1) Examples of off-balance-sheet activities include
A) loan sales
B) extending loans to depositors
C) borrowing from other banks
D) selling negotiable CDs
2) The theory of portfolio choice indicates that factors affecting the demand for money
include
A) income
B) nominal interest rate
C) riskiness of money
D) all the above
3) Evidence suggests that the market ________ take into account the credibility of
analyst’s recommendations of IPO’s that were underwritten at the analyst’s investment
bank because the performance of these recommendations was about 50% ________
compared to recommendations made by other analysts at different investment banks.
A) does; better
B) does; worse
C) does not; better
D) does not; worse
4) The Federal Reserve System was created to
A) make it easier to finance budget deficits
B) promote financial market stability
C) lower the unemployment rate
D) promote rapid economic growth
5) The preferred habitat theory of the term structure is closely related to the
A) expectations theory of the term structure
B) segmented markets theory of the term structure
C) liquidity premium theory of the term structure
D) the inverted yield curve theory of the term structure
6) Suppose you are holding a 5 percent coupon bond maturing in one year with a yield
to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to
20 percent over the course of the year, what is the yearly return on the bond you are
holding?
A) 5 percent
B) 10 percent
C) 15 percent
D) 20 percent
7) The British Banker’s Association average of interbank rates for dollar deposits in the
London market is called the
A) Libor rate
B) federal funds rate
C) prime rate
D) Treasury Bill rate
8) Which of the following statements accurately describes the two measures of the
money supply?
A) The two measures do not move together, so they cannot be used interchangeably by
policymakers
B) The two measures’ movements closely parallel each other, even on a
month-to-month basis
C) Short-run movements in the money supply are extremely reliable
D) M2 is the narrowest measure the Fed reports
9) Everything else held constant, in the market for reserves, when the demand for
federal funds intersects the reserve supply curve on the vertical section, increasing the
discount rate
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 on the federal funds rate
10) The large number of banks in the United States is an indication of
A) vigorous competition within the banking industry
B) lack of competition within the banking industry
C) only efficient banks operating within the United States
D) consumer preference for local banks
11) In the market for reserves, if the federal funds rate is between the discount rate and
the interest rate paid on excess reserves, an increase in the reserve requirement
________ the ________ for reserves and causes the federal funds interest rate to rise,
everything else held constant.
A) decreases; demand
B) increases; demand
C) increases; supply
D) decreases; supply
12) ________ in the expected future domestic exchange rate causes the demand for
domestic assets to ________ and the domestic currency to depreciate, everything else
held constant.
A) An increase; increase
B) An increase; decrease
C) A decrease; increase
D) A decrease; decrease
13) Which of the following are true for a coupon bond?
A) When the coupon bond is priced at its face value, the yield to maturity equals the
coupon rate
B) The price of a coupon bond and the yield to maturity are positively related
C) The yield to maturity is greater than the coupon rate when the bond price is above
the par value
D) The yield is less than the coupon rate when the bond price is below the par value
14) Evidence from business cycle fluctuations in the United States indicates that
A) a negative relationship between money growth and general economic activity exists
B) recessionsare usually preceded by declines in bond prices
C) recessionsare usually preceded by dollar depreciation
D) recessions are usually preceded by a decline in the growth rate of money
15) Collateral requirements lessen the consequences of ________ because the collateral
reduces the lender’s losses in the case of a loan default and it reduces ________ because
the borrower has more to lose from a default.
A) adverse selection; moral hazard
B) moral hazard; adverse selection
C) adverse selection; diversification
D) diversification; moral hazard
16) The global financial crisis showed the need for increased financial regulation,
however, too much or poorly designed regulation could
A) choke off financial innovation
B) increase the efficiency of the financial system
C) increase economic growth
D) increase international financial integration
17) The M2 monetary aggregate contains everything that is in M1 plus other assets that
are highly ________ (can be turned into cash quickly at very little cost).
A) liquid
B) stable
C) consistent
D) efficient
18) A(n) ________ in the riskiness of corporate bonds will ________ the price of
corporate bonds and ________ the yield on corporate bonds, all else equal.
A) increase; increase; increase
B) increase; decrease; increase
C) decrease; increase; increase
D) decrease; decrease;decrease
19) By looking at aggregate demand via its component parts, we can conclude that the
aggregate demand curve is downward sloping because
A) a lower inflation rate causes the real interest rate to fall, and stimulates planned
investment spending
B) a lower inflation rate causes the real interest rate to rise, and stimulates planned
investment spending
C) a higher inflation rate causes the real interest rate to fall, and stimulates planned
investment spending
D) a higher inflation rate causes the real interest rate to rise, and stimulates planned
investment spending
20) If the British pound appreciates from $0.50 per pound to $0.75 per pound, the U.S.
dollar depreciates from ________ per dollar to ________ per dollar.
A) £2; £2.5
B) £2; £1.33
C) £2; £1.5
D) £2; £1.25
21) The German central bank gained international reserves in the early 1970s because it
sold ________ to prevent mark ________.
A) marks; appreciation
B) dollars; appreciation
C) marks; depreciation
D) dollars; depreciation
22) In the simple deposit expansion model, if the Fed extends a $100 discount loan to a
bank that previously had no excess reserves, deposits in the banking system can
potentially increase by
A) $10
B) $100
C) $100 times the reciprocal of the required reserve ratio
D) $100 times the required reserve ratio
23) The price of a barrel of oil doubled between 2007 and the middle of 2008 . To make
matters worse, a financial crisis hit the U.S. economy starting in August of 2007 .
Which of the following is an appropriate description of the mechanism that would have
ensued?
A) The increase in the price of oil would have immediately shifted the AS curve to the
right
B) The financial crisis would have led to a sharp contraction in spending shifting the
AD curve to the right
C) Shifts in both the AD and the AS curve would have ensued in the short-run but as
long as neither shock had an impact on potential output, ultimately unemployment will
have been unaffected in the long run
D) All of the above
E) None of the above
24) Because Keynes assumed that the expected return on money was zero, he argued
that people would
A) never hold money
B) never hold money as a store of wealth
C) hold money as a store of wealth when the expected return on bonds was negative
D) hold money as a store of wealth only when forced to by government policy
25) In the simple deposit expansion model, if the Fed purchases $100 worth of bonds
from a bank that previously had no excess reserves, deposits in the banking system can
potentially increase by
A) $10
B) $100
C) $100 times the reciprocal of the required reserve ratio
D) $100 times the required reserve ratio
26) Everything else held constant, a decrease in wealth
A) increases the demand for stocks
B) increases the demand for bonds
C) reduces the demand for silver
D) increases the demand for gold
27) Theoretically, one can distinguish a demand-pull inflation from a cost-push inflation
by comparing
A) how fast prices rise relative to wages
B) the unemployment rate with its natural rate level
C) when prices rise relative to wages
D) government debt to real GDP
28) The ________ is the final amount that will be paid to the holder of a coupon bond.
A) discount value
B) coupon value
C) face value
D) present value