1) The expected return on dollar deposits in terms of foreign currency can be written as
the ________ of the interest rate on dollar deposits and the expected appreciation of the
dollar.
A) product
B) ratio
C) sum
D) difference
2) In the market for reserves, if the federal funds rate is above the interest rate paid on
excess reserves, an open market purchase ________ the supply of reserves and causes
the federal funds interest rate to ________, everything else held constant.
A) decreases; fall
B) increases; fall
C) increases; rise
D) decreases; rise
3) Tobin’s model of the speculative demand for money shows that people hold money as
a ________ as a way of reducing ________.
A) medium of exchange; transaction costs
B) medium of exchange; risk
C) store of wealth; transaction costs
D) store of wealth; risk
4) If the government finances its spending by issuing debt to the public, the monetary
base will ________ and the money supply will ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) not change; not change
5) A simple deposit multiplier equal to two implies a required reserve ratio equal to
A) 100 percent
B) 50 percent
C) 25 percent
D) 0 percent
6) The short-run aggregate supply curve shifts to the right when
A) output gap is higher
B) output gap is lower
C) expected inflation is higher
D) expected inflation is lower
7) Suppose that the European Central Bank conducts a main refinancing sale.
Everything else held constant, this would cause the demand for U.S. assets to ________
and the U.S. dollar will ________.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
8) According to the purchasing power parity theory, a rise in the United States price
level of 5 percent, and a rise in the Mexican price level of 6 percent cause
A) the dollar to appreciate 1 percent relative to the peso
B) the dollar to depreciate 1 percent relative to the peso
C) the dollar to depreciate 5 percent relative to the peso
D) the dollar to appreciate 5 percent relative to the peso
9) Which of the following benefit directly from any increase in the corporation’s
profitability?
A) a bond holder
B) a commercial paper holder
C) a shareholder
D) a T-bill holder
10) The price paid for the rental of borrowed funds (usually expressed as a percentage
of the rental of $100 per year) is commonly referred to as the
A) inflation rate
B) exchange rate
C) interest rate
D) aggregate price level
11) Everything else held constant, in the market for reserves, when the supply for
federal funds intersects the reserve demand curve on the downward sloping section,
decreasing the interest rate paid on excess reserves
A) increases the federal funds rate
B) lowers the federal funds rate
C) has no effect on the federal funds rate
D) has an indeterminate effect on the federal funds rate
12) Everything else held constant, an increase in the required reserve ratio on checkable
deposits will cause
A) the money supply to rise
B) the money supply to remain constant
C) the money supply to fall
D) checkable deposits to rise
13) Which of the following is not a disadvantage of of the Fed’s “just do it” approach to
monetary policy?
A) There is low transparency of policy
B) There is low accountability for central bankers
C) This type of policy relies on the policy-makers in charge
D) It relies on a stable money-inflation relationship
14) Keynes’s theory of the demand for money implies that velocity is
A) not constant but fluctuates with movements in interest rates
B) not constant but fluctuates with movements in the price level
C) not constant but fluctuates with movements in the time of year
D) a constant
15) The Glass-Steagall Act, before its repeal in 1999, prohibited commercial banks
from
A) issuing equity to finance bank expansion
B) engaging in underwriting and dealing of corporate securities
C) selling new issues of government securities
D) purchasing any debt securities
16) With the creation of the Federal Deposit Insurance Corporation,
A) member banks of the Federal Reserve System were given the option to purchase
FDIC insurance for their depositors, while non-member commercial banks were
required to buy deposit insurance
B) member banks of the Federal Reserve System were required to purchase FDIC
insurance for their depositors, while non-member commercial banks could choose to
buy deposit insurance
C) both member and non-member banks of the Federal Reserve System were required
to purchase FDIC insurance for their depositors
D) both member and non-member banks of the Federal Reserve System could choose,
but were not required, to purchase FDIC insurance for their depositors
17) In the market for reserves, if the federal funds rate is between the discount rate and
the interest rate paid on excess reserves, a ________ in the reserve requirement
________ the demand for reserves, lowering the federal funds interest rate, everything
else held constant.
A) rise; decreases
B) rise; increases
C) decline; increases
D) decline; decreases
18) An investment bank helps ________ issue securities.
A) a corporation
B) the United States government
C) the SEC
D) foreign governments
19) To keep from running out of international reserves under the Bretton Woods system,
a country had to implement ________ monetary policy to ________ its currency.
A) expansionary; strengthen
B) expansionary; weaken
C) contractionary; strengthen
D) contractionary; weaken
20) An essential characteristic of credit unions is that
A) they are typically large
B) branching across state lines is prohibited
C) their lending is primarily for mortgage loans
D) they are organized for individuals with a common bond
21) The Resolution Trust Corporation was created by the FIRREA in order to
A) manage and resolve insolvent S&Ls
B) build up trust in government regulation
C) regulate the S&L industry
D) purchase large amounts of government debt
22) During the 2007-2009 financial crisis the excess reserve ratio
A) increased sharply
B) decreased sharply
C) increased slightly
D) decreased slightly
23) Which of the following is not included in the M1 measure of money but is included
in the M2 measure of money?
A) Currency
B) Traveler’s checks
C) Demand deposits
D) Small-denomination time deposits
24) The long-run aggregate supply curve shifts to the right when there is
A) a decrease in the total amount of capital in the economy
B) a decrease in the total amount of labor supplied in the economy
C) a decrease in the available technology
D) a decline in the natural rate of unemployment
25) Both ________ and ________ are Federal Reserve assets.
A) currency in circulation; reserves
B) currency in circulation; securities
C) securities; loans to financial institutions
D) securities; reserves
26) In rational expectations theory, the term “optimal forecast” is essentially
synonymous with
A) correct forecast
B) the correct guess
C) the actual outcome
D) the best guess
27) The ability of a central bank to set monetary policy instruments is
A) political independence
B) goal independence
C) policy independence
D) instrument independence
28) The M1 measure of money includes
A) small denomination time deposits
B) traveler’s checks
C) money market deposit accounts
D) money market mutual fund shares
29) Moral hazard problems increased in prominence in the 1980s
A) as deregulation required savings and loans and mutual savings banks to be more
cautious
B) following a burst of financial innovation in the 1970s and early 1980s that produced
new financial instruments and markets, thereby widening the scope for risk taking
C) following a decrease in federal deposit insurance from $100,000 to $40,000
D) as interest rates were sharply decreased to bring down inflation
30) A Fed purchase of gold, SDRs, a deposit denominated in a foreign currency or any
other asset is just an open market ________ of these assets, ________ the monetary
base.
A) purchase; raising
B) sale; raising
C) purchase; lowering
D) sale; lowering
31) Everything else held constant, a decrease in the required reserve ratio on checkable
deposits causes the M1 money multiplier to ________ and the money supply to
________.
A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease
32) According to Tobin’s q theory, ________ policy can affect ________ spending
through its effect on the prices of common stock.
A) fiscal; consumption
B) fiscal; investment
C) monetary; consumption
D) monetary; investment
33) A sales commission is charged for the purchase of
A) no-load mutual funds
B) load mutual funds
C) sinking mutual funds
D) syndicated funds
34) Which of the followings does not shift the short-run aggregate supply curve?
A) supply shocks
B) persistent positive output gap
C) changes in expected inflation
D) an increase in output gap
35) ________ in the expected future domestic exchange rate causes the demand for
domestic assets to shift to the right and the domestic currency to ________, everything
else held constant.
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
36) The time it takes to pass legislation to implement a particular policy is called
A) the data lag
B) the recognition lag
C) the legislative lag
D) the implementation lag
E) the effectiveness lag
37) Off-balance sheet activities involving guarantees of securities and back-up credit
lines
A) have no impact on the risk a bank faces
B) greatly reduce the risk a bank faces
C) increase the risk a bank faces
D) slightly reduce the risk a bank faces
38) Although restrictive covenants can potentially reduce moral hazard, a problem with
restrictive covenants is that
A) borrowers may find loopholes that make the covenants ineffective
B) they are inexpensive to monitor and enforce
C) too many resources may be devoted to monitoring and enforcing them, as debt
holders duplicate others’ monitoring and enforcement efforts
D) they reduce the value of the debt contract
39) The name economists give the process by which stockholders gather information by
frequent monitoring of the firm’s activities is
A) costly state verification
B) the free-rider problem
C) costly avoidance
D) debt intermediation