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1) One way of describing the solution that high net worth provides to the moral hazard
problem is to say that it
A) collateralizes the debt contract
B) makes the debt contract incentive compatible
C) state verifies the debt contract
D) removes all of the risk in the debt contract
2) The S&L Crisis can be analyzed as a principal-agent problem The agents in this case,
the ________, did not have the same incentive to minimize cost to the economy as the
principals, the ________
A) politicians/regulators; taxpayers
B) taxpayers; politician/regulators
C) taxpayers; bank managers
D) bank managers; politicians/regulators
3) Decisions by depositors to increase their holdings of ________, or of banks to hold
________ will result in a smaller expansion of deposits than the simple model predicts
A) deposits; required reserves
B) deposits; excess reserves
C) currency; required reserves
D) currency; excess reserves
4) Depositors lack of information about the quality of bank assets can lead to
A) bank panics
B) bank booms
C) sequencing
D) asset transformation
5) If the aggregate price level at time t is denoted by Pt, the inflation rate from time t - 1
to t is defined as
A) t = (Pt - Pt - 1)/ Pt - 1
B) t = (Pt + 1 - Pt - 1) /Pt - 1
C) t = (Pt + 1 - Pt) /Pt
D) t = (Pt - Pt - 1) /Pt
6) Everything else held constant, if aggregate output is to the ________ of the IS curve,
then there is an excess demand of goods which will cause aggregate output to ________
A) right; fall
B) right; rise
C) left; fall
D) left; rise
7) If the US dollar appreciates from 125 Swiss franc per US dollar to 15 francs per
dollar, then the franc depreciates from ________ US dollars per franc to ________ US
dollars per franc
A) 080; 067
B) 067; 080
C) 050; 033
D) 033; 050
8) State banks that are not members of the Federal Reserve System are most likely to be
examined by the
A) Federal Reserve System
B) FDIC
C) FHLBS
D) Comptroller of the Currency
9) Studies of mutual fund performance indicate that mutual funds that outperformed the
market in one time period usually
A) beat the market in the next time period
B) beat the market in the next two subsequent time periods
C) beat the market in the next three subsequent time periods
D) do not beat the market in the next time period
10) When the domestic currency is initially undervalued in a fixed exchange rate
regime, the central bank must intervene in the foreign exchange market to ________ the
domestic currency, thereby allowing the money supply to ________
A) purchase; decline
B) sell; decline
C) purchase; increase
D) sell; increase
11) Automated teller machines
A) are more costly to use than human tellers, so banks discourage their use by charging
more for use of ATMs
B) cost about the same to use as human tellers in banks, so banks discourage their use
by charging more for use of ATMs
C) cost less than human tellers, so banks may encourage their use by charging less for
using ATMs
D) cost nothing to use, so banks provide their services free of charge
12) The financial panic of 1907 resulted in such widespread bank failures and
substantial losses to depositors that the American public finally became convinced that
A) the First Bank of the United States had failed to serve as a lender of last resort
B) the Second Bank of the United States had failed to serve as a lender of last resort
C) the Federal Reserve System had failed to serve as a lender of last resort
D) a central bank was needed to prevent future panics
13) Suppose a report was released today that showed the Euro-Zone inflation rate is
running above the European Central Bank's inflation rate target This leads people to
expect that the European Central Bank will enact contractionary policy in the near
future Everything else held constant, the release of this report would immediately cause
the demand for US assets to ________ and the US dollar will ________
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
