1) The net amount of international reserves that move between governments to finance
international transactions is called the ________ balance
A) capital account
B) current account
C) trade
D) official reserve transactions
2) If borrowers with the most risky investment projects seek bank loans in higher
proportion to those borrowers with the safest investment projects, banks are said to face
the problem of
A) adverse credit risk
B) adverse selection
C) moral hazard
D) lemon lenders
3) Assume that autonomous consumption equals $200 and that the mpc equals 08 If
disposable income equals $1000, then total consumption equals
A) $80
B) $200
C) $800
D) $1000
4) A clause in a debt contract requiring that the borrower purchase insurance against
loss of the asset financed with the loan is called a
A) collateral-insurance clause
B) prescription covenant
C) restrictive covenant
D) proscription covenant
5) A bank is insolvent when
A) its liabilities exceed its assets
B) its assets exceed its liabilities
C) its capital exceeds its liabilities
D) its assets increase in value
6) The higher a security’s price in the secondary market the ________ funds a firm can
raise by selling securities in the ________ market
A) more; primary
B) more; secondary
C) less; primary
D) less; secondary
7) Suppose that from a new checkable deposit, First National Bank holds eight million
dollars on deposit with the Federal Reserve, one million dollars in required reserves,
and faces a required reserve ratio of ten percent Given this information, we can say
First National Bank has ________ million dollars in vault cash
A) two
B) eight
C) nine
D) ten
8) The time it takes for policy makers to obtain data indicating what is happening in the
economy is called
A) the data lag
B) the recognition lag
C) the legislative lag
D) the implementation lag
E) the effectiveness lag
9) A decrease in autonomous consumer expenditure causes the equilibrium level of
aggregate output to ________ at any given interest rate and shifts the ________ curve
to the ________, everything else held constant
A) rise; LM; right
B) rise; IS; right
C) fall; IS; left
D) fall; LM; left
10) Deposits in European banks denominated in dollars for the purpose of international
transactions are known as
A) Eurodollars
B) European Currency Units
C) European Monetary Units
D) International Monetary Units
11) In the Baumol-Tobin analysis of transactions demand for money, either an increase
in ________ or a decrease in ________ increases money demand
A) income; interest rate
B) interest rates; brokerage fees
C) brokerage fees; income
D) interest rate; income
12) When bad drivers line up to purchase collision insurance, automobile insurers are
subject to the
A) moral hazard problem
B) adverse selection problem
C) assigned risk problem
D) ill queue problem
13) Competition between banks
A) encourages greater risk taking
B) encourages conservative bank management
C) increases bank profitability
D) eliminates the need for government regulation
14) Stock prices are
A) relatively stable trending upward at a steady pace
B) relatively stable trending downward at a moderate rate
C) extremely volatile
D) unstable trending downward at a moderate rate
15) In the market for reserves, a lower interest rate paid on excess reserves
A) decreases the supply of reserves
B) increases the supply of reserves
C) decreases the effective floor for the federal funds rate
D) increases the effective floor for the federal funds rate