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1) Which of the following statements about financial markets and securities is true?
A) A bond is a long-term security that promises to make periodic payments called
dividends to the firm's residual claimants
B) A debt instrument is intermediate term if its maturity is less than one year
C) A debt instrument is intermediate term if its maturity is ten years or longer
D) The maturity of a debt instrument is the number of years (term) to that instrument's
expiration date
2) Banks earn profits from off-balance sheet loan sales
A) by foreclosing on delinquent accounts
B) by selling the loans at discounted prices
C) by selling existing loans for more than the original loan amount
D) by calling-in loans before the maturity date
3) The Keynesian framework indicates that government can play an important role in
determining aggregate output by
A) changing the level of government spending or taxes
B) raising consumer confidence
C) raising investor confidence
D) changing the money supply and interest rates
4) The aggregate supply curve is the total quantity of
A) raw materials offered for sale at different inflation rates
B) final goods and services offered for sale at the current inflation rate
C) final goods and services offered for sale at different inflation rates
D) intermediate and final goods and service offered for sale at different inflation rates
5) In the market for reserves, if the federal funds rate is above the interest rate paid on
excess reserves, an open market sale ________ the ________ of reserves, causing the
federal funds rate to increase, everything else held constant
A) increases; supply
B) increases; demand
C) decreases; supply
D) decreases; demand
6) A coupon bond that has no maturity date and no repayment of principal is called a
A) consol
B) cabinet
C) Treasury bill
D) Treasury note
7) When the economy suffers a permanent negative supply shock and the central bank
does not respond by changing the autonomous component of monetary policy, then
A) inflation will be lower
B) output will be at its potential
C) output will be lower
D) inflation will not change
E) both B and C
8) In the market for reserves, if the federal funds rate is above the interest rate paid on
excess reserves, an open market purchase ________ the supply of reserves and causes
the federal funds interest rate to ________, everything else held constant
A) decreases; fall
B) increases; fall
C) increases; rise
D) decreases; rise
9) Everything else held constant, if aggregate output is to the ________ of the IS curve,
then there is an excess ________ of goods which will cause aggregate output to fall
A) right; supply
B) right; demand
C) left; supply
D) left; demand
10) In the ten year period 1981-1990, 1202 commercial banks were closed, with a peak
of 206 failures in 1989 This rate of failures was approximately ________ times greater
than that in the period from 1934 to 1980
A) two
B) three
C) five
D) ten
11) Which of the following statements are true?
A) A bank's assets are its sources of funds
B) A bank's liabilities are its uses of funds
C) A bank's balance sheet shows that total assets equal total liabilities plus equity
capital
D) A bank's balance sheet indicates whether or not the bank is profitable
12) Everything else held constant, an increase in the excess reserve ratio will mean
________ in the M1 money multiplier and ________ in the M2 money multiplier
A) an increase; an increase
B) no change; an increase
C) a decrease; a decrease
D) no change; a decrease
13) Holding large amounts of bank capital helps prevent bank failures because
A) it means that the bank has a higher income
B) it makes loans easier to sell
C) it can be used to absorb the losses resulting from bad loans
D) it makes it easier to call in loans
14) If an individual uses money from a demand deposit account to purchase a US
savings bond,
A) M1 decreases 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 decreases and M2 decreases
15) A key finding of the economic analysis of financial structure is that
A) the existence of the free-rider problem for traded securities helps to explain why
banks play a predominant role in financing the activities of businesses
B) while free-rider problems limit the extent to which securities markets finance some
business activities, nevertheless the majority of funds going to businesses are channeled
through securities markets
C) given the great extent to which securities markets are regulated, free-rider problems
are not of significant economic consequence in these markets
D) economists do not have a very good explanation for why securities markets are so
heavily regulated
16) Adjustable rate mortgages
A) reduce the interest-rate risk for financial institutions
B) benefit homeowners when interest rates rise
C) generally have higher initial interest rates than conventional fixed-rate mortgages
D) allow borrowers to avoid paying interest on portions of their mortgage loans
17) If workers demand and receive higher real wages (a successful wage push), the cost
of production ________ and the short-run aggregate supply curve shifts ________
A) rises; leftward
B) rises; rightward
C) falls; leftward
D) falls; rightward
18) To an economist, ________ is anything that is generally accepted in payment for
goods and services or in the repayment of debt
A) wealth
B) income
C) money
D) credit
19) In a ________ banking system, commercial banks engage in securities
underwriting, but legal subsidiaries conduct the different activities Also, banking and
insurance are not typically undertaken together in this system
A) universal
B) British-style universal
C) short-fence
D) compartmentalized
20) Keynes argued that the transactions component of the demand for money was
primarily determined by the level of people's ________, which he believed were
proportional to ________
A) transactions; income
B) transactions; age
C) incomes; wealth
D) incomes; age
