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1) If real GDP in 2002 is $10 trillion, and in 2003 real GDP is $95 trillion, then real
GDP growth from 2002 to 2003 is
A) 05%
B) 5%
C) 0%
D) -5%
2) The spectacular growth in international banking can be explained by
A) the rapid growth in international trade
B) the 1988 Basel Agreement
C) the desire for US banks to escape burdensome domestic regulations
D) the creation of the World Trade Organization
3) If a $10,000 face-value discount bond maturing in one year is selling for $5,000, then
its yield to maturity is
A) 5 percent
B) 10 percent
C) 50 percent
D) 100 percent
4) Although restrictive covenants can potentially reduce moral hazard, a problem with
restrictive covenants is that
A) borrowers may find loopholes that make the covenants ineffective
B) they are inexpensive to monitor and enforce
C) too many resources may be devoted to monitoring and enforcing them, as
debtholders duplicate others' monitoring and enforcement efforts
D) they reduce the value of the debt contract
5) In the figure above, the factor responsible for the decline in the interest rate is
A) a decline the price level
B) a decline in income
C) an increase in the money supply
D) a decline in the expected inflation rate
6) When asset prices increase above their fundamental values it is called an
A) asset-price bubble
B) irrational bubble
C) asset-price spike
D) irrational spike
7) Irving Fisher's view that velocity is fairly constant in the short run transforms the
equation of exchange into the
A) Friedman's theory of income determination
B) quantity theory of money
C) Keynesian theory of income determination
D) monetary theory of income determination
8) ATMs were developed because of breakthroughs in technology and as a
A) means of avoiding restrictive branching regulations
B) means of avoiding paying interest to corporate customers
C) way of concealing transactions from the SEC
D) increasing the competition from foreign banks
9) The fact that an economy always returns to the natural rate level of output is known
as
A) the excess demand hypothesis
B) the price-adjustment mechanism
C) the self-correcting mechanism
D) the natural rate of unemployment
10) If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment
every year is
A) $650
B) $1,300
C) $130
D) $13
11) An autonomous tightening of monetary policy
A) causes an upward movement along the monetary policy curve
B) causes a downward movement along the monetary policy curve
C) shifts the monetary policy curve upward
D) shifts the monetary policy curve downward
12) When the economy is hit by a negative demand shock and the central bank pursues
policies to increase aggregate demand to its initial level, then
A) inflation will be lower
B) output will be at its potential
C) output will be lower
D) inflation will be unchanged
E) both B and D
13) A problem with barter exchange when there are many goods is that in a barter
system
A) transactions costs are minimized
B) there exists a multiple number of prices for each good
C) there is only one store of value
D) exchange of services is impossible
14) If stock prices are expected to climb next year, everything else held constant, the
________ curve for bonds shifts ________ and the interest rate ________
A) demand; left; rises
B) demand; right; rises
C) demand; left; falls
D) supply; left; rises
15) An equal decrease in all bond interest rates
A) increases the price of a five-year bond more than the price of a ten-year bond
B) increases the price of a ten-year bond more than the price of a five-year bond
C) decreases the price of a five-year bond more than the price of a ten-year bond
D) decreases the price of a ten-year bond more than the price of a five-year bond
16) The Fed's lender-of-last-resort function
A) has proven to be ineffective
B) cannot prevent runs by large depositors
C) is no longer necessary due to FDIC insurance
D) creates a moral hazard problem
