Of the three motives for holding money suggested by Keynes, which did he believe to
be the most sensitive to interest rates?
A) The transactions motive.
B) The precautionary motive.
C) The speculative motive.
D) The altruistic motive.
Answer:
In the market for reserves, if the federal funds rate is above the interest rate paid on
excess reserves, then an open market ________ the supply of reserves, raising the
federal funds interest rate, everything else held constant.
A) sale decreases
B) sale increases
C) purchase increases
D) purchase decreases
Answer:
The main center of the Eurodollar market is
A) London.
B) Basel.
C) Paris.
D) New York.
Answer:
Most U.S. financial crises have started during periods of ________ either after the start
of a recession or a stock market crash.
A) high uncertainty
B) low interest rates
C) low asset prices
D) high financial regulation
Answer:
The global financial crisis lead to a decline in stock prices because
A) of a lowered expected dividend growth rate.
B) of a lowered required return on investment in equity.
C) higher expected future stock prices.
D) higher current dividends.
Answer:
Prior to 1863, all commercial banks in the United States
A) were chartered by the U.S. Treasury Department.
B) were chartered by the banking commission of the state in which they operated.
C) were regulated by the Federal Reserve.
D) were regulated by the central bank.
Answer:
Reasons for holding Eurodollars include
A) the fact that Eurodollar deposits are insured by the FDIC.
B) the fact that dollars are widely used to conduct international transactions.
C) the fact that minimum transaction sizes are very low, making Eurodollars an
attractive savings instrument for consumers.
D) the fact that Eurodollar deposits are heavily regulated.
Answer:
Everything else held constant, if aggregate output is to the right of the LM curve, then
there is an excess ________ of money which will cause the interest rate to ________.
A) supply; fall
B) supply; rise
C) demand; fall
D) demand; rise
Answer:
The sum of the Fed’s monetary liabilities and the U.S. Treasury’s monetary liabilities is
called
A) the money supply.
B) currency in circulation.
C) bank reserves.
D) the monetary base.
Answer:
The ________ suggests that the most important factor affecting the demand for
domestic and foreign assets is the expected return on domestic assets relative to foreign
assets.
A) theory of portfolio choice
B) law of one price
C) interest parity condition
D) theory of foreign capital mobility
Answer:
If the ________ curve is relatively more unstable than the ________ curve, a money
supply target is preferred.
A) IS; IS
B) IS; LM
C) LM; IS
D) LM; LM
Answer:
Everything else held constant, an increase in the required reserve ratio will result in
________ in M1 and ________ in M2..
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
Answer:
Under a fixed exchange rate system, countries that ran large, persistent balance of
payments deficits would ________ international reserves, thereby pressuring them into
________ their exchange rate.
A) gain; devaluing
B) gain; revaluing
C) lose; devaluing
D) lose; revaluing
Answer:
Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, nine million dollars in excess reserves, and faces a required
reserve ratio of ten percent. Given this information, we can say First National Bank has
________ million dollars on deposit with the Federal Reserve.
A) one
B) two
C) eight
D) ten
Answer:
The aggregate demand curve is downward sloping because a higher inflation rate leads
the central bank to raise ________ interest rates, thereby ________ the level of
equilibrium aggregate output., everything else held constant.
A) real; lowering
B) real; raising
C) nominal; lowering
D) nominal; raising
Answer:
Financing government spending with taxes
A) causes both reserves and the monetary base to rise.
B) causes both reserves and the monetary base to decline.
C) causes reserves to rise, but the monetary base to decline.
D) has no net effect on the monetary base.
Answer:
The Federal Reserve has had the authority to vary reserve requirements since the
A) 1920s.
B) 1930s.
C) 1940s.
D) 1950s.
Answer:
A balance of payments ________ is associated with a loss of international reserves,
while a balance of payments ________ is associated with a gain.
A) surplus; surplus
B) surplus; deficit
C) deficit; surplus
D) deficit; deficit
Answer:
If aggregate demand equals output,
A) the economy is in a recession.
B) output will increase.
C) output will fall.
D) the economy is at its equilibrium level.
Answer:
Banks will be examined at least once a year and given a CAMELS rating by examiners.
The L stands for
A) liabilities.
B) liquidity.
C) loans.
D) leverage.
Answer:
A financial crisis occurs when an increase in asymmetric information from a disruption
in the financial system
A) causes severe adverse selection and moral hazard problems that make financial
markets incapable of channeling funds efficiently.
B) allows for a more efficient use of funds.
C) increases economic activity.
D) reduces uncertainty in the economy and increases market efficiency.
Answer:
The quantity theory of money is a theory of how
A) the money supply is determined.
B) interest rates are determined.
C) the nominal value of aggregate income is determined.
D) the real value of aggregate income is determined.
Answer:
Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one
million dollars in required reserves. Given this information, we can say First National
Bank faces a required reserve ratio of ________ percent.
A) ten
B) twenty
C) eighty
D) ninety
Answer:
At its inception, the Federal Reserve was intended to be
A) the Treasury’s banker.
B) the issuer of government debt.
C) a lender-of-last-resort.
D) a regulator of bank holding companies.
Answer:
If aggregate demand is less than the level of aggregate output, then ________ inventory
investment will be ________.
A) planned; positive
B) actual; positive
C) actual; negative
D) planned; negative
Answer:
Uncertainty about interest-rate movements and returns is called
A) market potential.
B) interest-rate irregularities.
C) interest-rate risk.
D) financial creativity.
Answer:
Countries that experience very high rates of inflation may also have
A) balanced budgets.
B) rapidly growing money supplies.
C) falling money supplies.
D) constant money supplies.
Answer:
If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the
monetary base is
A) $480 billion.
B) $480.8 billion.
C) $80 billion.
D) $80.8 billion.
Answer:
Which of the following do not provide charters?
A) The Office of the Comptroller of the Currency
B) The Federal Reserve System
C) The National Credit Union Administration
D) State banking and insurance commissions
Answer:
The fact that an economy always returns to the natural rate level of output is known as
A) the excess demand hypothesis.
B) the price-adjustment mechanism.
C) the self-correcting mechanism.
D) the natural rate of unemployment.
Answer:
The Fed’s discount lending is of three types: ________ is the most common category;
________ is given to a limited number of banks in vacation and agricultural areas;
________ is given to banks that have experienced severe liquidity problems.
A) seasonal credit; secondary credit; primary credit
B) secondary credit; seasonal credit; primary credit
C) primary credit; seasonal credit; secondary credit
D) seasonal credit; primary credit; secondary credit
Answer:
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.
Answer:
Debt deflation occurs when
A) an economic downturn causes the price level to fall and a deterioration in firms’ net
worth because of the increased burden of indebtedness.
B) rising interest rates worsen adverse selection and moral hazard problems.
C) lenders reduce their lending due to declining stock prices (equity deflation) that
lowers the value of collateral.
D) corporations pay back their loans before the scheduled maturity date.
Answer:
The primary purpose of deposit insurance is to
A) improve the flow of information to investors.
B) prevent banking panics.
C) protect bank shareholders against losses.
D) protect bank employees from unemployment.
Answer: