1) Methods of financing government spending are described by an expression called the
government budget constraint, which states the following:
A) the government budget deficit must equal the sum of the change in the monetary
base and the change in government bonds held by the public
B) the government budget deficit must equal the difference between the change in the
monetary base and the change in government bonds held by the public
C) the government budget deficit must equal the difference between the change in the
monetary base and the change in government bonds held by the Fed
D) the government budget deficit must equal the difference between the change in the
monetary base and the change in government bonds held by the Treasury
2) 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
3)
The figure above illustrates the effect of an increased rate of money supply growth at
time period T0. From the figure, one can conclude that the
A) Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to
changes in expected inflation
B) liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to
changes in expected inflation
C) liquidity effect is dominated by the Fisher effect and interest rates adjust quickly to
changes in expected inflation
D) Fisher effect is smaller than the expected inflation effect and interest rates adjust
quickly to changes in expected inflation
4) ________ 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
5) A theory of aggregate economic fluctuations called real business cycle theory holds
that
A) changes in the real money supply are the only demand shocks that affect the natural
rate of output
B) aggregate demand shocks do affect the natural rate of output
C) aggregate supply shocks do affect the natural rate of output
D) changes in net exports are the only demand shocks that affect the natural rate of
output
6) The elimination of unexploited profit opportunities requires that ________ market
participants be well informed.
A) all
B) a few
C) zero
D) many
7) Increasing transactions costs of selling an asset make the asset
A) more valuable
B) more liquid
C) less liquid
D) more moneylike
8) Banks can lower the cost of information production by applying one information
resource to many different services. This process is called
A) economies of scale
B) asset transformation
C) economies of scope
D) asymmetric information
9) Under a fixed exchange rate regime, if a central bank must intervene to purchase the
________ currency by selling ________ assets, then, like an open market sale, this
action reduces the monetary base and the money supply, causing the interest rate on
domestic assets to rise.
A) domestic; foreign
B) domestic; domestic
C) foreign; foreign
D) foreign; domestic
10) Bruce the Bank Manager can reduce interest rate risk by ________ the duration of
the bank’s assets to increase their rate sensitivity or, alternatively, ________ the
duration of the bank’s liabilities.
A) shortening; lengthening
B) shortening; shortening
C) lengthening; lengthening
D) lengthening; shortening
11) If a bank has excess reserves of $20,000 and demand deposit liabilities of $80,000,
and if the reserve requirement is 20 percent, then the bank has total reserves of
A) $16,000
B) $20,000
C) $26,000
D) $36,000
12) The risk of a well-diversified portfolio depends only on the ________ risk of the
assets in the portfolio.
A) systematic
B) nonsystematic
C) portfolio
D) investment
13) A corporation acquires new funds only when its securities are sold in the
A) secondary market by an investment bank
B) primary market by an investment bank
C) secondary market by a stock exchange broker
D) secondary market by a commercial bank
14) Which of the following are primary concerns of the bank manager?
A) Maintaining sufficient reserves to minimize the cost to the bank of deposit outflows
B) Extending loans to borrowers who will pay low interest rates, but who are poor
credit risks
C) Acquiring funds at a relatively high cost, so that profitable lending opportunities can
be realized
D) Maintaining high levels of capital and thus maximizing the returns to the owners
15) If 1-year interest rates for the next three years are expected to be 4, 2, and 3 percent,
and the 3-year term premium is 1 percent, than the 3-year bond rate will be
A) 1 percent
B) 2 percent
C) 3 percent
D) 4 percent
16) In the market for money, an interest rate below equilibrium results in an excess
________ money and the interest rate will ________.
A) demand for; rise
B) demand for; fall
C) supply of; fall
D) supply of; rise
17) In 2008, it became clear that the credit-rating agencies ________ the risk of the
subprime products that ________.
A) overstated; they helped create
B) understated; they helped create
C) overstated; they were paid to rate
D) understated; they were paid to rate
18) ________ flexible wages and prices imply that the short-run aggregate supply curve
is ________.
A) More; flatter
B) Less; steeper
C) less; vertical
D) More; steeper
19) Loans made to consumers by finance companies are typically
A) only for the purchase of cars or boats
B) at interest rates below those charged by banks for the same type of loan
C) at interest rates above those charged by banks for the same type of loan
D) not made for less than $10,000
20) If the price level doubles, the value of money
A) doubles
B) more than doubles, due to scale economies
C) rises but does not double, due to diminishing returns
D) falls by 50 percent
21) Asset transformation can be described as
A) borrowing long and lending short
B) borrowing short and lending long
C) borrowing and lending only for the short term
D) borrowing and lending for the long term
22) In actual practice, short-term interest rates and long-term interest rates usually move
together; this is the major shortcoming of the
A) segmented markets theory
B) expectations theory
C) liquidity premium theory
D) separable markets theory
23) In 1977, he pioneered the concept of selling new public issues of junk bonds for
companies that had not yet achieved investment-grade status.
A) Michael Milken
B) Roger Milliken
C) Ivan Boskey
D) Carl Ichan
24) The interest rate that describes how well a lender has done in real terms after the
fact is called the
A) ex post real interest rate
B) ex ante real interest rate
C) ex post nominal interest rate
D) ex ante nominal interest rate
25) Comparing a discount bond and a coupon bond with the same maturity,
A) the coupon bond has the greater effective maturity
B) the discount bond has the greater effective maturity
C) the effective maturity cannot be calculated for a coupon bond
D) the effective maturity cannot be calculated for a discount bond
26) The expectations-augmented Phillips curve implies that as expected inflation
increases, nominal wages ________ to prevent real wages from ________.
A) fall; rising
B) fall; falling
C) rise; falling
D) rise; rising
27) The actual execution of open market operations is done at
A) the Board of Governors in Washington, D.C
B) the Federal Reserve Bank of New York
C) the Federal Reserve Bank of Philadelphia
D) the Federal Reserve Bank of Boston
28) The nine directors of the Federal Reserve Banks are split into three categories:
________ are professional bankers, ________ are leaders from industry, and ________
are to represent the public interest and are not allowed to be officers, employees, or
stockholders of banks.
A) 5; 2; 2
B) 2; 5; 2
C) 4; 2; 3
D) 3; 3; 3