1) Conditions that likely contributed to a credit crunch during the global financial crisis
include:
A) capital shortfalls caused in part by falling real estate prices
B) regulated hikes in bank capital requirements
C) falling interest rates that raised interest rate risk, causing banks to choose to hold
more capital
D) increases in reserve requirements
2) If a bank has $200,000 of checkable deposits, a required reserve ratio of 20 percent,
and it holds $80,000 in reserves, then the maximum deposit outflow it can sustain
without altering its balance sheet is
A) $50,000
B) $40,000
C) $30,000
D) $25,000
3) Using the Gordon growth formula, if D1 is $100, ke is 10% or 010, and g is 5% or
005, then the current stock price is
A) $10
B) $20
C) $30
D) $40
4) In the Baumol-Tobin analysis of the demand for money, either an increase in
________ or an increase in ________ increases money demand
A) income; interest rates
B) brokerage fees; interest rates
C) interest rates; the price level
D) brokerage fees; income
5) If nominal GDP in 2001 is $9 trillion, and 2001 real GDP in 1996 prices is $6
trillion, the GDP deflator price index is
A) 7
B) 100
C) 150
D) 200
6) The large number of banks in the United States is an indication of
A) vigorous competition within the banking industry
B) lack of competition within the banking industry
C) only efficient banks operating within the United States
D) consumer preference for local banks
7) International policy coordination refers to
A) central banks in major nations acting without regard to the global consequences of
their policies
B) central banks in major nations pursuing only domestic objectives
C) central banks adopting policies in pursuit of joint objectives
D) central banks all adopting identical policies
8) Which of the following statements about the characteristics of debt and equity is
false?
A) They can both be long-term financial instruments
B) They can both be short-term financial instruments
C) They both involve a claim on the issuer’s income
D) They both enable a corporation to raise funds
9) The theory that monetary policy conducted on a discretionary, day-by-day basis leads
to poor long-run outcomes is referred to as the
A) adverse selection problem
B) moral hazard problem
C) time-inconsistency problem
D) nominal-anchor problem
10) Which of the following statements most accurately describes the task of bank asset
management?
A) Banks seek the highest returns possible subject to minimizing risk and making
adequate provisions for liquidity
B) Banks seek to have the highest liquidity possible subject to earning a positive rate of
return on their operations
C) Banks seek to prevent bank failure at all cost; since a failed bank earns no profit,
liquidity needs supersede the desire for profits
D) Banks seek to acquire funds in the least costly way
11) If reserves in the banking system increase by $100, then checkable deposits will
increase by $1000 in the simple model of deposit creation when the required reserve
ratio is
A) 001
B) 010
C) 005
D) 020
12) Property that is pledged to the lender in the event that a borrower cannot make his
or her debt payment is called
A) collateral
B) points
C) interest
D) good faith money
13) Everything else held constant, in the market for reserves, when the federal funds
rate is 3%, increasing the interest rate paid on excess reserves from 1% to 2%
A) lowers the federal funds rate
B) raises the federal funds rate
C) has no effect on the federal funds rate
D) has an indeterminate effect on the federal funds rate
14) In the simple deposit expansion model, if the banking system has excess reserves of
$75, and the required reserve ratio is 20%, the potential expansion of checkable
deposits is
A) $75
B) $750
C) $3750
D) $375
15) In the model of the money supply process, the Federal Reserve’s role in influencing
the money supply is represented by
A) both the required reserve ratio and the market interest rate
B) the required reserve ratio, nonborrowed reserves, and borrowed reserves
C) only borrowed reserves
D) only nonborrowed reserves
16) The nine directors of the Federal Reserve Banks are split into three categories:
________ are professional bankers, ________ are leaders from industry, and ________
are to represent the public interest and are not allowed to be officers, employees, or
stockholders of banks
A) 5; 2; 2
B) 2; 5; 2
C) 4; 2; 3
D) 3; 3; 3
17) Under the Exchange Rate Mechanism of the European Monetary System, when the
British pound depreciated below its lower limit against the German mark, the Bank of
England was required to buy ________ and sell ________, thereby ________
international reserves
A) pounds; marks; losing
B) pounds; marks; gaining
C) marks; pounds; gaining
D) marks; pounds; losing
18) Which of the following statements is false?
A) A bank’s assets are its uses of funds
B) A bank issues liabilities to acquire funds
C) The bank’s assets provide the bank with income
D) Bank capital is recorded as an asset on the bank balance sheet