1) Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine
million dollars in excess reserves Given this information, we can say First National
Bank has ________ million dollars in required reserves
A) one
B) two
C) eight
D) ten
2) The price of a barrel of oil doubled between 2007 and the middle of 2008 To make
matters worse, a financial crisis hit the US economy starting in August of 2007 Which
of the following is true of the United Kingdom’s experience?
A) The increase in the price of oil immediately shifted the AS curve to the left
B) The financial crisis did not take hold right away so the AD curve did not
immediately shift
C) Eventually, the Lehman Brothers bankruptcy caused a negative demand shock
leading to a further fall in output and an increase in the unemployment rate
D) All of the above
E) None of the above
3) Banks may borrow from or lend to another bank in the Federal Funds market A loan
of excess reserves from one bank to another bank is recorded as a(n) ________ for the
borrowing bank and a(n) ________ for the lending bank
A) asset; asset
B) asset; liability
C) liability; liability
D) liability; asset
4) In one sense ________ appears surprising since it means that the bank is not
________ its portfolio of loans and thus is exposing itself to more risk
A) specialization in lending; diversifying
B) specialization in lending; rationing
C) credit rationing; diversifying
D) screening; rationing
5) Under a fixed exchange rate system, countries that ran large, persistent balance of
payments surpluses would ________ international reserves, thereby pressuring them
into ________ their exchange rate
A) gain; devaluing
B) gain; revaluing
C) lose; devaluing
D) lose; revaluing
6) When the Fed extends a $100 discount loan to the First National Bank, reserves in
the banking system
A) increase by $100
B) increase by more than $100
C) decrease by $100
D) decrease by more than $100
7) The stock market is important because it is
A) where interest rates are determined
B) the most widely followed financial market in the United States
C) where foreign exchange rates are determined
D) the market where most borrowers get their funds
8) Under a gold standard in which one dollar could be turned in to the US Treasury and
exchanged for 1/20th of an ounce of gold and one German mark could be exchanged for
1/100th of an ounce of gold, an exchange rate of ________ marks to the dollar would
stimulate a flow of gold from the United States to Germany
A) 7
B) 6
C) 5
D) 4
9) As information technology improves, the lending role of financial institutions such as
banks should
A) increase somewhat
B) decrease
C) stay the same
D) increase significantly
10) When the Federal Reserve sells a government bond to a bank, reserves in the
banking system ________ and the monetary base ________, everything else held
constant
A) increase; increases
B) increase; decreases
C) decrease; increases
D) decrease; decreases
11) Discount policy affects the money supply by affecting the volume of ________ and
the ________
A) excess reserves; monetary base
B) borrowed reserves; monetary base
C) excess reserves; money multiplier
D) borrowed reserves; money multiplier
12) A ________ pays the owner a fixed coupon payment every year until the maturity
date, when the ________ value is repaid
A) coupon bond; discount
B) discount bond; discount
C) coupon bond; face
D) discount bond; face
13) The upward slope of the MP curve indicates that
A) the central bank lowers real interest rates when inflation rises
B) the central bank raises real interest rates when inflation falls
C) the central bank raises nominal interest rates when inflation rises
D) the central bank raises real interest rates when inflation rises
14) In rational expectations theory, the term “optimal forecast” is essentially
synonymous with
A) correct forecast
B) the correct guess
C) the actual outcome
D) the best guess
15) 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