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1) At the time of the South Korean financial crisis, the merchant banks were
A) almost virtually unregulated
B) subject to heavy government regulation
C) engaged in long-term lending to the corporate sector
D) restricted to long-term foreign borrowing
2) Banks are important to the study of money and the economy because they
A) channel funds from investors to savers
B) have been a source of rapid financial innovation
C) are the only important financial institution in the US economy
D) create inflation
3) Everything else held constant, a decrease in net taxes will cause the IS curve to shift
to the ________ and aggregate demand will ________
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
4) Comparing Tobin's model of the speculative demand for money with Keynesian
speculative demand
A) both models imply that individuals hold only money or only bonds
B) the Keynesian model implies individuals diversify their asset holdings, while the
Tobin model predicts that individuals hold only money or only bonds
C) the Tobin model implies individuals diversify their asset holdings, while the
Keynesian model predicts that individuals hold only money or only bonds
D) both models imply that individuals diversify their asset holdings
5) Methods of financing government spending are described by an expression called the
government budget constraint, which states the following:
A) DEFICIT = (G - T) = MB + BONDS
B) DEFICIT = (G - T) = MB - BONDS
C) DEFICIT = (G - T) = BONDS - MB
D) DEFICIT = (G - T) = MB/BONDS
6) If the government finances its spending by issuing debt to the public, the monetary
base will ________ and the money supply will ________
A) increase; increase
B) increase; decrease
C) decrease; increase
D) not change; not change
7) Since 1980
A) bank profitability has declined
B) banks have offset the decline in profits from traditional activities with increased
income from off-balance-sheet activities
C) banks have offset the decline in profits from off-balance-sheet activities with
increased income from traditional activities
D) bank profits have grown rapidly due to deregulation
8) If the Fed injects reserves into the banking system and they are held as excess
reserves, then the monetary base ________ and the money supply ________
A) remains unchanged; remains unchanged
B) remains unchanged; increases
C) increases; increases
D) increases; remains unchanged
9) When the value of loans begins to drop, the net worth of financial institutions falls
causing them to cut back on lending in a process called
A) deleveraging
B) releveraging
C) capitulation
D) deflation
10) If the Federal Reserve conducts open market purchases, the money supply
________, shifting the LM curve to the ________, everything else held constant
A) decreases; right
B) decreases; left
C) increases; right
D) increases; left
11) A decrease in ________ leads to an equal ________ in the monetary base in the
short run
A) float; increase
B) float; decrease
C) Treasury deposits at the Fed; decrease
D) discount loans; increase
12) A movement along the bond demand or supply curve occurs when ________
changes
A) bond price
B) income
C) wealth
D) expected return
