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1) Which of the following can be described as involving direct finance?
A) A corporation issues new shares of stock
B) People buy shares in a mutual fund
C) A pension fund manager buys a short-term corporate security in the secondary
market
D) An insurance company buys shares of common stock in the over-the-counter
markets
2) For the classical economists, the quantity theory of money provided an explanation
of movements in the price level Changes in the price level result
A) from proportional changes in the quantity of money
B) primarily from changes in the quantity of money
C) only partially from changes in the quantity of money
D) from changes in factors other than the quantity of money
3) Targeting interest rates can be procyclical because
A) an increase in income increases interest rates, causing the Fed to buy bonds,
increasing the monetary base and money supply, leading to further increases in income
B) an increase in interest rates increases income, causing the Fed to buy bonds,
increasing the monetary base and money supply, leading to further increases in income
C) an increase in the monetary base increases the money supply, causing the Fed to buy
bonds, increasing the monetary base and money supply, leading to further increases in
income
D) an increase in income increases the monetary base and money supply, causing the
Fed to buy bonds to increase interest rates and income
4) 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
5) In the money market, a condition of excess demand for money can be eliminated by
a ________ in aggregate output or a ________ in the interest rate, everything else held
constant
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
6) You would be less willing to purchase US Treasury bonds, other things equal, if
A) you inherit $1 million from your Uncle Harry
B) you expect interest rates to fall
C) gold becomes more liquid
D) stock prices are expected to fall
7) The Depository Institutions Deregulation and Monetary Control Act of 1980
A) established higher reserve requirements for nonmember than for member banks
B) established higher reserve requirements for member than for nonmember banks
C) abolished reserve requirements
D) established uniform reserve requirements for all banks
8) In the simple deposit expansion model, a decline in checkable deposits of $500 when
the required reserve ratio is equal to 10 percent implies that the Fed
A) sold $500 in government bonds
B) sold $50 in government bonds
C) purchased $50 in government bonds
D) purchased $500 in government bonds
9) The equation that represents M2 in the model of the money supply process is
A) M2 = C + D
B) M2 = C + D + T - MMF
C) M2 = C + D - T + MMF
D) M2 = C + D + T + MMF
10) The Basel Accord requires banks to hold as capital an amount that is at least
________ of their risk-weighted assets
A) 10%
B) 8%
C) 5%
D) 3%
11) A fall in the level of prices
A) does not affect the value of money
B) has an uncertain effect on the value of money
C) increases the value of money
D) reduces the value of money
12) During times of financial crisis, mark-to-market accounting
A) requires that a financial firms' assets be marked down in value which can worsen the
lending crisis
B) leads to an increase in the financial firms' balance sheets since they can now get
assets at bargain prices
C) leads to an increase in financial firms' lending
D) results in financial firms' assets increasing in value
13) The most common type of discount lending that the Fed extends to banks is called
A) seasonal credit
B) secondary credit
C) primary credit
D) installment credit
14) Interest rates increased continuously during the 1970s The most likely explanation
is
A) banking failures that reduced the money supply
B) a rise in the level of income
C) the repeated bouts of recession and expansion
D) increasing expected rates of inflation
15) Financial markets promote economic efficiency by
A) channeling funds from investors to savers
B) creating inflation
C) channeling funds from savers to investors
D) reducing investment
