1) Everything else held constant, in the market for reserves, when the demand for
federal funds intersects the reserve supply curve along the horizontal section, increasing
the discount rate
A) increases the federal funds rate
B) lowers the federal funds rate
C) has no effect on the federal funds rate
D) has an indeterminate effect on the federal funds rate
2) If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $1000 billion, and excess reserves total $1 billion, then the M1
money multiplier is
A) 25
B) 28
C) 20
D) 07
3) Low stock market prices might ________ consumers willingness to spend and might
________ businesses willingness to undertake investment projects
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
4) Assuming initially that rr = 10%, c = 40%, and e = 0, an increase in rr to 15% causes
the M1 money multiplier to ________, everything else held constant
A) increase from 255 to 28
B) decrease from 28 to 255
C) increase from 182 to 2
D) decrease from 2 to 182
5) Argentina’s financial crisis was due to
A) poor supervision of the banking system
B) a lending boom prior to the crisis
C) fiscal imbalances
D) lack of expertise in screening and monitoring borrowers at banking institutions
6) The market where one currency is converted into another currency is called the
________ market
A) stock
B) bond
C) derivatives
D) foreign exchange
7) Starting in 1974, the conventional M1 money demand function began to
A) severely underpredict the demand for money
B) severely overpredict the demand for money
C) predict more precisely the demand for money
D) do none of the above
8) Prior to the 1980s, S&Ls and mutual savings banks were restricted almost entirely to
A) commercial real estate loans
B) home mortgages
C) education loans
D) vacation loans
9) The amount of deposits that banks must hold in reserve is
A) excess reserves
B) required reserves
C) total reserves
D) vault cash
10) The yield to maturity is ________ than the ________ rate when the bond price is
________ its face value
A) greater; coupon; above
B) greater; coupon; below
C) greater; perpetuity; above
D) less; perpetuity; below
11) Keynes hypothesized that the precautionary component of money demand was
primarily determined by the level of
A) interest rates
B) velocity
C) income
D) stock market prices
12) If Microsoft sells a bond in London and it is denominated in dollars, the bond is a
A) Eurobond
B) foreign bond
C) British bond
D) currency bond
13) American companies can borrow funds
A) only in US financial markets
B) only in foreign financial markets
C) in both US and foreign financial markets
D) only from the US government
14) An investment bank helps ________ issue securities
A) a corporation
B) the United States government
C) the SEC
D) foreign governments
15) According to the liquidity preference theory, the demand for money is ________
related to aggregate output and ________ related to interest rates
A) negatively; negatively
B) negatively; positively
C) positively; negatively
D) positively; positively
16) An autonomous increase in money demand, other things equal, shifts the ________
curve to the ________
A) IS; right
B) IS; left
C) LM; left
D) LM; right
17) A financial market in which previously issued securities can be resold is called a
________ market
A) primary
B) secondary
C) tertiary
D) used securities