1) Everything else held constant, if the expected return on ABC stock rises from 5 to 10
percent and the expected return on CBS stock is unchanged, then the expected return of
holding CBS stock ________ relative to ABC stock and the demand for CBS stock
________
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls
2) Which of the following is true?
A) Special drawing rights are loans to countries made by the IMF
B) Changes in the quantity of special drawing rights are tied to changes in the quantity
of gold
C) Special drawing rights are a paper substitute for gold
D) Special drawing rights are not held as international reserves
3) The Baumol-Tobin analysis suggests that an increase in the brokerage fee for buying
and selling bonds will cause the demand for money to ________ and the demand for
bonds to ________
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
4) In emerging market countries, the deterioration in bank’s balance sheets has more
________ effects on lending and economic activity than in advanced countries
A) negative
B) positive
C) affirming
D) advancing
5) Everything else held constant, an autonomous monetary policy easing ________
aggregate ________
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
6) Countries that experience very high rates of inflation may also have
A) balanced budgets
B) rapidly growing money supplies
C) falling money supplies
D) constant money supplies
7) When secondary market buyers and sellers of securities meet in one central location
to conduct trades the market is called a(n)
A) exchange
B) over-the-counter market
C) common market
D) barter market
8) Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one
million dollars in required reserves Given this information, we can say First National
Bank faces a required reserve ratio of ________ percent
A) ten
B) twenty
C) eighty
D) ninety
9) Moral hazard is an important concern of insurance arrangements because the
existence of insurance
A) provides increased incentives for risk taking
B) is a hindrance to efficient risk taking
C) causes the private cost of the insured activity to increase
D) creates an adverse selection problem but no moral hazard problem
10) If a borrower takes out a $200 million loan in a repo agreement and is asked to post
$220 million of mortgage-backed securities as collateral, the “haircut” is
A) 5%
B) 10%
C) 20%
D) 50%
11) If gold becomes acceptable as a medium of exchange, the demand for gold will
________ and the demand for bonds will ________, everything else held constant
A) decrease; decrease
B) decrease; increase
C) increase; increase
D) increase; decrease
12) Everything else held constant, in the market for reserves, when the federal funds
rate equals the interest rate paid on excess reserves, raising the interest rate paid on
excess reserves
A) increases the federal funds rate
B) lowers the federal funds rate
C) has no effect on the federal funds rate
D) has an indeterminate effect of the federal funds rate