1) Credit risk management tools include
A) deductibles
B) collateral
C) interest rate swaps
D) duration analysis
2) Federal deposit insurance covers deposits up to $250,000, but as part of a doctrine
called “too-big-to-fail” the FDIC sometimes ends up covering all deposits to avoid
disrupting the financial system When the FDIC does this, it uses the
A) “payoff” method
B) “purchase and assumption” method
C) “inequity” method
D) “Basel” method
3) An agreement to exchange dollar bank deposits for euro bank deposits in one month
is a
A) spot transaction
B) future transaction
C) forward transaction
D) deposit transaction
4) Subtracting borrowed reserves from the monetary base obtains
A) reserves
B) high-powered money
C) the nonborrowed monetary base
D) the borrowed monetary base
5) Activists of the policies believe that
A) the self-correcting mechanism through wage and price adjustment is very slow
B) wages and prices are sticky
C) the government needs to pursue active policy to eliminate high unemployment when
it develops
D) all of the above
6) An autonomous depreciation of the US dollar makes American goods ________
relative to foreign goods and results in a ________ in US net exports, everything else
held constant
A) cheaper; decline
B) cheaper; rise
C) more expensive; decline
D) more expensive; rise
7) A fully amortized loan is another name for
A) a simple loan
B) a fixed-payment loan
C) a commercial loan
D) an unsecured loan
8) In the generalized dividend model, if the expected sales price is in the distant future
A) it does not affect the current stock price
B) it is more important than dividends in determining the current stock price
C) it is equally important with dividends in determining the current stock price
D) it is less important than dividends but still affects the current stock price
9) The time-inconsistency problem in monetary policy can occur when the central bank
conducts policy
A) using a nominal anchor
B) using a strict and inflexible rule
C) on a discretionary, day-by-day basis
D) using a flexible, discretionary rule
10) Under a fixed exchange rate regime, if the domestic currency is initially ________,
that is, ________ par, the central bank must intervene to purchase the domestic
currency by selling foreign assets
A) overvalued; below
B) overvalued; above
C) undervalued; below
D) undervalued; above
11) During World War II, the Fed in effect relinquished its control of monetary policy
through its policy of
A) continually lowering reserve requirements
B) continually raising reserve requirements
C) pegging interest rates
D) targeting free reserves
12) The Keynesian theory of money demand predicts that people will increase their
money holdings if they believe that
A) interest rates are about to fall
B) bond prices are about to rise
C) expected inflation is about to fall
D) bond prices are about to fall
13) Which of the following are short-term financial instruments?
A) A repurchase agreement
B) A share of Walt Disney Corporation stock
C) A Treasury note with a maturity of four years
D) A residential mortgage
14) Countries with balance of payments deficits do not want to see their currencies
________ because it makes foreign goods ________ expensive for domestic consumers
A) appreciate; less
B) appreciate; more
C) depreciate; less
D) depreciate; more
15) The currency component includes paper money and coins held in
A) bank vaults
B) ATMs
C) the hands of the nonbank public
D) the central bank
16) The long-run neutrality of money refers to the fact that in the long run, monetary
policy
A) changes only real output
B) changes only the real interest rate
C) changes both real output and the real interest rate
D) has no effect on either real output or the real interest rate
17) A shift in tastes toward American goods ________ net exports in the US and causes
the quantity of aggregate output demanded to ________ in the US, everything else held
constant
A) decreases; rise
B) decreases; fall
C) increases; rise
D) increases; fall
18) An increase in the expected inflation rate causes the supply of bonds to ________
and the supply curve to shift to the ________, everything else held constant
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right
19) If aggregate demand is less than the level of aggregate output, then ________
inventory investment will be ________
A) planned; positive
B) actual; positive
C) actual; negative
D) planned; negative
20) In asset markets, an asset’s price is
A) set equal to the highest price a seller will accept
B) set equal to the highest price a buyer is willing to pay
C) set equal to the lowest price a seller is willing to accept
D) set by the buyer willing to pay the highest price