1) Because policies in the United States were too expansionary from 1965 through
1973, the US suffered
A) demand-pull inflation
B) cost-push inflation, as workers sought higher wages in order to keep up with
inflation
C) both demand-pull and cost-push inflation
D) neither demand-pull nor cost-push inflation
2) Which of the following instruments are traded in a money market?
A) Bank commercial loans
B) Commercial paper
C) State and local government bonds
D) Residential mortgages
3) When real income ________, the demand curve for money shifts to the ________
and the interest rate ________, everything else held constant
A) falls; right; rises
B) rises; right; rises
C) falls; left; rises
D) rises; left; rises
4) When paper currency is decreed by governments as legal tender, legally it must be
A) paper currency backed by gold
B) a precious metal such as gold or silver
C) accepted as payment for debts
D) convertible into an electronic payment
5) Which of the following are investment intermediaries?
A) Life insurance companies
B) Mutual funds
C) Pension funds
D) State and local government retirement funds
6) The result of the too-big-to-fail policy is that ________ banks will take on ________
risks, making bank failures more likely
A) small; fewer
B) small; greater
C) big; fewer
D) big; greater
7) Which of the following financial intermediaries is not a depository institution?
A) A savings and loan association
B) A commercial bank
C) A credit union
D) A finance company
8) What makes the Federal Reserve so unique compared to other central banks around
the world is its
A) centralized structure
B) decentralized structure
C) regulatory functions
D) monetary policy functions
9) Everything else held constant, an increase in the riskiness of bonds relative to
alternative assets causes the demand for bonds to ________ and the demand curve to
shift to the ________
A) rise; right
B) rise; left
C) fall; right
D) fall; left
10) Everything else held constant, a decrease in the required reserve ratio on checkable
deposits will mean
A) a decrease in the money supply
B) an increase in the money supply
C) a decrease in checkable deposits
D) an increase in discount loans
11) At its inception, the Federal Reserve was intended to be
A) the Treasury’s banker
B) the issuer of government debt
C) a lender-of-last-resort
D) a regulator of bank holding companies
12) Which of the following is not a disadvantage of exchange-rate targeting?
A) It relies on a stable money-inflation relationship
B) The targeting country gives up an independent monetary policy
C) The targeting country is left open for a speculative attack
D) It can weaken the accountability of policymakers
13) Much of the credit for prevention of a financial market meltdown after “Black
Monday” (October 19, 1987) must be given to the Federal Reserve System and its
chairman
A) Paul Volker
B) Alan Blinder
C) Arthur Burns
D) Alan Greenspan
14) The most liquid securities traded in the capital market are
A) corporate bonds
B) municipal bonds
C) US Treasury bonds
D) mortgage-backed securities
15) Keynes’s liquidity preference theory indicates that the demand for money
A) is purely a function of income, and interest rates have no effect on the demand for
money
B) is purely a function of interest rates, and income has no effect on the demand for
money
C) is a function of both income and interest rates
D) is a function of both government spending and income
16) The concept of diversification is captured by the statement
A) don’t look a gift horse in the mouth
B) don’t put all your eggs in one basket
C) it never rains, but it pours
D) make hay while the sun shines