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1) Bank's make their profits primarily by issuing
A) equity
B) negotiable CDs
C) loans
D) NOW accounts
2) ________ occurs when market participants observe returns on a security that are
larger than what is justified by the characteristics of that security and take action to
quickly eliminate the unexploited profit opportunity
A) Arbitrage
B) Mediation
C) Asset capitalization
D) Market intercession
3) A consol paying $20 annually when the interest rate is 5 percent has a price of
A) $100
B) $200
C) $400
D) $800
4) With an interest rate of 6 percent, the present value of $100 next year is
approximately
A) $106
B) $100
C) $94
D) $92
5) With a 10% reserve requirement ratio, a $100 deposit into New Bank means that the
maximum amount New Bank could lend is
A) $90
B) $100
C) $10
D) $110
6) A serious consequence of a financial crisis is
A) a contraction in economic activity
B) an increase in asset prices
C) financial engineering
D) financial globalization
7) In the loanable funds framework, the ________ curve of bonds is equivalent to the
________ curve of loanable funds
A) demand; demand
B) demand; supply
C) supply; supply
D) supply; equilibrium
8) Keynes's theory of the demand for money implies that velocity is
A) not constant but fluctuates with movements in interest rates
B) not constant but fluctuates with movements in the price level
C) not constant but fluctuates with movements in the time of year
D) a constant
9) A hyperinflation is
A) a period of extreme inflation generally greater than 50% per month
B) a period of anxiety caused by rising prices
C) an increase in output caused by higher prices
D) impossible today because of tighter regulations
10) In a liquidity trap, monetary policy has ________ effect on aggregate spending
because a change in the money supply has ________ effect on interest rates
A) no; no
B) no; a large
C) no; a small
D) a large; a large
