1) Increasing transactions costs of selling an asset make the asset
A) more valuable
B) more liquid
C) less liquid
D) more moneylike
2) The “Greenspan doctrine” – central banks should not try to prick bubbles – was based
on which of the following arguments?
A) Asset-price bubbles are nearly impossible to identify
B) Monetary actions would be likely to affect asset prices in general, rather than the
specific assets that are experiencing a bubble
C) Raising interest rates has often been found to cause a bubble to burst more severely
D) Monetary policy actions to prick bubbles can have harmful effects on the aggregate
economy
E) all of the above
3) If bad credit risks are the ones who most actively seek loans and, therefore, receive
them from financial intermediaries, then financial intermediaries face the problem of
A) moral hazard
B) adverse selection
C) free-riding
D) costly state verification
4) A financial panic was averted in October 1987 following “Black Monday” when the
Fed announced that
A) it was lowering the discount rate
B) it would provide discount loans to any bank that would make loans to the security
industry
C) it stood ready to purchase common stocks to prevent a further slide in stock prices
D) it was raising the discount rate
5) If real GDP grows from $10 trillion in 2002 to $105 trillion in 2003, the growth rate
for real GDP is
A) 5%
B) 10%
C) 50%
D) 05%
6) In the market for reserves, if the federal funds rate is between the discount rate and
the interest rate paid on excess reserves, a ________ in the reserve requirement
increases the demand for reserves, ________ the federal funds interest rate, everything
else held constant
A) rise; lowering
B) decline; raising
C) decline; lowering
D) rise; raising
7) An increase in interest rates might ________ saving because more can be earned in
interest income
A) encourage
B) discourage
C) disallow
D) invalidate
8) The strengthening of the dollar between 1980 and 1985 contributed to a ________ in
American competitiveness, putting pressure on the Fed to pursue a more ________
monetary policy
A) decrease; contractionary
B) increase; expansionary
C) increase; contractionary
D) decrease; expansionary
9) The Fed can exert more precise control over ________ than it can over ________
A) high-powered money; reserves
B) high-powered money; the monetary base
C) the monetary base; high-powered money
D) reserves; high-powered money
10) The Federal Reserve Act required all ________ banks to become members of the
Federal Reserve System, while ________ banks could choose to become members of
the system
A) state; national
B) state; municipal
C) national; state
D) national; municipal
11) Asymmetric information is a universal problem This would suggest that financial
regulations
A) in industrial countries are an unqualified failure
B) differ significantly around the world
C) in industrialized nations are similar
D) are unnecessary
12) Everything else held constant, in the market for reserves, when the supply for
federal funds intersects the reserve demand curve along the horizontal section of the
demand curve, lowering the interest rate paid on excess reserves
A) increases the federal funds rate
B) lowers the federal funds rate
C) has no effect on the federal funds rate
D) has an indeterminate effect of the federal funds rate
13) The most important category of assets on a bank’s balance sheet is
A) discount loans
B) securities
C) loans
D) cash items in the process of collection