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1) Because banks engage in regulatory arbitrage, the Basel Accord on risk-based capital
requirements may result in
A) reduced risk taking by banks
B) reduced supervision of banks by regulators
C) increased fraudulent behavior by banks
D) increased risk taking by banks
2) When compared to exchange systems that rely on money, disadvantages of the barter
system include:
A) the requirement of a double coincidence of wants
B) lowering the cost of exchanging goods over time
C) lowering the cost of exchange to those who would specialize
D) encouraging specialization and the division of labor
3) Demand-pull inflation can result when
A) policymakers set an unemployment target that is too high
B) a persistent budget deficit is financed by selling bonds to the public
C) a persistent budget deficit is financed by selling bonds to the central bank
D) workers get numerous wage increases
4) Financing government spending by selling bonds to the public, which pays for the
bonds with currency,
A) leads to a permanent decline in the monetary base
B) leads to a permanent increase in the monetary base
C) leads to a temporary increase in the monetary base
D) has no net effect on the monetary base
5) Under the Bretton Woods system, the IMF could encourage ________ countries to
pursue ________ monetary policies that would strengthen their currency or eliminate
their balance of payment deficits
A) surplus; expansionary
B) surplus; contractionary
C) deficit; expansionary
D) deficit; contractionary
6) One of the assumptions of the Gordon Growth Model is that dividends will continue
growing at ________ rate
A) an increasing
B) a fast
C) a constant
D) an escalating
7) Uncertainty about interest-rate movements and returns is called
A) market potential
B) interest-rate irregularities
C) interest-rate risk
D) financial creativity
8) For which of the following is the change in reserves necessarily different from the
change in the monetary base?
A) Open market purchases from a bank
B) Open market purchases from an individual who deposits the check in a bank
C) Open market purchases from an individual who cashes the check
D) Open market sale to a bank
9) The price of a barrel of oil doubled between 2007 and the middle of 2008 To make
matters worse, a financial crisis hit the US economy starting in August of 2007 Which
of the following is an appropriate description of the mechanism that would have
ensued?
A) The increase in the price of oil would have immediately shifted the AS curve to the
right
B) The financial crisis would have led to a sharp contraction in spending shifting the
AD curve to the right
C) Shifts in both the AD and the AS curve would have ensued in the short-run but as
long as neither shock had an impact on potential output, ultimately unemployment will
have been unaffected in the long run
D) All of the above
E) None of the above
10) If you expect the inflation rate to be 4 percent next year and a one year bond has a
yield to maturity of 7 percent, then the real interest rate on this bond is
A) -3 percent
B) -2 percent
C) 3 percent
D) 7 percent
11) Which of the following does not appear in the current account part of the balance of
payments?
A) A loan of $1 million from Bank of America to Brazil
B) Foreign aid to El Salvador
C) An Air France ticket bought by an American
D) Income earned by General Motors from its plants abroad
12) The McFadden Act of 1927
A) effectively prohibited banks from branching across state lines
B) required that banks maintain bank capital equal to at least 6 percent of their assets
C) effectively required that banks maintain a correspondent relationship with large
money center banks
D) separated the commercial banks and investment banks
13) Everything else held constant, an autonomous easing of monetary policy will cause
A) aggregate demand to increase
B) aggregate demand to decrease
C) the quantity of aggregate demand to increase
D) the quantity of aggregate demand to decrease
14) Everything else held constant, if a central bank makes an unsterilized ________ of
foreign assets, then the domestic money supply will increase and the domestic currency
will ________
A) purchase; appreciate
B) purchase; depreciate
C) sale; appreciate
D) sale; depreciate
15) Because of their ________ liquidity, ________ US government securities are called
secondary reserves
A) low; short-term
B) low; long-term
C) high; short-term
D) high; long-term
16) Prior to almost all recessions since 1900, there has been a drop in
A) inflation
B) the money stock
C) the growth rate of the money stock
D) interest rates
17) Explain the 1992 crisis that led to the breakdown of the European Union's
Exchange Rate Mechanism What disadvantages of exchange-rate targeting were
exhibited during this crisis?
18) Distinguish between direct finance and indirect finance Which of these is the most
important source of funds for corporations in the United States?
