1) The money multiplier is
A) negatively related to high-powered money
B) positively related to the excess reserves ratio
C) negatively related to the required reserve ratio
D) positively related to holdings of excess reserves
2) In the late 1990s, M2 velocity ________, suggesting a ________ normal relationship
between M2 and macroeconomic variables.
A) stabilized; less
B) stabilized; more
C) slowed; less
D) slowed; more
3) Solutions to the moral hazard problem include
A) low net worth
B) monitoring and enforcement of restrictive covenants
C) greater reliance on equity contracts and less on debt contracts
D) greater reliance on debt contracts than financial intermediaries
4) Irving Fisher took the view that the institutional features of the economy which affect
velocity change ________ over time so that velocity will be fairly ________ in the
short run.
A) rapidly; erratic
B) rapidly; stable
C) slowly; stable
D) slowly; erratic
5) One financial intermediary in our financial structure that helps to reduce the moral
hazard from arising from the principal-agent problem is the
A) venture capital firm
B) money market mutual fund
C) pawn broker
D) savings and loan association
6) The risk premium on corporate bonds reflects the fact that corporate bonds have a
higher default risk and are ________ U.S. Treasury bonds.
A) less liquid than
B) less speculative than
C) tax-exempt unlike
D) lower-yielding than
7) Because these securities are more liquid and generally have smaller price
fluctuations, corporations and banks use the ________ securities to earn interest on
temporary surplus funds.
A) money market
B) capital market
C) bond market
D) stock market
8) Which of the following are not reported as assets on a bank’s balance sheet?
A) Cash items in the process of collection
B) Deposits with other banks
C) U.S. Treasury securities
D) Checkable deposits
9) In the simple deposit expansion model, a decline in checkable deposits of $500 when
the required reserve ratio is equal to 10 percent implies that the Fed
A) sold $500 in government bonds
B) sold $50 in government bonds
C) purchased $50 in government bonds
D) purchased $500 in government bonds
10) By bundling share purchases of many investors together mutual funds can take
advantage of economies of scale and thereby lower
A) adverse selection
B) moral hazard
C) transactions costs
D) diversification
11) A goal of the Securities and Exchange Commission is to reduce problems arising
from
A) competition
B) banking panics
C) risk
D) asymmetric information
12) Loophole mining refers to financial innovation designed to
A) hide transactions from the IRS
B) conceal transactions from the SEC
C) get around regulations
D) conceal transactions from the Treasury Department
13) When Happy Feet Corporation announces that their fourth quarter earnings are up
10%, their stock price falls. This is consistent with the efficient markets hypothesis
A) if earnings were not as high as expected
B) if earnings were not as low as expected
C) if a merger is anticipated
D) the company just invented a new bunion product
14) If a bank has $50 million in rate-sensitive assets and $20 million in rate-sensitive
liabilities then
A) an increase in interest rates will reduce bank profits
B) a decrease in interest rates will reduce bank profits
C) interest rate changes will not impact bank profits
D) a decrease in interest rates will increase bank profits
15) Everything else held constant, when bonds become less widely traded, and as a
consequence the market becomes less liquid, the demand curve for bonds shifts to the
________ and the interest rate ________.
A) right; rises
B) right; falls
C) left; falls
D) left; rises
16) If a contractionary monetary policy lowers the price level by more than expected, it
raises the real value of consumer debt. This reduces consumer expenditure through
A) the bank lending channel
B) Tobin’s q
C) the traditional interest-rate channel
D) the household liquidity effect
17) Nominal GDP is output measured in ________ prices while real GDP is output
measured in ________ prices.
A) current; current
B) current; fixed
C) fixed; fixed
D) fixed; current
18) The Fed was committed to keeping interest rates low to assist Treasury financing of
budget deficits
A) only during World War I
B) during the Great Depression
C) during World War I and World War II
D) throughout the entire existence of the Fed
19) ________ in the domestic interest rate causes the demand for domestic assets to
shift to the ________ and the domestic currency to appreciate, everything else held
constant.
A) An increase; right
B) An increase; left
C) A decrease; right
D) A decrease; left
20) The formula for the simple deposit multiplier can be expressed as
A) R = T
B) D = R
C) rr = T
D) R = D
21) The difference between merchandise exports and imports is called the ________
balance.
A) current account
B) capital account
C) official reserve transactions
D) trade
22) The equivalent to the Federal Reserve’s discount rate in the European System of
Central Banks is the
A) federal funds rate
B) marginal lending rate
C) deposit facility rate
D) lombard rate
23) Conflicts of interest is a type of ________ problem that occurs when a person or
institution has multiple objectives that are in conflict with each other.
A) moral hazard
B) adverse selection
C) risk sharing
D) spinning
24) If expectations are formed rationally, then individuals
A) will have a forecast that is 100% accurate all of the time
B) change their forecast when faced with new information
C) use only the information from past data on a single variable to form their forecast
D) have forecast errors that are persistently low
25) If the central bank pursues a monetary policy that is more expansionary than what
firms and people expect, then the central bank must be trying to
A) boost output in the short run
B) constrain output in the short run
C) constrain prices
D) boost prices in the short run
26) Everything else held constant, a decrease in government spending ________
aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
27) Which of the following is an example of an intermediate-term debt?
A) A thirty-year mortgage
B) A sixty-month car loan
C) A six month loan from a finance company
D) A Treasury bond
28) A monetary expansion ________ stock prices due to a decrease in the ________
and an increase in the ________, everything else held constant.
A) reduces; future sales price; expected rate of return
B) reduces; current dividend; expected rate of return
C) increases; required rate of return; future sales price
D) increases; required rate of return; dividend growth rate
29) The major criticism of the view that expectations are formed adaptively is that
A) this view ignores that people use more information than just past data to form their
expectations
B) it is easier to model adaptive expectations than it is to model rational expectations
C) adaptive expectations models have no predictive power
D) people are irrational and therefore never learn from past mistakes
30) One reason China has been able to grow so rapidly even though its financial
development is still in its early stages is
A) the high savings rate of around 40%
B) the shift of labor to the agricultural sector
C) the stringent enforcement of financial contracts
D) the ease of obtaining high-quality information about creditors
31) The expectations theory and the segmented markets theory do not explain the facts
very well, but they provide the groundwork for the most widely accepted theory of the
term structure of interest rates,
A) the Keynesian theory
B) separable markets theory
C) liquidity premium theory
D) the asset market approach
32) The ________ that required separation of commercial and investment banking was
repealed in 1999.
A) the Federal Reserve Act
B) the Glass-Steagall Act
C) the Bank Holding Company Act
D) the Monetary Control Act