1) The decline in traditional banking internationally can be attributed to
A) increased regulation
B) improved information technology
C) increasing monopoly power of banks over depositors
D) increased protection from competition
2) Everything else held constant, when bonds become less widely traded, and as a
consequence the market becomes less liquid, the demand curve for bonds shifts to the
________ and the interest rate ________
A) right; rises
B) right; falls
C) left; falls
D) left; rises
3) In the liquidity trap a small change in interest rates produces ________ change in the
quantity of money demanded
A) a small
B) no
C) a proportionate
D) a very large
4) The ________ problem of discretionary policy arises because economic behavior is
influenced by what firms and people expect the monetary authorities to do in the future
A) moral hazard
B) time-inconsistency
C) nominal-anchor
D) rational-expectation
5) Secondary reserves are so called because
A) they can be converted into cash with low transactions costs
B) they are not easily converted into cash, and are, therefore, of secondary importance
to banking firms
C) 50% of these assets count toward meeting required reserves
D) they rank second to bank vault cash in importance of bank holdings
6) In the late 1990s, the stock market bubble ________ the value of Tobin’s q, and
caused ________ in business equipment
A) increased; underinvestment
B) increased; overinvestment
C) decreased; underinvestment
D) decreased; overinvestment
7) The exchange rate is
A) the price of one currency relative to gold
B) the value of a currency relative to inflation
C) the change in the value of money over time
D) the price of one currency relative to another
8) Excess reserves are equal to
A) total reserves minus discount loans
B) vault cash plus deposits with Federal Reserve banks minus required reserves
C) vault cash minus required reserves
D) deposits with the Fed minus vault cash plus required reserves
9) A financial innovation that developed as a result of banks avoidance of bank
branching restrictions was
A) money market mutual funds
B) commercial paper
C) junk bonds
D) bank holding companies
10) Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, one million dollars in required reserves, and faces a required
reserve ratio of ten percent Given this information, we can say First National Bank has
________ million dollars on deposit with the Federal Reserve
A) one
B) two
C) eight
D) ten
11) Everything else held constant, a credit-drive bubble is generally considered to have
the potential to cause ________ damage to an economy compared to an irrational
exuberance bubble
A) less
B) about the same amount of
C) more
D) either more, less, or the same amount of
12) When a domestic currency is completely backed by a foreign currency and the
note-issuing authority establishes a fixed exchange rate to this foreign currency, then
the country is said to have
A) created a currency board
B) undergone dollarization
C) adopted a managed exchange system
D) adopted an exchange rate monetary system
13) The Fed’s holdings of securities consist primarily of ________, but also in the past
have included ________
A) Treasury securities; bankers’ acceptances
B) municipal securities; bankers’ acceptances
C) bankers’ acceptances; Treasury securities
D) Treasury securities; municipal securities
14) The chartering process is especially designed to deal with the ________ problem,
and regular bank examinations help to reduce the ________ problem
A) adverse selection; adverse selection
B) adverse selection; moral hazard
C) moral hazard; adverse selection
D) moral hazard; moral hazard