One factor contributing to the decline in cost advantages that banks once had is the
A) decline in the importance of checkable deposits from over 60 percent of banks’
liabilities to 2 percent today.
B) decline in the importance of savings deposits from over 60 percent of banks’
liabilities to under 15 percent today.
C) decline in the importance of checkable deposits from over 40 percent of banks’
liabilities to 15 percent today.
D) decline in the importance of savings deposits from over 40 percent of banks’
liabilities to under 20 percent today.
If the ________ curve is relatively more unstable than the ________ curve, an interest
rate target is preferred.
A) IS; IS
B) IS; LM
C) LM; IS
D) LM; LM
Bank ________ is/are listed on the liability side of the bank’s balance sheet.
A) reserves
B) capital
C) securities
D) cash items
Ranking assets from most liquid to least liquid, the correct order is
A) savings bonds; house; currency.
B) currency; savings bonds; house.
C) currency; house; savings bonds.
D) house; savings bonds; currency.
Deposit insurance has not worked well in countries with
A) a weak institutional environment.
B) strong supervision and regulation.
C) a tradition of the rule of law.
D) few opportunities for corruption.
The Keynesian demand for real balances can be expressed as
A) Md = f(i,Y).
B) Md/P = f(i).
C) Md/P = f(Y).
D) Md/P = f(i,Y).
A higher ________ means that an asset’s return is more sensitive to changes in the value
of the market portfolio.
A) alpha
B) beta
C) CAPM
D) APT
The real bills doctrine was the guiding principle for the conduct of monetary policy
during the
A) 1910s.
B) 1940s.
C) 1950s.
D) 1960s.
Markets in which funds are transferred from those who have excess funds available to
those who have a shortage of available funds are called
A) commodity markets.
B) fund-available markets.
C) derivative exchange markets.
D) financial markets.
The account that shows international transactions involving currently produced goods
and services is called the
A) trade balance.
B) current account.
C) balance of payments.
D) capital account.
Regulators attempt to reduce the riskiness of banks’ asset portfolios by
A) limiting the amount of loans in particular categories or to individual borrowers.
B) encouraging banks to hold risky assets such as common stocks.
C) establishing a minimum interest rate floor that banks can earn on certain assets.
D) requiring collateral for all loans.
Financing government spending by selling bonds to the public, which pays for the
bonds with currency,
A) leads to a permanent decline in the monetary base.
B) leads to a permanent increase in the monetary base.
C) leads to a temporary increase in the monetary base.
D) has no net effect on the monetary base.
The risk that interest payments will not be made, or that the face value of a bond is not
repaid when a bond matures is
A) interest rate risk.
B) inflation risk.
C) liquidity risk.
D) default risk.
A financial market in which previously issued securities can be resold is called a
________ market.
A) primary
B) secondary
C) tertiary
D) used securities
Suppose that there is a positive aggregate demand shock and the central bank commits
to an inflation rate target. If the commitment is credible, then
A) the public’s expected inflation will remain unchanged.
B) the short-run aggregate supply curve will not shift.
C) over time inflation will fall back down to the inflation target.
D) all of the above.
E) both A and B.
In the period 1965 through the 1970s, policymakers pursued ________ policies in order
to achieve ________.
A) expansionary; high employment
B) expansionary; low inflation
C) contractionary; high employment
D) contractionary; low inflation
State banks that are not members of the Federal Reserve System are most likely to be
examined by the
A) Federal Reserve System.
B) FDIC.
C) FHLBS.
D) Comptroller of the Currency.
Increasing the amount of information available to investors helps to reduce the
problems of ________ and ________ in the financial markets.
A) adverse selection; moral hazard
B) adverse selection; risk sharing
C) moral hazard; transactions costs
D) adverse selection; economies of scale
The decision by inflation targeters to choose inflation targets ________ zero reflects the
concern of monetary policymakers that particularly ________ inflation can have
substantial negative effects on real economic activity.
A) below; high
B) below; low
C) above; high
D) above; low
The legislation that overturned the prohibition on interstate banking is
A) the McFadden Act.
B) the Gramm-Leach-Bliley Act.
C) the Glass-Steagall Act.
D) the Riegle-Neal Act.
If the expected path of one-year interest rates over the next five years is 4 percent, 5
percent, 7 percent, 8 percent, and 6 percent, then the expectations theory predicts that
today’s interest rate on the five-year bond is
A) 4 percent.
B) 5 percent.
C) 6 percent.
D) 7 percent.
A central feature of monetary policy strategies in all countries is the use of a nominal
variable that monetary policymakers use as an intermediate target to achieve an ultimate
goal such as price stability. Such a variable is called a nominal
A) anchor.
B) benchmark.
C) tether.
D) guideline.
You read a story in the newspaper announcing the proposed merger of Dell Computer
and Gateway. The merger is expected to greatly increase Gateway’s profitability. If you
decide to invest in Gateway stock, you can expect to earn
A) above average returns since you will share in the higher profits.
B) above average returns since your stock price will definitely appreciate as higher
profits are earned.
C) below average returns since computer makers have low profit rates.
D) a normal return since stock prices adjust to reflect expected changes in profitability
almost immediately.
In the simple deposit expansion model, if the Fed extends a $100 discount loan to a
bank that previously had no excess reserves, deposits in the banking system can
potentially increase by
A) $10.
B) $100.
C) $100 times the reciprocal of the required reserve ratio.
D) $100 times the required reserve ratio.
An increase in government spending causes the equilibrium level of aggregate output to
________ at any given interest rate and shifts the ________ curve to the ________,
everything else held constant.
A) rise; LM; right
B) rise; IS; right
C) fall; IS; left
D) fall; LM; left
The upward and downward movement of aggregate output produced in the economy is
referred to as the
A) roller coaster.
B) see saw.
C) business cycle.
D) shock wave.
Situation 20-1
Assume a closed economy with no government. Suppose that autonomous
consumption equals $400, planned investment equals $500, and the mpc equals 0.9.
Using the information contained in Situation 20-1, if planned investment decreases by
$100, the equilibrium aggregate output will change by
A) -$1,000.
B) $-100.
C) $100.
D) $1,000.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 did not
prohibit companies issuing securities from paying the credit-rating agencies to rate
them. This is an example of which remedy of conflicts of interest?
A) regulate for transparency
B) supervisory oversight
C) leave it to the market
D) socialization of information production
Higher tariffs and quotas cause a country’s currency to ________ in the ________ run,
everything else held constant.
A) depreciate; short
B) appreciate; short
C) depreciate; long
D) appreciate; long
The financial panic of 1907 resulted in such widespread bank failures and substantial
losses to depositors that the American public finally became convinced that
A) the First Bank of the United States had failed to serve as a lender of last resort.
B) the Second Bank of the United States had failed to serve as a lender of last resort.
C) the Federal Reserve System had failed to serve as a lender of last resort.
D) a central bank was needed to prevent future panics.
Keynes’s theory of the demand for money is consistent with
A) countercyclical movements in velocity.
B) a constant velocity.
C) procyclical movements in velocity.
D) a relatively stable velocity.
The free-rider problem occurs because
A) people who pay for information use it freely.
B) people who do not pay for information use it.
C) information can never be sold at any price.
D) it is never profitable to produce information.
The facility that was created in December of 2007 that banks can use to borrow from
the Fed that has less of a stigma for banks compared to borrowing from the discount
window is the
A) Term Securities Lending Facility.
B) Term Auction Facility.
C) Primary Dealer Credit Facility.
D) Commercial Paper Funding Facility.
Today the United States has a dual banking system in which banks supervised by the
________ and by the ________ operate side by side.
A) federal government; municipalities
B) state governments; municipalities
C) federal government; states
D) municipalities; states