1) If the liquidity effect is smaller than the other effects, and the adjustment to expected
inflation is immediate, then the
A) interest rate will fall
B) interest rate will rise
C) interest rate will fall immediately below the initial level when the money supply
grows
D) interest rate will rise immediately above the initial level when the money supply
grows
2) If a conflict of interest exists
A) it will always have serious adverse consequences
B) it may not have a serious adverse consequences if the incentive to take advantage of
the conflict is low
C) the government needs to step in to pass legislation to remove the conflict
D) there will not be serious adverse consequences, even if the incentive to take
advantage of the conflict is low
3) The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
authorized investors to bring lawsuits against credit-rating agencies for a reckless
failure to get the facts when providing a credit rating. This is an example of which
remedy of conflicts of interest?
A) Regulate for transparency.
B) Supervisory oversight
C) Leave it to the market
D) Socialization of information production
4) According to PPP, the real exchange rate between two countries will always equal
A) 0.0
B) 0.5
C) 1.0
D) 1.5
5) The ________ of a coupon bond and the yield to maturity are inversely related.
A) price
B) par value
C) maturity date
D) term
6) When the economy suffers a permanent negative supply shock and the central bank
responds by changing the autonomous component of monetary policy to keep inflation
at the target inflation rate, then
A) aggregate demand curve shifts leftward
B) output will be unchanged
C) output will be at its potential
D) all of the above
E) both A and C
7) Suppose the economy is producing at the natural rate of output. Assuming a fixed
natural rate of output and everything else held constant, the development of a new,
more productive technology will cause ________ in the unemployment rate and
________ in the inflation in the long run.
A) an increase; an increase
B) a decrease; a decrease
C) a decrease; an increase
D) no change; no change
8) In the simple deposit expansion model, an expansion in checkable deposits of $1,000
when the required reserve ratio is equal to 20 percent implies that the Fed
A) sold $200 in government bonds
B) sold $500 in government bonds
C) purchased $200 in government bonds
D) purchased $500 in government bonds
9) All else equal, when interest rates ________, the duration of a coupon bond
________.
A) rise; falls
B) rise; increases
C) falls; falls
D) falls; does not change
10) Everything else held constant, when stock prices become less volatile, the demand
curve for bonds shifts to the ________ and the interest rate ________.
A) right; rises
B) right; falls
C) left; falls
D) left; rises
11) Keynes argued that when interest rates were low relative to some normal value,
people would expect bond prices to ________ so the quantity of money demanded
would ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
12) If stock prices are expected to drop dramatically, then, other things equal, the
demand for stocks will ________ and that of Treasury bills will ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
13) Whatever a society uses as money, the distinguishing characteristic is that it must
A) be completely inflation proof
B) be generally acceptable as payment for goods and services or in the repayment of
debt
C) contain gold
D) be produced by the government
14) Banks have attempted to maintain adequate profit levels by
A) making fewer riskier loans, such as commercial real estate loans
B) pursuing new off-balance-sheet activities
C) increasing reserve deposits at the Fed
D) decreasing capital accounts
15) If the real exchange rate between the United States and Japan is ________, then it is
cheaper to buy goods in Japan than in the United States.
A) greater than 1.0
B) greater than 0.5
C) less than 0.5
D) less than 1.0
16) Anything that increases the demand for foreign goods relative to domestic goods
tends to ________ the domestic currency because domestic goods will only continue to
sell well if the value of the domestic currency is ________, everything else held
constant.
A) depreciate; lower
B) depreciate; higher
C) appreciate; lower
D) appreciate; higher
17) Although neither ________ nor the ________ are officially set by the Federal Open
Market Committee, decisions concerning these policy tools are effectively made by the
committee.
A) margin requirements; discount rate
B) margin requirements; federal funds rate
C) reserve requirements; discount rate
D) reserve requirements; federal funds rate
18) Everything else held constant, a decrease in the cost of production ________
aggregate ________.
A) increases; demand
B) decreases; demand
C) increases; supply
D) decreases; supply
19) If a member of the nonbank public sells a government bond to the Federal Reserve
in exchange for currency, the monetary base will ________, but ________.
A) remain unchanged; reserves will fall
B) remain unchanged; reserves will rise
C) rise; currency in circulation will remain unchanged
D) rise; reserves will remain unchanged
20) Because of the presence of asymmetric information problems in credit markets, an
expansionary monetary policy causes a ________ in net worth, which ________ the
adverse selection problem, thereby ________ increased lending to finance investment
spending.
A) decline; increases; encouraging
B) rise; increases; discouraging
C) rise; reduces; encouraging
D) decline; reduces; discouraging
21) If the required reserve ratio is one-third, currency in circulation is $300 billion, and
checkable deposits are $900 billion, then the money supply is ________ billion.
A) $2700
B) $3000
C) $1200
D) $1800
22) A Supreme Court ruling in March 1996 held that
A) state laws to prevent banks from selling insurance can be superseded by federal
rulings from banking regulators that allow banks to sell insurance
B) state laws to prevent banks from selling insurance cannot be superseded by federal
rulings from banking regulators that allow banks to sell insurance
C) state laws to prevent banks from selling insurance can be superseded only if
Congress enacts legislation that allow banks to sell insurance
D) state laws to prevent banks from selling insurance cannot be superseded by federal
legislation
23) 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
24) U.S. 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
25) When I purchase ________, I own a portion of a firm and have the right to vote on
issues important to the firm and to elect its directors.
A) bonds
B) bills
C) notes
D) stock
26) While legislation enacted in 1998 granted the Bank of Japan new powers and
greater autonomy, its critics contend that its independence is
A) limited by the Ministry of Finance’s veto power over a portion of its budget
B) too great because it need not pursue a policy of price stability even if that is the
popular will of the people
C) too great since the Ministry of Finance no longer has veto power over the bank’s
budget
D) limited since the Ministry of Finance can dismiss senior bank officials
27) The relationship between borrowed reserves, the nonborrowed monetary base, and
the monetary base is
A) MB = MBn – BR
B) BR = MBn – MB
C) BR = MB – MBn
D) MB = BR – MBn
28) Everything else held constant, increased demand for a country’s ________ causes
its currency to appreciate in the long run, while increased demand for ________ causes
its currency to depreciate.
A) imports; imports
B) imports; exports
C) exports; imports
D) exports; exports
29) Moral hazard is an important concern of insurance arrangements because the
existence of insurance
A) provides increased incentives for risk taking
B) is a hindrance to efficient risk taking
C) causes the private cost of the insured activity to increase
D) creates an adverse selection problem but no moral hazard problem
30) Which of the following statements about financial markets and securities is true?
A) Many common stocks are traded over-the-counter, although the largest corporations
usually have their shares traded at organized stock exchanges such as the New York
Stock Exchange
B) As a corporation gets a share of the broker’s commission, a corporation acquires new
funds whenever its securities are sold
C) Capital market securities are usually more widely traded than shorter-term securities
and so tend to be more liquid
D) Because of their short-terms to maturity, the prices of money market instruments
tend to fluctuate wildly
31) A person’s house is part of her
A) money
B) income
C) liabilities
D) wealth