only financial institution that is legally allowed to make loans during a financial panic.
C) the interest rates they charge are so high that banks are virtually never willing to borrow from the Fed.
D) banks are more likely to borrow money from their depositors during a financial panic.
The Basics: How Central Banks Originated and Their Role Today.

Q#6 Fedwire:
A) is a financial news network developed by the Federal Reserve Board.
B) is used for interbank transfers.
C) was once heavily used by banks, but is rarely used today since there is little need for interbank transfers now that the internet exists.
D) is used by the Fed solely to make loans to member banks.
The Basics: How Central Banks Originated and Their Role Today.

Q#7 Historical evidence indicates that theU.S. financial system is:
A) always very stable as long as the government does not imposed any regulations.
B) prone to periods of instability that have imposed substantial costs on society.
C) somewhat unstable, but this does not matter much since the social cost of the instability is always low.
D) as unstable today as it was in the late 1800s.
Stability: The Primary Objective of All Central Banks.

Q#8 One of the main objectives of a central bank is to:
A) reduce idiosyncratic risk in financial markets.
B) reduce systematic risk in financial markets.
C) encourage a low and stable rate of economic growth.
D) achieve a high and stable inflation rate.
Stability: The Primary Objective of All Central Banks.

Q#9 Central banks generally place a great deal of emphasis on maintaining a low and stable inflation rate because:
A) inflation lowers the information content of prices.
B) economic growth tends to decline as inflation rates rise.
C) inflation tends to be less predictable when inflation rates rise.
D) All of the above are correct.

Q#10 Central banks usually establish a positive inflation rate target rather than a zero inflation rate target because:
A) economic growth is higher when the inflation rate rises.
B) a positive inflation rate makes it possible for firms to reduce real wages without reducing nominal wages, leading to more efficient labor markets.
C) the Fed is a more profitable operation for the government when the inflation rate is positive.
D) a higher inflation rate results in a higher unemployment rate, and higher unemployment rates are preferred by policymakers.
Stability: The Primary Objective of All Central Banks.

Q#11 Which of the following is not a primary objective of the Fed?
A) low and stable inflation
B) high and stable real growth
C) financial system stability
D) maintaining low interest rates

Q#12 Exchange–rate stability is:
A) a more important goal for the Fed than it is for the central banks of smaller and more trade-oriented economies.
B) a less important goal for the Fed than it is for the central banks of smaller and more trade-oriented economies.
C) equally important as a goal for the Fed as it is for the central banks of smaller and more trade-oriented economies.
D) a primary objective of the Fed.

Q#13 Which of the following is not generally a characteristic of a successful central bank?
A) Central bank policy must be controlled by the same authorities.
B) Central bank decisions must be made in private and policy should not be publicly announced.
C) Decision making should be made by an individual, not a committee, to ensure consistency of goals.
D) The central bank should operate within a framework in which it has clear goals.

Q#14 Central bank independence is:
A) not very common in industrialized countries today.
B) a practice that was widely adopted by central banks for industrialized countries in the late 1800s.
C) a relatively recent historical phenomenon.
D) a policy that is practiced by the European Central Bank, but not the Fed.

Q#15 Empirical evidence suggests that a higher level of central bank independence results in:
A) higher average inflation rates than occur in countries with less independent central banks.
B) lower average inflation rates than occur in countries with less independent central banks.
C) the same average inflation rates that occur in countries with less independent central banks.
D) lower rates of economic growth than occurs in countries with less independent central banks.

Q#16 A source of conflict between monetary and fiscal policy decision makers is that:
A) fiscal policy decision makers place more emphasis on short-term objectives while monetary policy makers focus on long-term objectives.
B) it is easier, from a political standpoint, to pay for increased government spending by a monetary expansion than by raising taxes.
C) Both of the above are correct.
D) None of the above is correct.


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MGT411
MGT411 Two Quizzes No.2
Lecture 1-18 -2010
If the annual interest rate is 6%, the price of a 1-year Treasury bill with $100 face value would be: 
 
$94.00
 $94.33
 $95.25
 $96.10
 
 When the price of a bond is above face value:
 
 The yield to maturity will be above the coupon rate
 The yield to maturity is below the coupon rate
 The yield to maturity will equal zero
 The yield to maturity will equal the coupon rate
 
 
 What will be the result of the difference of real and nominal interest rate?
 
 The cost of borrowing
 The effect of inflation
 The price of bonds
 The return of bonds
 
 
GDP deflator is called Select correct option:
 
 
Retailer price index
 Consumer price index
 Producer price index
 None of above
 
The Financial Systems makes it easier to trade because it: 
 
Facilitate Payments
 Channels Funds from Savers to Borrowers
 Enables Risk Sharing
 All of the given options 
 According to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expects:
 
 
Short-term interest rates to rise sharply
 Short-term interest rates to stay near their current levels
 Short-term interest rates to drop sharply
 Short-term interest rates does not change

 
 According to the rule of 72 for reasonable rates of return, the time it takes to ________ the money will be t =72/i%
  
Doubles
 Triples
 halves
 3/4
 
Which of the following would be considered characteristic of money? 
 
It is store of value
 It pays a higher return than most assets
 It is in fixed supply
 It is legal tender everywhere in the world
 
 
Which one of the following is the strategy of reducing overall risk by making two investments which are totally independent of each other? 
 
Spreading the risk
 Standard deviation
 Hedging the risk
 Variance
 
Yield curves show which of the followings?
 
The relationship between bond interest rates (yields) and bond prices
 The relationship between liquidity and bond interest rates (yields)
 The relationship between risk and bond interest rates (yields)
 The relationship between time to maturity and bond interest rates (yields)
 
 
 Coupon bonds make the annual payments which are called as _________. 
 
Annual payments
 Fixed payments
 Coupon payments
 Maturity payment
 
 An increase in wealth shifts the demand for bonds to the ________.
 
Left
Right
No change
 All of the given options
 
With direct finance we mean which of the following?:
 
Individuals (or firms) borrow directly from the savers
Individuals (or firms) borrow directly from banks.
 Individuals deposit savings directly in banks.
 Firms deposit savings directly in banks.
 
You receive a check for $100 two years from today. The discounted present value of this $100 is: 
 
$100/(1+i)
 $100*(1+i)2
 $100*(1+i)
 $100/(1+i)2
  
 
The liquidity premium theory suggests that yield curves should usually be: 
 
Up-sloping
 Inverted
 Flat
 Up-sloping through year 1, then flat thereafter
 
 
 
 Financial instruments are evolved just as __________.
  
Currency
 Stock
 Bond
 Commodity
 
Investors will hold higher compensation for the ________ investment.
 
 
More risky
Less risky
 Fixed return
 Less dividend
 
Spreading involves:
 
Finding assets whose returns are perfectly negatively correlated
 Building a portfolio of assets whose returns move together
 Investing in bonds and avoiding stocks during bad times
 Adding assets to a portfolio that move independently
 
 Which is broadly used as money aggregate?
 
 M1
 M2
 M3
 None of above
  
What will the yield curve look like if future short-term interest rates are expected to rise sharply?
  
It will steeply slope upward
 It will be horizontal
 It will slightly slope upward
 It will slope downward
 
 
 A financial instrumnet in which a borrower obtains resources from a lender immediately in exchange for a promised set of payments in the future is called as _________.
  
Bond
Bank Loan
 Home Mortgage
 Futures Contract
 
The GDP deflator is calculated as_________.
 
Nominal GDP/Real GDP *100
 Real GDP/Nominal GDP
 Nominal GDP – Real GDP
 Real GDP – Nominal GDP
 
 Which of the following best expresses the proceeds a lender receives from a simple loan?
  
PV(1 + i)
 FV/i
 PV + i
 PV/i
 
Which one of the following is true for financial intermediaries?
  
Channel funds from savers to borrowers
 Greatly enhance economic efficiency
 Have been an source of many financial innovations
 All of the given options
 
Which one of the following agencies assesses the default risk of different issuers?
  
Insurance companies
 Bond issuing
 Credit rating
 Recruitment agencies
 
 
 The current yield on a $10,000, 5% coupon bond selling for $8,000 is:
  
5.00%
6.25%
 7.50%
 8.00%
 
Which is broadly used as money aggregate?
  
M1
M2
M3
None of Above
 
 The price of a coupon bond can best be described as:
 
The present value of the face value
 The future value of the coupon payments and the face value
 The present value of the coupon payments
 
Both The present value of the face value and of the coupon payments
 
 If a bond sells at a premium, where price exceeds face value, then we would expect to see:
  
Market interest rate the same as the coupon rate
 Market interest rates above the coupon rate
 Market interest rates below the coupon rate
 All of the given options
  
Which of the variable measured in point of time?
 
Flow variable
 Stock variable
 Both flow variable and stock variable
 None of above

MGT411 Money and Banking Online Quiz No. 2 MCQs 

From Lesson 1-18
 
The lowest rating for an investment grade bond assigned by Moody's is:
BBB
ABB
Baa   
Aaa
 
Previously financial markets are located in which of the following?
Coffee houses or Taverns    
Stock exchanges
Bazaar
Coffee houses and Stock exchanges
 
_________ is the value today of a payment that is promised to be made in the future.
Future value
Agreed value
None of the given options
 
A ________ is a promise to make a series of payments on specific future date.
Stock
Bond    (Correct)
Loan
Cheque

The bond rating of a security refers to which of the followings?
The size of the coupon payment relative to the face value
The return a holder is likely to receive
The likelihood the lender/borrower will be repaid by the borrower/issuer   (Correct)
The years until the bond matures
 
 
One of major disadvantage of fiat money is
Only few resources are needed
It may be theft easily
Normally it is obsolete quickly
Pressure or corrupt government may print excessive money   (Correct)
 
 
A financial instrument in which a borrower obtains resources from a lender immediately in exchange for a promised set of payments in the future is called as _________.
Bond
Bank Loan
Home Mortgage   (Correct)
Futures Contract
 
 
The return on the bond is equal to which of the following?
Coupon rate + rate of capital gains   (Correct)
Current yield + rate of capital gains
Coupon rate - rate of capital gains
Current yield - rate of capital gains
 
Which of the following best expresses the payment a lender receives for lending their money for four years?
Select correct option:
PV(1+i)4   (Correct)
PV/(1 + i)4
4PV
PV/(1 - i)4
 
 
 
The__________ are an assessment of the creditworthiness of the corporate issuer. 
Select correct option: 
 
Bond yield 
Bond ratings    (Correct)
Bond risk 
Bond price
 
What is the true relationship that exists between default risk and yield? 
Higher the default risk, higher the yield    (Correct)
Lower the default risk, higher the yield 
Higher the default risk yield will remain constant 
Lower the default risk yield will remain constant
 
Which of the following is NOT included in the definition of M1? 
Traveler’s checks 
Demand deposits 
Currency 
Gold coins issued by treasury   (Correct)
 
 
A zero coupon bond: 
Does not pay any coupon payments because the issuer is in default 
Pays coupons only once a year versus the usual twice a year 
Promises a single future payment 
Pays coupons only if the bond price is below face value   (Correct)

Which of the following institution take direct deposit from customer and give loan to customer directly? 
Zarai Tarkaytee Bank LTD 
Soneri Bank 
Khushali Bank 
Credit union   (Correct)
 
What will be the effect on the present value if we double the future value of the payment? 
It will decrease the value by one-half 
It will increase the value by one-half 
It will equally increase the value i.e. doubles the value    (Correct)
It will have no effect on the value
 
Mark borrows $8,000 and then repays $8,600 to ABC bank. What is the amount of interest in this payment? 
$600    (Correct)
$500 
$400 
$100
 
If the annual interest rate is 6%, the price of a 1-year Treasury bill with $100 face value would be: 
$94.00 
$94.33    (Correct)
$95.25 
$96.10
  
Bonds without maturity dates are which of the followings? 
Zero coupon bonds 
Coupon securities 
Consols    (Correct)
Preferred Bonds
 
Current accounts of commercial bank lies in which money aggregate definition? 
Currency 
M1 
M2(Correct)
M3
 
Which of the following would probably NOT earn an A rating from Standard & Poor's: 
30 years bond issued by the U.S. Treasury 
New vegetarian fast-food chain    (Correct)
90 days T-Bills issued by the U.S. Treasury 
Both 30 years bond and 90 days T-Bills issued by U.S. Treasury
 
 
The risk premium for an investment: 
Increases with risk    (Correct)
Is a fixed amount added to the risk free return 
Is negative for U.S. Treasury Securities 
Is negative for risk averse investors
 
The lowest rating for an investment grade bond assigned by Moody's is: 
BBB 
ABB 
Baa (Correct)
Aaa
 
Considering the Liquidity Premium Theory, if investors expect short term interest rates to decrease: 
The yield curve must have a positive slope 
The yield curve must be inverted 
The yield curve could be flat 
The slope of the yield curve should actually increase   (Correct)
 
Question # 5 of 15 ( Start time: 08:31:17 PM ) Total M - 1 
___________ are organized to eliminate the need of costly information gathering. 
Central bank 
Commercial banks 
Stock exchanges    (Correct)
Insurance companies
 
Sum of all the probabilities should be equal to which one of the following? 
Zero 
One    (Correct)
Two 
Three
 

MGT411 Online Quiz No.2 Solved - 111 Mcqs from (lec -1-18)

21.   Reserves are:

            A)   Assets of the central bank and liabilities of the commercial bank.

            B)   Assets of the commercial banks and liabilities of the central bank.

            C)   Liabilities of the commercial and central banks.

            D)   None of the above.

 

Answer: B   LOD: 2   Page: 430  

 

            A-Head: The Central Bank's Balance Sheet.

 

    22.   Vault cash is:

 

            A)   Reserves but an asset of the central bank.

            B)   Not reserves but is a liability of the central bank.

            C)   A part of reserves and an asset of commercial banks.

            D)   Not reserves but is an asset of central banks.

 

Answer: C   LOD: 2   Page: 430  

 

            A-Head: The Central Bank's Balance Sheet.

 

    23.   Vault cash is not included in the central bank's liability category of currency because:

 

            A)   Only non-bank currency is in the liability category of currency.

            B)   Vault cash really is only electronic funds.

            C)   Vault cash is in the liability category of reserves.

            D)   a and c

            E)   b and c

 

Answer: D   LOD: 2   Page: 430  

 

            A-Head: The Central Bank's Balance Sheet.

 

    24.   The reserves of the commercial banks in the euro area far exceed the reserves of

 

U.S. commercial banks. This is primarily due to the fact that:

            A)   The banks in the euro area can count more assets as reserves.

            B)   The European Central Bank pays interest on reserves, the Fed does not.

            C)   The European Central Bank has a much higher required reserve rate.

            D)   All of the above.

 

Answer: B   LOD: 2   Page: 430  

 

            A-Head: The Central Bank's Balance Sheet.

 

    25.   Monetary policy operations for central banks are run through changes in the liability category of:

            A)   Government's Accounts.

            B)   Currency.

            C)   Reserves.

            D)   Gold.

 

Answer: C   LOD: 2   Page: 430  

 

            A-Head: The Central Bank's Balance Sheet.

 

    26.   Which of the following statements is most correct?

 

            A)   During the 1990s Americans held more cash than Europeans but the amount of cash Americans held per resident decreased.

            B)   During the 1990s the amount of cash held by Americans increased and we hold more cash per resident than Europeans.

            C)   Americans hold less cash per resident than Europeans and the amount of cash held by American increased during the 1990s.

            D)   Americans hold less cash than Europeans and the amount of cash held by American per resident decreased during the 1990s.

 

Answer: C   LOD: 2   Page: 431  

 

            A-Head: The Central Bank's Balance Sheet.

 

    27.   Most responsible central banks publish their balance sheet:

 

            A)   At least once a year.

            B)   Quarterly.

            C)   Weekly

            D)   Semi-annually.

 

Answer: C   LOD: 1   Page: 431  

 

            A-Head: The Central Bank's Balance Sheet.

 

    28.   The experience of the Marcos Presidency in the

 

Philippines in 1986 showed:

            A)   The importance of keeping the central bank independent from political pressure.

            B)   Central bank balance sheets do not always project reality.

            C)   Transparency is critical if people are going to trust a central bank.

            D)   All of the above.

 

Answer: D   LOD: 2   Page: 431  

 

            A-Head: The Central Bank's Balance Sheet.

 

    29.   The monetary base is the sum of:

            A)   Reserves and M2.

            B)   M1 and reserves.

            C)   Non-bank currency, reserves and M1

            D)   None of the above.

 

Answer: D   LOD: 1   Page: 432  

 

            A-Head: The Central Bank's Balance Sheet.

 

    30.   The monetary base is the sum of:

 

            A)   Reserves and non-bank currency

            B)   Reserves and M2

            C)   Non bank currency and M2

            D)   None of the above.

 

Answer: A   LOD: 1   Page: 432  

 

            A-Head: The Central Bank's Balance Sheet.

 

    31.   The monetary base is also known as:

 

            A)   M1

            B)   M2

            C)   High powered money.

            D)   Free reserves.

 

Answer: C   LOD: 1   Page: 432  

 

            A-Head: The Central Bank's Balance Sheet.

 

    32.   In dollar amounts:

 

            A)   The monetary base is larger than M2 and M1 is less than M2.

            B)   M1 is smaller than the monetary base and M2 is larger than both.

            C)   The monetary base is larger than M1 and M2.

            D)   The monetary base is smaller than M1 and M2 is larger than M1.

            E)   None of the above.

 

Answer: D   LOD: 2   Page: 432  

 

            A-Head: The Central Bank's Balance Sheet.

 

    33.   One trait a central bank has over other businesses including banks is:

            A)   It receives all of its funding from the government.

            B)   It can control its balance sheet at will.

            C)   It doesn't have stockholders.

            D)   It doesn't have a board of directors.

 

Answer: B   LOD: 2   Page: 432  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

 

    34.   When the Federal Reserve purchases a U.S. Treasury bond for $1 million by writing a check, when the check returns, the Fed's balance sheet will show:

 

            A)   An increase in assets and a decrease in liabilities of $1 million.

            B)   Only an increase in assets of $1 million.

            C)   Only an increase in liabilities of $1million.

            D)   An increase in assets and liabilities of $1 million.

 

Answer: D   LOD: 2   Page: 432  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

 

    35.   When a business purchases a $25,000 computer system by writing a check, the business's balance sheet will:

 

            A)   Show an increase in assets and liabilities of $25,000.

            B)   Only show an increase in assets of $25,000.

            C)   Only show an increase in liabilities of $25,000.

            D)   None of the above.

 

Answer: D   LOD: 2   Page: 432  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

 

    36.   When a business purchases a $50,000 computer system by writing a check, the business's balance sheet will:

 

            A)   Only show an increase in liabilities of $50,000.

            B)   Show an increase in assets and liabilities for $50,000.

            C)   Not reflect any increase in assets or liabilities, only a change in the composition of assets.

            D)   Only show an increase in assets of $50,000.

            E)   None of the above.

 

Answer: C   LOD: 2   Page: 432  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

 

    37.   A central bank's purchase of securities made by writing checks on itself will:

            A)   Decrease the size of its balance sheet.

            B)   Have no impact at all on the balance sheet.

            C)   Increase the size of their balance sheet.

            D)   Only change the composition of its assets.

 

Answer: C   LOD: 2   Page: 432  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

 

    38.   A central bank's sale of securities from their portfolio will:

 

            A)   Decrease the size of its balance sheet.

            B)   Have no impact at all on the balance sheet.

            C)   Only change the composition of its liabilities.

            D)   Only change the composition of its assets.

 

Answer: A   LOD: 2   Page: 433  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

 

    39.   Considering a central bank's balance sheet, when the value of an asset increases:

 

            A)   Nothing happens to its balance sheet.

            B)   A liability must increase.

            C)   The value of another asset must decrease.

            D)   Either the value of another asset decreases or a liability must increase.

            E)   None of the above.

 

Answer: D   LOD: 2   Page: 433  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

 

    40.   Considering a central bank's balance sheet, when the value of a liability decreases:

 

            A)   Nothing happens to its balance sheet.

            B)   Either the value of another liability increases or an asset must decrease.

            C)   The value of another liability must increase.

            D)   An asset must decrease.

            E)   None of the above.

 

Answer: B   LOD: 2   Page: 433  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

  41.   Consider a $2 billion open market purchase of U.S. Treasury securities by the Federal Reserve. The Fed's balance sheet will specifically show:

            A)   Only an increase in the asset of securities of $2 billion.

            B)   Only show an increase in the liability of reserves of $2 billion.

            C)   Show no change in the size of the balance sheet, just the composition of assets will change from cash to securities.

            D)   Show an increase in the asset category of securities and the liability category of reserves by $2 billion.

 

Answer: D   LOD: 2   Page: 434  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

 

    42.   Consider a $2 billion open market purchase of U.S. Treasury securities by the Federal Reserve. The Banking System's balance sheet will specifically show:

 

            A)   Only an increase in liabilities of $2 billion.

            B)   Only a decrease in assets of $2 billion.

            C)   No net change in assets or liabilities, only a change in the composition of assets with securities decreasing and reserves increasing by $2 billion respectively.

            D)   No net change in assets or liabilities, only a change in the composition of assets with securities increasing and reserves decreasing by $2 billion respectively.

 

Answer: C   LOD: 2   Page: 434  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

 

    43.   An open market sale of U.S. Treasury securities by the Fed will cause the Fed's balance sheet to show:

 

            A)   A decrease in the asset of securities and a decrease in the liability of reserves.

            B)   An increase in the liability of reserves.

            C)   No change in the size of the balance sheet, just the composition of assets will change from securities to cash.

            D)   An increase in the asset category of securities and the liability category of reserves.

 

Answer: A   LOD: 2   Page: 434  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

 

    44.   An open market sale of U.S. Treasury securities by the Fed will cause the Banking System's balance sheet to show:

            A)   Only an increase in liabilities.

            B)   Only a decrease in assets.

            C)   No net change in assets or liabilities, only a change in the composition of assets with securities decreasing and reserves increasing.

            D)   No net change in assets or liabilities, only a change in the composition of assets with securities increasing and reserves decreasing.

 

Answer: D   LOD: 2   Page: 434  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

 

    45.   The Fed purchases German bonds from commercial banks. Which of the following best describes the impact on the Fed's and the Banking System's balance sheets resulting from the purchase?

 

            A)   The Fed's assets and liabilities increase, the banking systems assets and liabilities decrease.

            B)   The Fed's assets increase and their liabilities increase, for the banking system, the value of assets and liabilities do not change, only the composition of assets changes.

            C)   The Fed's assets and liabilities do not change, only the compositions of the assets change. For the banking system, assets and liabilities increase.

            D)   The Fed's assets increase and their liabilities decrease, for the banking system, the value of assets and liabilities do not change, only the composition of assets changes.

 

Answer: B   LOD: 3   Page: 435  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

 

    46.   The Fed sells German bonds to commercial banks. Which of the following best describes the impact on the Fed's and the Banking System's balance sheets resulting from the purchase?

            A)   The Fed's assets and liabilities increase, the banking systems assets and liabilities decrease.

            B)   The Fed's assets increase and their liabilities increase, for the banking system, the value of assets and liabilities do not change, only the composition of assets changes.

            C)   The Fed's assets and liabilities do not change, only the compositions of the assets change. For the banking system, assets and liabilities increase.

            D)   The Fed's assets decrease and their liabilities increase, for the banking system, the value of assets and liabilities do not change, only the composition of assets changes.

 

Answer: D   LOD: 3   Page: 435  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

 

    47.   To obtain a discount loan from the Fed, a commercial bank must:

 

            A)   Prove that it will fail if it does not obtain the loan.

            B)   Prove that the loan will be used to make loans.

            C)   Provide collateral.

            D)   All of the above.

 

Answer: C   LOD: 2   Page: 436  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

 

    48.   When the Fed makes a discount loan, the impact on the Fed's balance sheet will reflect:

 

            A)   No change in liabilities but an increase in assets.

            B)   A decrease in assets and liabilities.

            C)   An increase in assets and liabilities.

            D)   An increase in assets and a decrease in liabilities.

 

Answer: C   LOD: 2   Page: 436  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

 

    49.   When the Fed makes a discount loan, the impact on the Banking System's balance sheet will reflect:

            A)   An increase in liabilities with no change in assets.

            B)   An increase in assets and a decrease in liabilities.

            C)   A decrease in assets and an increase in liabilities.

            D)   None of the above.

 

Answer: D   LOD: 2   Page: 436  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

 

    50.   When the Fed makes a discount loan, the impact on the Banking System's balance sheet will reflect:

 

            A)   An increase in liabilities with no change in assets.

            B)   An increase in assets and a decrease in liabilities.

            C)   A decrease in assets and an increase in liabilities.

            D)   An increase in assets and liabilities.

 

Answer: D   LOD: 2   Page: 436  

 

                        A-Head: Changing the Size and the Composition of the Balance Sheet. 

61.   Bank A has checkable deposits of $100 million, vault cash equaling $1 million and deposits at the Fed equaling $14 million. If the required reserve rate is ten percent what is the maximum amount Bank A could lend:

            A)   $85 million.

            B)   $15 million.

            C)   $14 million.

            D)   $5 million.

 

Answer: D   LOD: 3   Page: 440  

            A-Head: The Deposit Expansion Multiplier.

 

    62.   Bank A has checkable deposits of $140 million, vault cash equaling $1 million and deposits at the Fed equaling $14 million. If the required reserve rate is ten percent what is the amount of excess reserves Bank A is holding:

            A)   They do not have any excess reserves.

            B)   $15 million.

            C)   $2 million.

            D)   None of the above.

 

Answer: D   LOD: 3   Page: 440  

            A-Head: The Deposit Expansion Multiplier.

 

    63.   A customer of Bank A writes a $20,000 check for a new car, which the car dealer deposits in his bank, Bank B. Which of the following statements pertaining to this transaction is most true?

            A)   Banks A's reserves will decrease by the required reserve rate times $20,000 and Banks B's reserves will increase by (1- required reserve rate) times $20,000.

            B)   Bank A's reserves decrease by $20,000 and Bank B's reserves increase by $20,000.

            C)   Neither Bank A's or B's reserves will change.

            D)   Bank B's reserves will decrease and Bank A's reserves will increase by $20,000.

 

Answer: B   LOD: 3   Page: 442  

            A-Head: The Deposit Expansion Multiplier.

 

    64.   If the required reserve rate is ten percent and banks do not hold any excess reserves and there are no changes in currency holdings, a $1 million open market purchase by the Fed will result in deposit creation of:

            A)   $9 million

            B)   $90 million.

            C)   $10 million.

            D)   $900,000.

 

Answer: C   LOD: 3   Page: 444  

            A-Head: The Deposit Expansion Multiplier.

 

    65.   The formula for required reserves is:

            A)   (1/rD ) D

            B)   1/rD

            C)   rDD

            D)   D/rD

 

Answer: C   LOD: 2   Page: 444  

            A-Head: The Deposit Expansion Multiplier.

 

    66.   If required reserves are expressed by RR; the required reserve rate by rD and deposits by D, the simple deposit expansion multiplier is expressed as:

            A)   rDD

            B)   (1/rD ) D

            C)   rD

            D)   1/rD

 

Answer: D   LOD: 2   Page: 444  

            A-Head: The Deposit Expansion Multiplier.

 

    67.   If the Fed were to increase the required reserve rate from ten percent to twenty percent, the simple deposit expansion multiplier would:

            A)   Double.

            B)   Increase by 10 percent.

            C)   Decrease by a factor of ten.

            D)   Be half as large as it was before the increase.

 

Answer: D   LOD: 3   Page: 444  

            A-Head: The Deposit Expansion Multiplier.

 

    68.   If the Fed were to decrease the required reserve rate from ten percent to five percent, the simple deposit expansion multiplier would:

            A)   Double.

            B)   Decrease by 5 percent.

            C)   Increase by a factor of five.

            D)   Be half as large as it was before the reduction.

 

Answer: A   LOD: 3   Page: 444  

            A-Head: The Deposit Expansion Multiplier.

 

    69.   If the required reserve rate is ten percent and banks do not hold any excess reserves and there are no changes in currency holdings, a $1 million open market purchase by the Fed will result in what change in loans:

            A)   No change.

            B)   A decrease of $1 million.

            C)   An increase of $10 million

            D)   An increase of $1 million.

 

Answer: C   LOD: 3   Page: 444  

            A-Head: The Deposit Expansion Multiplier.

 

    70.   If we focus on the banking system and assume no change in the public's currency holdings, a loss of reserves by any one bank must:

            A)   Equal the loss of reserves by the entire system.

            B)   Be equal to the net loss of reserves for the banking system.

            C)   Will result in no change in reserves for the banking system.

            D)   None of the above.

 

Answer: C   LOD: 2   Page: 445  

            A-Head: The Deposit Expansion Multiplier.

 

    71.   If we assume a ten percent required reserve rate, and banks not holding any excess reserves and no change in currency holdings, an open market sale of $5 million of U.S. Treasury securities by the Fed, will result in deposits:

            A)   Decreasing by $50 million.

            B)   Increasing by $5 million.

            C)   Increasing by $50 million

            D)   Not changing.

 

Answer: A   LOD: 3   Page: 444  

            A-Head: The Deposit Expansion Multiplier.

 

    72.   The simple deposit expansion multiplier is really too simple for understanding the link between changes in a central bank's balance sheet and the quantity of money in the economy because:

            A)   It ignores how central banks could change their balance sheet.

            B)   It assumes banks loan out all excess reserves.

            C)   It ignores people might change their currency holdings.

            D)   a and b

            E)   b and c

 

Answer: E   LOD: 2   Page: 445  

            A-Head: The Monetary Base and the Money Supply.

 

    73.   Assume that the required reserve rate is ten percent, banks want to hold excess reserves in an amount that equals three percent of deposits, and the public withdraws ten percent of every deposit in cash. An open market purchase of $1million by the Fed will see banking system deposits increase by:

            A)   More than $1 million but less than $10 million.

            B)   Exactly $1 million.

            C)   Less than $1 million.

            D)   More than $10 million but less than $20 million.

 

Answer: A   LOD: 3   Page: 448  

            A-Head: The Monetary Base and the Money Supply.

 

    74.   Which of the following best completes the statement? If people increase their currency holdings, all else the same, the monetary base

            A)   Does not change but the quantity of M2 will decrease.

            B)   The monetary base increases as does the quantity of M2.

            C)   The monetary base decreases as does the quantity of M2.

            D)   There is no change to either the monetary base or M2.

 

Answer: A   LOD: 3   Page: 449  

            A-Head: The Monetary Base and the Money Supply.

 

    75.   If there were an increase in the number of bank failures, we should expect the amount of excess reserves in the banking system to:

            A)   Decrease.

            B)   Increase.

            C)   Not change.

            D)   Decrease since failing banks lost theirs.

 

Answer: B   LOD: 2   Page: 447  

            A-Head: The Monetary Base and the Money Supply.

 

 

    76.   If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR equals required reserves, and ER = Excess reserves, then C + R would equal:

            A)   M

            B)   R

            C)   MB

            D)   ER

 

Answer: C   LOD: 3   Page: 448  

            A-Head: The Monetary Base and the Money Supply.

 

    77.   If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR equals required reserves, and ER = Excess reserves, then RR would equal:

            A)   MB

            B)   D – C

            C)   M/MB

            D)   R - ER

 

Answer: D   LOD: 3   Page: 448  

            A-Head: The Monetary Base and the Money Supply.

 

    78.   If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR equals required reserves, and ER = excess reserves, then m would equal:

            A)   R/ER

            B)   M/MB

            C)   C + D

            D)   None of the above.

 

Answer: B   LOD: 3   Page: 448  

            A-Head: The Monetary Base and the Money Supply.

 

 

    79.   If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR equals required reserves, rD = the required reserve rate and ER = Excess reserves, then RR would equal:

            A)   R – ER

            B)   rD D

            C)   (MB –C) - ER

            D)   All of the above

            E)   None of the above.

 

Answer: D   LOD: 3   Page: 448  

            A-Head: The Monetary Base and the Money Supply.

 

    80.   If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR equals required reserves, rD = the required reserve rate and ER = Excess reserves, then C + D would equal:

            A)   M

            B)   m

            C)   MB

            D)   ER/RR

 

Answer: A   LOD: 3   Page: 448  

            A-Head: The Monetary Base and the Money Supply.

81.   If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR equals required reserves, rD = the required reserve rate and ER = Excess reserves, then C + D would equal:

            A)   MB times m

            B)   R/ER

            C)   D rD

            D)   None of the above.

 

Answer: A   LOD: 3   Page: 448  

            A-Head: The Monetary Base and the Money Supply.

 

 

    82.   If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR equals required reserves, rD = the required reserve rate and ER = Excess reserves, then ER/D would equal:

            A)   The amount in excess reserves.

            B)   The amount in reserves.

            C)   The excess reserve rate.

            D)   The money multiplier.

 

Answer: C   LOD: 2   Page: 448  

            A-Head: The Monetary Base and the Money Supply.

 

    83.   If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR equals required reserves, rD = the required reserve rate and ER = Excess reserves, then RR/D would equal:

            A)   The amount in Required Reserves.

            B)   The required reserve rate.

            C)   The amount in Excess Reserves.

            D)   The monetary base.

 

Answer: B   LOD: 2   Page: 448  

            A-Head: The Monetary Base and the Money Supply.

 

    84.   The money multiplier is much lower today than it was twenty-five years ago because:

            A)   People are holding less currency today.

            B)   The currency to deposit ratio is much higher today.

            C)   There is less currency available today.

            D)   None of the above.

 

Answer: B   LOD: 2   Page: 450  

            A-Head: The Monetary Base and the Money Supply.

 

    85.   During the Great Depression, the monetary base in the U.S.:

            A)   Decreased significantly.

            B)   Increased.

            C)   Remained constant.

            D)   Was highly erratic,

 

Answer: B   LOD: 2   Page: 452  

            A-Head: The Monetary Base and the Money Supply.

 

 

    86.   During the early years of the Great Depression, the monetary base and M2:

            A)   Both increased significantly.

            B)   Both decreased significantly.

            C)   M2 increased while the monetary base decreased.

            D)   The monetary base increased but M2 decreased.

 

Answer: D   LOD: 2   Page: 452  

            A-Head: The Monetary Base and the Money Supply.

 

    87.   During the early years of the Great Depression, a study of the money aggregates reveals that:

            A)   The money multiplier was at an all-time high.

            B)   The money multiplier increased from 1929 right through the 1936.

            C)   The money multiplier actually decreased.

            D)   The money multiplier was constant from 1929 through 1936.

 

Answer: C   LOD: 2   Page: 452  

            A-Head: The Monetary Base and the Money Supply.

 

    88.   One thing the Fed has learned over the past twenty-five years is:

            A)   The money multiplier is fairly constant no matter what changes are made to the monetary base.

            B)   The theory of the money multiplier isn't very useful.

            C)   The money multiplier has a trend rate of growth that is fairly constant.

            D)   They should focus their attention on targeting M2.

 

Answer: B   LOD: 2   Page: 450  

            A-Head: The Monetary Base and the Money Supply.

 

    89.   During the 1990s, the money multipliers for M1 and M2:

            A)   Decreased.

            B)   Remained fairly constant even though the economy grew.

            C)   The M1 multiplier decreased while the M2 multiplier increased dramatically.

            D)   Increased dramatically as the economy grew.

 

Answer: A   LOD: 2   Page: 456  

            A-Head: The Monetary Base and the Money Supply.

MGT411 Above 120 MCQs
from Online Quiz No. 3 solved in conf chat.
Covering Lec(1-25)
Question # 1 of 15 ( Start time: 05:22:40 PM ) Total M - 1 
Which of the following is NOT a true for banks? 
Select correct option: 
 
Serving consumers 
Give commercial and industrial loans 
Bank is non profit organization  (Correct)
Accept deposit
 
 
Question # 2 of 15 ( Start time: 05:29:15 PM ) Total M - 1 
There is no guarantee that a bond issuer will make the promised payments is known as which one of the following? 
Select correct option: 
 
Default risk (Correct)
Inflation risk 
Interest rate risk 
Systematic risk
 
Question # 3 of 15 ( Start time: 05:29:59 PM ) Total M - 1 
The interest rate that is involved in ___________ calculation is referred to as discount rate 
Select correct option: 
 
Present value (Correct)
Future value 
Intrinsic value 
Discount value
 
 
Question # 4 of 15 ( Start time: 05:30:58 PM ) Total M - 1 
The bond rating of a security refers to which of the followings? 
Select correct option: 
 
The size of the coupon payment relative to the face value 
The return a holder is likely to receive 
The likelihood the lender/borrower will be repaid by the borrower/issuer (Correct)
The years until the bond matures
  
 
Question # 5 of 15 ( Start time: 05:32:07 PM ) Total M - 1 
Which of the following is NOT included in the assets of commercial banks? 
Select correct option: 
 
Cash Items 
Reserves 
Securities 
Bills payable   (Correct)
 
 
Question # 6 of 15 ( Start time: 05:33:09 PM ) Total M - 1 
What is difference between warrant and check? 
Select correct option: 
 
Check is cleared from bank but warrant is not cleared by bank 
Check is not necessarily pay able on demand but warrant is payable on demand    (Correct)
Warrant is not necessarily pay able on demand but check is payable on demand 
None of above
  
 
Question # 7 of 15 ( Start time: 05:34:28 PM ) Total M - 1 
The fact that a financial intermediary can use the same contract for many customers is an example of: 
Select correct option: 
 
Economies of Scope 
The Law of Diminishing Marginal Returns 
The Law of Increasing Opportunity Cost 
Economies of Scale   (Correct)
 
 
Question # 8 of 15 ( Start time: 05:35:20 PM ) Total M - 1 
Which of the following would be considered characteristic of money? 
Select correct option: 
 
It is store of value    (Correct)
It pays a higher return than most assets 
It is in fixed supply 
It is legal tender everywhere in the world
 
 
Question # 9 of 15 ( Start time: 05:36:22 PM ) Total M - 1 
Which of the following is NOT included in the definition of M1? 
Select correct option: 
 
Traveler’s checks 
Demand deposits 
Currency 
Gold coins issued by treasury   (Correct)
  
 
Question # 10 of 15 ( Start time: 05:37:09 PM ) Total M - 1 
Which of the following represents the fisher’s equation? 
Select correct option: 
 
Nominal interest rate = real interest rate + inflation    (Correct)
Nominal interest rate + inflation = real interest rate 
Nominal interest rate = real interest rate - inflation 
Nominal interest rate = real interest rate / inflation
 
 
Question # 11 of 15 ( Start time: 05:38:14 PM ) Total M - 1 
According to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expects 
Select correct option: 
 
Short-term interest rates to rise sharply 
Short-term interest rates to stay near their current levels    (Correct)
Short-term interest rates to drop sharply 
Short-term interest rates does not change
  
 
Question # 12 of 15 ( Start time: 05:39:31 PM ) Total M - 1 
If bond’s rating is lower, what will be its price? 
Select correct option: 
 
Higher 
Lower    (Correct)
Equal to 
No change
 
 
Question # 13 of 15 ( Start time: 05:40:15 PM ) Total M - 1 
Which one of the following is the procedure of finding out the Present Value (PV)? 
Select correct option: 
 
Discounting    (Correct)
Compounding 
Time value of money 
Bond pricing
 
 
Question # 14 of 15 ( Start time: 05:41:14 PM ) Total M - 1 
Most of the people among us are _________. 
Select correct option: 
 
Risk lovers 
Risk enhancers 
Risk averse    (Correct)
Risk tolerating
 
 
Question # 15 of 15 ( Start time: 05:42:01 PM ) Total M - 1 
If the annual interest rate is 6%, the price of a 1-year Treasury bill with $100 face value would be: 
Select correct option: 
 
$94.00 
$94.33    (Correct)
$95.25 
$96.10
Question # 2 of 15 ( Start time: 05:44:39 PM ) Total M - 1 
A loan that is used to purchase the real estate is known as: 
Select correct option: 
 
Real estate loan 
Home mortgages    (Correct)
Fixed payment loan 
Home loan
 
 
Question # 3 of 15 ( Start time: 05:45:32 PM ) Total M - 1 
Which one of the following is a component of wealth that is held in a readily spendable form? 
Select correct option: 
 
Money   (Correct) 
Bonds 
Stocks 
Income
 
 
Question # 4 of 15 ( Start time: 05:46:40 PM ) Total M - 1 
An increase in the expected inflation shifts the bond supply to the _______. 
Select correct option: 
 
Right    (Correct)
Left 
No change 
All of the given options
 
 
Question # 5 of 15 ( Start time: 05:47:33 PM ) Total M - 1 
Banks borrow from the central bank this loan is called _________. 
Select correct option: 
 
Discount loan 
Collateralized loan   (Correct) 
Personal loan 
Corporate loan
 
 
Question # 6 of 15 ( Start time: 05:48:49 PM ) Total M - 1 
What is primary cause of inflation? 
Select correct option: 
 
Energy crises 
Gold reserve shortage 
Issue excessive currency   (Correct) 
Rising cost of input
 
 
Question # 7 of 15 ( Start time: 05:49:51 PM ) Total M - 1 
Economic development measured by 
Select correct option: 
 
Real GDP/population 
Real GDP/ nominal GDP 
Real GDP/Real GNP 
None of above   (Correct)
 
 
Question # 8 of 15 ( Start time: 05:50:50 PM ) Total M - 1 
According to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expects 
Select correct option: 
 
Short-term interest rates to rise sharply 
Short-term interest rates to stay near their current levels   (Correct) 
Short-term interest rates to drop sharply 
Short-term interest rates does not change
 
 
Question # 9 of 15 ( Start time: 05:51:33 PM ) Total M - 1 
The Segmented Markets Theory of term structure suggests that: 
Select correct option: 
 
Investors have strong preferences for bonds of a particular maturity 
Investors have no preference for short-term bonds over long-term bonds, or vice versa   (Correct) 
Interest rates on long-term bonds strongly influence the demand for short-term bonds 
Bonds of different maturities are perfect substitutes for each other
 
Question # 2 of 15 ( Start time: 05:55:42 PM ) Total M - 1
Internal Rate of Return is _______.
Select correct option:
Present value of investment   (Correct)
Future value of its investment +Cost of investment
Cost of investment
Present value of investment + cost of investment
 
 
Question # 3 of 15 ( Start time: 05:56:32 PM ) Total M - 1
At which money aggregate definitions relation is stronger with inflation and growth
Select correct option:
M1
M2   (Correct)
M3
None of above
 
 
 
Question # 4 of 15 ( Start time: 05:57:02 PM ) Total M - 1
An increase in wealth shifts the demand for bonds to the ________.
Select correct option:
Left
Right   (Correct)
No change
All of the given options
 
 
emanadan83: Question # 5 of 15 ( Start time: 05:57:37 PM ) Total M - 1
Stock exchange is an example of:
Select correct option:
Financial company
Financial institution
Financial market   (Correct)
Bank
 
 
 
Financial development measured by 
Select correct option: 
 
M1/GDP
M2/GDP   (Correct)
M3/DGP
All of above
 
 
If YTM equals the coupon rate the price of the bond is ________. 
Select correct option: 
 
Greater than its face value
Lower than its face value
Equals to its face value   (Correct)
Insufficient information
 
 
If information in a financial market is asymmetric, this means: 
Select correct option: 
 
Borrowers and lenders have perfect information
Borrowers would have more information than lenders   (Correct)
Borrowers and lenders have the same information
Lenders lack any information
 
 
Which one of the following is the procedure of finding out the Present Value (PV)? 
Select correct option: 
 
Discounting   (Correct)
Compounding
Time value of money
Bond pricing
 
 
A zero coupon bond: 
Select correct option: 
 
Does not pay any coupon payments because the issuer is in default
Pays coupons only once a year versus the usual twice a year
Promises a single future payment   (Correct)
Pays coupons only if the bond price is below face value
 
 
The shape of the yield curve is usually: 
Select correct option: 
 
Upward sloping   (Correct)
Downward sloping
Upward sloping for shorter maturities and downward sloping for longer maturities
Flat
 
 
 
Yield curves show which of the followings? 
Select correct option: 
 
The relationship between bond interest rates (yields) and bond prices
The relationship between liquidity and bond interest rates (yields)
The relationship between risk and bond interest rates (yields)
The relationship between time to maturity and bond interest rates (yields)   (Correct)
 
 
 
What will be the effect on the present value if we double the future value of the payment? 
Select correct option: 
 
It will decrease the value by one-half
It will increase the value by one-half
It will equally increase the value i.e. doubles the value   (Correct)
It will have no effect on the value
 
 
 
Investors will hold higher compensation for the ________ investment. 
Select correct option: 
 
More risky   (Correct) 
Less risky 
Fixed return
Less dividend
 
 
The risk premium of a bond will: 
Select correct option: 
 
Higher for investment-grade bonds than for high-yield bonds
Positive but small if the risk of default is zero
Decrease when the default risk rises
Increase when the risk of default rises   (Correct)
 
 
 
Internal Rate of Return is _______. 
Select correct option: 
 
Present value of investment   (Correct) 
Future value of its investment +Cost of investment
Cost of investment
Present value of investment + cost of investment
 
 
Which of the following would be considered characteristic of money? 
Select correct option: 
 
It is store of value   (Correct)
It pays a higher return than most assets
It is in fixed supply
It is legal tender everywhere in the world
 
 
The liquidity premium theory suggests that yield curves should usually be: 
Select correct option: 
 
Up-sloping   (Correct)
Inverted
Flat
Up-sloping through year 1, then flat thereafter
 
 
Which of the following is NOT a true for banks? 
Select correct option: 
 
Serving consumers
Give commercial and industrial loans 
Bank is non profit organization
Accept deposit   (Correct)
 
  
Question # 1 of 15 ( Start time: 06:19:04 PM ) Total M - 1 
Which of the variable measured in point of time? 
Select correct option: 
 
Flow variable 
Stock variable 
Both flow variable and stock variable   (Correct) 
None of above
 

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