1) During World War II, whenever interest rates would rise and the price of bonds
would begin to fall, the Fed would
A) lower reserve requirements
B) raise reserve requirements
C) make open market purchases of government securities
D) make open market sales of government securities
2) The goal for high employment should be a level of unemployment at which the
demand for labor equals the supply of labor Economists call this level of unemployment
the
A) frictional level of unemployment
B) structural level of unemployment
C) natural rate level of unemployment
D) Keynesian rate level of unemployment
3) The presence of ________ in financial markets leads to adverse selection and moral
hazard problems that interfere with the efficient functioning of financial markets
A) noncollateralized risk
B) free-riding
C) asymmetric information
D) costly state verification
4) According to the household liquidity effect, an expansionary monetary policy causes
a ________ in the value of households’ financial assets, causing consumer durable
expenditure to ________
A) decline; rise
B) rise; rise
C) rise; fall
D) decline; fall
5) The goals of bank asset management include
A) maximizing risk
B) minimizing liquidity
C) lending at high interest rates regardless of risk
D) purchasing securities with high returns and low risk
6) If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $08 billion, then the
money supply is ________ billion
A) $8000
B) $1200
C) $12008
D) $8400
7) When the interest rate rises,
A) planned investment falls
B) planned investment rises
C) planned investment will be unaffected
D) equilibrium income increases
8) The monetary policy strategy that provides an automatic rule for the conduct of
monetary policy is
A) exchange-rate targeting
B) monetary targeting
C) inflation targeting
D) the implicit nominal anchor
9) Everything else held constant, an increase in the excess reserves ratio causes the M1
money multiplier to ________ and the money supply to ________
A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease
10) Bank reserves include
A) deposits at the Fed and short-term treasury securities
B) vault cash and short-term Treasury securities
C) vault cash and deposits at the Fed
D) deposits at other banks and deposits at the Fed
11) If the amount payable in two years is $2420 for a simple loan at 10 percent interest,
the loan amount is
A) $1000
B) $1210
C) $2000
D) $2200
12) Under exchange-rate targeting, the central bank in the targeting country ________
lose the ability to pursue its own independent monetary policy and any shocks to the
anchor country is ________ transmitted to the targeting country
A) does; directly
B) does not; directly
C) does; not directly
D) does not; not directly
13) The interest rate that describes how well a lender has done in real terms after the
fact is called the
A) ex post real interest rate
B) ex ante real interest rate
C) ex post nominal interest rate
D) ex ante nominal interest rate
14) Compared to an economy that uses a medium of exchange, in a barter economy
A) transaction costs are higher
B) transaction costs are lower
C) liquidity costs are higher
D) liquidity costs are lower
15) The most important developments that have reduced banks cost advantages in the
past thirty years include:
A) the growth of the junk bond market
B) the competition from money market mutual funds
C) the growth of securitization
D) the growth in the commercial paper market