1) An increase in productivity in a country will cause its currency to ________ because
it can produce goods at a ________ price, everything else held constant
A) depreciate; lower
B) appreciate; lower
C) depreciate; higher
D) appreciate; higher
2) If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $08 billion, then the M1
money multiplier is
A) 25
B) 167
C) 20
D) 0601
3) The January effect refers to the fact that
A) most stock market crashes have occurred in January
B) stock prices tend to fall in January
C) stock prices have historically experienced abnormal price increases in January
D) the football team winning the Super Bowl accurately predicts the behavior of the
stock market for the next year
4) The long-run aggregate supply curve shifts to the right when there is
A) a decrease in the total amount of capital in the economy
B) a decrease in the total amount of labor supplied in the economy
C) a decrease in the available technology
D) a decline in the natural rate of unemployment
5) New information that might lead to a decrease in a stock’s price might be
A) an expected decrease in the level of future dividends
B) a decrease in the required rate of return
C) an expected increase in the dividend growth rate
D) an expected increase in the future sales price
6) US Treasury bills are considered the safest of all money market instruments because
there is almost no risk of
A) defeat
B) default
C) desertion
D) demarcation
7) The monetary transmission mechanism that links monetary policy to GDP through
real interest rates and investment spending is called the
A) traditional interest-rate channel
B) Tobins’ q theory
C) wealth effects
D) cash flow channel
8) The M2 money multiplier is
A) negatively related to high-powered money
B) positively related to the time deposit ratio
C) positively related to the required reserve ratio
D) positively related to the excess reserves ratio
9) A rise in the price level causes the demand for money to ________ and the interest
rate to ________, everything else held constant
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase
10) When comparing the banking crisis in the United States to the crises in Latin
America, cost to the taxpayers of the government bailouts was
A) higher in Latin American than in the United States
B) higher in the United States than in Latin America
C) about the same in both Latin America and the United States
D) positive in Latin America but negative in the United States
11) ________ institutions are financial intermediaries that acquire funds at periodic
intervals on a contractual basis
A) Investment
B) Contractual savings
C) Thrift
D) Depository
12) According to Tobin’s q theory, when equity prices are low the market price of
existing capital is ________ relative to new capital, so expenditure on fixed investment
is ________
A) cheap; low
B) dear ; low
C) cheap; high
D) dear; high
13) An electronic payments system has not completely replaced the paper payments
system because of all of the following reasons except
A) expensive equipment is necessary to set up the system
B) security concerns
C) privacy concerns
D) transportation costs
14) The most important source of the changes in supply conditions that stimulate
financial innovation has been the
A) deregulation of financial institutions
B) dramatic increase in the volatility of interest rates
C) improvement in computer and telecommunications technology
D) dramatic increase in competition from foreign banks
15) If the interest rate on euro-denominated assets is 13 percent and it is 15 percent on
peso-denominated assets, and if the euro is expected to appreciate at a 4 percent rate,
for Francois the Frenchman the expected rate of return on peso-denominated assets is
A) 11 percent
B) 15 percent
C) 17 percent
D) 19 percent
16) The Federal Deposit Insurance Corporation Improvement Act of 1991
A) increased the FDIC’s ability to borrow from the Treasury to deal with failed banks
B) increased the FDIC’s ability to use the too-big-to-fail doctrine
C) eliminated governmentally-administered deposit insurance
D) eliminated restrictions on nationwide banking
17) Measuring the sensitivity of bank profits to changes in interest rates by multiplying
the gap times the change in the interest rate is called
A) basic duration analysis
B) basic gap analysis
C) interest-exposure analysis
D) gap-exposure analysis
18) Open market purchases raise the ________ thereby raising the ________
A) money multiplier; money supply
B) money multiplier; monetary base
C) monetary base; money supply
D) monetary base; money multiplier