1) Everything else held constant, if the expected return on RST stock declines from 12
to 9 percent and the expected return on XYZ stock declines from 8 to 7 percent, then
the expected return of holding RST stock ________ relative to XYZ stock and demand
for XYZ stock ________
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls
2) Reserves are equal to the sum of
A) required reserves and excess reserves
B) required reserves and vault cash reserves
C) excess reserves and vault cash reserves
D) vault cash reserves and total reserves
3) ________ imposes a conceptual structure and inherent discipline on policy makers,
but without eliminating all flexibility
A) Constrained discretion
B) A policy rule
C) A discretionary policy
D) The Taylor rule
4) Everything else held constant, if a factor decreases the demand for ________ goods
relative to ________ goods, the domestic currency will depreciate
A) foreign; domestic
B) foreign; foreign
C) domestic; domestic
D) domestic; foreign
5) The regulatory agency that sets reserve requirements for all banks is
A) the Federal Reserve System
B) the Federal Deposit Insurance Corporation
C) the Office of Thrift Supervision
D) the Securities and Exchange Commission
6) Duration is
A) an asset’s term to maturity
B) the time until the next interest payment for a coupon bond
C) the average lifetime of a debt security’s stream of payments
D) the time between interest payments for a coupon bond
7) Savings and loan regulators allowed S&Ls to include in their capital calculations a
high value for intangible capital called
A) goodwill
B) salvation
C) kindness
D) retribution
8) If actual output is greater than equilibrium output, firms will ________ output to
keep from ________ inventories
A) increase; accumulating
B) increase; depleting
C) decrease; depleting
D) decrease; accumulating
9) In the simple deposit expansion model, if the Fed extends a $100 discount loan to 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
10) Regulatory forbearance
A) meant delaying the closing of “zombie S&Ls” as their losses mounted during the
1980s
B) had the advantage of benefiting healthy S&Ls at the expense of “zombie S&Ls”, as
insolvent institutions lost deposits to health institutions
C) had the advantage of permitting many insolvent S&Ls the opportunity to return to
profitability, saving the FSLIC billions of dollars
D) increased adverse selection dramatically
11) When it comes to choosing an policy instrument, both the ________ rate and
________ aggregates are measured accurately and are available daily with almost no
delay
A) three-month T-bill; monetary
B) three-month T-bill; reserve
C) federal funds; monetary
D) federal funds; reserve
12) Under a fixed exchange rate regime, if a country’s central bank runs out of
international reserves, it cannot keep its currency from
A) depreciating
B) appreciating
C) deflating
D) inflating
13) If the interest rate on a bond is below the equilibrium interest rate, there is an excess
________ of bonds and the bond price will ________
A) demand; rise
B) demand; fall
C) supply; rise
D) supply; fall
14) When I purchase a corporate ________, I am lending the corporation funds for a
specific time When I purchase a corporation’s ________, I become an owner in the
corporation
A) bond; stock
B) stock; bond
C) stock; debt security
D) bond; debt security
15) The agency that was created to protect depositors after the banking failures of
1930-1933 is the
A) Federal Reserve System
B) Federal Deposit Insurance Corporation
C) Treasury Department
D) Office of the Comptroller of the Currency
16) Everything else held constant, a decrease in government spending ________
aggregate ________
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
17) Which of the following are true of fixed payment loans?
A) The borrower repays both the principal and interest at the maturity date
B) Installment loans and mortgages are frequently of the fixed payment type
C) The borrower pays interest periodically and the principal at the maturity date
D) Commercial loans to businesses are often of this type
18) You read a story in the newspaper announcing the proposed merger of Dell
Computer and Gateway The merger is expected to greatly increase Gateway’s
profitability If you decide to invest in Gateway stock, you can expect to earn
A) above average returns since you will share in the higher profits
B) above average returns since your stock price will definitely appreciate as higher
profits are earned
C) below average returns since computer makers have low profit rates
D) a normal return since stock prices adjust to reflect expected changes in profitability
almost immediately