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1) A smart card is the equivalent of
A) cash
B) savings bonds
C) savings deposits
D) certificates of deposit
2) When the price level ________, the demand curve for money shifts to the ________
and the interest rate ________, everything else held constant
A) falls; left; falls
B) rises; right; falls
C) falls; left; rises
D) rises; right; rises
3) In the market for reserves, if the federal funds rate is between the discount rate and
the interest rate paid on excess reserves, a ________ in the reserve requirement
________ the demand for reserves, raising the federal funds interest rate, everything
else held constant
A) rise; decreases
B) rise; increases
C) decline; increases
D) decline; decreases
4) The problem faced by the lender that the borrower may take on additional risk after
receiving the loan is called
A) adverse selection
B) moral hazard
C) transactions costs
D) diversification
5) The monetary policy (MP) curve indicates the relationship between
A) the Federal Funds Rate and the real interest rate
B) the Federal Funds Rate and the inflation rate
C) the inflation rate and the expected inflation rate
D) the real interest rate the central bank sets and the inflation rate
6) Everything else held constant, a decrease in government spending 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
7) Under the European System of Central Banks, the National Central Banks have the
same role as the ________ of the Federal Reserve System
A) Board of Governors
B) Federal Open Market Committee
C) Federal Reserve Banks
D) Federal Advisory Council
8) Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one
million dollars in required reserves Given this information, we can say First National
Bank has ________ million dollars in excess reserves
A) three
B) nine
C) ten
D) eleven
9) Assume that autonomous consumption equals $200 and disposable income equals
$1000 If total consumption equal $800, then the mpc equals
A) 02
B) 06
C) 08
D) 10
10) In the money market, a condition of excess supply of money can be eliminated by a
________ in aggregate output or a ________ in the interest rate, everything else held
constant
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
11) The theory of rational expectations, when applied to financial markets, is known as
A) monetarism
B) the efficient markets hypothesis
C) the theory of strict liability
D) the theory of impossibility
12) Bank customers perceive Internet banks as being
A) more secure than physical bank branches
B) a better method for the purchase of long-term savings products
C) better at keeping customer information private
D) prone to many more technical problems
13) Reasons for holding Eurodollars include
A) the fact that Eurodollar deposits are insured by the FDIC
B) the fact that dollars are widely used to conduct international transactions
C) the fact that minimum transaction sizes are very low, making Eurodollars an
attractive savings instrument for consumers
D) the fact that Eurodollar deposits are heavily regulated
14) Assume that the following are the predicted inflation rates in these countries for the
year: 2% for the United States, 3% for Canada; 4% for Mexico, and 5% for Brazil
According to the purchasing power parity and everything else held constant, which of
the following would we expect to happen?
A) The Brazilian real will depreciate against the US dollar
B) The Mexican peso will depreciate against the Brazilian real
C) The Canadian dollar will depreciate against the Mexican peso
D) The US dollar will depreciate against the Canadian dollar
15) Using the one-period valuation model, assuming a year-end dividend of $100, an
expected sales price of $100, and a required rate of return of 5%, the current price of the
stock would be
A) $11000
B) $10100
C) $10000
D) $9619
16) For a commodity to function effectively as money it must be
A) easily standardized, making it easy to ascertain its value
B) difficult to make change
C) deteriorate quickly so that its supply does not become too large
D) hard to carry around
17) Which of the following statements concerning external sources of financing for
nonfinancial businesses in the United States are true?
A) Stocks are a far more important source of finance than are bonds
B) Stocks and bonds, combined, supply less than one-half of the external funds
C) Financial intermediaries are the least important source of external funds for
businesses
D) Since 1970, more than half of the new issues of stock have been sold to American
households
18) In general, banks make profits by selling ________ liabilities and buying ________
assets
A) long-term; shorter-term
B) short-term; longer-term
C) illiquid; liquid
D) risky; risk-free
19) In the bond market, the market equilibrium shows the market-clearing ________
and market-clearing ________
A) price; deposit
B) interest rate; deposit
C) price; interest rate
D) interest rate; premium
20) An increase in interest rates
A) increases the value of the dollar, net exports, and equilibrium output
B) increases the value of the dollar, reducing net exports and equilibrium output
C) reduces the value of the dollar, net exports, and equilibrium output
D) reduces the value of the dollar, increasing net exports and equilibrium output
