1) A smart card is the equivalent of
A) cash
B) savings bonds
C) savings deposits
D) certificates of deposit
2) If reserves in the banking system increase by $100, then checkable deposits will
increase by $400 in the simple model of deposit creation when the required reserve
ratio is
A) 0.01
B) 0.10
C) 0.20
D) 0.25
3) Banks earn profits by selling ________ with attractive combinations of liquidity,
risk, and return, and using the proceeds to buy ________ with a different set of
characteristics.
A) loans; deposits
B) securities; deposits
C) liabilities; assets
D) assets; liabilities
4) A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when
the reserve requirement is 25 percent. If the reserve requirement is lowered to 20
percent, the bank’s excess reserves will be
A) $1,000
B) $5,000
C) $8,000
D) $9,000
5) Property and casualty insurance companies are organized
A) both as stock and mutual companies
B) only as stock companies
C) only as mutual companies
D) primarily as cooperatives
6) The monetary transmission mechanism that links monetary policy to GDP through
real interest rates and investment spending is called the
A) traditional interest-rate channel
B) Tobins’ q theory
C) wealth effects
D) cash flow channel
7) During the beginning on the global financial crisis in the United States when the
effects of the crisis were mostly confined within the United States, the U. S. dollar
________ because demand for U.S. assets ________.
A) appreciated; increased
B) depreciated; increased
C) appreciated; decreased
D) depreciated; decreased
8) Tobin’s model of the speculative demand for money improves on Keynes’s analysis
by showing that
A) the speculative demand for money is interest insensitive
B) the transactions demand for money is interest insensitive
C) people will hold a diversified portfolio
D) people will hold money or bonds but not both
9) Which of the following statements is false?
A) Checkable deposits are usually the lowest cost source of bank funds
B) Checkable deposits are the primary source of bank funds
C) Checkable deposits are payable on demand
D) Checkable deposits include NOW accounts
10) Suppose Barbara looks out in the morning and sees a clear sky so decides that a
picnic for lunch is a good idea. Last night the weather forecast included a 100% chance
of rain by midday but Barbara did not watch the local news program. Is Barbara’s
prediction of good weather at lunch time rational? Why or why not?
11) ________ in the domestic interest rate causes the demand for domestic assets to
increase 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
12) Property and casualty insurance companies hold the largest share of their assets in
A) long-term government bonds
B) short-term government securities and commercial paper
C) tax-exempt municipal bonds and U.S. government securities
D) medium-term corporate bonds
13) If the banking system has a large amount of reserves, many banks will have excess
reserves to lend and the federal funds rate will probably ________; if the level of
reserves is low, few banks will have excess reserves to lend and the federal funds rate
will probably ________.
A) fall; fall
B) fall; rise
C) rise; fall
D) rise; rise
14) Suppose the economy is producing below the natural rate of output and the
government is suffering from large budget deficits. To deal with the deficit problem,
suppose the government takes a policy action to reduce the size of the deficits. This
policy action will cause ________ in the unemployment rate in the short run and
________ in inflation in the short run, everything else held constant.
A) an increase; an increase
B) a decrease; a decrease
C) a decrease; an increase
D) an increase; a decrease
15) Currency includes
A) paper money and coins
B) paper money, coins, and checks
C) paper money and checks
D) paper money, coins, checks, and savings deposits
16) In the market for reserves, if the federal funds rate is above the interest rate paid on
excess reserves, an open market sale ________ the supply of reserves causing the
federal funds rate to ________, everything else held constant.
A) decreases; decrease
B) increases; decrease
C) increases; increase
D) decreases; increase
17) If an individual moves money from a demand deposit account to a money market
deposit account,
A) M1 decreases and M2 stays the same
B) M1 stays the same and M2 increases
C) M1 stays the same and M2 stays the same
D) M1 increases and M2 decreases
18) A person who agrees to buy an asset at a future date is going
A) long
B) short
C) back
D) ahead
19) A capital ________ can promote financial instability in an emerging-market country
because it is what forces a country to ________ its currency.
A) inflow; devalue
B) inflow; revalue
C) outflow; devalue
D) outflow; revalue
20)
The mound-shaped yield curve in the figure above indicates that the inflation rate is
expected to
A) remain constant in the near-term and fall later on
B) fall moderately in the near-term and rise later on
C) rise moderately in the near-term and fall later on
D) remain unchanged in the near-term and rise later on
21) A ________ yield curve predicts a future increase in inflation.
A) steeply upward sloping
B) slight upward sloping
C) flat
D) downward sloping
22) Which of the following is an example of a bank realizing economies of scope?
A) The bank develops a standard mortgage loan application to make the process of
loaning out mortgages easier
B) The bank reduces costs of credit checking for the loan process by outsourcing the
process to a specialist
C) By using the information collected from a corporation, the bank can decide how easy
it would be to sell bonds issued by the corporation to the public
D) A bank in a rural area specializes in providing agricultural loans
23) Keynes argued that the transactions component of the demand for money was
primarily determined by the level of people’s ________, which he believed were
proportional to ________.
A) transactions; income
B) transactions; age
C) incomes; wealth
D) incomes; age
24) Acquiring information on a bank’s activities in order to determine a bank’s risk is
difficult for depositors and is another argument for government
A) regulation
B) ownership
C) recall
D) forbearance
25) A bond that is bought at a price below its face value and the face value is repaid at a
maturity date is called a
A) simple loan
B) fixed-payment loan
C) coupon bond
D) discount bond
26) Economists’ attempts to explain the term structure of interest rates
A) illustrate how economists modify theories to improve them when they are
inconsistent with the empirical evidence
B) illustrate how economists continue to accept theories that fail to explain observed
behavior of interest rate movements
C) prove that the real world is a special case that tends to get short shrift in theoretical
models
D) have proved entirely unsatisfactory to date
27) During a recession, output declines resulting in
A) lower unemployment in the economy
B) higher unemployment in the economy
C) no impact on the unemployment in the economy
D) higher wages for the workers
28) When a $10 check written on the First National Bank of Chicago is deposited in an
account at Citibank, then
A) the liabilities of the First National Bank decrease by $10
B) the reserves of the First National Bank increase by $10
C) the liabilities of Citibank decrease by $10
D) the assets of Citibank decrease by $10
29) Suppose on any given day the prevailing equilibrium federal funds rate is below 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
30) In the simple deposit expansion model, a decline in checkable deposits of $500
when the required reserve ratio is equal to 20 percent implies that the Fed
A) sold $250 in government bonds
B) sold $100 in government bonds
C) sold $50 in government bonds
D) purchased $100 in government bonds
31) When tax revenues are greater than government expenditures, the government has a
budget
A) crisis
B) deficit
C) surplus
D) revision.