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1) A decrease in the foreign interest rate causes the demand for domestic assets to
________ and the domestic currency to ________, everything else held constant
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
2) Everything else held constant, a weaker dollar will likely hurt
A) textile exporters in South Carolina
B) wheat farmers in Montana that sell domestically
C) automobile manufacturers in Michigan that use domestically produced inputs
D) furniture importers in California
3) The advantage of a "buy-and-hold strategy" is that
A) net profits will tend to be higher because there will be fewer brokerage commissions
B) losses will eventually be eliminated
C) the longer a stock is held, the higher will be its price
D) profits are guaranteed
4) If a $1000 face value coupon bond has a coupon rate of 375 percent, then the coupon
payment every year is
A) $3750
B) $375
C) $37500
D) $1375
5) According to the traditional interest-rate channel, expansionary monetary policy
lowers the real interest rate, thereby raising expenditure on
A) business fixed investment
B) government expenditure
C) consumer nondurables
D) net exports
6) Which of the following statements is correct?
A) If most shocks to the economy are aggregate demand shocks or permanent aggregate
supply shocks, then policy that stabilizes inflation will also stabilize economic activity,
even in the short run
B) If temporary supply shocks are more common, then a central bank must choose
between stabilizing inflation and stabilizing output in the short run
C) In the long run, there is no conflict between stabilizing inflation and economic
activity in response to shocks
D) all of the above
7) The money supply is ________ related to expected deposit outflows, and is
________ related to the market interest rate
A) negatively; negatively
B) negatively; positively
C) positively; negatively
D) positively; positively
8) Evidence against market efficiency includes
A) failure of technical analysis to outperform the market
B) the random walk behavior of stock prices
C) the inability of mutual fund managers to consistently beat the market
D) the January effect
9) Compared to an electronic payments system, a payments system based on checks has
the major drawback that
A) checks are less costly to process
B) checks take longer to process, meaning that it may take several days before the
depositor can get her cash
C) fraud may be more difficult to commit when paper receipts are eliminated
D) legal liability is more clearly defined
10) A ________ is a subsidiary of a US bank that is engaged primarily in international
banking
A) Edge Act corporation
B) Eurodollar agency
C) universal bank
D) McFadden corporation
11) When the central bank ________ the money supply, the LM curve shifts to the
right, interest rates ________, and equilibrium aggregate output ________, everything
else held constant
A) increases; fall; increases
B) increases; rise; decreases
C) decreases; rise; decreases
D) decreases; fall; increases
12) If a central bank does not want to see its currency rise in value, it may pursue
________ monetary policy to ________ the domestic interest rate, thereby weakening
its currency
A) expansionary; raise
B) contractionary; raise
C) expansionary; lower
D) contractionary; lower
13) The recent Enron and Tyco scandals are an example of
A) the free-rider problem
B) the adverse selection problem
C) the principal-agent problem
D) the "lemons problem"
14) Keynes mentioned two factors that influenced planned investment spending:
A) interest rates and disposable income
B) interest rates and business expectations about the future
C) disposable income and business expectations about the future
D) interest rates and business expectations about inflation
15) ________ in the money supply creates excess demand for ________, causing
interest rates to ________, everything else held constant
A) An increase; money; rise
B) An increase; bonds; fall
C) A decrease; bonds; rise
D) A decrease; money; fall
16) A ________ is bought at a price below its face value, and the ________ value is
repaid at the maturity date
A) coupon bond; discount
B) discount bond; discount
C) coupon bond; face
D) discount bond; face
17) All of the following might create problems from financial liberalization in emerging
countries except
A) ineffective screening of borrowers
B) limits on risk-taking
C) lax government supervision of banks
D) lenders failure to monitor borrowers
