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1) According to Tobin's q theory, when q is ________, firms will not purchase new
investment goods because the market value of firms is ________ relative to the cost of
capital
A) low; low
B) low; high
C) high; low
D) high; high
2) If the optimal forecast of the return on a security exceeds the equilibrium return, then
A) the market is inefficient
B) no unexploited profit opportunities exist
C) the market is in equilibrium
D) the market is myopic
3) ________ are the only depository institutions that are tax-exempt
A) Commercial banks
B) Savings and loans
C) Mutual savings banks
D) Credit unions
4) If stock prices are expected to drop dramatically, then, other things equal, the
demand for stocks will ________ and that of Treasury bills will ________
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
5) If monetary policy can influence ________ prices and conditions in ________
markets, then it can affect spending through channels other than the traditional
interest-rate channel
A) asset; labor
B) asset; credit
C) commodity; labor
D) commodity; credit
6) In the market for reserves, when the federal funds rate is above the interest rate paid
on excess reserves, the demand curve for reserves is
A) vertical
B) horizontal
C) positively sloped
D) negatively sloped
7) Collateral requirements lessen the consequences of ________ because the collateral
reduces the lender's losses in the case of a loan default and it reduces ________ because
the borrower has more to lose from a default
A) adverse selection; moral hazard
B) moral hazard; adverse selection
C) adverse selection; diversification
D) diversification; moral hazard
8) Poorly performing financial markets can be the cause of
A) wealth
B) poverty
C) financial stability
D) financial expansion
9) In the market for reserves, when the federal funds interest rate is below the discount
rate, the supply curve of reserves is
A) vertical
B) horizontal
C) positively sloped
D) negatively sloped
10) The efficient markets hypothesis predicts that stock prices follow a "random walk"
The implication of this hypothesis for investing in stocks is
A) a "churning strategy" of buying and selling often to catch market swings
B) turning over your stock portfolio each month, selecting stocks by throwing darts at
the stock page
C) a "buy and hold strategy" of holding stocks to avoid brokerage commissions
D) following the advice of technical analysts
11) The legislative lag represents
A) the time it takes for policy makers to obtain data indicating what is happening in the
economy
B) the time it takes for policy makers to be sure of what the data are signaling about the
future course of the economy
C) the time it takes to pass legislation to implement a particular policy
D) the time it takes for policy makers to change policy instruments once they have
decided on the new policy
E) the time it takes for the policy actually to have an impact on the economy
12) Credit cards date back to
A) prior to the second World War
B) just after the second World War
C) the early 1950s
D) the late 1950s
