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1) Everything else held constant, if a central bank makes an unsterilized ________ of
foreign assets, then the domestic money supply will decrease and the domestic currency
will ________
A) purchase; appreciate
B) purchase; depreciate
C) sale; appreciate
D) sale; depreciate
2) Reasons regulators chose to follow regulatory forbearance rather than to close the
insolvent S&Ls include all of the following except
A) they had insufficient funds to close all of the insolvent S&Ls
B) they were friends with the S&L owners
C) they hoped the problem would go away
D) they did not have the authority to close the insolvent S&Ls
3) Everything else held constant, when the federal funds rate is ________ the interest
rate paid on reserves, the quantity of reserves demanded rises when the federal funds
rate ________
A) above, rises
B) above, falls
C) below, rises
D) below, falls
4) Suppose that the Federal Reserve enacts expansionary policy Everything else held
constant, this will cause the demand for US assets to ________ and the US dollar to
________
A) increase; appreciate
B) decrease; appreciate
C) increase; depreciate
D) decrease; depreciate
5) Which of the following $1,000 face-value securities has the highest yield to
maturity?
A) A 5 percent coupon bond selling for $1,000
B) A 10 percent coupon bond selling for $1,000
C) A 12 percent coupon bond selling for $1,000
D) A 12 percent coupon bond selling for $1,100
6) The guiding principle for the conduct of monetary policy that held that as long as
loans were being made for "productive" purposes, then providing reserves to the
banking system to make these loans would not be inflationary became known as the
A) free reserves doctrine
B) Benjamin Strong doctrine
C) efficient liquidity doctrine
D) real bills doctrine
7) ________ is a flow of earnings per unit of time
A) Income
B) Money
C) Wealth
D) Currency
8) In the long-run ISLM model and with everything else held constant, the long-run
effect of a cut in government spending is to ________ real output and ________ the
interest rate
A) increase; increase
B) increase; not change
C) not change; increase
D) not change; decrease
9) ________ in the foreign interest rate causes the demand for domestic assets to
________ and the domestic currency to appreciate, everything else held constant
A) An increase; increase
B) An increase; decrease
C) A decrease; increase
D) A decrease; decrease
10) Both the CAPM and APT suggest that an asset should be priced so that it has a
higher expected return
A) when it has a greater systematic risk
B) when it has a greater risk in isolation
C) when it has a lower systematic risk
D) when it has a lower systematic risk and a lower risk in isolation
11) The rate of inflation increases when
A) the unemployment rate equals the NAIRU
B) the unemployment rate exceeds the NAIRU
C) the unemployment rate is less than the NAIRU
D) the unemployment rate increases faster than the NAIRU increases
12) Higher capital requirements will reduce the problems incurred when troubled
________ which had been off-balance sheet activities come back on the balance sheet
A) structured investment vehicles (SIVs)
B) negotiable CDs
C) Eurodollars
D) Federal funds
13) When in 1985 a British pound cost approximately $130, a Shetland sweater that
cost 100 British pounds would have cost $130 With a weaker dollar, the same Shetland
sweater would have cost
A) less than $130
B) more than $130
C) $130, since the exchange rate does not affect the prices that American consumers
pay for foreign goods
D) $130, since the demand for Shetland sweaters will decrease to prevent an increase in
price due to the stronger dollar
