1) A credit market instrument that pays the owner a fixed coupon payment every year
until the maturity date and then repays the face value is called a
A) simple loan
B) fixed-payment loan
C) coupon bond
D) discount bond
2) The too-big-to-fail policy
A) reduces moral hazard problems
B) puts large banks at a competitive disadvantage in attracting large deposits
C) treats large depositors of small banks inequitably when compared to depositors of
large banks
D) allows small banks to take on more risk than large banks
3) All ________ are required to be members of the Fed
A) state chartered banks
B) nationally chartered banks
C) banks with assets less than $100 million
D) banks with assets less than $500 million
4) Financial innovation has caused
A) banks to suffer declines in their cost advantages in acquiring funds, although it has
not caused a decline in income advantages
B) banks to suffer a simultaneous decline of cost and income advantages
C) banks to suffer declines in their income advantages in acquiring funds, although it
has not caused a decline in cost advantages
D) banks to achieve competitive advantages in both costs and income
5) Which of the following is not an element of inflation targeting?
A) A public announcement of medium-term numerical targets for inflation
B) An institutional commitment to price stability as the primary long-run goal
C) An information-inclusive approach in which only monetary aggregates are used in
making decisions about monetary policy
D) Increased accountability of the central bank for attaining its inflation objectives
6) Suppose a person cashes his payroll check and holds all the funds in the form of
currency Everything else held constant, total reserves in the banking system ________
and the monetary base ________
A) remain unchanged; increases
B) decrease; increases
C) decrease; remains unchanged
D) decrease; decreases
7) Bankers’ concerns regarding the optimal mix of excess reserves, secondary reserves,
borrowings from the Fed, and borrowings from other banks to deal with deposit
outflows is an example of
A) liability management
B) liquidity management
C) managing interest rate risk
D) managing credit risk
8) FIRREA increased the core-capital leverage requirement for thrift institutions from
3% to
A) 8%
B) 5%
C) 10%
D) 25%
9) A rising stock market index due to higher share prices
A) increases people’s wealth, but is unlikely to increase their willingness to spend
B) increases people’s wealth and as a result may increase their willingness to spend
C) decreases the amount of funds that business firms can raise by selling newly-issued
stock
D) decreases people’s wealth, but is unlikely to increase their willingness to spend
10) Which of the following is not included in the monetary aggregate M2?
A) Currency
B) Savings bonds
C) Traveler’s checks
D) Checking deposits
11) When the value of the dollar changes from £05 to £075, then the British pound has
________ and the US dollar has ________
A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated
12) If the interest rate is 7 percent on euro-denominated assets and 5 percent on
dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate,
the expected return on ________-denominated assets in ________ percent
A) dollar; euros is 3
B) euro; dollars is 1
C) dollar; euros is 1
D) euro; dollars is 3
13) In the market for reserves, a lower discount rate
A) decreases the supply of reserves
B) increases the supply of reserves
C) lengthens the vertical section of the supply curve of reserves
D) shortens the vertical section of the supply curve of reserves
14) The development of money market mutual funds contributed to the growth of
________ since the money market mutual funds need to hold liquid, high-quality,
short-terms assets
A) the commercial paper market
B) the municipal bond market
C) the corporate bond market
D) the junk bond market
15) The Baumol-Tobin analysis suggests that
A) velocity is relatively constant
B) the transactions component of the demand for money is negatively related to the
level of interest rates
C) the speculative motive is nonexistent
D) velocity is unrelated to the transactions motive
16) Using the information in Situation 20-1, if aggregate output is equal to $10,000,
then unplanned inventory investment equals
A) -$1000
B) -$100
C) $0
D) $100
17) Only when budget deficits are financed by money creation does the increased
government spending lead to ________ in the ________
A) a decrease; monetary base
B) an increase; monetary base
C) a decrease; money multiplier
D) an increase; money multiplier
18) The negative relation between investment spending and the interest rate is what
gives the ________ curve its ________ slope
A) IS; upward
B) IS; downward
C) LM; downward
D) LM; upward