1) The monetary base minus reserves equals
A) currency in circulation
B) the borrowed base
C) the nonborrowed base
D) discount loans
2) Keynes’s liquidity preference theory indicates that the demand for money is
________ related to ________.
A) negatively; interest rates
B) positively; interest rates
C) negatively; income
D) negatively; wealth
3) The FHLBS gives loans to S&Ls and thus performs a function similar to the
________ for commercial banks.
A) Federal Reserve
B) U.S. Treasury
C) Office of the Comptroller of the Currency
D) U.S. Mint
4) The collapse of the subprime mortgage market increased the spread between Baa and
default-free U.S. Treasury bonds. This is due to
A) a reduction in risk
B) a reduction in maturity
C) a flight to quality
D) a flight to liquidity
5) 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
6) ________ institutions are financial intermediaries that acquire funds at periodic
intervals on a contractual basis.
A) Investment
B) Contractual savings
C) Thrift
D) Depository
7) Everything else held constant, if a central bank makes an unsterilized ________ of
foreign assets, then the domestic money supply will ________ and the domestic
currency will depreciate.
A) purchase; increase
B) purchase; decrease
C) sale; increase
D) sale; decrease
8) ________ policy involves decisions about government spending and taxation.
A) Monetary
B) Fiscal
C) Financial
D) Systemic
9) If the First National Bank has a gap equal to a negative $30 million, then a 5
percentage point increase in interest rates will cause profits to
A) increase by $15 million
B) increase by $1.5 million
C) decline by $15 million
D) decline by $1.5 million
10) A decrease in the domestic interest rate causes the demand for domestic assets to
________ and the domestic currency to ________, everything else held constant.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
11) Suppose that the Federal Reserve enacts expansionary policy. Everything else held
constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar to
________.
A) increase; appreciate
B) decrease; appreciate
C) increase; depreciate
D) decrease; depreciate
12) The delivery of financial services electronically is called
A) e-business
B) e-commerce
C) e-finance
D) e-possible
13) The current structure of financial markets can be best understood as the result of
attempts by financial market participants to
A) adapt to continually changing government regulations
B) deal with the great number of small firms in the United States
C) reduce transaction costs
D) cartelize the provision of financial services
14) Sustained downward movements in the business cycle are referred to as
A) inflation
B) recessions
C) economic recoveries
D) expansions
15) The regulatory agency responsible for supervising savings and loans institutions is
the
A) FSLIC
B) Fed
C) Comptroller of the Currency
D) Office of Thrift Supervision
16) A decrease in ________ increases the money supply since it causes the ________ to
rise.
A) reserve requirements; monetary base
B) reserve requirements; money multiplier
C) margin requirements; monetary base
D) margin requirements; money multiplier
17) ________ of a foreign bank operates in the U.S. but cannot accept deposits from
domestic residents.
A) An agency office
B) A universal corporation
C) A McFadden corporation
D) A Basel branch
18) An example of economies of scale in the provision of financial services is
A) investing in a diversified collection of assets
B) providing depositors with a variety of savings certificates
C) spreading the cost of borrowed funds over many customers
D) spreading the cost of writing a standardized contract over many borrowers
19) A hyperinflation is
A) a period of extreme inflation generally greater than 50% per month
B) a period of anxiety caused by rising prices
C) an increase in output caused by higher prices
D) impossible today because of tighter regulations
20) Everything else held constant, if the expected return on RST stock declines from 12
to 9 percent and the expected return on XYZ stock declines from 8 to 7 percent, then
the expected return of holding RST stock ________ relative to XYZ stock and demand
for XYZ stock ________.
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls
21) The ________ problem helps to explain why the private production and sale of
information cannot eliminate ________.
A) free-rider; adverse selection
B) free-rider; moral hazard
C) principal-agent; adverse selection
D) principal-agent; moral hazard
22) Agreements such as the ________ are attempts to standardize international banking
regulations.
A) Basel Accord
B) UN Bank Accord
C) GATT Accord
D) WTO Accord
23) People have a strong incentive to form rational expectations because
A) they are guaranteed of success in the stock market
B) it is costly not to do so
C) it is costly to do so
D) everyone wants to be rational
24) If the United States has a current account deficit with England of $1 million, and
the Bank of England sells $1 million worth of pounds in the foreign exchange market,
then England ________ $1 million of international reserves and its monetary base
________ by $1 million.
A) gains; rises
B) gains; falls
C) loses; rises
D) loses; falls
25) Agency problems in the subprime mortgage market included all of the following
except
A) homeowners could refinance their houses with larger loans when their homes
appreciated in value
B) mortgage originators had little incentives to make sure that the mortgage is a good
credit risk
C) underwriters of mortgage-backed securities had weak incentives to make sure that
the holders of the securities would be paid back
D) the evaluators of securities , the credit rating agencies, were subject to conflicts of
interest
26) A bank has no excess reserves and demand deposit liabilities of $100,000 when the
required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the bank’s
excess reserves will now be
A) -$5,000
B) -$1,000
C) $1,000
D) $5,000
27) Evidence from the time period 1960-1980 indicates that inflation in the United
States resulted from
A) an employment target that was set too high
B) the government’s inability to sell bonds to the Fed
C) an expansion in the money supply to finance federal government expenditures
D) the excessive sale of government bonds to the public
28) The amount of assets per dollar of equity capital is called the
A) asset ratio
B) equity ratio
C) equity multiplier
D) asset multiplier
29) ________ in the domestic interest rate causes the demand for domestic assets to
________ and the domestic currency to appreciate, everything else held constant.
A) An increase; increase
B) An increase; decrease
C) A decrease; increase
D) A decrease; decrease
30) Prior to almost all recessions since 1900, there has been a drop in
A) inflation
B) the money stock
C) the growth rate of the money stock
D) interest rates
31) When workers voluntarily leave work while they look for better jobs, the resulting
unemployment is called
A) structural unemployment
B) frictional unemployment
C) cyclical unemployment
D) underemployment
32) Financing government spending by selling bonds to the public, which pays for the
bonds with currency,
A) leads to a permanent decline in the monetary base
B) leads to a permanent increase in the monetary base
C) leads to a temporary increase in the monetary base
D) has no net effect on the monetary base
33) Which of the following statements are true?
A) A decrease in default risk on corporate bonds lowers the demand for these bonds, but
increases the demand for default-free bonds
B) The expected return on corporate bonds decreases as default risk increases
C) A corporate bond’s return becomes less uncertain as default risk increases
D) As their relative riskiness increases, the expected return on corporate bonds
increases relative to the expected return on default-free bonds
34) Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine
million dollars in excess reserves. Given this information, we can say First National
Bank has ________ million dollars in required reserves.
A) one
B) two
C) eight
D) ten
35) The two most important categories of assets on the Fed’s balance sheet are
________ and ________ because they earn interest.
A) discount loans; coins
B) securities; discount loans
C) gold; coins
D) cash items in the process of collection; SDR certificate accounts
36) Targeting interest rates can be procyclical because
A) an increase in income increases interest rates, causing the Fed to buy bonds,
increasing the monetary base and money supply, leading to further increases in income
B) an increase in interest rates increases income, causing the Fed to buy bonds,
increasing the monetary base and money supply, leading to further increases in income
C) an increase in the monetary base increases the money supply, causing the Fed to buy
bonds, increasing the monetary base and money supply, leading to further increases in
income
D) an increase in income increases the monetary base and money supply, causing the
Fed to buy bonds to increase interest rates and income
37) The speculative demand for money may not exist because
A) banks now pay interest on some types of checkable deposits
B) there are alternative riskless assets paying higher returns than the return on money
C) the transactions demand can be shown to depend on interest rates
D) government regulations have eliminated risk in the financial markets
38) Not surprisingly, when financial institutions have consolidated more services under
one roof, the amount of conflicts of interest has ________, which has led to ________
in unethical behavior.
A) increased; an increase
B) increased; a decrease
C) decreased; an increase
D) decreased; a decrease
39) The legislation that effectively prohibited banks from branching across state lines
and forced all national banks to conform to the branching regulations in the state in
which they reside is the
A) McFadden Act
B) National Bank Act
C) Glass-Steagall Act
D) Garn-St.Germain Act
40) Everything else held constant, if interest rates are expected to fall in the future, the
demand for long-term bonds today ________ and the demand curve shifts to the
________.
A) rises; right
B) rises; left
C) falls; right
D) falls; left