1) Savings and loan associations are regulated by the
A) Federal Reserve System
B) Securities and Exchange Commission
C) Office of the Comptroller of the Currency
D) Office of Thrift Supervision
2) The economy recovers quickly from most recessions, but the increase in adverse
selection and moral hazard problems in the credit markets caused by ________ led to
the severe economic contraction known as The Great Depression
A) debt deflation
B) illiquidity
C) an improvement in banks’ balance sheets
D) increases in bond prices
3) People hold money even during inflationary episodes when other assets prove to be
better stores of value This can be explained by the fact that money is
A) extremely liquid
B) a unique good for which there are no substitutes
C) the only thing accepted in economic exchange
D) backed by gold
4) An increase in the quantity of money supplied shifts the money supply curve to the
________, and the equilibrium interest rate ________, everything else held constant
A) right; falls
B) right; rises
C) left; falls
D) left; rises
5) Keynes hypothesized that the transactions component of money demand was
primarily determined by the level of
A) interest rates
B) velocity
C) income
D) stock market prices
6) If American college students decide that drinking Mexican-brewed beer helps one
get noticed, net exports will tend to fall, causing aggregate demand to ________ and the
________ curve to shift to the left, everything else held constant
A) fall; LM
B) fall; IS
C) rise; LM
D) rise; IS
7) If aggregate output is below the natural rate level, activists of policies would
recommend that the government
A) do nothing
B) try to eliminate the high unemployment by attempting to shift the aggregate supply
curve to the right
C) try to eliminate the high unemployment by attempting to shift the aggregate demand
curve to the right
D) try to eliminate the high unemployment by attempting to shift the aggregate demand
curve to the left
8) Mortgage brokers often did not make a strong effort to evaluate whether the
borrower could pay off the loan This created a
A) severe adverse selection problem
B) decline in mortgage applications
C) call to deregulate the industry
D) decrease in the demand for houses
9) The factor accounting for the steepest rise in the currency ratio since 1892 is
A) taxes
B) bank panics
C) illegal activity
D) an increase in wealth
10) Of the three motives for holding money suggested by Keynes, which did he believe
to be the most sensitive to interest rates?
A) The transactions motive
B) The precautionary motive
C) The speculative motive
D) The altruistic motive
11) Bank capital is listed on the ________ side of the bank’s balance sheet because it
represents a ________ of funds
A) liability; use
B) liability; source
C) asset; use
D) asset; source
12) Which of the followings is a duty of the Board of Governors of the Federal Reserve
System?
A) Setting margin requirements, the fraction of the purchase price of the securities that
has to be paid for with cash
B) Setting the maximum interest rates payable on certain types of time deposits under
Regulation Q
C) Regulating credit with the approval of the president under the Credit Control Act of
1969
D) All governors advise the president of the United States on economic policy
13) The Volcker Rule addresses the off-balance-sheet problem involving
A) trading risks
B) selling loans
C) loan guarantees
D) interest rate risks