1) The First Bank of the United States
A) was disbanded in 1811 when its charter was not renewed
B) had its charter renewal vetoed in 1832
C) was fundamental in helping the Federal Government finance the War of 1812
D) None of the above
2) Which of the following are bank assets?
A) the building owned by the bank
B) a discount loan
C) a negotiable CD
D) a customer’s checking account
3) Everything else held constant, when output is ________ the natural rate level, wages
will begin to ________, decreasing short-run aggregate supply.
A) above; fall
B) above; rise
C) below; fall
D) below; rise
4) Contractual savings institutions include
A) mutual savings banks
B) money market mutual funds
C) commercial banks
D) life insurance companies
5) A rise in the price level causes the demand for money to ________ and the interest
rate to ________, everything else held constant.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase
6) Which of the following is a depository institution?
A) A life insurance company
B) A mutual savings bank
C) A pension fund
D) A finance company
7) Financial instruments whose payoffs are linked to previously issued securities are
called
A) grandfathered bonds
B) financial derivatives
C) hedge securities
D) reversible bonds
8) Which of the following is not included in the measure of M1?
A) NOW accounts
B) Demand deposits
C) Currency
D) Savings deposits
9) Which policy measure increased the SEC budget to supervise securities markets?
A) Sarbanes-Oxley Act of 2002
B) Global Legal Settlement of 2002
C) Gramm-Leach-Bliley Act of 1999
D) Riegle-Neal Act of 1994
10) Which of the following statements concerning external sources of financing for
nonfinancial businesses in the United States are true?
A) Issuing marketable securities is the primary way that they finance their activities
B) Bonds are the least important source of external funds to finance their activities
C) Stocks are a relatively unimportant source of finance for their activities
D) Selling bonds directly to the American household is a major source of funding for
American businesses
11) If a $1000 face value coupon bond has a coupon rate of 3.75 percent, then the
coupon payment every year is
A) $37.50
B) $3.75
C) $375.00
D) $13.75
12) Poorly performing financial markets can be the cause of
A) wealth
B) poverty
C) financial stability
D) financial expansion
13) Because many emerging market countries have not developed the political or
monetary institutions that allow the successful use of discretionary monetary policy,
A) they have little to gain from pegging their exchange rate to an anchor country like
the U.S. or Germany
B) they have little to gain from using a nominal anchor, because it would mean a
monetary policy that is overly expansionary
C) they have very little to gain from an independent monetary policy, but a lot to lose
D) they would be better off giving their central bankers the independence to use
discretion, rather than take their discretion away through any nominal anchor
14) Everything else held constant, an increase in net exports ________ aggregate
________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
15) A corporation acquires new funds only when its securities are sold in the
A) primary market by an investment bank
B) primary market by a stock exchange broker
C) secondary market by a securities dealer
D) secondary market by a commercial bank
16) If the Japanese yen appreciates from $0.01 per yen to $0.02 per yen, the U.S. dollar
depreciates from ________ per dollar to ________ per dollar.
A) 100; 50
B) 10; 5
C) 5; 10
D) 50; 100
17) Members of the Executive Board of the European System of Central Banks are
appointed to ________ year, nonrenewable terms.
A) four
B) eight
C) ten
D) fourteen
18) Holding all else constant, when a bank receives the funds for a deposited check,
A) cash items in the process of collection fall by the amount of the check
B) bank assets increase by the amount of the check
C) bank liabilities decrease by the amount of the check
D) bank reserves increase by the amount of required reserves
19) Everything else held constant, if the tax-exempt status of municipal bonds were
eliminated, then
A) the interest rates on municipal bonds would still be less than the interest rate on
Treasury bonds
B) the interest rate on municipal bonds would equal the rate on Treasury bonds
C) the interest rate on municipal bonds would exceed the rate on Treasury bonds
D) the interest rates on municipal, Treasury, and corporate bonds would all increase
20) The interest rate on Baa (medium quality) corporate bonds is ________, on average,
than other interest rates, and the spread between it and other rates became ________ in
the 1970s.
A) lower; smaller
B) lower; larger
C) higher; smaller
D) higher; larger
21) When the Fed wants to raise interest rates after banks have accumulated large
amounts of excess reserves, it would
A) increase the interest rate paid on excess reserves
B) increase discount rate
C) increase the required reserve ratio
D) conduct massive open market purchase
22) Funds held in ________ are subject to reserve requirements.
A) all checkable deposits
B) all checkable and time deposits
C) all checkable, time, and money market fund deposits
D) all time deposits
23) If an individual redeems a U.S. savings bond for currency
A) M1 stays the same and M2 decreases
B) M1 increases and M2 increases
C) M1 increases and M2 stays the same
D) M1 stays the same and M2 stays the same
24) If reserves in the banking system increase by $100, then checkable deposits will
increase by $500 in the simple model of deposit creation when the required reserve
ratio is
A) 0.01
B) 0.10
C) 0.05
D) 0.20
25) Under a fixed exchange rate regime, if a country has an undervalued exchange rate,
then its central bank’s attempt to keep its currency from ________ will result in a
________ of international reserves.
A) depreciating; gain
B) depreciating; loss
C) appreciating; gain
D) appreciating; loss
26) If a pension fund has sufficient contributions and earnings to pay benefits, it is said
to be
A) underfunded
B) at par
C) fully funded
D) over par
27) If a bank has excess reserves of $5,000 and demand deposit liabilities of $80,000,
and if the reserve requirement is 20 percent, then the bank has actual reserves of
A) $11,000
B) $20,000
C) $21,000
D) $26,000
28) Because of asymmetric information, the failure of one bank can lead to runs on
other banks. This is the
A) too-big-to-fail effect
B) moral hazard problem
C) adverse selection problem
D) contagion effect
29) Supply-side economic policies seek to
A) raise interest rates through contractionary monetary policy
B) increase federal government expenditures
C) increase consumption expenditures by increasing taxes
D) increase saving and investment using tax incentives
30) When the economy suffers a permanent negative supply shock and the central bank
responds by changing the autonomous component of monetary policy to keep inflation
at the target inflation rate, then
A) aggregate demand curve shifts leftward
B) aggregate demand curve shifts rightward
C) output will be unchanged
D) both A and C
31) If wealth increases, the demand for stocks ________ and that of long-term bonds
________, everything else held constant.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
32) People hold money even during inflationary episodes when other assets prove to be
better stores of value. This can be explained by the fact that money is
A) extremely liquid
B) a unique good for which there are no substitutes
C) the only thing accepted in economic exchange
D) backed by gold
33) Everything else held constant, when a country’s currency depreciates, its goods
abroad become ________ expensive while foreign goods in that country become
________ expensive.
A) more; less
B) more; more
C) less; less
D) less; more
34) Methods of financing government spending are described by an expression called
the government budget constraint, which states the following:
A) DEFICIT = (G – T) = MB + BONDS
B) DEFICIT = (G – T) = MB – BONDS
C) DEFICIT = (G – T) = BONDS – MB
D) DEFICIT = (G – T) = MB/BONDS