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1) Modern liability management has resulted in
A) increased sales of certificates of deposits to raise funds
B) increase importance of deposits as a source of funds
C) reduced borrowing by banks in the overnight loan market
D) failure by banks to coordinate management of assets and liabilities
2) The existence of lags prevents the instantaneous adjustment of the economy to
policies changing aggregate demand, thereby strengthening the case for
A) supply-side policy
B) nonactivists
C) activists
D) demand-management policy
3) A simple deposit multiplier equal to four implies a required reserve ratio equal to
A) 100 percent
B) 50 percent
C) 25 percent
D) 0 percent
4) Everything else held constant, when stock prices become ________ volatile, the
demand curve for bonds shifts to the ________ and the interest rate ________
A) more; right; rises
B) more; right; falls
C) less; left; falls
D) less; left; does not change
5) The purpose of the commitment by the Fed to keep the federal funds rate at zero for a
long period of time is to
A) lower the long term interest rates
B) lower the short term interest rates
C) increase the long term interest rates
D) increase the short term interest rates
6) In the late 1990s, M2 velocity ________, suggesting a ________ normal relationship
between M2 and macroeconomic variables
A) stabilized; less
B) stabilized; more
C) slowed; less
D) slowed; more
7) The regulatory system that has evolved in the United States whereby banks are
regulated at the state level, the national level, or both, is known as a
A) bilateral regulatory system
B) tiered regulatory system
C) two-tiered regulatory system
D) dual banking system
8) If the FDIC decides that a bank is too big to fail, it will use the ________ method,
effectively ensuring that ________ depositors will suffer losses
A) payoff; large
B) payoff; no
C) purchase and assumption; large
D) purchase and assumption; no
9) High interest rates might ________ purchasing a house or car but at the same time
high interest rates might ________ saving
A) discourage; encourage
B) discourage; discourage
C) encourage; encourage
D) encourage; discourage
10) If there are four goods in a barter economy, then one needs to know ________
prices in order to exchange one good for another
A) 8
B) 6
C) 5
D) 4
11) Moral hazard in equity contracts is known as the ________ problem because the
manager of the firm has fewer incentives to maximize profits than the stockholders
might ideally prefer
A) principal-agent
B) adverse selection
C) free-rider
D) debt deflation
12) Everything else held constant, an increase in the money market fund ratio will result
in ________ in the M1 money multiplier and ________ in the M2 money multiplier
A) an increase; an increase
B) no change; an increase
C) a decrease; a decrease
D) no change; a decrease
13) Of the four effects on interest rates from an increase in the money supply, the one
that works in the opposite direction of the other three is the
A) liquidity effect
B) income effect
C) price level effect
D) expected inflation effect
