1) Equity contracts account for a small fraction of external funds raised by American
businesses because
A) costly state verification makes the equity contract less desirable than the debt
contract
B) of the reduced scope for moral hazard problems under equity contracts, as compared
to debt contracts
C) equity contracts do not permit borrowing firms to raise additional funds by issuing
debt
D) there is no moral hazard problem when using a debt contract
2) If you expect the inflation rate to be 12 percent next year and a one-year bond has a
yield to maturity of 7 percent, then the real interest rate on this bond is
A) -5 percent
B) -2 percent
C) 2 percent
D) 12 percent
3) In the 1990s this agency has acted like an international lender of last resort to cope
with financial instability.
A) World Bank
B) European Central Bank
C) IMF
D) International Bank for Reconstruction and Development
4) The view that velocity is constant in the short run transforms the equation of
exchange into the quantity theory of money. According to the quantity theory of money,
when the money supply doubles
A) velocity falls by 50 percent
B) velocity doubles
C) nominal incomes falls by 50 percent
D) nominal income doubles
5) According to the interest parity condition, if the domestic interest rate is 12 percent
and the foreign interest rate is 10 percent, then the expected ________ of the foreign
currency must be ________ percent.
A) appreciation; 4
B) appreciation; 2
C) depreciation; 2
D) depreciation; 4
6) Since the early 1990s, the Fed has conducted monetary policy by setting a target for
the
A) level of borrowed reserves
B) monetary base
C) federal funds rate
D) inflation rate
7) By taking the long position on a futures contract of $100,000 at a price of 96 you are
agreeing to ________ a ________ face value security for ________.
A) sell; $100,000; $96,000
B) sell; $96,000; $100,000
C) buy; $100,000; $96,000
D) buy; $96,000; $100,000
8) According to aggregate demand and supply analysis, America’s involvement in the
Vietnam War had the effect of
A) increasing aggregate output, lowering unemployment, and raising the inflation
B) decreasing aggregate output, lowering unemployment, and lowering the inflation
C) increasing aggregate output, raising unemployment, and raising the inflation
D) decreasing aggregate output, raising unemployment, and lowering the inflation
9) A simple deposit multiplier equal to one implies a required reserve ratio equal to
A) 100 percent
B) 50 percent
C) 25 percent
D) 0 percent
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. The duration gap for this bank is
A) 0.5 year
B) 1 year
C) 1.5 years
D) 2 years
11) As in the United States, an important factor in the banking crises in Norway,
Sweden, and Finland was the
A) financial liberalization that occurred in the 1980s
B) decline in real interest rates that occurred in the 1980s
C) high inflation that occurred in the 1980s
D) sluggish economic growth that occurred in the 1980s
12) If there isn’t sufficient information available, then which of the following
approaches to reduce conflicts of interest will have the lowest probability of working?
A) Leave it to the market
B) Supervisory oversight
C) Separation of functions
D) Socialization of information production
13) Monetary policy is considered time-inconsistent because
A) of the lag times associated with the implementation of monetary policy and its effect
on the economy
B) policymakers are tempted to pursue discretionary policy that is more contractionary
in the short run
C) policymakers are tempted to pursue discretionary policy that is more expansionary
in the short run
D) of the lag times associated with the recognition of a potential economic problem and
the implementation of monetary policy
14) In Irving Fisher’s quantity theory of money, velocity was determined by
A) interest rates
B) real GDP
C) the institutions in an economy that affect individuals’ transactions
D) the price level
15) The rate of inflation increases when
A) the unemployment rate equals the NAIRU
B) the unemployment rate exceeds the NAIRU
C) the unemployment rate is less than the NAIRU
D) the unemployment rate increases faster than the NAIRU increases
16) Some automobile owners will drive faster knowing that they are covered by health
and automobile insurance. This behavior creates the problem of
A) fraudulent claims
B) moral hazard
C) adverse selection
D) pecuniary purchases
17) The regulatory system that has evolved in the United States whereby banks are
regulated at the state level, the national level, or both, is known as a
A) bilateral regulatory system
B) tiered regulatory system
C) two-tiered regulatory system
D) dual banking system
18) A credit boom can lead to a(n) ________ such as we saw in the tech stock market in
the late 1990s.
A) asset-price bubble
B) liability war
C) decline in lending
D) decrease in moral hazard
19) Government regulations to reduce the possibility of financial panic include all of
the following except
A) transactions costs
B) restrictions on assets and activities
C) disclosure
D) deposit insurance
20) Hedging risk for a short position is accomplished by
A) taking a long position
B) taking another short position
C) taking additional long and short positions in equal amounts
D) taking a neutral position
21) If nominal GDP is $10 trillion, and the money supply is $2 trillion, velocity is
A) 0.2
B) 5
C) 10
D) 20
22) Relative to life insurance companies, property and casualty insurance companies
hold
A) more liquid assets
B) more long-term government bonds
C) more commercial mortgages
D) fewer municipal bonds
23) 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
24) In the market for reserves, if the federal funds rate is above the interest rate paid on
excess reserves, then an open market ________ the supply of reserves, raising the
federal funds interest rate, everything else held constant.
A) sale decreases
B) sale increases
C) purchase increases
D) purchase decreases
25) An option that can be exercised at any time up to maturity is called
A) a swap
B) a stock option
C) an European option
D) an American option
26) During a “flight to quality”
A) the spread between Treasury bonds and Baa bonds increases
B) the spread between Treasury bonds and Baa bonds decreases
C) the spread between Treasury bonds and Baa bonds is not affected
D) the change in the spread between Treasury bonds and Baa bonds cannot be predicted