1) In recent years, bank regulatory authorities have
A) encouraged banks to enter the insurance field
B) discouraged banks from entering the insurance field
C) asked Congress to write new legislation that would make it illegal for banks to enter
the insurance field
D) asked Congress to write new legislation that would make it legal for banks to enter
the insurance field
2) If the required reserve ratio is 15 percent, currency in circulation is $400 billion,
checkable deposits are $1000 billion, and excess reserves total $1 billion, then the M1
money multiplier is
A) 2.54
B) 2.67
C) 2.35
D) 0.551
3) The share of checkable deposits in total bank liabilities has
A) expanded moderately over time
B) expanded dramatically over time
C) shrunk over time
D) remained virtually unchanged since 1960
4) If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the
money supply is ________ billion.
A) $8000
B) $1200
C) $1200.8
D) $8400
5) Bank capital is listed on the ________ side of the bank’s balance sheet because it
represents a ________ of funds.
A) liability; use
B) liability; source
C) asset; use
D) asset; source
6) There are ________ members of the Board of Governors of the Federal Reserve
System.
A) 5
B) 7
C) 12
D) 19
7) 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
8) The Pension Benefit Guarantee Corporation performs a role similar to that of
A) the Federal Reserve System
B) the Comptroller of the Currency
C) the FDIC
D) the Office of Thrift Supervision
9) This method of financing government spending is frequently called printing money
because high-powered money (the monetary base) is created in the process.
A) Financing government spending with taxes
B) Financing government spending through a Treasury sale of bonds that are then
purchased by the Fed
C) Financing government spending by selling bonds to the public, which pays for the
bonds with currency
D) Financing government spending by selling bonds to the public, which pays for the
bonds with checks
10) Recognizing the distinction between borrowed reserves and the nonborrowed
monetary base, the money supply model is specified as
A) M = m (MBn – BR)
B) M = m (MBn + BR)
C) M = m + (MBn – BR)
D) M = m – (MBn + BR)
11) A liquid asset is
A) an asset that can easily and quickly be sold to raise cash
B) a share of an ocean resort
C) difficult to resell
D) always sold in an over-the-counter market
12) Everything else held constant, which of the following does not cause aggregate
demand to increase?
A) An increase in net exports
B) An increase in government spending
C) An increase in taxes
D) An increase in consumer optimism
13) The monetary policy strategy that directly ties down the price of internationally
traded goods is
A) exchange-rate targeting
B) monetary targeting
C) inflation targeting
D) the implicit nominal anchor
14) If there is an excess demand for money, individuals ________ bonds, causing
interest rates to ________.
A) sell; rise
B) sell; fall
C) buy; rise
D) buy; fall
15) The M2 money supply is represented by
A) M2 = MB
B) M2 =
C) MB = M2
D) MB =
16)
In the figure above, the decrease in the interest rate from i1 to i2 can be explained by
A) a decrease in money growth
B) a decline in the expected price level
C) an increase in income
D) an increase in the expected price level
17) If reserves in the banking system increase by $100, then checkable deposits will
increase by $667 in the simple model of deposit creation when the required reserve
ratio is
A) 0.01
B) 0.05
C) 0.15
D) 0.20
18) Of the sources of external funds for nonfinancial businesses in the United States,
loans from banks and other financial intermediaries account for approximately
________ of the total.
A) 6%
B) 40%
C) 56%
D) 60%
19) Suppose that the Bank of Japan buys yen-denominated assets with U.S. dollar
assets. Everything else held constant, this transaction will cause ________ in the
foreign assets held by the Federal Reserve and ________ in the U.S. monetary base.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
20) If real GDP in 2002 is $10 trillion, and in 2003 real GDP is $9.5 trillion, then real
GDP growth from 2002 to 2003 is
A) 0.5%
B) 5%
C) 0%
D) -5%
21) The predominant form of household debt is
A) consumer installment debt
B) collateralized debt
C) unsecured debt
D) unrestricted debt
22) Another way to state the efficient markets condition is: in an efficient market,
A) unexploited profit opportunities will be quickly eliminated
B) unexploited profit opportunities will never exist
C) arbitragers guarantee that unexploited profit opportunities never exist
D) every financial market participant must be well informed about securities
23) As default risk decreases, the expected return on corporate bonds ________, and the
return becomes ________ uncertain, everything else held constant.
A) increases; less
B) increases; more
C) decreases; less
D) decreases; more
24) A call option gives the owner the
A) right to sell the underlying security
B) obligation to sell the underlying security
C) right to buy the underlying security
D) obligation to buy the underlying security
25) Credit cards date back to
A) prior to the second World War
B) just after the second World War
C) the early 1950s
D) the late 1950s
26) Policymakers in a country with a balance of payments surplus may not want to see
their country’s currency appreciate because this would
A) hurt consumers in their country by making foreign goods more expensive
B) hurt domestic businesses by making foreign goods cheaper in their country
C) increase inflation in their country
D) decrease the wealth of the country
27) In the market for reserves, if the federal funds rate is between the discount rate and
the interest rate paid on excess reserves, a ________ in the reserve requirement
decreases the demand for reserves, ________ the federal funds interest rate, everything
else held constant.
A) rise; lowering
B) decline; raising
C) decline; lowering
D) rise; raising
28) If a security pays $55 in one year and $133 in three years, its present value is $150
if the interest rate is
A) 5 percent
B) 10 percent
C) 12.5 percent
D) 15 percent
29) Which policy measure bans spinning?
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
30) It is possible that when the money supply rises, interest rates may ________ if the
________ effect is more than offset by changes in income, the price level, and expected
inflation.
A) fall; liquidity
B) fall; risk
C) rise; liquidity
D) rise; risk
31) A bank’s commitment to provide a firm with loans up to pre-specified limit at an
interest rate that is tied to a market interest rate is called
A) an adjustable gap loan
B) an adjustable portfolio loan
C) loan commitment
D) pre-credit loan line
32) Which of the following is not a financial institution?
A) a life insurance company
B) a pension fund
C) a credit union
D) a business college
33) The decision by inflation targeters to choose inflation targets ________ zero reflects
the concern of monetary policymakers that particularly ________ inflation can have
substantial negative effects on real economic activity.
A) below; high
B) below; low
C) above; high
D) above; low
34) If the Fed pursues a strategy of targeting an interest rate when fluctuations in money
demand are prevalent,
A) fluctuations of nonborrowed reserves will be small
B) fluctuations of nonborrowed reserves will be large
C) the Fed will probably quickly abandon this policy, as it did in the 1960s
D) the Fed will probably quickly abandon this policy, as it did in the 1950s
35) The demand for gold increases, other things equal, when
A) the market for silver becomes more liquid
B) interest rates are expected to rise
C) interest rates are expected to fall
D) real estate prices are expected to increase
36) The decline in traditional banking internationally can be attributed to
A) increased regulation
B) improved information technology
C) increasing monopoly power of banks over depositors
D) increased protection from competition
37) Sweep accounts
A) have made reserve requirements nonbinding for many banks
B) sweep funds out of deposit accounts into long-term securities
C) enable banks to avoid paying interest to corporate customers
D) reduce banks’ assets
38) The most significant change in the economic environment that changed the demand
for financial products in recent years has been
A) the aging of the baby-boomer generation
B) the dramatic increase in the volatility of interest rates
C) the dramatic increase in competition from foreign banks
D) the deregulation of financial institutions
39) A call option gives the seller the
A) right to sell the underlying security
B) obligation to sell the underlying security
C) right to buy the underlying security
D) obligation to buy the underlying security