1) Federal funds are
A) funds raised by the federal government in the bond market
B) loans made by the Federal Reserve System to banks
C) loans made by banks to the Federal Reserve System
D) loans made by banks to each other
2) In the simple deposit expansion model, if the Fed purchases $100 worth of bonds
from a bank that previously had no excess reserves, the bank can now increase its loans
by
A) $10
B) $100
C) $100 times the reciprocal of the required reserve ratio
D) $100 times the required reserve ratio
3) The incentive for analysts in investment banks to distort research increases when
A) revenues from brokerage commissions increase
B) the potential revenues from underwriting greatly exceed brokerage commissions
C) the potential brokerage commissions greatly exceed revenues from underwriting
D) revenues from underwriting decrease
4) The financial intermediaries that the average person interacts with most frequently
are
A) exchanges
B) over-the-counter markets
C) finance companies
D) banks
5) Since the passage of the International Banking Act of 1978, the competitive
advantage enjoyed by foreign banks in the U.S. has been
A) reduced
B) mildly expanded
C) completely eliminated
D) greatly expanded
6) An increase in the expected inflation rate will ________ the ________ for gold,
________ its price, everything else held constant.
A) increase; demand; increasing
B) decrease; demand; decreasing
C) increase; supply; increasing
D) decrease; supply; increasing
7) The ________ interest rate more accurately reflects the true cost of borrowing.
A) nominal
B) real
C) discount
D) market
8) The difference of rate-sensitive liabilities and rate-sensitive assets is known as the
A) duration
B) interest-sensitivity index
C) rate-risk index
D) gap
9) The price of a barrel of oil doubled between 2007 and the middle of 2008 . To make
matters worse, a financial crisis hit the U.S. economy starting in August of 2007 .
Which of the following is true of the United Kingdom’s experience?
A) The increase in the price of oil immediately shifted the AS curve to the left
B) The financial crisis did not take hold right away so the AD curve did not
immediately shift
C) Eventually, the Lehman Brothers bankruptcy caused a negative demand shock
leading to a further fall in output and an increase in the unemployment rate
D) All of the above
E) None of the above
10) Rational expectations forecast errors will on average be ________ and therefore
________ be predicted ahead of time.
A) positive; can
B) positive; cannot
C) negative; can
D) zero; cannot
11) The measure of the aggregate price level that is frequently the focus of Federal
Reserve officials is the
A) consumer price index
B) producer price index
C) GDP deflator
D) PCE deflator
12) According to Keynes’s theory of liquidity preference, velocity increases when
A) income increases
B) wealth increases
C) brokerage commissions increase
D) interest rates increase
13) Which of the following statements is false?
A) A bank’s assets are its uses of funds
B) A bank issues liabilities to acquire funds
C) The bank’s assets provide the bank with income
D) Bank capital is recorded as an asset on the bank balance sheet
14) Because of the abuses by state banks and the clear need for a central bank to help
the federal government raise funds during the War of 1812, Congress created the
A) Bank of United States in 1812
B) Bank of North America in 1814
C) Second Bank of the United States in 1816
D) Second Bank of North America in 1815
15) All ________ are required to be members of the Fed.
A) state chartered banks
B) nationally chartered banks
C) banks with assets less than $100 million
D) banks with assets less than $500 million
16) When good weather speeds the check-clearing process, float tends to ________
causing the Fed to initiate defensive open market ________.
A) decrease; sales
B) decrease; purchases
C) increase; sales
D) increase; purchases
17) A bank that wants to monitor the check payment practices of its commercial
borrowers, so that moral hazard can be prevented, will require borrowers to
A) place a bank officer on their board of directors
B) place a corporate officer on the bank’s board of directors
C) keep compensating balances in a checking account at the bank
D) purchase the bank’s CDs
18) Total reserves minus bank deposits with the Fed equals
A) vault cash
B) excess reserves
C) required reserves
D) currency in circulation
19) Which of the following can be described as direct finance?
A) You take out a mortgage from your local bank
B) You borrow $2500 from a friend
C) You buy shares of common stock in the secondary market
D) You buy shares in a mutual fund
20) If the required reserve ratio is 10 percent, the simple deposit multiplier is
A) 5.0
B) 2.5
C) 100.0
D) 10.0
21) Because central banks have not been willing to give up their option of intervening
in the foreign exchange market, the current international financial system can best be
described as a
A) variable-pegged exchange rate system
B) moving-pegged exchange rate system
C) hybrid of a fixed exchange rate and flexible exchange rate system
D) flexible-exchange, dollar-pegged exchange rate system
22) When a lender refuses to make a loan, although borrowers are willing to pay the
stated interest rate or even a higher rate, the bank is said to engage in
A) coercive bargaining
B) strategic holding out
C) credit rationing
D) collusive behavior
23) When yield curves are downward sloping,
A) long-term interest rates are above short-term interest rates
B) short-term interest rates are above long-term interest rates
C) short-term interest rates are about the same as long-term interest rates
D) medium-term interest rates are above both short-term and long-term interest rates
24) The dollar amount of the yearly coupon payment expressed as a percentage of the
face value of the bond is called the bond’s
A) coupon rate
B) maturity rate
C) face value rate
D) payment rate
25) Financial crises in advanced economies might start from a
A) debt deflation
B) currency crisis
C) mismanagement of financial innovations
D) currency mismatch
26) According to the Taylor rule, the Fed should raise the federal funds interest rate
when inflation ________ the Fed’s inflation target or when real GDP ________ the
Fed’s output target.
A) rises above; drops below
B) drops below; drops below
C) rises above; rises above
D) drops below; rises above
27) If a bank has $10 million of checkable deposits, a required reserve ratio of 10
percent, and it holds $2 million in reserves, then it will not have enough reserves to
support a deposit outflow of
A) $1.2 million
B) $1.1 million
C) $1 million
D) $900,000
28) The Baumol-Tobin analysis suggests that an increase in the brokerage fee for
buying and selling bonds will cause the demand for money to ________ and the
demand for bonds to ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
29) A common element in all of the banking crisis episodes in different countries is
A) the existence of a government safety net
B) deposit insurance
C) increased regulation
D) lack of competition
30) When the yield curve is flat or downward-sloping, it suggest that the economy is
more likely to enter
A) a recession
B) an expansion
C) a boom time
D) a period of increasing output
31) In order to ensure that borrowers have an ability to repay residential mortgages, the
new consumer protection legislation requires lenders to do all of the following except
A) verify the income of the borrower
B) verify the borrower’s job status
C) check the credit history of the borrower
D) verify that the borrower can read and understand a loan contract
32) The steepest increase in the currency ratio since 1892 occurred during
A) World War II
B) the Great Depression
C) the interwar years
D) the past twenty years
33) During the boom years of the 1920s, bank failures were quite
A) uncommon, averaging less than 30 per year
B) uncommon, averaging less than 100 per year
C) common, averaging about 600 per year
D) common, averaging about 1000 per year
34) Complete Milton Friedman’s famous proposition: “Inflation is always and
everywhere a ________ phenomenon.”
A) monetary
B) political
C) policy
D) budgetary