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1) In the simple deposit expansion model, a decline in checkable deposits of $500 when
the required reserve ratio is equal to 20 percent implies that the Fed
A) sold $250 in government bonds
B) sold $100 in government bonds
C) sold $50 in government bonds
D) purchased $100 in government bonds
2) Of the four factors that influence asset demand, which factor will cause the demand
for all assets to increase when it increases, everything else held constant?
A) wealth
B) expected returns
C) risk
D) liquidity
3) Everything else held constant, an increase in the required reserve ratio will result in
________ in M1 and ________ in M2
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
4) Which of the following statements uses the economists' definition of money?
A) I plan to earn a lot of money over the summer
B) Betsy is richshe has a lot of money
C) I hope that I have enough money to buy my lunch today
D) The job with New Company gave me the opportunity to earn more money
5) For a given return on assets, the lower is bank capital,
A) the lower is the return for the owners of the bank
B) the higher is the return for the owners of the bank
C) the lower is the credit risk for the owners of the bank
D) the lower the possibility of bank failure
6) If the central bank pursues a monetary policy that is more expansionary than what
firms and people expect, then the central bank must be trying to
A) boost output in the short run
B) constrain output in the short run
C) constrain prices
D) boost prices in the short run
7) In 1977, he pioneered the concept of selling new public issues of junk bonds for
companies that had not yet achieved investment-grade status
A) Michael Milken
B) Roger Milliken
C) Ivan Boskey
D) Carl Ichan
8) If a bank has excess reserves of $7,000 and demand deposit liabilities of $100,000,
and if the reserve requirement is 15 percent, then the bank has actual reserves of
A) $17,000
B) $22,000
C) $27,000
D) $29,000
9) In the Keynesian framework, as long as output is above the equilibrium level,
unplanned inventory investment will remain ________ and firms will continue to
________ production
A) negative; lower
B) negative; raise
C) positive; lower
D) positive; raise
10) Since they require less monitoring of firms, ________ contracts are used more
frequently than ________ contracts to raise capital
A) debt; equity
B) equity; debt
C) debt; loan
D) equity; stock
11) ________ in the expected future domestic exchange rate causes the demand for
domestic assets to increase and the domestic currency to ________, everything else
held constant
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
12) The payments system is
A) the method of conducting transactions in the economy
B) used by union officials to set salary caps
C) an illegal method of rewarding contracts
D) used by your employer to determine salary increases
13) If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $1000 billion, and excess reserves total $1 billion, then the
money supply is ________ billion
A) $10,000
B) $4000
C) $1400
D) $10,400
14) An international lender of last resort creates a serious ________ problem because
depositors and other creditors of banking institutions expect that they will be protected
if a crisis occurs
A) moral hazard
B) adverse selection
C) public choice
D) strategic choice
15) In response to the overvalued dollar in the early 1970s, the German Bundesbank
bought dollars and sold marks to keep the exchange rate fixed, gaining international
reserves The huge purchase of international reserves meant that the German monetary
base began to ________, leading to ________ growth in the German money supply
A) decline; sluggish
B) decline; rapid
C) grow; sluggish
D) grow; rapid
