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1) The economic hardship resulting from a financial crises is severe, however, there are
also social consequences such as
A) increased crime
B) difficulty getting a loan
C) currency devaluations
D) loss of output
2) With ________, firms value assets on their balance sheet at what they would sell for
in the market
A) mark-to-market accounting
B) book-value accounting
C) historical-cost accounting
D) off-balance sheet accounting
3) In the ISLM framework, an expansionary fiscal policy causes aggregate output to
________ and the interest rate to ________, everything else held constant
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
4) In practice, the Fed's policy of targeting ________ in the 1960s proved to be
________, destabilizing the economy
A) money market conditions; countercyclical
B) money market conditions; procyclical
C) monetary aggregates; countercyclical
D) monetary aggregates; procyclical
5) The principal-agent problem that exists for bank trading activities can be reduced
through
A) creation of internal controls that combine trading activities with bookkeeping
B) creation of internal controls that separate trading activities from bookkeeping
C) elimination of regulation of banking
D) elimination of internal controls
6) As a source of funds for nonfinancial businesses, stocks are relatively more
important in
A) the United States
B) Germany
C) Japan
D) Canada
7) Which of the following statements is false?
A) Checkable deposits are usually the lowest cost source of bank funds
B) Checkable deposits are the primary source of bank funds
C) Checkable deposits are payable on demand
D) Checkable deposits include NOW accounts
8) "Bureaucratic gambling" refers to
A) the strategy of thrift managers that they would not be audited by thrift regulators in
the 1980s due to the relatively weak bureaucratic power of thrift regulators
B) the risk that thrift regulators took in publicizing the plight of the S&L industry in the
early 1980s
C) the strategy adopted by thrift regulators of lowering capital requirements and
pursuing regulatory forbearance in the 1980s in the hope that conditions in the S&L
industry would improve
D) the risk that regulators took in going to Congress to ask for additional funds
9) When you deposit $50 in currency at Old National Bank,
A) its assets increase by less than $50 because of reserve requirements
B) its reserves increase by less than $50 because of reserve requirements
C) its liabilities increase by $50
D) its liabilities decrease by $50
10) The problems of raising the level of the inflation target include
A) if the zero-lower-bound problem is rare, then the benefits of a higher inflation target
are not very large
B) the costs of higher inflation in terms of the distortions it produces in the economy
are high
C) it is more difficult to stabilize the inflation rate at a higher targeting level
D) all of the above
