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1) Everything else held constant, a decrease in the cost of production ________
aggregate ________
A) increases; demand
B) decreases; demand
C) increases; supply
D) decreases; supply
2) Prior to 2008, the bank's cost of holding reserves equaled
A) the interest paid on deposits times the amount of reserves
B) the interest paid on deposits times the amount of deposits
C) the interest earned on loans times the amount of loans
D) the interest earned on loans times the amount on reserves
3) A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when
the reserve requirement is 25 percent If the reserve requirement is lowered to 20
percent, the bank's excess reserves will be
A) $1,000
B) $5,000
C) $8,000
D) $9,000
4) That only large, well-established corporations have access to securities markets
A) explains why indirect finance is such an important source of external funds for
businesses
B) can be explained by the problem of moral hazard
C) can be explained by government regulations that prohibit small firms from acquiring
funds in securities markets
D) explains why newer and smaller corporations rely so heavily on the new issues
market for funds
5) A decline in the expected inflation rate causes the demand for money to ________
and the demand curve to shift to the ________, everything else held constant
A) decrease; right
B) decrease; left
C) increase; right
D) increase; left
6) The Lucas critique is an attack on the usefulness of
A) conventional econometric models as forecasting tools
B) conventional econometric models as indicators of the potential impacts on the
economy of particular policies
C) rational expectations models of macroeconomic activity
D) the relationship between the quantity theory of money and aggregate demand
7) If the economy is on the LM curve, but is to the right of the IS curve, then the
________ market is in equilibrium, but aggregate ________ exceeds aggregate
________
A) goods; output; demand
B) goods; demand; output
C) money; output; demand
D) money; demand; output
8) If an individual moves money from a demand deposit account to a money market
deposit account,
A) M1 decreases and M2 stays the same
B) M1 stays the same and M2 increases
C) M1 stays the same and M2 stays the same
D) M1 increases and M2 decreases
9) Since the Federal Reserve sets the required reserve ratio to less than one, one dollar
of reserves can support ________ of checkable deposits
A) exactly one dollar
B) less than one dollar
C) more than one dollar
D) exactly twice the amount
10) To eliminate the abuses of the state-chartered banks, the ________ created a new
banking system of federally chartered banks, supervised by the ________
A) National Bank Act of 1863; Office of the Comptroller of the Currency
B) Federal Reserve Act of 1863; Office of the Comptroller of the Currency
C) National Bank Act of 1863; Office of Thrift Supervision
D) Federal Reserve Act of 1863; Office of Thrift Supervision
11) An important characteristic of the modern payments system has been the rapidly
increasing use of
A) checks and decreasing use of currency
B) electronic fund transfers
C) commodity monies
D) fiat money
12) If in an efficient market all prices are correct and reflect market fundamentals,
which of the following is a false statement?
A) A stock that has done poorly in the past is more likely to do well in the future
B) One investment is as good as any other because the securities' prices are correct
C) A security's price reflects all available information about the intrinsic value of the
security
D) Security prices can be used by managers to assess their cost of capital accurately
13) If there are five goods in a barter economy, one needs to know ten prices in order to
exchange one good for another If, however, there are ten goods in a barter economy,
then one needs to know ________ prices in order to exchange one good for another
A) 20
B) 25
C) 30
D) 45
14) When the Fed sells $100 worth of bonds to First National Bank, reserves in the
banking system
A) increase by $100
B) increase by more than $100
C) decrease by $100
D) decrease by more than $100
15) A shift in tastes toward American goods ________ net exports in the US and causes
the IS curve to shift to the ________ in the US, everything else held constant
A) decreases; right
B) decreases; left
C) increases; right
D) increases; left
