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
Answer:
The Federal Open Market Committee makes the Fed’s decisions on the purchase or sale
of government securities, but these purchases or sales are executed by the Federal
Reserve Bank of
A) Chicago.
B) Boston.
C) New York.
D) San Francisco.
Answer:
The amount of deposits that banks must hold in reserve is
A) excess reserves.
B) required reserves.
C) total reserves.
D) vault cash.
Answer:
An expansionary monetary policy increases net exports by ________ interest rates and
________ the value of the dollar.
A) lowering nominal; decreasing
B) lowering real; decreasing
C) raising nominal; increasing
D) raising real; increasing
Answer:
During a recession, the supply of bonds ________ and the supply curve shifts to the
________, everything else held constant.
A) increases; left
B) increases; right
C) decreases; left
D) decreases; right
Answer:
The conversion of a barter economy to one that uses money
A) increases efficiency by reducing the need to exchange goods and services.
B) increases efficiency by reducing the need to specialize.
C) increases efficiency by reducing transactions costs.
D) does not increase economic efficiency.
Answer:
The fluctuations in both money supply growth and the federal funds rate during
1979-1982 suggest that the Fed
A) had shifted to borrowed reserves as an operating target.
B) had shifted to total reserves as an operating target.
C) had shifted to the monetary base as an operating target.
D) never intended to target monetary aggregates.
Answer:
The U.S. banking system is considered to be a dual system because
A) banks offer both checking and savings accounts.
B) it actually includes both banks and thrift institutions.
C) it is regulated by both state and federal governments.
D) it was established before the Civil War, requiring separate regulatory bodies for the
North and South.
Answer:
In the early 1990s, M2 growth underwent a dramatic ________, which some
researchers believe ________ be explained by traditional money demand functions.
A) surge; cannot
B) surge; can
C) slowdown; cannot
D) slowdown; can
Answer:
Which of the following statements about financial markets and securities is true?
A) Many common stocks are traded over-the-counter, although the largest corporations
usually have their shares traded at organized stock exchanges such as the New York
Stock Exchange.
B) As a corporation gets a share of the broker’s commission, a corporation acquires new
funds whenever its securities are sold.
C) Capital market securities are usually more widely traded than shorter-term securities
and so tend to be more liquid.
D) Because of their short-terms to maturity, the prices of money market instruments
tend to fluctuate wildly.
Answer:
Which of the following is a true statement?
A) Money or the money supply is defined as Federal Reserve notes.
B) The average price of goods and services in an economy is called the aggregate price
level.
C) The inflation rate is measured as the rate of change in the federal government budget
deficit.
D) The aggregate price level is measured as the rate of change in the inflation rate.
Answer:
Suppose the economy is producing at the natural rate of output. An increase in
consumer and business confidence will cause ________ in real GDP 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) no change; an increase
D) no change; a decrease
Answer:
In order to ensure that borrowers have an ability to repay residential mortgages, the new
consumer protection legislation requires lenders to do all of the following except
A) verify the income of the borrower.
B) verify the borrower’s job status.
C) check the credit history of the borrower.
D) verify that the borrower can read and understand a loan contract.
Answer:
Bonds that are sold in a foreign country and are denominated in a currency other than
that of the country in which it is sold are known as
A) foreign bonds.
B) Eurobonds.
C) equity bonds.
D) country bonds.
Answer:
Everything else held constant, if workers expect an increase in inflation, ________
aggregate supply ________.
A) long-run; increases
B) long-run; decreases
C) short-run; decreases
D) short-run; increases
Answer:
The price of a coupon bond and the yield to maturity are ________ related; that is, as
the yield to maturity ________, the price of the bond ________.
A) positively; rises; rises
B) negatively; falls; falls
C) positively; rises; falls
D) negatively; rises; falls
Answer:
Although the FDIC was created to prevent bank failures, its existence encourages banks
to
A) take too much risk.
B) hold too much capital.
C) open too many branches.
D) buy too much stock.
Answer:
The primary reason for the recent reduction in the number of banks is
A) bank failures.
B) re-regulation of banking.
C) restrictions on interstate branching.
D) mergers and acquisitions.
Answer:
Ranking assets from most liquid to least liquid, the correct order is
A) savings bonds; house; currency.
B) currency; savings bonds; house.
C) currency; house; savings bonds.
D) house; savings bonds; currency.
Answer:
One way of describing the solution that high net worth provides to the moral hazard
problem is to say that it
A) collateralizes the debt contract.
B) makes the debt contract incentive compatible.
C) state verifies the debt contract.
D) removes all of the risk in the debt contract.
Answer:
Both ________ and ________ are monetary liabilities of the Fed.
A) securities; loans to financial institutions
B) currency in circulation; reserves
C) securities; reserves
D) currency in circulation; loans to financial institutions
Answer:
Today 1 euro can be purchased for $1.10. This is the
A) spot exchange rate.
B) forward exchange rate.
C) fixed exchange rate.
D) financial exchange rate.
Answer:
The Federal Reserve has been ________ preemptive because of the changing view that
monetary policy has to be ________ looking.
A) more; forward
B) more; backward
C) less; forward
D) less; backward
Answer:
Financial markets quickly eliminate unexploited profit opportunities through changes in
A) dividend payments.
B) tax laws.
C) asset prices.
D) monetary policy.
Answer:
Nationwide banking might reduce bank failures due to
A) reduced competition.
B) reduced lending to small businesses.
C) diversification of loan portfolios across state lines.
D) elimination of community banks.
Answer:
The ________ the returns on two securities move together, the ________ benefit there
is from diversification.
A) less; more
B) less; less
C) more; more
D) more; greater
Answer:
If the nominal rate of interest is 2 percent, and the expected inflation rate is -10 percent,
the real rate of interest is
A) 2 percent.
B) 8 percent.
C) 10 percent.
D) 12 percent.
Answer:
Keynes hypothesized that the speculative component of money demand was primarily
determined by the level of
A) interest rates.
B) velocity.
C) income.
D) stock market prices.
Answer:
Arguments for discretionary policies include
A) policy rules can be too rigid because they cannot foresee every contingency.
B) policy rules do not easily incorporate the use of judgment.
C) discretion avoids the straightjacket that would lock in the wrong policy if the model
that was used to derive the policy rule proved to be incorrect.
D) discretion enables policy makers to change policy settings when an economy
undergoes structural changes.
E) all of the above.
Answer:
Before the South Korean financial crisis, sales by the top five chaebols (family-owned
conglomerates) were
A) nearly 50% of GDP.
B) about 10% of GDP.
C) almost 90% of GDP.
D) nearly 25% of GDP.
Answer:
Inflation results in
A) ease of planning for the future.
B) ease of comparing prices over time.
C) lower nominal interest rates.
D) difficulty interpreting relative price movements.
Answer:
The result of the too-big-to-fail policy is that ________ banks will take on ________
risks, making bank failures more likely.
A) small; fewer
B) small; greater
C) big; fewer
D) big; greater
Answer:
The nine directors of the Federal Reserve Banks are split into three categories:
________ are professional bankers, ________ are leaders from industry, and ________
are to represent the public interest and are not allowed to be officers, employees, or
stockholders of banks.
A) 5; 2; 2
B) 2; 5; 2
C) 4; 2; 3
D) 3; 3; 3
Answer: