1) Complete Milton Friedman’s famous proposition: “Inflation is always and
everywhere a ________ phenomenon”
A) monetary
B) political
C) policy
D) budgetary
2) Kevin purchasing concert tickets with his debit card is an example of the ________
function of money
A) medium of exchange
B) unit of account
C) store of value
D) specialization
3) ________ may antagonize customers and thus can be a very costly way of acquiring
funds to meet an unexpected deposit outflow
A) Selling securities
B) Selling loans
C) Calling in loans
D) Selling negotiable CDs
4) A liquid asset is
A) an asset that can easily and quickly be sold to raise cash
B) a share of an ocean resort
C) difficult to resell
D) always sold in an over-the-counter market
5) A monetary expansion ________ stock prices due to a decrease in the ________ and
an increase in the ________, everything else held constant
A) reduces; future sales price; expected rate of return
B) reduces; current dividend; expected rate of return
C) increases; required rate of return; future sales price
D) increases; required rate of return; dividend growth rate
6) A central bank’s attempt to prevent an appreciation of its currency can stimulate
domestic inflation if the ________ of foreign currencies leads to ________ international
reserves which ________ the monetary base
A) purchase; higher; increases
B) purchase; lower; decreases
C) sale; lower; decreases
D) sale; higher; increases
7) Examples of discount bonds include
A) US Treasury bills
B) corporate bonds
C) US Treasury notes
D) municipal bonds
8) During the beginning on the global financial crisis in the United States when the
effects of the crisis were mostly confined within the United States, the U S dollar
________ because demand for US assets ________
A) appreciated; increased
B) depreciated; increased
C) appreciated; decreased
D) depreciated; decreased
9) A current account surplus indicates that America is ________ its claims on foreign
wealth, while a deficit indicates that this country is ________ its claims on foreign
wealth
A) reducing; reducing
B) reducing; increasing
C) increasing; reducing
D) increasing; increasing
10) Which of the following are generally true of all bonds?
A) The longer a bond’s maturity, the greater is the rate of return that occurs as a result of
the increase in the interest rate
B) Even though a bond has a substantial initial interest rate, its return can turn out to be
negative if interest rates rise
C) Prices and returns for short-term bonds are more volatile than those for longer term
bonds
D) A fall in interest rates results in capital losses for bonds whose terms to maturity are
longer than the holding period
11) Although ________ currency is lighter than coins made of metals, a disadvantage
arising from modern technology is the ease of ________
A) paper; transport
B) commodity; counterfeiting
C) fiat; transport
D) paper; counterfeiting
12) Managers (________) may act in their own interest rather than in the interest of the
stockholder-owners (________) because the managers have less incentive to maximize
profits than the stockholder-owners do
A) principals; agents
B) principals; principals
C) agents; agents
D) agents; principals
13) The practice of keeping high-risk assets on a bank’s books while removing low-risk
assets with the same capital requirement is known as
A) competition in laxity
B) depositor supervision
C) regulatory arbitrage
D) a dual banking system
14) Using the information in situation 20-2, if government spending increases by $100,
then the equilibrium aggregate output will change by
A) -$1,000
B) -$100
C) $100
D) $1,000
15) Everything else held constant, increased demand for a country’s exports causes its
currency to ________ in the long run, while increased demand for imports causes its
currency to ________
A) appreciate; appreciate
B) appreciate; depreciate
C) depreciate; appreciate
D) depreciate; depreciate
16) 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
17) If the Fed expects currency holdings to fall, it conducts open market ________ to
offset the expected ________ in reserves
A) purchases; increase
B) purchases; decrease
C) sales; increase
D) sales; decrease
18) The Federal Reserve has been ________ preemptive because of the changing view
that monetary policy has to be ________ looking
A) more; forward
B) more; backward
C) less; forward
D) less; backward
19) ________ in the money supply creates excess ________ money, causing interest
rates to ________, everything else held constant
A) A decrease; demand for; rise
B) An increase; demand for; fall
C) An increase; supply of; rise
D) A decrease; supply of; fall
20) The Keynesian theory of money demand emphasizes the importance of
A) a constant velocity
B) irrational behavior on the part of some economic agents
C) interest rates on the demand for money
D) expectations