1) From the standpoint of ________, specialization in lending is surprising but makes
perfect sense when one considers the ________ problem
A) moral hazard; diversification
B) diversification; moral hazard
C) adverse selection; diversification
D) diversification; adverse selection
2) If a member of the nonbank public sells a government bond to the Federal Reserve in
exchange for currency, the monetary base will ________, but ________
A) remain unchanged; reserves will fall
B) remain unchanged; reserves will rise
C) rise; currency in circulation will remain unchanged
D) rise; reserves will remain unchanged
3) One financial intermediary in our financial structure that helps to reduce the moral
hazard from arising from the principal-agent problem is the
A) venture capital firm
B) money market mutual fund
C) pawn broker
D) savings and loan association
4) A substantial decrease in the aggregate price level that reduces firms’ net worth may
stall a recovery from a recession This process is called
A) debt deflation
B) moral hazard
C) insolvency
D) illiquidity
5) Everything else held constant, if aggregate output is to the left of the LM curve, then
there is an excess ________ of money which will cause the interest rate to ________
A) supply; fall
B) supply; rise
C) demand; fall
D) demand; rise
6) The chaebols encouraged the Korean government to open up Korean financial
markets to foreign capital The Korean government responded by
A) allowing unlimited short-term foreign borrowing but maintained quantity restrictions
on long-term foreign borrowing by financial institutions
B) allowing unlimited short-term and long-term foreign borrowing by financial
institutions
C) maintaining quantity restrictions on short-term foreign borrowing but allowing
unlimited long-term foreign borrowing by financial institutions
D) not allowing any foreign borrowing by financial institutions
7) If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000,
and if the reserve requirement is 15 percent, then the bank has actual reserves of
A) $17,000
B) $19,000
C) $24,000
D) $29,000
8) When the exchange rate for the British pound changes from $180 per pound to $160
per pound, then, holding everything else constant, the pound has ________ and
________ expensive
A) appreciated; British cars sold in the United States become more
B) appreciated; British cars sold in the United States become less
C) depreciated; American wheat sold in Britain becomes more
D) depreciated; American wheat sold in Britain becomes less
9) Everything else held constant, an increase in planned investment expenditure
________ aggregate ________
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
10) 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
11) Nonactivists of policies contend that a policy of shifting the aggregate ________
curve will be costly because it produces ________ volatility in both the price level and
output
A) supply; less
B) supply; more
C) demand; less
D) demand; more
12) When gold production was low in the 1870s and 1880s, the money supply grew
________ causing ________
A) rapidly; inflation
B) rapidly; disinflation
C) slowly; deflation
D) slowly; disinflation