1) When the Federal Reserve calls in a discount loan from a bank, the monetary base
________ and reserves ________
A) remains unchanged; decrease
B) remains unchanged; increase
C) decreases; decrease
D) decreases; remains unchanged
2) Inflation targets can increase the central bank’s flexibility in responding to declines in
aggregate spending Declines in aggregate ________ that cause the inflation rate to fall
below the floor of the target range will automatically stimulate the central bank to
________ monetary policy without fearing that this action will trigger a rise in inflation
expectations
A) demand: tighten
B) demand; loosen
C) supply; tighten
D) supply; loosen
3) When the effects of the global financial crisis started to spread more quickly
throughout the rest of the world, the US dollar ________ because demand for US assets
________
A) appreciated; increased
B) depreciated; increased
C) appreciated; decreased
D) depreciated; decreased
4) A bank will want to hold more excess reserves (everything else equal) when
A) it expects to have deposit inflows in the near future
B) brokerage commissions on selling bonds increase
C) the cost of selling loans falls
D) the discount rate decreases
5) When the economy suffers a permanent negative supply shock and the central bank
does not respond by changing the autonomous component of monetary policy, then
A) inflation will be lower
B) output will be at its potential
C) output will be unchanged
D) inflation will be unchanged
6) Because checking accounts are ________ liquid for the depositor than passbook
savings, they earn ________ interest rates
A) less; higher
B) less; lower
C) more; higher
D) more; lower
7) Lower tariffs and quotas cause a country’s currency to ________ in the ________
run, everything else held constant
A) depreciate; short
B) appreciate; short
C) depreciate; long
D) appreciate; long
8) The principal-agent problem would not occur if ________ of a firm had complete
information about actions of the ________
A) owners; customers
B) owners; managers
C) managers; customers
D) managers; owners
9) There are two ways in which the Fed can provide additional reserves to the banking
system: it can ________ government bonds or it can ________ discount loans to
commercial banks
A) sell; extend
B) sell; call in
C) purchase; extend
D) purchase; call in
10) A debit card differs from a credit card in that
A) a debit card is a loan while for a credit card purchase, payment is made immediately
B) a debit card is a long-term loan while a credit card is a short-term loan
C) a credit card is a loan while for a debit card purchase, payment is made immediately
D) a credit card is a long-term loan while a debit card is a short-term loan
11) A ________ pays out cash flows from subprime mortgage-backed securities in
different tranches, with the highest-rated tranch paying out first, while lower ones paid
out less if there were losses on the mortgage-backed securities
A) Collateralized debt obligation (CDO)
B) Adjustable-rate mortgage
C) Negotiable CD
D) Discount bond
12) Using the information in Situation 20-1, if aggregate output equals $8,000, the
unplanned inventory investment equals
A) -$100
B) $0
C) $100
D) $500
13) The government safety net creates ________ problem because risk-loving
entrepreneurs might find banking an attractive industry
A) an adverse selection
B) a moral hazard
C) a lemons
D) a revenue
14) When the exchange rate for the Mexican peso changes from 9 pesos to the US
dollar to 10 pesos to the US dollar, then the Mexican peso has ________ and the US
dollar has ________
A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated
15) During World War II, whenever interest rates would ________ and the price of
bonds would begin to ________, the Fed would make open market purchases
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
16) With the creation of the Federal Deposit Insurance Corporation, member banks of
the Federal Reserve System ________ to purchase FDIC insurance for their depositors,
while non-member commercial banks ________ to buy deposit insurance
A) could choose; were required
B) could choose; were given the option
C) were required, could choose
D) were required; were required
17) If a central bank does not want to allow the domestic currency to appreciate, it will
________ international reserves by selling its currency, thereby ________ the monetary
base and increasing the risk of higher inflation
A) lose; decreasing
B) lose; increasing
C) acquire; decreasing
D) acquire; increasing
18) Suppose interest rates are kept very low for a long time such that there is a spike in
the amount of lending Everything else held constant, this could cause ________ bubble
A) an irrational exuberance
B) a credit-driven
C) a stock
D) a debt-driven
19) The mismanagement of financial liberalization in emerging market countries can be
understood as a severe
A) principal/agent problem
B) asymmetric information problem
C) lemons problem
D) free-rider problem
20) ________ of a foreign bank operates in the US but cannot accept deposits from
domestic residents
A) An agency office
B) A universal corporation
C) A McFadden corporation
D) A Basel branch