A bank failure occurs whenever
A) a bank cannot satisfy its obligations to pay its depositors and other creditors.
B) a bank suffers a large deposit outflow.
C) a bank has to call in a large volume of loans.
D) a bank refuses to make new loans.
In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from
a bank that previously had no excess reserves, the bank can now increase its loans by
A) $10.
B) $100.
C) $100 times the reciprocal of the required reserve ratio.
D) $100 times the required reserve ratio.
________ in the domestic interest rate causes the demand for domestic assets to
increase and the domestic currency to ________, everything else held constant.
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
Everything else held constant, an increase in the currency ratio will mean ________ in
the M2 money multiplier and ________ in the M2 money supply.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
Elimination of minimum brokerage commission rates occurred because of
A) competition from banks.
B) demands of institution investors.
C) competition from foreign brokerage firms.
D) an action of the Securities and Exchange Commission.
If there isn’t sufficient information available, then which of the following approaches to
reduce conflicts of interest will have the lowest probability of working?
A) leave it to the market
B) supervisory oversight
C) separation of functions
D) socialization of information production
During the Great Depression, Tobin’s q
A) rose dramatically, as did real interest rates.
B) fell to unprecedentedly low levels.
C) stayed fairly constant, in contrast to most other economic measures.
D) rose only slightly, in spite of Hoover’s attempts to prop it up.
When a domestic currency is completely backed by a foreign currency and the
note-issuing authority establishes a fixed exchange rate to this foreign currency, then
the country is said to have
A) created a currency board.
B) undergone dollarization.
C) adopted a managed exchange system.
D) adopted an exchange rate monetary system.
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
In the basic closed-economy ISLM model, the goods market can be described by the
A) consumption function.
B) investment function.
C) government spending and tax.
D) goods market equilibrium condition.
E) all of the above.
If an individual moves money from a money market deposit account to currency
A) M1 increases 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.
You would be more willing to buy AT&T bonds (holding everything else constant) if
A) the brokerage commissions on bond sales become cheaper.
B) interest rates are expected to rise.
C) your wealth has decreased.
D) you expect diamonds to appreciate in value.
Reputational rents refer to
A) the profit earned by a firm when it captures economies of scope.
B) the costs associated with building credibility of a firm.
C) the profit earned solely based on the credibility of a firm.
D) the costs associated with the firm’s achievement of economies of scale.
Keynes was especially interested in explaining movements of ________ because he
wanted to explain why the Great Depression had occurred and how government policy
could be used to increase ________ in a similar economic situation.
A) aggregate output; wages
B) aggregate output; employment
C) wage rates; wages
D) wage rates; employment
Which of the following is NOT a goal of financial regulation?
A) ensuring the soundness of the financial system
B) reducing moral hazard
C) reducing adverse selection
D) ensuring that investors never suffer losses
Suppose the U.S. economy is producing at the natural rate of output. An appreciation of
the U.S. dollar will cause ________ in real GDP in the short run and ________ in
inflation in the short run, everything else held constant. (Assume the appreciation
causes no effects in the supply side of the economy.)
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
Everything else held constant, if the sum of the required reserve ratio and the excess
reserve ratio is greater than one, an increase in the currency-deposit ratio causes the M1
money multiplier to ________ and the money supply to ________.
A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease
In the open-economy ISLM model, the goods market equilibrium condition is
A) output = consumption + investment + government spending.
B) output = consumption + investment + government spending – tax.
C) output = consumption + investment + government spending + net export.
D) output = potential output.
Kevin purchasing concert tickets with his debit card is an example of the ________
function of money.
A) medium of exchange
B) unit of account
C) store of value
D) specialization
The classical economists believed that if the quantity of money doubled
A) output would double.
B) prices would fall.
C) prices would double.
D) prices would remain constant.
The global financial crisis of 2007-2009 not only led to a worldwide recession, but also
a ________ in the European nations that use the euro currency.
A) currency devaluation
B) budget surplus
C) sovereign debt crisis
D) tax cut
The federal agencies that examine banks include
A) the Federal Reserve System.
B) the Internal Revenue Service.
C) the SEC.
D) the U.S. Treasury.
In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes
the aggregate demand function to shift down, the equilibrium level of aggregate output
to ________, and the IS curve to shift to the ________, everything else held constant.
A) rise; left
B) rise; right
C) fall; left
D) fall; right
Which of the following are generally TRUE of all bonds?
A) The longer a bond’s maturity, the greater is the rate of return that occurs as a result of
the increase in the interest rate.
B) Even though a bond has a substantial initial interest rate, its return can turn out to be
negative if interest rates rise.
C) Prices and returns for short-term bonds are more volatile than those for longer term
bonds.
D) A fall in interest rates results in capital losses for bonds whose terms to maturity are
longer than the holding period.
The most common type of interest-rate swap is
A) the plain vanilla swap.
B) the basic swap.
C) the ordinary swap.
D) the notional swap.
Supply-side economic policies seek to
A) raise interest rates through contractionary monetary policy.
B) increase federal government expenditures.
C) increase consumption expenditures by increasing taxes.
D) increase saving and investment using tax incentives.
________ are short-term loans in which Treasury bills serve as collateral.
A) Repurchase agreements
B) Negotiable certificates of deposit
C) Federal funds
D) U.S. government agency securities
Which of the following is not a part of the Sarbanes-Oxley Act of 2002?
A) the establishment of a Public Company Accounting Oversight Board (PCAOB) to
supervise accounting firms and thus insure that audits are independent and controlled
for quality
B) increased penalties for white-collar crime and obstruction of official investigations
C) requires a CEO and CFO to certify that periodic financial statements and disclosure
of the firm are accurate
D) requires investment banks to make public their analysts’ recommendations
________ is used to make purchases while ________ is the total collection of pieces of
property that serve to store value.
A) Money; income
B) Wealth; income
C) Income; money
D) Money; wealth
If there is an excess supply of money
A) individuals sell bonds, causing the interest rate to rise.
B) individuals sell bonds, causing the interest rate to fall.
C) individuals buy bonds, causing interest rates to fall.
D) individuals buy bonds, causing interest rates to rise.
An increase in an asset’s expected return relative to that of an alternative asset, holding
everything else constant, ________ the quantity demanded of the asset.
A) increases
B) decreases
C) has no effect on
D) erases
The key factor causing life insurance companies to move into the management of
pension funds was
A) the investment expertise of insurance companies.
B) a request for this change by managers of pension funds.
C) a change in state laws.
D) a change in federal legislation in 1974 to encourage pension funds to turn fund
management over to life insurance companies.
Which of the following policy measures authorized investors to bring lawsuits against
credit-rating agencies for a reckless failure to get the facts when providing a credit
rating?
A) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
B) Sarbanes-Oxley Act of 2002
C) Global Legal Settlement of 2002
D) Gramm-Leach-Bliley Act of 1999
E) Riegle-Neal Act of 1994
Everything else held constant, a monetary expansion is characterized by ________
output and ________ interest rates.
A) rising; rising
B) rising; falling
C) falling; rising
D) falling; falling