1) The theory of PPP suggests that if one country’s price level falls relative to another’s,
its currency should
A) depreciate
B) appreciate
C) float
D) do none of the above
2) Suppose that the Federal Reserve conducts an open market sale. Everything else held
constant, this will 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
3) Long-term debt has a maturity that is
A) between one and ten years
B) less than a year
C) between five and ten years
D) ten years or longer
4) The primary assets of credit unions are
A) municipal bonds
B) business loans
C) consumer loans
D) mortgages
5) Which of the following are not liabilities on the Fed’s balance sheet?
A) Discount loans
B) Bank deposits
C) Deferred availability cash items
D) U.S. Treasury deposits
6) Futures contracts are regularly traded on the
A) Chicago Board of Trade
B) New York Stock Exchange
C) American Stock Exchange
D) Chicago Board of Options Exchange
7) Mutual savings banks are owned by
A) shareholders
B) partners
C) depositors
D) foreign investors
8) Which of the following is least likely to lead to inflationary monetary policy?
A) Rising unemployment
B) Expanding federal budget deficits
C) Declining oil prices
D) Conflict in the Middle East
9) When the Fed ________ the money stock, the money supply curve shifts to the
________ and the interest rate ________, everything else held constant.
A) decreases; right; rises
B) increases; right; falls
C) decreases; left; falls
D) increases; left; rises
10) Kevin purchasing concert tickets with his debit card is an example of the ________
function of money.
A) medium of exchange
B) unit of account
C) store of value
D) specialization
11) In the loanable funds framework, the ________ is measured on the vertical axis.
A) price of bonds
B) interest rate
C) quantity of bonds
D) quantity of loanable funds
12)
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
13) The type of monetary policy that is used in Canada, New Zealand, and the United
Kingdom is
A) monetary targeting
B) inflation targeting
C) targeting with an implicit nominal anchor
D) interest-rate targeting
14) The interest rate the Fed charges banks borrowing from the Fed is the
A) federal funds rate
B) Treasury bill rate
C) discount rate
D) prime rate
15) Net profit after taxes per dollar of equity capital is a basic measure of bank
profitability called
A) return on assets
B) return on capital
C) return on equity
D) return on investment
16) Bonds issued by state and local governments are called ________ bonds.
A) corporate
B) Treasury
C) municipal
D) commercial
17) ________ within the U.S. can make loans to foreigners but cannot make loans to
domestic residents.
A) Edge Act corporations
B) International Banking Facilities
C) Universal banks
D) Euro banks
18) The long-run aggregate supply curve is
A) a vertical line through the non-inflationary rate of output
B) a vertical line through the current level of output
C) a vertical line through the natural rate level of output
D) a horizontal line through the current level of output
19) Insurance companies reduce risk exposure in exchange for a portion of their
insurance premiums by obtaining
A) government loan guarantees
B) federal insurance
C) reinsurance
D) bankers acceptances
20) A debt instrument sold by a bank to its depositors that pays annual interest of a
given amount and at maturity pays back the original purchase price is called
A) commercial paper
B) a negotiable certificate of deposit
C) a municipal bond
D) federal funds
21) The teal book is the Fed research document containing
A) the forecast of national economic variables for the next three years
B) forecasts of the money aggregates conditional on different monetary policy stances
C) information on the state of the economy in each Federal Reserve district
D) both A and B
E) A, B and C.
22)
In the figure above, the factor responsible for the decline in the interest rate is
A) a decline the price level
B) a decline in income
C) an increase in the money supply
D) a decline in the expected inflation rate
23) Keynes hypothesized that the precautionary component of money demand was
primarily determined by the level of
A) interest rates
B) velocity
C) income
D) stock market prices
24) Which of the following is not an operating instrument?
A) Nonborrowed reserves
B) Monetary base
C) Federal funds interest rate
D) Discount rate
25) Which of the following statements most accurately describes the task of bank asset
management?
A) Banks seek the highest returns possible subject to minimizing risk and making
adequate provisions for liquidity
B) Banks seek to have the highest liquidity possible subject to earning a positive rate of
return on their operations
C) Banks seek to prevent bank failure at all cost; since a failed bank earns no profit,
liquidity needs supersede the desire for profits
D) Banks seek to acquire funds in the least costly way
26) The central bank which is generally regarded as the most independent in the world
because its charter cannot be changed by legislation is the
A) Bank of England
B) Bank of Canada
C) European Central Bank
D) Bank of Japan
27) Which of the following is a part of the Global Legal Settlement of 2002?
A) The establishment of a Public Company Accounting Oversight Board (PCAOB) to
supervise accounting firms and thus insure that audits are independent and controlled
for quality
B) Increased penalties for white-collar crime and obstruction of official investigations
C) Requires a CEO and CFO to certify that periodic financial statements and disclosure
of the firm are accurate
D) Requires investment banks to make public their analysts’ recommendations
28) The ability of a central bank to set monetary policy goals is
A) political independence
B) goal independence
C) policy independence
D) instrument independence
29) In the Keynesian liquidity preference framework, a rise in the price level causes the
demand for money to ________ and the demand curve to shift to the ________,
everything else held constant.
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right
30) Everything else held constant, if a central bank makes an unsterilized purchase of
foreign assets, then the domestic money supply will ________ and the domestic
currency will ________.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
31) Equity contracts
A) are claims to a share in the profits and assets of a business
B) have the advantage over debt contracts of a lower costly state verification
C) are used much more frequently to raise capital than are debt contracts
D) are not subject to the moral hazard problem
32) Regulation of the financial system
A) occurs only in the United States
B) protects the jobs of employees of financial institutions
C) protects the wealth of owners of financial institutions
D) ensures the stability of the financial system