1) Researchers at the Federal Reserve found that M2 money demand functions
performed ________ in the 1980s, with M2 velocity moving ________ with the
opportunity cost of holding M2.
A) poorly; erratically
B) poorly; closely
C) well; erratically
D) well; closely
2) Who has regulatory responsibility when a bank operates branches in many countries?
A) It is not always clear
B) The WTO
C) The U.S. Federal Reserve System
D) The first country to submit an application
3) The rate of inflation tends to remain constant when
A) the unemployment rate is above the NAIRU
B) the unemployment rate equals the NAIRU
C) the unemployment rate is below the NAIRU
D) the unemployment rate increases faster than the NAIRU increases
4) The Baumol-Tobin analysis suggests that
A) velocity is relatively constant
B) the transactions component of the demand for money is negatively related to the
level of interest rates
C) the speculative motive is nonexistent
D) velocity is unrelated to the transactions motive
5) The efficient markets hypothesis suggests that if an unexploited profit opportunity
arises in an efficient market,
A) it will tend to go unnoticed for some time
B) it will be quickly eliminated
C) financial analysts are your best source of this information
D) prices will reflect the unexploited profit opportunity
6) The economist Irving Fisher, after whom the Fisher effect is named, explained why
interest rates ________ as the expected rate of inflation ________, everything else held
constant.
A) rise; increases
B) rise; stabilizes
C) fall; stabilizes
D) fall; increases
7) The yield to maturity for a perpetuity is a useful approximation for the yield to
maturity on long-term coupon bonds. It is called the ________ when approximating the
yield for a coupon bond.
A) current yield
B) discount yield
C) future yield
D) star yield
8) When the Glass-Steagall Act was repealed in 1999, potential conflicts of interest
arose with
A) the development of universal banking
B) the introduction of more credit-rating agencies
C) accounting firms developing more comprehensive services
D) investment analysis in investment banking
9) If Second National Bank has more rate-sensitive liabilities then rate-sensitive assets,
it can reduce interest rate risk with a swap that requires Second National to
A) pay fixed rate while receiving floating rate
B) receive fixed rate while paying floating rate
C) both receive and pay fixed rate
D) both receive and pay floating rate
10) The aggregate demand curve is the total quantity of an economy’s
A) intermediate goods demanded at different inflation rates
B) intermediate goods demanded at a particular inflation rate
C) final goods and services demanded at a particular inflation rate
D) final goods and services demanded at different inflation rates
11) Because it is a unit of account, money
A) increases transaction costs
B) reduces the number of prices that need to be calculated
C) does not earn interest
D) discourages specialization
12) The Federal Home Loan Bank Board and the FSLIC, both of which failed in their
regulatory tasks, were abolished by the
A) Competitive Equality Banking Act of 1987
B) Financial Institutions Reform, Recovery and Enforcement Act of 1989
C) Office of Thrift Supervision
D) Office of the Comptroller of the Currency
13) When the price of a bond is above the equilibrium price, there is an excess
________ bonds and price will ________.
A) demand for; rise
B) demand for; fall
C) supply of; fall
D) supply of; rise
14) In the ten year period 1981-1990, 1202 commercial banks were closed, with a peak
of 206 failures in 1989 . This rate of failures was approximately ________ times greater
than that in the period from 1934 to 1980 .
A) two
B) three
C) five
D) ten
15) Suppose the U.S. economy is producing at the natural rate of output. An
appreciation of the U.S. dollar will cause ________ in real GDP in the short run and
________ in inflation in the short run, everything else held constant. (Assume the
appreciation causes no effects in the supply side of the economy.)
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
16) The strongest argument for an independent Federal Reserve rests on the view that
subjecting the Fed to more political pressures would impart
A) an inflationary bias to monetary policy
B) a deflationary bias to monetary policy
C) a disinflationary bias to monetary policy
D) a countercyclical bias to monetary policy
17) Suppose, at a given federal funds rate, there is an excess demand for reserves in the
federal funds market. If the Fed wants the federal funds rate to stay at that level, then it
should undertake an open market ________ of bonds, everything else held constant. If
the Fed does nothing, however, the federal funds rate will ________.
A) sale; increase
B) purchase; increase
C) sale; decrease
D) purchase; decrease
18) The seller of an option has the ________ to buy or sell the underlying asset while
the purchaser of an option has the ________ to buy or sell the asset.
A) obligation; right
B) right; obligation
C) obligation; obligation
D) right; right
19) If you purchase a $100,000 interest-rate futures contract for 110, and the price of
the Treasury securities on the expiration date is 106, your ________ is ________.
A) profit; $4000
B) loss; $4000
C) profit; $6000
D) loss; $6000
20) An example of the problem of ________ is when a corporation uses the funds raised
from selling bonds to fund corporate expansion to pay for Caribbean cruises for all of
its employees and their families.
A) adverse selection
B) moral hazard
C) risk sharing
D) credit risk
21) Patrick places his pocket change into his savings bank on his desk each evening. By
his actions, Patrick indicates that he believes that money is a
A) medium of exchange
B) unit of account
C) store of value
D) unit of specialization
22) Newly-issued high-yield bonds rated below investment grade by the bond-rating
agencies are frequently referred to as
A) municipal bonds
B) Yankee bonds
C) “fallen angels”
D) junk bonds
23) If the money supply is $500 and nominal income is $3,000, the velocity of money is
A) 1/60
B) 1/6
C) 6
D) 60
24) When an investment bank ________ securities, it guarantees a price for a
corporation’s securities and then sells them to the public.
A) underwrites
B) undertakes
C) overwrites
D) overtakes
25) Bank loans from the Federal Reserve are called ________ and represent a
________ of funds.
A) discount loans; use
B) discount loans; source
C) fed funds; use
D) fed funds; source
26) Because ________ are less liquid for the depositor than ________, they earn higher
interest rates.
A) passbook savings; time deposits
B) money market deposit accounts; time deposits
C) money market deposit accounts; passbook savings
D) time deposits; passbook savings