1) A $1000 face value coupon bond with a $60 coupon payment every year has a
coupon rate of
A) .6 percent
B) 5 percent
C) 6 percent
D) 10 percent
2) 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
3) Decisions by ________ about their holdings of currency and by ________ about
their holdings of excess reserves affect the money supply.
A) borrowers; depositors
B) banks; depositors
C) depositors; borrowers
D) depositors; banks
4) A $5 million deposit outflow from a bank has the immediate effect of
A) reducing deposits and reserves by $5 million
B) reducing deposits and loans by $5 million
C) reducing deposits and securities by $5 million
D) reducing deposits and capital by $5 million
5) The starting point for understanding how exchange rates are determined is a simple
idea called ________, which states: if two countries produce an identical good, the
price of the good should be the same throughout the world no matter which country
produces it.
A) Gresham’s law
B) the law of one price
C) purchasing power parity
D) arbitrage
6) If, after a deposit outflow, a bank needs an additional $3 million to meet its reserve
requirements, the bank can
A) reduce deposits by $3 million
B) increase loans by $3 million
C) sell $3 million of securities
D) repay its discount loans from the Fed
7) In the early 1930s, the currency ratio rose, as did the level of excess reserves. Money
supply analysis predicts that, everything else held constant, the money supply should
have
A) risen
B) fallen
C) remain unchanged
D) either risen, fallen, or remain unchanged
8) The equation that represents M2 in the model of the money supply process is
A) M2 = C + D
B) M2 = C + D + T – MMF
C) M2 = C + D – T + MMF
D) M2 = C + D + T + MMF
9) In September 2008, the Reserve Primary Fund, a money market mutual fund, found
itself in the situation know as “breaking the buck.” This means that
A) they could no longer afford to redeem shares at the par value of $1
B) they required shareholders to contribute a dollar more in fees each month
C) shareholders were able to redeem shares for more than a $1
D) shares earned more than a dollar in interest
10) A stock’s price will fall if there is
A) a decrease in perceived risk
B) an increase in the required rate of return
C) an increase in the future sales price
D) current dividends are high
11) The United States chooses to have ________ and ________ and therefore, cannot
have a fixed exchange rate at the same time.
A) capital control, an independent monetary policy
B) free capital mobility, an independent monetary policy
C) free capital mobility, no control of monetary policy
D) capital control, no control of monetary policy
12) As “haircuts” increased during 2007-2009, financial institutions found that to
borrow the same loan amount now required ________ collateral.
A) less
B) no
C) more
D) default-free
13) If a bank has excess reserves of $10,000 and demand deposit liabilities of $80,000,
and if the reserve requirement is 20 percent, then the bank has actual reserves of
A) $16,000
B) $20,000
C) $26,000
D) $36,000
14) Velocity is defined as
A) P + M + Y
B) (P M)/Y
C) (Y M)/P
D) (P Y)/M
15) If people expect nominal interest rates to be higher in the future, the expected return
to bonds ________, and the demand for money ________.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
16) Everything else held constant, in the market for reserves, when the demand for
federal funds intersects the reserve supply curve along the horizontal section, increasing
the discount rate
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 on the federal funds rate
17) The Federal Reserve has had the authority to vary reserve requirements since the
A) 1920s
B) 1930s
C) 1940s
D) 1950s
18) Unanticipated moral hazard contingencies can be reduced by
A) screening
B) long-term customer relationships
C) specialization in lending
D) credit rationing
19) The equation of exchange states that the quantity of money multiplied by the
number of times this money is spent in a given year must equal
A) nominal income
B) real income
C) real gross national product
D) velocity
20) New computer technology has
A) increased the cost of financial innovation
B) increased the demand for financial innovation
C) reduced the cost of financial innovation
D) reduced the demand for financial innovation
21) The data lag is
A) the time it takes for policy makers to obtain data indicating what is happening in the
economy
B) the time it takes for policy makers to be sure of what the data are signaling about the
future course of the economy
C) the time it takes to pass legislation to implement a particular policy
D) the time it takes for policy makers to change policy instruments once they have
decided on the new policy
E) the time it takes for the policy actually to have an impact on the economy
22) Everything else held constant, if a factor increases the demand for ________ goods
relative to ________ goods, the domestic currency will appreciate.
A) foreign; domestic
B) foreign; foreign
C) domestic; domestic
D) domestic; foreign
23) When paper currency is decreed by governments as legal tender, legally it must be
A) paper currency backed by gold
B) a precious metal such as gold or silver
C) accepted as payment for debts
D) convertible into an electronic payment
24) Which of the following is a true statement concerning bank holding companies?
A) Bank holding companies own few large banks
B) Bank holding companies have experienced dramatic growth in the past three decades
C) The McFadden Act has prevented bank holding companies from establishing branch
banks
D) Bank holding companies can own only banks
25) Everything else held constant, an increase in the time deposit ratio will result in
________ in the M1 money multiplier and ________ in the M2 money multiplier.
A) an increase; an increase
B) no change; an increase
C) a decrease; a decrease
D) no change; a decrease
26) In a(n) ________ market, dealers in different locations buy and sell securities to
anyone who comes to them and is willing to accept their prices.
A) exchange
B) over-the-counter
C) common
D) barter
27) The interest rate for primary credit is usually set ________ basis points ________
the federal funds rate. In March 2008, this gap was changed to ________ basis points.
A) 50; below; 100
B) 100; above; 25
C) 100; below; 50
D) 50; above; 25
28) Everything else held constant, if workers expect an increase in inflation, ________
aggregate supply ________.
A) long-run; increases
B) long-run; decreases
C) short-run; decreases
D) short-run; increases
29) If a bank has excess reserves of $7,000 and demand deposit liabilities of $100,000,
and if the reserve requirement is 10 percent, then the bank has actual reserves of
A) $14,000
B) $17,000
C) $22,000
D) $27,000
30) Which policy measure requires investment banks to make public their analysts’
recommendations?
A) Sarbanes-Oxley Act of 2002
B) Global Legal Settlement of 2002
C) Gramm-Leach-Bliley Act of 1999
D) Riegle-Neal Act of 1994
31) If one party pays a fixed fee on a regular basis in return for a contingent payment
that is triggered by a downgrading of a firm’s credit rating, that is called a
A) credit option
B) credit swap
C) credit-linked note
D) credit default swap
32) An innovation that blurred the distinction between brokerage firms and commercial
banks was Merrill Lynch’s development in 1977 of the
A) cash management account
B) money market mutual fund
C) individual retirement account
D) discount brokerage
33) Suppose the U.S. economy is producing at the natural rate of output. A depreciation
of the U.S. dollar will cause ________ in real GDP in the short run and ________ in
inflation in the short run, everything else held constant. (Assume the depreciation
causes no effects in the supply side of the economy.)
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
34) The exchange rate is
A) the price of one currency relative to gold
B) the value of a currency relative to inflation
C) the change in the value of money over time
D) the price of one currency relative to another
35) Because it provides some indication of what is happening to U.S. claims on foreign
wealth and the demand for imports and exports, the ________ is closely followed by
economists wanting information on the future movement of exchange rates.
A) trade balance
B) capital account
C) current account balance
D) statistical discrepancy
36) In a one-period valuation model, a decrease in the required return on investments in
equity causes a(n) ________ in the ________ price of a stock.
A) increase; current
B) increase; expected sales
C) decrease; current
D) decrease; expected sales