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1) An increase in the expected future domestic exchange rate causes the demand for
domestic assets to ________ and the domestic currency to ________, everything else
held constant
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
2) Which bank regulatory agency has the sole regulatory authority over bank holding
companies?
A) The FDIC
B) The Comptroller of the Currency
C) The FHLBS
D) The Federal Reserve System
3) Everything else held constant, a decrease in the required reserve ratio on checkable
deposits causes the M1 money multiplier to ________ and the money supply to
________
A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease
4) Because borrowers, once they have a loan, are more likely to invest in high-risk
investment projects, banks face the
A) adverse selection problem
B) lemon problem
C) adverse credit risk problem
D) moral hazard problem
5) The concept of ________ is based on the common-sense notion that a dollar paid to
you in the future is less valuable to you than a dollar today
A) present value
B) future value
C) interest
D) deflation
6) A problem with the too-big-to-fail policy is that it ________ the incentives for
________ by big banks
A) increases; moral hazard
B) decreases; moral hazard
C) decreases; adverse selection
D) increases; adverse selection
7) If the liquidity effect is smaller than the other effects, and the adjustment to expected
inflation is slow, then the
A) interest rate will fall
B) interest rate will rise
C) interest rate will initially fall but eventually climb above the initial level in response
to an increase in money growth
D) interest rate will initially rise but eventually fall below the initial level in response to
an increase in money growth
8) The price of gold should be ________ to the expected inflation rate
A) positively related
B) negatively related
C) inversely related
D) unrelated
9) In the Keynesian cross diagram, a decrease in investment spending because
companies become more pessimistic about investment profitability causes the aggregate
demand function to shift down, the equilibrium level of aggregate output to ________,
and the IS curve to shift to the ________, everything else held constant
A) rise; left
B) rise; right
C) fall; left
D) fall; right
10) If the economy is characterized by a stable IS curve and an unstable LM curve, then
________ target produces ________ fluctuations in aggregate output
A) an interest rate; larger
B) a money supply; smaller
C) a money supply; larger
D) an exchange rate; smaller
11) Because central banks have not been willing to give up their option of intervening
in the foreign exchange market, the current international financial system can best be
described as a
A) variable-pegged exchange rate system
B) moving-pegged exchange rate system
C) hybrid of a fixed exchange rate and flexible exchange rate system
D) flexible-exchange, dollar-pegged exchange rate system
12) The ________ is calculated by multiplying the coupon rate times the par value of
the bond
A) present value
B) par value
C) coupon payment
D) maturity payment
13) Everything else held constant, an increase in financial frictions ________ aggregate
________
A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
14) Because of asymmetric information, the failure of one bank can lead to runs on
other banks This is the
A) too-big-to-fail effect
B) moral hazard problem
C) adverse selection problem
D) contagion effect
15) If float is predicted to decrease because of unseasonably good weather, the manager
of the trading desk at the Federal Reserve Bank of New York will likely conduct a
________ open market ________ of securities
A) defensive; sale
B) defensive; purchase
C) dynamic; sale
D) dynamic; purchase
