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1) In the liquidity preference framework, a one-time increase in the money supply
results in a price level effect The maximum impact of the price level effect on interest
rates occurs
A) at the moment the price level hits its peak (stops rising) because both the price level
and expected inflation effects are at work
B) immediately after the price level begins to rise, because both the price level and
expected inflation effects are at work
C) at the moment the expected inflation rate hits its peak
D) at the moment the inflation rate hits it peak
2) Financial intermediaries' low transaction costs allow them to provide ________
services that make it easier for customers to conduct transactions
A) liquidity
B) conduction
C) transcendental
D) equitable
3) In one of the earliest studies on the link between interest rates and money demand
using United States data, James Tobin concluded that the demand for money is
A) sensitive to interest rates
B) not sensitive to interest rates
C) not sensitive to changes in income
D) not sensitive to changes in bond values
4) The National Bank Act of 1863, and subsequent amendments to it,
A) created a banking system of state-chartered banks
B) established the Office of the Comptroller of the Currency
C) broadened the regulatory powers of the Federal Reserve
D) created insurance on deposit accounts
5) When an individual sells a $100 bond to the Fed, she may either deposit the check
she receives or cash it for currency In both cases
A) reserves increase
B) high-powered money increases
C) reserves decrease
D) high-powered money decreases
6) Which of the following is not an example of a backup line of credit?
A) loan commitments
B) overdraft privileges
C) standby letters of credit
D) mortgages
7) In the Keynesian liquidity preference framework, an increase in the interest rate
causes the demand curve for money to ________, everything else held constant
A) shift right
B) shift left
C) stay where it is
D) invert
8) Part of the increase in currency holdings in the 1960s and 1970s can be attributed to
A) increases in income tax rates
B) the switch from progressive to proportional income taxes
C) the adoption of regressive taxes
D) bracket creep due to inflation and progressive income taxes
9) Well-functioning financial markets
A) cause inflation
B) eliminate the need for indirect finance
C) cause financial crises
D) produce an efficient allocation of capital
10) Thrift institutions importance as a source of funds for borrowers
A) has shrunk from around 40 percent of total credit advanced in the late 1970s to
below 30 percent by 2011
B) has shrunk from over 20 percent of total credit advanced in the late 1970s to around
3 percent by 2011
C) has expanded dramatically, from around 15 percent of total credit advanced in the
late 1970s to above 25 percent by 2011
D) has expanded dramatically, from around 15 percent of total credit advanced in the
late 1970s to above 30 percent by 2011
11) The Fed accidentally discovered open market operations when
A) it came to the rescue of failing banks in the early 1930s, and found that its purchases
of bank loans injected reserves into the banking system
B) it purchased securities for income following the 1920-1921 recession
C) it attempted to slow inflation in 1919 by selling securities and found that its sales
drained reserves from the banking system
D) it reinterpreted a key provision of the Federal Reserve Act
