Because of the weak systems of property rights in many developing and transition
economies, the financial system is unable to use collateral effectively worsening the
________ problem.
A) adverse selection
B) moral hazard
C) principal/agent
D) diversification
If the money supply is $500 and nominal income is $4,000, the velocity of money is
A) 1/20.
B) 1/8.
C) 8.
D) 20.
Situation 20-2
Assume a closed economy. Suppose that autonomous consumption equals $400,
planned investment equals $500, government expenditure equals $200, net taxes
equals $50, and the mpc equals 0.9.
Using the information in situation 20-2, if government spending increases by $100, then
the equilibrium aggregate output will change by
A) -$1,000.
B) -$100.
C) $100.
D) $1,000.
A deposit outflow results in equal reductions in
A) loans and reserves.
B) assets and liabilities.
C) reserves and capital.
D) assets and capital.
Large fluctuations in money supply growth and smaller fluctuations in the federal funds
rate between October 1982 and the early 1990s indicate that the Fed had shifted to
________ as an operating target.
A) borrowed reserves
B) nonborrowed reserves
C) excess reserves
D) required reserves
The government corporation that insures pension benefits is
A) Fannie Mae.
B) Ginnie Mae.
C) Penny Benny.
D) Sallie Mae.
If the economy is on the LM curve, but is to the left of the IS curve, aggregate output
will ________ and the interest rate will ________.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
New computer technology has
A) increased the cost of financial innovation.
B) increased the demand for financial innovation.
C) reduced the cost of financial innovation.
D) reduced the demand for financial innovation.
When workers voluntarily leave work while they look for better jobs, the resulting
unemployment is called
A) structural unemployment.
B) frictional unemployment.
C) cyclical unemployment.
D) underemployment.
International policy coordination refers to
A) central banks in major nations acting without regard to the global consequences of
their policies.
B) central banks in major nations pursuing only domestic objectives.
C) central banks adopting policies in pursuit of joint objectives.
D) central banks all adopting identical policies.
The growth of the subprime mortgage market led to
A) increased demand for houses and helped fuel the boom in housing prices.
B) a decline in the housing industry because of higher default risk.
C) a decrease in home ownership as investors chose other assets over housing.
D) decreased demand for houses as the less credit-worthy borrowers could not obtain
residential mortgages.
Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to
maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20
percent over the course of the year, what is the yearly return on the bond you are
holding?
A) 5 percent
B) 10 percent
C) 15 percent
D) 20 percent
If the 2005 inflation rate in Canada is 4 percent, and the inflation rate in Mexico is 2
percent, then the theory of purchasing power parity predicts that, during 2005, the value
of the Canadian dollar in terms of Mexican pesos will
A) rise by 6 percent.
B) rise by 2 percent.
C) fall by 6 percent.
D) fall by 2 percent.
The fact that banks operate on a “sequential service constraint” means that
A) all depositors share equally in the bank’s funds during a crisis.
B) depositors arriving last are just as likely to receive their funds as those arriving first.
C) depositors arriving first have the best chance of withdrawing their funds.
D) banks randomly select the depositors who will receive all of their funds.
The presence of so many commercial banks in the United States is most likely the result
of
A) consumers’ strong desire for dealing with only local banks.
B) adverse selection and moral hazard problems that give local banks a competitive
advantage over larger banks.
C) prior regulations that restricted the ability of these financial institutions to open
branches.
D) consumers’ preference for state banks.
Asymmetric information is a universal problem. This would suggest that financial
regulations
A) in industrial countries are an unqualified failure.
B) differ significantly around the world.
C) in industrialized nations are similar.
D) are unnecessary.
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio =
40%, and the excess reserve ratio = 0, an increase in the currency-deposit ratio to 50%
causes the M1 money multiplier to ________, everything else held constant.
A) increase from 2.5 to 2.8
B) decrease from 2.8 to 2.5
C) increase from 2.33 to 2.8
D) decrease from 2.8 to 2.33
________ markets transfer funds from people who have an excess of available funds to
people who have a shortage.
A) Commodity
B) Fund-available
C) Financial
D) Derivative exchange
Keynes argued that when interest rates were high relative to some normal value, people
would expect bond prices to ________, so the quantity of money demanded would
________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
In response to the overvalued dollar in the early 1970s, the German Bundesbank bought
________ and sold ________ to keep the exchange rate fixed, gaining international
reserves.
A) marks; dollars
B) marks; pounds
C) dollars; marks
D) dollars; pounds
A goal of the Securities and Exchange Commission is to reduce problems arising from
A) competition.
B) banking panics.
C) risk.
D) asymmetric information.
Suppose that from a new checkable deposit, First National Bank holds eight million
dollars on deposit with the Federal Reserve, nine million dollars in excess reserves, and
faces a required reserve ratio of ten percent. Given this information, we can say First
National Bank has ________ million dollars in required reserves.
A) one
B) two
C) nine
D) ten
The combination of a successful wage push by workers and the government’s
commitment to high employment leads to
A) demand-pull inflation.
B) supply-side inflation.
C) supply-shock inflation.
D) cost-push inflation.
In the long run, a rise in a country’s price level (relative to the foreign price level)
causes its currency to ________, while a fall in the country’s relative price level causes
its currency to ________.
A) appreciate; appreciate
B) appreciate; depreciate
C) depreciate; appreciate
D) depreciate; depreciate
Methods of financing government spending are described by an expression called the
government budget constraint, which states the following
A) DEFICIT = (G – T) = ΔMB + ΔBONDS.
B) DEFICIT = (G – T) = ΔMB – ΔBONDS.
C) DEFICIT = (G – T) = ΔBONDS – ΔMB.
D) DEFICIT = (G – T) = ΔMB/ΔBONDS.
Under the Gramm-Leach-Bliley Act the oversight of the securities activities of bank
holding companies belongs to
A) the SEC.
B) the Comptroller of the Currency.
C) the U.S. Treasury.
D) the Federal Reserve.
This agency acts like an international lender of last resort to cope with financial
instability.
A) World Bank
B) European Central Bank
C) IMF
D) International Bank for Reconstruction and Development
According to aggregate demand and supply analysis, the favorable supply shock of
1995-1999 had the effect of
A) increasing aggregate output, lowering unemployment, and raising inflation.
B) decreasing aggregate output, raising unemployment, and raising inflation.
C) increasing aggregate output, lowering unemployment, and lowering inflation.
D) decreasing aggregate output, raising unemployment, and lowering inflation.
Based on the Taylor Principle, a central bank’s endogenous response of raising interest
rates when inflation rises
A) causes an upward movement along the monetary policy curve.
B) causes a downward movement along the monetary policy curve.
C) shifts the monetary policy curve upward.
D) shifts the monetary policy curve downward.
Bank consolidation will likely result in
A) less competition.
B) the elimination of community banks.
C) increased competition.
D) a shift in assets from larger banks to smaller banks.
Under a fixed exchange rate regime, if a country has an undervalued exchange rate,
then its central bank’s attempt to keep its currency from ________ will result in a
________ of international reserves.
A) depreciating; gain
B) depreciating; loss
C) appreciating; gain
D) appreciating; loss
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 faces a required reserve ratio of ________ percent.
A) ten
B) twenty
C) eighty
D) ninety
Which of the following policy measures prohibited compliance officers from being
involved in producing or selling credit ratings?
A) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
B) Sarbanes-Oxley Act of 2002
C) Global Legal Settlement of 2002
D) Gramm-Leach-Bliley Act of 1999
E) Riegle-Neal Act of 1994
Factors that influenced planned investment spending include
A) real interest rates.
B) financial frictions.
C) emotional waves of optimism and pessimism.
D) all of the above.
E) A and C.
A liquid asset is
A) an asset that can easily and quickly be sold to raise cash.
B) a share of an ocean resort.
C) difficult to resell.
D) always sold in an over-the-counter market.