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1) Which of the following is most likely to lead to inflationary monetary policy?
A) Declining oil prices
B) Resolution of conflict in the Middle East
C) The enactment of a free-trade agreement with Mexico
D) Rising government budget deficits
2) Which of the following is not one of the eight basic puzzles about financial
structure?
A) Stocks are the most important source of finance for American businesses
B) Issuing marketable securities is not the primary way businesses finance their
operations
C) Indirect finance, which involves the activities of financial intermediaries, is many
times more important than direct finance, in which businesses raise funds directly from
lenders in financial markets
D) Banks are the most important source of external funds to finance businesses
3) Suppose, at a given federal funds rate, there is an excess demand for reserves in the
federal funds market If the Fed wants the federal funds rate to stay at that level, then it
should undertake an open market ________ of bonds, everything else held constant If
the Fed does nothing, however, the federal funds rate will ________
A) sale; increase
B) purchase; increase
C) sale; decrease
D) purchase; decrease
4) After 2003, The Federal Reserve usually keeps the discount rate
A) above the target federal funds rate
B) equal to the target federal funds rate
C) below the target federal funds rate
D) equal to zero
5) During a recession, the supply of bonds ________ and the supply curve shifts to the
________, everything else held constant
A) increases; left
B) increases; right
C) decreases; left
D) decreases; right
6) In the simple deposit expansion model, a decline in checkable deposits of $1,000
when the required reserve ratio is equal to 10 percent implies that the Fed
A) sold $1,000 in government bonds
B) sold $100 in government bonds
C) purchased $1,000 in government bonds
D) purchased $100 in government bonds
7) Deflation causes the demand for bonds to ________, the supply of bonds to
________, and bond prices to ________, everything else held constant
A) increase; increase; increase
B) increase; decrease; increase
C) decrease; increase; increase
D) decrease; decrease; increase
8) Defining money becomes ________ difficult as the pace of financial innovation
________
A) less; quickens
B) more; quickens
C) more; slows
D) more; stops
9) The majority of members of the Federal Open Market Committee are
A) Federal Reserve Bank presidents
B) members of the Federal Advisory Council
C) presidents of member banks
D) the seven Federal Reserve governors
10) Each Federal Reserve bank has nine directors Of these ________ are appointed by
the member banks and ________ are appointed by the Board of Governors
A) three; six
B) four; five
C) five; four
D) six; three
11) So-called fallen angels differ from junk bonds in that
A) junk bonds refer to newly issued bonds with low credit ratings, whereas fallen
angels refer to previously issued bonds that have had their credit ratings fall below Baa
B) junk bonds refer to previously issued bonds that have had their credit ratings fall
below Baa, whereas fallen angels refer to newly issued bonds with low credit ratings
C) junk bonds have ratings below Baa, whereas fallen angels have ratings below C
D) fallen angels have ratings below Baa, whereas junk bonds have ratings below C
12) According to the interest parity condition, if the domestic interest rate is 12 percent
and the foreign interest rate is 10 percent, then the expected ________ of the foreign
currency must be ________ percent
A) appreciation; 4
B) appreciation; 2
C) depreciation; 2
D) depreciation; 4
13) Property promised to the lender as compensation if the borrower defaults is called
A) collateral
B) deductibles
C) restrictive covenants
D) contingencies
