1) The primary goal of the European Central Bank is
A) price stability
B) exchange rate stability
C) interest rate stability
D) high employment
2) Analysis of adverse selection indicates that financial intermediaries, especially
banks,
A) have advantages in overcoming the free-rider problem, helping to explain why
indirect finance is a more important source of business finance than is direct finance
B) despite their success in overcoming free-rider problems, nevertheless play a minor
role in moving funds to corporations
C) provide better-known and larger corporations a higher percentage of their external
funds than they do to newer and smaller corporations which rely to a greater extent on
the new issues market for funds
D) must buy securities from corporations to diversify the risk that results from holding
non-tradable loans
3) A fall in the level of prices
A) does not affect the value of money
B) has an uncertain effect on the value of money
C) increases the value of money
D) reduces the value of money
4) The two key factors that trigger speculative attacks on emerging market currencies
are
A) deterioration in bank balance sheets and severe fiscal imbalances
B) deterioration in bank balance sheets and low interest rates abroad
C) low interest rates abroad and severe fiscal imbalances
D) low interest rates abroad and rising asset prices
5) Suppose, at a given federal funds rate, there is an excess supply of reserves in the
federal funds market. If the Fed wants the federal funds rate to stay at that level, then it
should undertake an open market ________ of bonds, everything else held constant. If
the Fed does nothing, however, the federal funds rate will ________.
A) sale; increase
B) purchase; increase
C) sale; decrease
D) purchase; decrease
6) In his Liquidity Preference Framework, Keynes assumed that money has a zero rate
of return; thus,
A) when interest rates rise, the expected return on money falls relative to the expected
return on bonds, causing the demand for money to fall
B) when interest rates rise, the expected return on money falls relative to the expected
return on bonds, causing the demand for money to rise
C) when interest rates fall, the expected return on money falls relative to the expected
return on bonds, causing the demand for money to fall
D) when interest rates fall, the expected return on money falls relative to the expected
return on bonds, causing the demand for money to rise
7) In the liquidity trap, the money demand curve
A) is horizontal
B) is vertical
C) is negatively sloped
D) is positively sloped
8) Which of the following is NOT a government-sponsored enterprise?
A) Fannie Mae
B) Freddie Mac
C) Federal Home Loan Banks
D) Ginnie Mae
9) On January 25, 2009, one U.S. dollar traded on the foreign exchange market for
about 3.33 Romanian new lei. Therefore, one Romanian new lei would have purchased
about ________ U.S. dollars.
A) 0.30
B) 1.86
C) 2.86
D) 3.33
10) Assume a bank has $200 million of assets with a duration of 2.5, and $190 million
of liabilities with a duration of 1.05. If interest rates increase from 5 percent to 6
percent, the net worth of the bank falls by
A) $1 million
B) $2.4 million
C) $3.6 million
D) $4.8 million
11) Parties who have sold a futures contract and thereby agreed to ________ (deliver)
the bonds are said to have taken a ________ position.
A) sell; short
B) buy; short
C) sell; long
D) buy; long
12) Which of the following are short-term financial instruments?
A) A repurchase agreement
B) A share of Walt Disney Corporation stock
C) A Treasury note with a maturity of four years
D) A residential mortgage
13) If the price of gold becomes less volatile, then, other things equal, the demand for
stocks will ________ and the demand for antiques will ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
14) Firms that are designated as systemically important financial institutions (SIFIs) are
subject to all of the following additional Federal Reserve regulations except
A) higher capital standards
B) stricter liquidity requirements
C) providing a plan for orderly liquidation if necessary
D) interest rate ceilings on time deposits
15) When regulators chose to allow insolvent S&Ls to continue to operate rather than to
close them, they were pursuing a policy of
A) regulatory forbearance
B) regulatory kindness
C) ostrich reasoning
D) ignorance reasoning
16) The long-run aggregate supply curve shifts to the right when there is
A) an increase in the total amount of capital in the economy
B) an increase in the available technology
C) a decrease in the natural rate of unemployment
D) A and B
E) A, B, and C
17) Which of the following are true concerning the distinction between interest rates
and returns?
A) The rate of return on a bond will not necessarily equal the interest rate on that bond
B) The return can be expressed as the difference between the current yield and the rate
of capital gains
C) The rate of return will be greater than the interest rate when the price of the bond
falls between time t and time t + 1
D) The return can be expressed as the sum of the discount yield and the rate of capital
gains
18) The government institution that has responsibility for the amount of money and
credit supplied in the economy as a whole is the
A) central bank
B) commercial bank
C) bank of settlement
D) monetary fund
19) An option allowing the owner to sell an asset at a future date is a
A) put option
B) call option
C) futures contract
D) forward contract
20) From before the financial crisis began in September of 2007 to when the crisis was
over at the end of 2009, amount of Federal Reserve assets rose, leading to
A) a huge increase in the monetary base
B) a huge expansion of the money supply
C) an economic expansion
D) a high inflation
21) The Fed-Treasury Accord of March 1951 provided the Fed greater freedom to
A) let interest rates increase
B) let unemployment increase
C) let inflation accelerate
D) let exchange rates increase
22) If people expect real estate prices to increase significantly, the ________ curve for
bonds will shift to the ________, everything else held constant.
A) demand; right
B) demand; left
C) supply; left
D) supply; right
23) Lessons that economists and policy makers have learned from the recent global
financial crisis include
A) Developments in the financial sector have a far greater impact on economic activity
than was earlier realized
B) The zero lower bound on interest rates can be a serious problem
C) The cost of cleaning up after a financial crisis is very high
D) Price and output stability do not ensure financial stability
E) All of the above
24) Under the Exchange Rate Mechanism of the European Monetary System, when the
British pound depreciated below its lower limit against the German mark, the Bank of
England was required to buy ________ and sell ________, thereby ________
international reserves.
A) pounds; marks; losing
B) pounds; marks; gaining
C) marks; pounds; gaining
D) marks; pounds; losing
25) If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000,
and if the reserve requirement is 15 percent, then the bank has actual reserves of
A) $17,000
B) $19,000
C) $24,000
D) $29,000
26) The monetary policy strategy that suffers a lack of transparency is
A) exchange-rate targeting
B) monetary targeting
C) inflation targeting
D) the implicit nominal anchor
27) First National Bank
If interest rates rise by 5 percentage points, say from 10 to 15%, bank profits (measured
using gap analysis) will
A) decline by $0.5 million
B) decline by $1.5 million
C) decline by $2.5 million
D) increase by $2.0 million
28) Which of the following sequences accurately describes the evolution of the
payments system?
A) Barter, coins made of precious metals, paper currency, checks, electronic funds
transfers
B) Barter, coins made of precious metals, checks, paper currency, electronic funds
transfers
C) Barter, checks, paper currency, coins made of precious metals, electronic funds
transfers
D) Barter, checks, paper currency, electronic funds transfers
29) Suppose a report was released today that showed the Euro-Zone inflation rate is
running above the European Central Bank’s inflation rate target. This leads people to
expect that the European Central Bank will enact contractionary policy in the near
future. Everything else held constant, the release of this report would immediately
cause the demand for U.S. assets to ________ and the U.S. dollar will ________.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
30) The McFadden Act of 1927
A) effectively prohibited banks from branching across state lines
B) required that banks maintain bank capital equal to at least 6 percent of their assets
C) effectively required that banks maintain a correspondent relationship with large
money center banks
D) separated the commercial banks and investment banks
31) Suppose on any given day the prevailing equilibrium federal funds rate is above the
Federal Reserve’s federal funds target rate. If the Federal Reserve wishes for the federal
funds rate to be at their target level, then the appropriate action for the Federal Reserve
to take is a ________ open market ________, everything else held constant.
A) defensive; sale
B) defensive; purchase
C) dynamic; sale
D) dynamic; purchase
32) The Chairman of the Board of Governors is chosen from among the seven
governors and serves a ________ term.
A) one-year
B) two-year
C) four-year
D) eight-year
33) Everything else held constant, in the market for reserves, when the federal funds
rate is 3%, lowering the interest rate paid on excess reserves rate from 2% to 1%
A) lowers the federal funds rate
B) raises the federal funds rate
C) has no effect on the federal funds rate
D) has an indeterminate effect on the federal funds rate