1) Everything else held constant, increased demand for a country’s exports causes its
currency to ________ in the long run, while increased demand for imports causes its
currency to ________.
A) appreciate; appreciate
B) appreciate; depreciate
C) depreciate; appreciate
D) depreciate; depreciate
2) Under the current managed float exchange rate regime, countries with ________ in
their balance of payments frequently do not want to see their currencies ________
because it makes their goods more expensive abroad and foreign goods cheaper in their
countries.
A) surpluses; depreciate
B) deficits; depreciate
C) surpluses; appreciate
D) deficits; appreciate
3) If the dollar appreciates from 1.5 Brazilian reals per dollar to 2.0 reals per dollar, the
real depreciates from ________ per real to ________ per real.
A) $0.67; $0.50
B) $0.33; $0.50
C) $0.75; $0.50
D) $0.50; $0.67
E) $0.50; $0.75
4) Reserves are equal to the sum of
A) required reserves and excess reserves
B) required reserves and vault cash reserves
C) excess reserves and vault cash reserves
D) vault cash reserves and total reserves
5) ________ may antagonize customers and thus can be a very costly way of acquiring
funds to meet an unexpected deposit outflow.
A) Selling securities
B) Selling loans
C) Calling in loans
D) Selling negotiable CDs
6) If a forecast is made using all available information, then economists say that the
expectation formation is
A) rational
B) irrational
C) adaptive
D) reasonable
7) Which of the following is most likely to lead to inflationary monetary policy?
A) Declining oil prices
B) Resolution of conflict in the Middle East
C) The enactment of a free-trade agreement with Mexico
D) Rising government budget deficits
8) Increased uncertainty resulting from the global financial crisis ________ the required
return on investment in equity.
A) raised
B) lowered
C) had no impact on
D) decreased
9) When compared to exchange systems that rely on money, disadvantages of the barter
system include:
A) the requirement of a double coincidence of wants
B) lowering the cost of exchanging goods over time
C) lowering the cost of exchange to those who would specialize
D) encouraging specialization and the division of labor
10) Suppose the economy is producing at the natural rate of output. Assuming a fixed
natural rate of output and everything else held constant, the development of a new,
more productive technology will cause ________ in the unemployment rate in the short
run and ________ in inflation in the short run.
A) an increase; an increase
B) a decrease; a decrease
C) a decrease; an increase
D) no change; no change
11) Because banks engage in regulatory arbitrage, the Basel Accord on risk-based
capital requirements may result in
A) reduced risk taking by banks
B) reduced supervision of banks by regulators
C) increased fraudulent behavior by banks
D) increased risk taking by banks
12) The long-run aggregate supply curve is a vertical line passing through
A) the natural rate of output
B) the natural-rate price level
C) the actual rate of unemployment
D) the expected rate of inflation
13) 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, raising the federal funds interest rate, everything
else held constant.
A) rise; decreases
B) rise; increases
C) decline; increases
D) decline; decreases
14) The S&L Crisis can be analyzed as a principal-agent problem. The agents in this
case, the ________, did not have the same incentive to minimize cost to the economy as
the principals, the ________.
A) politicians/regulators; taxpayers
B) taxpayers; politician/regulators
C) taxpayers; bank managers
D) bank managers; politicians/regulators
15) If the required reserve ratio is one-third, currency in circulation is $300 billion, and
checkable deposits are $900 billion, then the currency ratio is
A) 0.25
B) 0.33
C) 0.67
D) 0.375
16)
The U-shaped yield curve in the figure above indicates that the inflation rate is expected
to
A) remain constant in the near-term and fall later on
B) fall sharply in the near-term and rise later on
C) rise moderately in the near-term and fall later on
D) remain constant in the near-term and rise later on
17) Tobin’s model of the speculative demand for money shows that people can reduce
their ________ by ________ their asset holdings.
A) wealth; diversifying
B) risk; specializing
C) return; diversifying
D) risk; diversifying
18) The increase in the availability of ATM’s has caused the cost of acquiring currency
to ________ which will cause the currency ratio to ________, everything else held
constant.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
19) In financial markets an IPO is an
A) investment portfolio option
B) initial public offering
C) initial portfolio offering
D) investment portfolio offering
20) For a 3-year simple loan of $10,000 at 10 percent, the amount to be repaid is
A) $10,030
B) $10,300
C) $13,000
D) $13,310
21) Reputational rents refer to
A) the profit earned by a firm when it captures economies of scope
B) the costs associated with building credibility of a firm
C) the profit earned solely based on the credibility of a firm
D) the costs associated with the firm’s achievement of economies of scale
22) An example of permanent insurance is ________ insurance, and an example of
temporary insurance is ________ insurance.
A) term; variable life
B) whole life; variable life
C) whole life; term
D) term; whole life
23) Which of the following are true of fixed payment loans?
A) The borrower repays both the principal and interest at the maturity date
B) Installment loans and mortgages are frequently of the fixed payment type
C) The borrower pays interest periodically and the principal at the maturity date
D) Commercial loans to businesses are often of this type
24) When banks involved in trading activities attempt to outguess markets, they are
A) forecasting
B) diversifying
C) speculating
D) engaging in riskless arbitrage
25) Everything else held constant, when real estate prices are expected to decrease
A) the demand curve for bonds shifts to the left and the interest rate rises
B) the demand curve for bonds shifts to the left and the interest rate falls
C) the demand curve for bonds shifts to the right and the interest rate falls
D) the supply curve for bonds shifts to the right and the interest rate falls
26) Recent financial innovation makes the Federal Reserve’s job of conducting
monetary policy
A) easier, since the Fed now knows what to consider money
B) more difficult, since the Fed now knows what to consider money
C) easier, since the Fed no longer knows what to consider money
D) more difficult, since the Fed no longer knows what to consider money
27) The total amount of reserves in the banking system is equal to the ________
required reserves and excess reserves.
A) sum of
B) difference between
C) product of
D) ratio between
28) When the Fed sells $100 worth of bonds to First National Bank, reserves in the
banking system
A) increase by $100
B) increase by more than $100
C) decrease by $100
D) decrease by more than $100
29) A stockholder’s ownership of a company’s stock gives her the right to
A) vote and be the primary claimant of all cash flows
B) vote and be the residual claimant of all cash flows
C) manage and assume responsibility for all liabilities
D) vote and assume responsibility for all liabilities
30) What happens to economic growth and unemployment during a business cycle
recession? What is the relationship between the money growth rate and a business cycle
recession?
31) Discuss three channels by which monetary policy affects stock prices and aggregate
spending.
32) Assume that a fixed exchange rate is overvalued. Describe the situation of a
speculative crisis against this currency. What can the central bank do to defend the
currency? Why might the alternative of devaluation be preferable?
33) What financial innovations helped banks to get around the bank branching
restrictions of the McFadden Act?
34) Explain the 1992 crisis that led to the breakdown of the European Union’s
Exchange Rate Mechanism. What disadvantages of exchange-rate targeting were
exhibited during this crisis?