1) The formula for the M1 money multiplier is
A) m = (1 + c)/(rr + e + c)
B) M = 1/(rr + e + c)
C) M = (1 + c)/(rr + e + c)
D) m = [1/(rr + e + c)] MB
2) An option that can only be exercised at maturity is called
A) a swap
B) a stock option
C) an European option
D) an American option
3) The riskiness of an asset that is unique to the particular asset is
A) systematic risk
B) portfolio risk
C) investment risk
D) nonsystematic risk.
4) Suppose your payroll check is directly deposited to your checking account.
Everything else held constant, total reserves in the banking system ________ and the
monetary base ________.
A) remain unchanged; remains unchanged
B) remain unchanged; increases
C) decrease; increases
D) decrease; decreases
5) Competition between banks
A) encourages greater risk taking
B) encourages conservative bank management
C) increases bank profitability
D) eliminates the need for government regulation
6) A short-term debt instrument issued by well-known corporations is called
A) commercial paper
B) corporate bonds
C) municipal bonds
D) commercial mortgages
7) To convert a nominal GDP to a real GDP, you would use
A) the PCE deflator
B) the CPI measure
C) the GDP deflator
D) the PPI measure
8) Which of the following policy measures authorized investors to bring lawsuits
against credit-rating agencies for a reckless failure to get the facts when providing a
credit rating?
A) The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
B) Sarbanes-Oxley Act of 2002
C) Global Legal Settlement of 2002
D) Gramm-Leach-Bliley Act of 1999
E) Riegle-Neal Act of 1994
9) The reason that economists are so interested in the stability of velocity is because if
the demand for money is not stable, then steady growth of the money supply
A) is going to promote price stability at the expense of low unemployment
B) is going to promote low unemployment at the expense of price stability
C) is an ineffective way to conduct monetary policy
D) can still be used to conduct monetary policy if the goal is price stability
10) In the United States during the late 1970s, the nominal interest rates were quite
high, but the real interest rates were negative. From the Fisher equation, we can
conclude that expected inflation in the United States during this period was
A) irrelevant
B) low
C) negative
D) high
11) If the Fed wants to permanently lower interest rates, then it should raise the rate of
money growth if
A) there is fast adjustment of expected inflation
B) there is slow adjustment of expected inflation
C) the liquidity effect is smaller than the expected inflation effect
D) the liquidity effect is larger than the other effects
12) What country is given credit for the birth of the Eurodollar market?
A) The United States
B) England
C) The Soviet Union
D) Japan
13) Which of the following statements best explains how the use of money in an
economy increases economic efficiency?
A) Money increases economic efficiency because it is costless to produce
B) Money increases economic efficiency because it discourages specialization
C) Money increases economic efficiency because it decreases transactions costs
D) Money cannot have an effect on economic efficiency
14) In September 1992, the Bundesbank attempted to keep the mark from appreciating
relative to the British pound, but it failed because participants in the foreign exchange
market came to expect the
A) appreciation of the mark
B) depreciation of the mark
C) revaluation of the dollar
D) end of the Exchange Rate Mechanism
15) Everything else held constant, if a central bank makes a sterilized sale of foreign
assets, then the domestic currency will
A) appreciate
B) depreciate
C) either appreciate, depreciate, or remain constant
D) not be affected
16) Long-Term Capital got into trouble when it thought that the spread between prices
on long-term Treasury bonds and long-term corporate bonds was too ________, and bet
that this “anomaly” would disappear and the spread would ________.
A) high; narrow
B) low; widen
C) low; narrow
D) high; widen
17) An increase in the nonborrowed monetary base, everything else held constant, will
cause
A) the money supply to fall
B) the money supply to rise
C) no change in the money supply
D) demand deposits to fall
18) Of the four sources of external funding for nonfinancial businesses, the least often
used in the U.S. is
A) bank loans
B) nonbank loans
C) bonds
D) stock
19) Of the following methods that banks might use to reduce moral hazard problems,
the one not legally permitted in the United States is the
A) requirement that firms keep compensating balances at the banks from which they
obtain their loans
B) requirement that firms place on their board of directors an officer from the bank
C) inclusion of restrictive covenants in loan contracts
D) requirement that individuals provide detailed credit histories to bank loan officers
20) That most used cars are sold by intermediaries (i.e., used car dealers) provides
evidence that these intermediaries
A) have been afforded special government treatment, since used car dealers do not
provide information that is valued by consumers of used cars
B) are able to prevent potential competitors from free-riding off the information that
they provide
C) have failed to solve adverse selection problems in this market because “lemons”
continue to be traded
D) have solved the moral hazard problem by providing valuable information to their
customers
21) The countries that have made the least use of securities markets are ________ and
________; in these two countries finance from financial intermediaries has been almost
ten times greater than that from securities markets.
A) Germany; Japan
B) Germany; Great Britain
C) Great Britain; Canada
D) Canada; Japan
22) When the economy suffers a temporary negative supply shock, the central bank’s
autonomous monetary policy to keep inflation at the target inflation rate leads to
A) more stable economic activities
B) a large deviation of output from its potential
C) divine coincidence
D) both B and C
23) In Keynes’s liquidity preference framework, individuals are assumed to hold their
wealth in two forms:
A) real assets and financial assets
B) stocks and bonds
C) money and bonds
D) money and gold
24) Deflation causes the demand for bonds to ________, the supply of bonds to
________, and bond prices to ________, everything else held constant.
A) increase; increase; increase
B) increase; decrease; increase
C) decrease; increase; increase
D) decrease; decrease; increase
25) Adjustable rate mortgages
A) reduce the interest-rate risk for financial institutions
B) benefit homeowners when interest rates rise
C) generally have higher initial interest rates than conventional fixed-rate mortgages
D) allow borrowers to avoid paying interest on portions of their mortgage loans
26) Every thing else held constant, a decrease 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
27) If additional information is not used when forming an optimal forecast because it is
not available at that time, then expectations are
A) obviously formed irrationally
B) still considered to be formed rationally
C) formed adaptively
D) formed equivalently
28) Using the Gordon growth model, a stock’s price will increase if
A) the dividend growth rate increases
B) the growth rate of dividends falls
C) the required rate of return on equity rises
D) the expected sales price rises
29)
The U-shaped yield curve in the figure above indicates that short-term interest rates are
expected to
A) rise in the near-term and fall later on
B) fall sharply in the near-term and rise later on
C) fall moderately in the near-term and rise later on
D) remain unchanged in the near-term and rise later on
30) A firm issuing credit cards earns income from
A) loans it makes to credit card holders
B) subsidies from the local governments
C) payments made to it by manufacturers of the products sold in stores on credit card
purchases
D) sales of the card in foreign countries
31) You have observed that the forecasts of an investment advisor consistently
outperform the other reported forecasts. The efficient markets hypothesis says that
future forecasts by this advisor
A) may or may not be better than the other forecasts. Past performance is no guarantee
of the future
B) will always be the best of the group
C) will definitely be worse in the future. What goes up must come down
D) will be worse in the near future, but improve over time
32) The formula linking the money supply to the monetary base is
A) M = m/MB
B) M = m MB
C) m = M MB
D) MB = M m
E) M = m + MB
33) Like the dual banking system for commercial banks, thrifts can have either
________ or ________ charters.
A) state; federal
B) state; local
C) local; federal
D) municipal; federal
34) Which of the following monetary policy tools is more effective when the economy
faces the interest rate zero-lower-bound problem?
A) Open market operation
B) Discount policy
C) Required reserve ratio
D) The Fed’s liquidity provision
35) Under a fixed exchange rate regime, a country that depletes its international
reserves in an attempt to keep its currency from ________ will be forced to ________
its currency.
A) depreciating; revalue
B) depreciating; devalue
C) appreciating; revalue
D) appreciating; devalue