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1) When financial intermediaries deleverage, firms cannot fund investment
opportunities resulting in
A) a contraction of economic activity
B) an economic boom
C) an increased opportunity for growth
D) a call for government regulation
2) If the Federal Reserve conducts open market ________, the money supply
________, shifting the LM curve to the left, everything else held constant
A) purchases; decreases
B) sales; decreases
C) purchases; increases
D) sales; increases
3) Everything else held constant, when stock prices become less volatile, the demand
curve for bonds shifts to the ________ and the interest rate ________
A) right; rises
B) right; falls
C) left; falls
D) left; rises
4) Factors that can cause the supply curve for bonds to shift to the right include
A) an expansion in overall economic activity
B) a decrease in expected inflation
C) a decrease in government deficits
D) a business cycle recession
5) Nominal GDP is output measured in ________ prices while real GDP is output
measured in ________ prices
A) current; current
B) current; fixed
C) fixed; fixed
D) fixed; current
6) The concept of adverse selection helps to explain all of the following except
A) why firms are more likely to obtain funds from banks and other financial
intermediaries, rather than from the securities markets
B) why indirect finance is more important than direct finance as a source of business
finance
C) why direct finance is more important than indirect finance as a source of business
finance
D) why the financial system is so heavily regulated
7) The First Bank of the United States
A) was disbanded in 1811 when its charter was not renewed
B) had its charter renewal vetoed in 1832
C) was fundamental in helping the Federal Government finance the War of 1812
D) None of the above
8) Financing government spending with taxes
A) causes both reserves and the monetary base to rise
B) causes both reserves and the monetary base to decline
C) causes reserves to rise, but the monetary base to decline
D) has no net effect on the monetary base
9) In a bank panic, the source of contagion is the
A) free-rider problem
B) too-big-to-fail problem
C) transactions cost problem
D) asymmetric information problem
10) Suppose that there is a negative aggregate demand shock and the central bank
commits to an inflation rate target But if the commitment is not credible, then
A) the public's expected inflation will remain unchanged
B) the short-run aggregate supply curve will rise
C) economic contraction will be worse
D) all of the above
E) both B and C
11) Suppose you are holding a 5 percent coupon bond maturing in one year with a yield
to maturity of 15 percent If the interest rate on one-year bonds rises from 15 percent to
20 percent over the course of the year, what is the yearly return on the bond you are
holding?
A) 5 percent
B) 10 percent
C) 15 percent
D) 20 percent
12) When the price of a bond is above the equilibrium price, there is an excess
________ bonds and price will ________
A) demand for; rise
B) demand for; fall
C) supply of; fall
D) supply of; rise
13) If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $08 billion, then the
currency ratio is
A) 025
B) 050
C) 040
D) 005
14) The Federal Open Market Committee makes the Fed's decisions on the purchase or
sale of government securities, but these purchases or sales are executed by the Federal
Reserve Bank of
A) Chicago
B) Boston
C) New York
D) San Francisco
15) If a security pays $110 next year and $121 the year after that, what is its yield to
maturity if it sells for $200?
A) 9 percent
B) 10 percent
C) 11 percent
D) 12 percent
16) If the price level doubles, the value of money
A) doubles
B) more than doubles, due to scale economies
C) rises but does not double, due to diminishing returns
D) falls by 50 percent
17) The M1 measure of money includes
A) small denomination time deposits
B) traveler's checks
C) money market deposit accounts
D) money market mutual fund shares
18) The theory of PPP suggests that if one country's price level rises relative to
another's, its currency should
A) depreciate
B) appreciate
C) float
D) do none of the above
