1) Prior to 2008, bank managers looked on reserve requirements
A) as a tax on deposits
B) as a subsidy on deposits
C) as a subsidy on loans
D) as a tax on loans
2) The view that expectations change relatively slowly over time in response to new
information is known in economics as
A) rational expectations
B) irrational expectations
C) slow-response expectations
D) adaptive expectations
3) If the interest rate falls, other things being equal, investment spending will
A) fall
B) rise
C) either rise, fall, or remain unchanged
D) not be affected
4) The FHLBS gives loans to S&Ls and thus performs a function similar to the
________ for commercial banks
A) Federal Reserve
B) US Treasury
C) Office of the Comptroller of the Currency
D) US Mint
5) A foreign exchange intervention with an offsetting open market operation that leaves
the monetary base unchanged is called
A) an unsterilized foreign exchange intervention
B) a sterilized foreign exchange intervention
C) an exchange rate feedback rule
D) a money neutral foreign exchange intervention
6) Everything else held constant, when financial frictions increase, the real cost of
borrowing ________ so that planned investment spending ________ at any given
inflation rate
A) increases; falls
B) decreases; falls
C) decreases; rises
D) increases; rises
7) The gross domestic product is the
A) the value of all wealth in an economy
B) the value of all goods and services sold to other nations in a year
C) the market value of all final goods and services produced in an economy in a year
D) the market value of all intermediate goods and services produced in an economy in a
year
8) If float is predicted to increase because of bad weather, the manager of the trading
desk at the New York Fed bank will likely conduct ________ open market operations to
________ reserves
A) defensive; inject
B) defensive; drain
C) dynamic; inject
D) dynamic; drain
9) In the figure above, a factor that could cause the demand for bonds to decrease (shift
to the left) is:
A) an increase in the expected return on bonds relative to other assets
B) a decrease in the expected return on bonds relative to other assets
C) an increase in wealth
D) a reduction in the riskiness of bonds relative to other assets
10) The riskiness of an asset that is unique to the particular asset is
A) systematic risk
B) portfolio risk
C) investment risk
D) nonsystematic risk
11) The Policy Trilemma states that a country or a monetary union can’t pursue the
following three policies at the same time:
A) capital control, a fixed exchange rate, and an independent monetary policy
B) free capital mobility, a fixed exchange rate, and an independent monetary policy
C) free capital mobility, a flexible exchange rate, and an independent monetary policy
D) capital control, a flexible exchange rate, and an independent monetary policy
12) Reducing risk through the purchase of assets whose returns do not always move
together is
A) diversification
B) intermediation
C) intervention
D) discounting
13) The Dodd-Frank legislation of 2010 permanently increased the federal deposit
insurance to
A) $40,000
B) $100,000
C) $200,000
D) $250,000
14) When the economy is hit by a temporary negative supply shock and the central
bank does not respond by changing the autonomous component of monetary policy,
then in the long run
A) inflation will be lower
B) output will be at its potential
C) output will be lower
D) inflation will be unchanged
E) both B and D
15) 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
16) A balance of payments deficit is associated with a ________ of international
reserves, while a balance of payments surplus is associated with a ________
A) loss; loss
B) loss; gain
C) gain; loss
D) gain; gain
17) Probably the most significant factor explaining the drastic drop in the number of
bank failures since the Great Depression has been
A) the creation of the FDIC
B) rapid economic growth since 1941
C) the employment of new procedures by the Federal Reserve
D) better bank management
18) Assume that no banks hold excess reserves, and the public holds no currency If a
bank sells a $100 security to the Fed, explain what happens to this bank and two
additional steps in the deposit expansion process, assuming a 10% reserve requirement
How much do deposits and loans increase for the banking system when the process is
completed?
19) Explain the Fed’s three tools of monetary policy and how each is used to change the
money supply Does each tool affect the monetary base or the money multiplier?
20) Describe the two methods of organizing a secondary market
21) Explain two ways by which the Federal Reserve System can increase the monetary
base Why is the effect of Federal Reserve actions on bank reserves less exact than the
effect on the monetary base?
22) You believe that a corporation’s dividends will grow 5% on average into the
foreseeable future If the company’s last dividend payment was $5 what should be the
current price of the stock assuming a 12% required return?
23) The government safety net creates both an adverse selection problem and a moral
hazard problem Explain