1) Every financial market has the following characteristic:
A) It determines the level of interest rates
B) It allows common stock to be traded
C) It allows loans to be made
D) It channels funds from lenders-savers to borrowers-spenders
2) From before the financial crisis began in September of 2007 to when the crisis was
over at the end of 2009, amount of Federal Reserve assets rose, leading to
A) a huge increase in the monetary base
B) a huge expansion of the money supply
C) an economic expansion
D) a high inflation
3) An example of economies of scale in the provision of financial services is
A) investing in a diversified collection of assets
B) providing depositors with a variety of savings certificates
C) spreading the cost of borrowed funds over many customers
D) spreading the cost of writing a standardized contract over many borrowers
4) A decrease in the availability of raw materials that increases the price level is called a
________ shock
A) negative demand
B) positive demand
C) negative supply
D) positive supply
5) Which of the following is not a disadvantage of controls on capital outflows?
A) The controls may lead to excessive risk taking by the domestic banks
B) They are seldom effective during a crisis
C) Capital flight may increase after they are put in place
D) Controls often lead to an increase in government corruption
6) Exchange rates are determined in
A) the money market
B) the foreign exchange market
C) the stock market
D) the capital market
7) Tobin’s model of the speculative demand for money shows that people hold money as
a store of wealth as a way of
A) reducing risk
B) reducing income
C) avoiding taxes
D) reducing transactions cost
8) In the Keynesian cross diagram, a decrease in investment spending because
companies become more pessimistic about investment profitability causes the aggregate
demand function to shift ________, the equilibrium level of aggregate output to fall,
and the IS curve to shift to the ________, everything else held constant
A) up; left
B) up; right
C) down; left
D) down; right
9) Financial markets promote greater economic efficiency by channeling funds from
________ to ________
A) investors; savers
B) borrowers; savers
C) savers; borrowers
D) savers; lenders
10) As a result of its power to dictate loan terms to borrowing countries (under the
Bretton Woods system), the IMF could encourage ________ countries to pursue
________ monetary policies that would strengthen their currency or eliminate their
balance of payments deficits
A) surplus; contractionary
B) surplus; expansionary
C) deficit; contractionary
D) deficit; expansionary
11) Which of the following $5,000 face-value securities has the highest yield to
maturity?
A) A 6 percent coupon bond selling for $5,000
B) A 6 percent coupon bond selling for $5,500
C) A 10 percent coupon bond selling for $5,000
D) A 12 percent coupon bond selling for $4,500
12) The presence of so many commercial banks in the United States is most likely the
result of
A) consumers’ strong desire for dealing with only local banks
B) adverse selection and moral hazard problems that give local banks a competitive
advantage over larger banks
C) prior regulations that restricted the ability of these financial institutions to open
branches
D) consumers’ preference for state banks
13) If the US Congress imposes a quota on imports of Japanese cars due to claims of
“unfair” trade practices, and Japanese demand for American exports increases at the
same time, then, in the long run ________, everything else held constant
A) the Japanese yen will appreciate relative to the US dollar
B) the Japanese yen will depreciate relative to the US dollar
C) the Japanese yen will either appreciate, depreciate or remain constant against the US
dollar
D) there will be no effect on the Japanese yen relative to the US dollar
14) Under a fixed exchange rate system, countries that ran large, persistent balance of
payments deficits would ________ international reserves, thereby pressuring them into
________ their exchange rate
A) gain; devaluing
B) gain; revaluing
C) lose; devaluing
D) lose; revaluing
15) The legislation that effectively prohibited banks from branching across state lines
and forced all national banks to conform to the branching regulations in the state in
which they reside is the
A) McFadden Act
B) National Bank Act
C) Glass-Steagall Act
D) Garn-StGermain Act
16) If prices in the bond market become more volatile, everything else held constant,
the demand curve for bonds shifts ________ and interest rates ________
A) left; rise
B) left; fall
C) right; rise
D) right; fall
17) Everything else held constant, a monetary expansion is characterized by ________
output and ________ interest rates
A) rising; rising
B) rising; falling
C) falling; rising
D) falling; falling