1) When interest rates rise in the United States (with the price level fixed), the value of
the dollar ________, domestic goods become ________ expensive, and net exports
________
A) falls; less; fall
B) falls; more; rise
C) rises; more; fall
D) rises; less; fall
2) A common element in all of the banking crisis episodes in different countries is
A) the existence of a government safety net
B) deposit insurance
C) increased regulation
D) lack of competition
3) 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 unemployment
4) The Federal Reserve Act of 1913 required that
A) state banks be subject to the same regulations as national banks
B) national banks establish branches in the cities containing Federal Reserve banks
C) national banks join the Federal Reserve System
D) state banks could not join the Federal Reserve System
5) Equity contracts
A) are claims to a share in the profits and assets of a business
B) have the advantage over debt contracts of a lower costly state verification
C) are used much more frequently to raise capital than are debt contracts
D) are not subject to the moral hazard problem
6) ________ in the foreign interest rate causes the demand for domestic assets to shift
to the left 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
7) If a central bank does not want to see its currency fall in value, it may pursue
________ monetary policy to ________ the domestic interest rate, thereby
strengthening its currency
A) expansionary; raise
B) contractionary; raise
C) expansionary; lower
D) contractionary; lower
8) An increase in the money supply, other things equal, shifts the ________ curve to the
________
A) IS; right
B) IS; left
C) LM; left
D) LM; right
9) Which of the following can be described as direct finance?
A) You take out a mortgage from your local bank
B) You borrow $2500 from a friend
C) You buy shares of common stock in the secondary market
D) You buy shares in a mutual fund
10) If an individual moves money from a small-denomination time deposit to a demand
deposit account,
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
11) If a security pays $55 in one year and $133 in three years, its present value is $150
if the interest rate is
A) 5 percent
B) 10 percent
C) 125 percent
D) 15 percent
12) 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
13) As a result of the global financial crisis several of the large, free-standing
investment banking firms chose to become bank holding companies This means that
they will now be regulated by
A) the Federal Reserve
B) the FDIC
C) the state banking authorities
D) the Treasury
14) 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
15) Suppose the economy is producing at the natural rate of output An increase in
consumer and business confidence will cause ________ in real GDP in the short run
and ________ in inflation in the short run, everything else held constant
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
16) If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $1000 billion, and excess reserves total $1 billion, then the
monetary base is
A) $400 billion
B) $401 billion
C) $500 billion
D) $501 billion
17) The dollar amount of the yearly coupon payment expressed as a percentage of the
face value of the bond is called the bond’s
A) coupon rate
B) maturity rate
C) face value rate
D) payment rate
18) If your nominal income in 2002 was $50,000, and prices doubled between 2002 and
2011, to have the same real income, your nominal income in 2011 must be
A) $50,000
B) $75,000
C) $90,000
D) $100,000
19) A share of common stock is a claim on a corporation’s
A) debt
B) liabilities
C) expenses
D) earnings and assets
20) According to the efficient markets hypothesis, the current price of a financial
security
A) is the discounted net present value of future interest payments
B) is determined by the highest successful bidder
C) fully reflects all available relevant information
D) is a result of none of the above