1) Before 1970, mutual funds invested almost solely in
A) corporate bonds
B) corporate common stocks
C) United States government bonds
D) municipal bonds and money market securities
2) In the model of the money supply process, the Federal Reserve’s role in influencing
the money supply is represented by
A) both the required reserve ratio and the market interest rate
B) the required reserve ratio, nonborrowed reserves, and borrowed reserves
C) only borrowed reserves
D) only nonborrowed reserves
3) When the central bank allows the purchase or sale of domestic currency to have an
effect on the monetary base, it is called
A) an unsterilized foreign exchange intervention
B) a sterilized foreign exchange intervention
C) an exchange rate feedback rule
D) a money neutral foreign exchange intervention
4) The belief that bank failures were regularly caused by fraud or the lack of sufficient
bank capital explains, in part, the passage of
A) the National Bank Charter Amendments of 1918
B) the Garn-St. Germain Act of 1982
C) the National Bank Act of 1863
D) Federal Reserve Act of 1913
5) Economists believe that countries recently suffering hyperinflation have experienced
A) reduced growth
B) increased growth
C) reduced prices
D) lower interest rates
6) Banks may borrow from or lend to another bank in the Federal Funds market. A loan
of excess reserves from one bank to another bank is recorded as a(n) ________ for the
borrowing bank and a(n) ________ for the lending bank.
A) asset; asset
B) asset; liability
C) liability; liability
D) liability; asset
7) Nonactivists of the policies believe that
A) wages and prices are very flexible
B) the self-correcting mechanism is very rapid
C) government action is unnecessary
D) all of the above
8) Which of the following is NOT an advantage of private equity funds?
A) Private companies are not subject to the same regulations as a publicly traded
company
B) Managers of private firms are not under the same level of pressure to produce high
returns compared to the managers of publically traded firms
C) Private equity firms can do a better job in controlling the problems created by moral
hazard
D) Private equity funds give managers of the companies higher stakes compared to
managers in publically traded companies
9) When the Federal Reserve engages in a repurchase agreement to offset a withdrawal
of Treasury funds from the Federal Reserve, the open market operation is said to be
A) defensive
B) offensive
C) dynamic
D) reactionary
10) If a mutual fund outperforms the market in one period, evidence suggests that this
fund is
A) highly likely to consistently outperform the market in subsequent periods due to its
superior investment strategy
B) likely to under-perform the market in subsequent periods to average its overall
returns
C) not likely to consistently outperform the market in subsequent periods
D) not likely to outperform the market in any subsequent period
11) If the CPI is 120 in 1996 and 180 in 2002, then between 1996 and 2002, prices have
increased by
A) 180%
B) 80%
C) 60%
D) 50%
12) Compared to commercial banks and thrift institutions, finance companies are
A) heavily regulated
B) able to attract small depositors
C) prevented from making relatively small loans
D) virtually unregulated
13) If the inflation rate in the United States is higher than that in Mexico and
productivity is growing at a slower rate in the United States than in Mexico, then, in the
long run, ________, everything else held constant.
A) the Mexican peso will appreciate relative to the U.S. dollar
B) the Mexican peso will depreciate relative to the U.S. dollar
C) the Mexican peso will either appreciate, depreciate, or remain constant relative to the
U.S. dollar
D) there will be no effect on the Mexican peso relative to the U.S. dollar
14) If the interest rate on euro-denominated assets is 13 percent and it is 15 percent on
peso-denominated assets, and if the euro is expected to appreciate at a 4 percent rate,
for Francois the Frenchman the expected rate of return on peso-denominated assets is
A) 11 percent
B) 15 percent
C) 17 percent
D) 19 percent
15) A discount bond selling for $15,000 with a face value of $20,000 in one year has a
yield to maturity of
A) 3 percent
B) 20 percent
C) 25 percent
D) 33.3 percent
16) The policy of ________ exacerbated ________ problems as savings and loans took
on increasingly huge levels of risk on the slim chance of returning to solvency.
A) regulatory forbearance; moral hazard
B) regulatory forbearance; adverse hazard
C) regulatory agnosticism; moral hazard
D) regulatory agnosticism; adverse hazard
17) Holding everything else constant, if interest rates are expected to increase, the
demand for bonds ________ and the demand curve shifts ________.
A) increases; right
B) decreases; right
C) increases; left
D) decreases; left
18) In explaining the evolution of money
A) government regulation is the most important factor
B) commodity money, because it is valued more highly, tends to drive out paper money
C) new forms of money evolve to lower transaction costs
D) paper money is always backed by gold and therefore more desirable than checks
19) An increase in the expected inflation rate causes the supply of bonds to ________
and the supply curve to shift to the ________, everything else held constant.
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right
20) ________ in the domestic interest rate causes the demand for domestic assets to
________ and the domestic currency to depreciate, everything else held constant.
A) An increase; increase
B) An increase; decrease
C) A decrease; increase
D) A decrease; decrease
21) The most important advantage of discount policy is that the Fed can use it to
A) precisely control the monetary base
B) perform its role as lender of last resort
C) control the money supply
D) punish banks that have deficient reserves
22) Decisions by depositors to increase their holdings of ________, or of banks to hold
________ will result in a smaller expansion of deposits than the simple model predicts.
A) deposits; required reserves
B) deposits; excess reserves
C) currency; required reserves
D) currency; excess reserves
23) If a central bank does not want to see its currency ________ in value, it may pursue
expansionary monetary policy to lower the domestic interest rate, thereby ________ its
currency.
A) fall; strengthening
B) fall; weakening
C) rise; strengthening
D) rise; weakening
24) The major provisions of the Competitive Equality Banking Act of 1987 include
A) expanding the responsibilities of the FDIC, which is now the sole administrator of
the federal deposit insurance system
B) the establishment of the Resolution Trust Corporation to manage and resolve
insolvent thrifts placed in conservatorship or receivership
C) directing the Federal Home Loan Bank Board to continue to pursue regulatory
forbearance
D) prompt corrective action when a bank gets in trouble
25) An option that gives the owner the right to buy a financial instrument at the exercise
price within a specified period of time is a
A) call option
B) put option
C) American option
D) European option
26) To maintain fixed exchange rates when countries had balance of payments deficits
and were losing international reserves, the ________ would loan ________ countries
international reserves contributed by other members.
A) IMF; deficit
B) IMF; surplus
C) World Bank; deficit
D) World Bank; surplus
27) During World War II, the Fed in effect relinquished its control of monetary policy
through its policy of
A) continually lowering reserve requirements
B) continually raising reserve requirements
C) pegging interest rates
D) targeting free reserves
28) Everything else held constant, an autonomous monetary policy tightening ________
aggregate ________.
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
29) In the market for reserves, a lower discount rate
A) decreases the supply of reserves
B) increases the supply of reserves
C) lengthens the vertical section of the supply curve of reserves
D) shortens the vertical section of the supply curve of reserves