1) During hyperinflations,
A) the value of money rises rapidly
B) money no longer functions as a good store of value and people may resort to barter
transactions on a much larger scale
C) middle-class savers benefit as prices rise
D) money’s value remains fixed to the price level; that is, if prices double so does the
value of money
2) Bank customers perceive Internet banks as being
A) more secure than physical bank branches
B) a better method for the purchase of long-term savings products
C) better at keeping customer information private
D) prone to many more technical problems
3) Using the one-period valuation model, assuming a year-end dividend of $1.00, an
expected sales price of $100, and a required rate of return of 5%, the current price of the
stock would be
A) $110.00
B) $101.00
C) $100.00
D) $96.19
4) When you deposit a $50 bill in the Security Pacific National Bank,
A) its liabilities decrease by $50
B) its assets increase by $50
C) its reserves decrease by $50
D) its cash items in the process of collection increase by $50
5) According to aggregate demand and supply analysis, the negative demand shock of
2000-2004 had the effect of
A) increasing aggregate output, lowering unemployment, and raising inflation
B) decreasing aggregate output, raising unemployment, and raising inflation
C) increasing aggregate output, lowering unemployment, and lowering inflation
D) decreasing aggregate output, raising unemployment, and lowering inflation
6) Everything else held constant, an increase in the money market fund ratio will result
in ________ in the M1 money multiplier and ________ in the M2 money multiplier.
A) an increase; an increase
B) no change; an increase
C) a decrease; a decrease
D) no change; a decrease
7) The two types of open market operations are
A) offensive and defensive
B) dynamic and reactionary
C) active and passive
D) dynamic and defensive
8) The federal agency that ensures that potential security purchasers are well informed
is the
A) FCC
B) FTC
C) NRC
D) SEC
9) A person remodeling her house could obtain a loan from a
A) sales finance company
B) consumer finance company
C) business finance company
D) public finance company
10) The ________ problem of discretionary policy arises because economic behavior is
influenced by what firms and people expect the monetary authorities to do in the future.
A) moral hazard
B) time-inconsistency
C) nominal-anchor
D) rational-expectation
11) The monetary base consists of
A) currency in circulation and Federal Reserve notes
B) currency in circulation and the U.S. Treasury’s monetary liabilities
C) currency in circulation and reserves
D) reserves and Federal Reserve Notes
12) The long-run rate of unemployment to which an economy always gravitates is the
A) normal rate of unemployment
B) natural rate of unemployment
C) neutral rate of unemployment
D) inflationary rate of unemployment
13) If a central bank does not want to allow the domestic currency to appreciate, it will
________ international reserves by selling its currency, thereby ________ the monetary
base and increasing the risk of higher inflation.
A) lose; decreasing
B) lose; increasing
C) acquire; decreasing
D) acquire; increasing
14) Asymmetric information is a universal problem. This would suggest that financial
regulations
A) in industrial countries are an unqualified failure
B) differ significantly around the world
C) in industrialized nations are similar
D) are unnecessary
15) One purpose of regulation of financial markets is to
A) limit the profits of financial institutions
B) increase competition among financial institutions
C) promote the provision of information to shareholders, depositors and the public
D) guarantee that the maximum rates of interest are paid on deposits
16) As the costs associated with deposit outflows ________, the banks willingness to
hold excess reserves will ________.
A) decrease; increase
B) increase; decrease
C) increase; increase
D) decrease; not be affected
17) An increase in the domestic interest rate causes the demand for domestic assets to
shift to the ________ and the domestic currency to ________, everything else held
constant.
A) right; appreciate
B) right; depreciate
C) left; appreciate
D) left; depreciate
18) An important financial institution that assists in the initial sale of securities in the
primary market is the
A) investment bank
B) commercial bank
C) stock exchange
D) brokerage house
19) Comparing Tobin’s model of the speculative demand for money with Keynesian
speculative demand
A) both models imply that individuals hold only money or only bonds
B) the Keynesian model implies individuals diversify their asset holdings, while the
Tobin model predicts that individuals hold only money or only bonds
C) the Tobin model implies individuals diversify their asset holdings, while the
Keynesian model predicts that individuals hold only money or only bonds
D) both models imply that individuals diversify their asset holdings
20) Analysis of the transmission mechanisms of monetary policy provides four basic
lessons for a central bank’s conduct of monetary policy. These lessons include:
A) Rising interest rates indicate a tightening of monetary policy, whereas falling interest
rates indicate an easing of monetary policy
B) Monetary policy can be highly effective in reviving a weak economy even if
short-term interest rates are already near zero
C) Avoiding fluctuations in the level of unemployment is an important objective of
monetary policy, thus providing a rationale for interest-rate stability as the primary
long-run goal for monetary policy
D) Other asset prices beside those on short-term debt instruments do not contain
important information about the stance of monetary policy because they are not
important elements in various monetary policy transmission mechanisms
21) A discount bond
A) pays the bondholder a fixed amount every period and the face value at maturity
B) pays the bondholder the face value at maturity
C) pays all interest and the face value at maturity
D) pays the face value at maturity plus any capital gain
22) A deposit outflow results in equal reductions in
A) loans and reserves
B) assets and liabilities
C) reserves and capital
D) assets and capital
23) Everything else held constant, the interest rate on municipal bonds rises relative to
the interest rate on Treasury securities when
A) income tax rates are lowered
B) income tax rates are raised
C) municipal bonds become more widely traded
D) corporate bonds become riskier
24) An increase in the monetary base that goes into currency is ________, while an
increase that goes into deposits is ________.
A) multiplied; multiplied
B) not multiplied; multiplied
C) multiplied; not multiplied
D) not multiplied; not multiplied
25) When prices are measured in terms of fixed (base-year) prices they are called
________ prices.
A) nominal
B) real
C) inflated
D) aggregate
26) The type of monetary policy regime that the Federal Reserve has been following in
recent years can best be described as
A) monetary targeting
B) inflation targeting
C) policy with an implicit nominal anchor
D) exchange-rate targeting