1) Conflicts of interest are a type of ________ problem that can happen when an
institution provides multiple services
A) adverse selection
B) free-riding
C) discounting
D) moral hazard
2) The ability to use one resource to provide different products and services is
A) economies of scale
B) economies of scope
C) diversification
D) vertical integration
3) The increase in the availability of ATM’s has caused the cost of acquiring currency to
________ which will cause the currency ratio to ________, everything else held
constant
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
4) Provisions in loan contracts that prohibit borrowers from engaging in specified risky
activities are called
A) proscription bonds
B) restrictive covenants
C) due-on-sale clauses
D) liens
5) Critics of the current system of Fed independence contend that
A) the current system is undemocratic
B) voters have too much say about monetary policy
C) the president has too much control over monetary policy on a day-to-day basis
D) the Board of Governors is held responsible for policy missteps
6) If the required reserve ratio is 20 percent, the simple deposit multiplier is
A) 50
B) 25
C) 40
D) 100
7) Unanticipated moral hazard contingencies can be reduced by
A) screening
B) long-term customer relationships
C) specialization in lending
D) credit rationing
8) Planned investment spending, a component of aggregate demand, is equal to
A) fixed investment plus actual inventory investment
B) fixed investment plus unplanned inventory investment
C) fixed investment
D) fixed investment plus planned inventory investment
9) ________ in the domestic interest rate causes the demand for domestic assets to shift
to the right and the domestic currency to ________, everything else held constant
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
10) Financial intermediaries
A) provide a channel for linking those who want to save with those who want to invest
B) produce nothing of value and are therefore a drain on society’s resources
C) can hurt the performance of the economy
D) hold very little of the average American’s wealth
11) Sustained downward movements in the business cycle are referred to as
A) inflation
B) recessions
C) economic recoveries
D) expansions
12) If Treasury deposits at the Fed are predicted to increase, the manager of the trading
desk at the New York Fed bank will likely conduct ________ open market operations to
________ reserves
A) defensive; inject
B) defensive; drain
C) dynamic; inject
D) dynamic; drain
13) If the Fed pursues a strategy of targeting an interest rate when fluctuations in money
demand are prevalent,
A) fluctuations of nonborrowed reserves will be small
B) fluctuations of nonborrowed reserves will be large
C) the Fed will probably quickly abandon this policy, as it did in the 1960s
D) the Fed will probably quickly abandon this policy, as it did in the 1950s