The Fed is considering eliminating
A) primary credit lending.
B) secondary credit lending.
C) seasonal credit lending.
D) its lender of last resort function.
In the simple deposit expansion model, if the Fed extends a $100 discount loan to a
bank that previously had no excess reserves, the bank can now increase its loans by
A) $10.
B) $100.
C) $100 times the reciprocal of the required reserve ratio.
D) $100 times the required reserve ratio.
The evolution of the payments system from barter to precious metals, then to fiat
money, then to checks can best be understood as a consequence of the fact that
A) paper is more costly to produce than precious metals.
B) precious metals were not generally acceptable.
C) precious metals were difficult to carry and transport.
D) paper money is less accepted than checks.
In practice, the Fed’s policy of targeting money market conditions in the 1960s proved
to be
A) countercyclical, helping to stabilize the economy.
B) procyclical, destabilizing the economy.
C) procyclical, helping to stabilize the economy.
D) countercyclical, destabilizing the economy.
As the relative expected return on dollar assets increases, foreigners will want to hold
more ________ assets and less ________ assets, everything else held constant.
A) foreign; foreign
B) foreign; dollar
C) dollar; foreign
D) dollar; dollar
Collateral requirements lessen the consequences of ________ because the collateral
reduces the lender’s losses in the case of a loan default and it reduces ________ because
the borrower has more to lose from a default.
A) adverse selection; moral hazard
B) moral hazard; adverse selection
C) adverse selection; diversification
D) diversification; moral hazard
In this type of arrangement, any balances above a certain amount in a corporation’s
checking account at the end of the business day are “removed” and invested in
overnight securities that pay the corporation interest. This innovation is referred to as a
A) sweep account.
B) share draft account.
C) removed-repo account.
D) stockman account.
The time and money spent in carrying out financial transactions are called
A) economies of scale.
B) financial intermediation.
C) liquidity services.
D) transaction costs.
In the simple deposit expansion model, if the required reserve ratio is 10 percent and
the Fed increases reserves by $100, checkable deposits can potentially expand by
A) $100.
B) $250.
C) $500.
D) $1,000.
Everything else held constant, an increase in the riskiness of bonds relative to
alternative assets causes the demand for bonds to ________ and the demand curve to
shift to the ________.
A) rise; right
B) rise; left
C) fall; right
D) fall; left
Which of the following are reported as liabilities on a bank’s balance sheet?
A) discount loans
B) reserves
C) U.S. Treasury securities
D) real estate loans
During the beginning on the global financial crisis in the United States when the effects
of the crisis were mostly confined within the United States, the U. S. dollar ________
because demand for U.S. assets ________.
A) appreciated; increased
B) depreciated; increased
C) appreciated; decreased
D) depreciated; decreased
When asset prices increase above their fundamental values it is called an
A) asset-price bubble.
B) irrational bubble.
C) asset-price spike.
D) irrational spike.
Which of the following financial intermediaries is NOT a depository institution?
A) a savings and loan association
B) a commercial bank
C) a credit union
D) a finance company
Everything else held constant, if aggregate output is to the ________ of the LM curve,
then there is an excess ________ of money which will cause the interest rate to rise.
A) right; supply
B) right; demand
C) left; supply
D) left; demand
In a liquidity trap, monetary policy has ________ effect on aggregate spending because
a change in the money supply has ________ effect on interest rates.
A) no; no
B) no; a large
C) no; a small
D) a large; a large
Consumer protection legislation includes legislation to
A) reduce discrimination in credit markets.
B) require banks to make loans to everyone who applies.
C) reduce the amount of interest that bank’s can charge on loans.
D) require banks to make periodic reports to the Better Business Bureau.
The primary assets of money market mutual funds are
A) stocks.
B) bonds.
C) money market instruments.
D) deposits.
Because of their ________ liquidity, ________ U.S. government securities are called
secondary reserves.
A) low; short-term
B) low; long-term
C) high; short-term
D) high; long-term
Which of the following is NOT an entity of the Federal Reserve System?
A) Federal Reserve Banks
B) the Comptroller of the Currency
C) the Board of Governors
D) the Federal Open Market Committee
A Supreme Court ruling in March 1996 held that
A) state laws to prevent banks from selling insurance can be superseded by federal
rulings from banking regulators that allow banks to sell insurance.
B) state laws to prevent banks from selling insurance cannot be superseded by federal
rulings from banking regulators that allow banks to sell insurance.
C) state laws to prevent banks from selling insurance can be superseded only if
Congress enacts legislation that allow banks to sell insurance.
D) state laws to prevent banks from selling insurance cannot be superseded by federal
legislation.
Everything else held constant, a change in workers’ expectations about inflation will
cause ________ to change.
A) aggregate demand
B) short-run aggregate supply
C) the production function
D) long-run aggregate supply
Of the sources of external funds for nonfinancial businesses in the United States,
corporate bonds and commercial paper account for approximately ________ of the
total.
A) 5%
B) 10%
C) 32%
D) 50%
When a $10 check written on the First National Bank of Chicago is deposited in an
account at Citibank, then
A) the liabilities of the First National Bank increase by $10.
B) the reserves of the First National Bank increase by $ 10.
C) the liabilities of Citibank increase by $10.
D) the assets of Citibank fall by $10.
The time it takes for the policy actually to have an impact on the economy is called
A) the data lag.
B) the recognition lag.
C) the legislative lag.
D) the implementation lag.
E) the effectiveness lag.
To reduce moral hazard problems, banks include restrictive covenants in loan contracts.
In order for these restrictive covenants to be effective, banks must also
A) monitor and enforce them.
B) be willing to rewrite the contract if the borrower cannot comply with the restrictions.
C) trust the borrower to do the right thing.
D) be prepared to extend the deadline when the borrower needs more time to comply.
Because of an expected rise in interest rates in the future, a banker will likely
A) make long-term rather than short-term loans.
B) buy short-term rather than long-term bonds.
C) buy long-term rather than short-term bonds.
D) make either short or long-term loans; expectations of future interest rates are
irrelevant.
Under the Gramm-Leach-Bliley Act states retain regulatory authority over
A) bank holding companies.
B) securities activities.
C) insurance activities.
D) bank subsidiaries engaged in securities underwriting.
Banks responded to disintermediation by
A) supporting the elimination of interest rate regulations, enabling them to better
compete for funds.
B) opposing the elimination of interest rate regulations, as this would increase their cost
of funds.
C) demanding that interest rate regulations be imposed on money market mutual funds.
D) supporting the elimination of interest rate regulations, as this would reduce their cost
of funds.
The practice of factoring involves
A) the syndication of underwriting large security issues.
B) the selling of accounts receivable at a discount in return for cash.
C) breaking up large mutual funds into smaller funds.
D) spreading the risk of insurance through reinsurance.
An advantage to exchange-rate targeting is it helps keep inflation under control by tying
the inflation rate for ________ traded goods to what is found in the ________ country.
A) domestically; anchor
B) domestically, domestic
C) internationally; anchor
D) internationally; domestic
Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one
million dollars in required reserves. Given this information, we can say First National
Bank has ________ million dollars in excess reserves.
A) three
B) nine
C) ten
D) eleven
