1) Critics of nationwide banking fear
A) an elimination of community banks
B) increased lending to small businesses
C) cutthroat competition
D) banks with economies of scale problems
2) If a contractionary monetary policy lowers the price level by more than expected, it
raises the real value of consumer debt This reduces consumer expenditure through
A) the bank lending channel
B) Tobin’s q
C) the traditional interest-rate channel
D) the household liquidity effect
3) That most used cars are sold by intermediaries (ie, used car dealers) provides
evidence that these intermediaries
A) have been afforded special government treatment, since used car dealers do not
provide information that is valued by consumers of used cars
B) are able to prevent potential competitors from free-riding off the information that
they provide
C) have failed to solve adverse selection problems in this market because “lemons”
continue to be traded
D) have solved the moral hazard problem by providing valuable information to their
customers
4) Regulation of the financial system
A) occurs only in the United States
B) protects the jobs of employees of financial institutions
C) protects the wealth of owners of financial institutions
D) ensures the stability of the financial system
5) One of the problems in conducting a duration gap analysis is that the duration gap is
calculated assuming that interest rates for all maturities are the same That means that
the yield curve is
A) flat
B) slightly upward sloping
C) steeply upward sloping
D) downward sloping
6) A decrease in the brokerage commissions in the housing market from 6% to 5% of
the sales price will shift the ________ curve for bonds to the ________, everything else
held constant
A) demand; right
B) demand; left
C) supply; right
D) supply; left
7) Everything else held constant, an increase in currency holdings will cause
A) the money supply to rise
B) the money supply to remain constant
C) the money supply to fall
D) checkable deposits to rise
8) The opportunity cost of holding money is
A) the level of income
B) the price level
C) the interest rate
D) the discount rate
9) Analysis of adverse selection indicates that financial intermediaries, especially
banks,
A) have advantages in overcoming the free-rider problem, helping to explain why
indirect finance is a more important source of business finance than is direct finance
B) despite their success in overcoming free-rider problems, nevertheless play a minor
role in moving funds to corporations
C) provide better-known and larger corporations a higher percentage of their external
funds than they do to newer and smaller corporations which rely to a greater extent on
the new issues market for funds
D) must buy securities from corporations to diversify the risk that results from holding
non-tradable loans
10) An increase in the nonborrowed monetary base, everything else held constant, will
cause
A) the money supply to fall
B) the money supply to rise
C) no change in the money supply
D) demand deposits to fall
11) The theory of portfolio choice indicates that higher interest rates make money
________ desirable, and the demand for real money balances ________
A) less; falls
B) more; falls
C) less; rises
D) more; rises
12) Holding everything else constant,
A) if asset A’s risk rises relative to that of alternative assets, the demand will increase
for asset A
B) the more liquid is asset A, relative to alternative assets, the greater will be the
demand for asset A
C) the lower the expected return to asset A relative to alternative assets, the greater will
be the demand for asset A
D) if wealth increases, demand for asset A increases and demand for alternative assets
decreases
13) The time-inconsistency problem with monetary policy tells us that, if policymakers
use discretionary policy, there is a higher probability that the ________ will be higher,
compared to policy makers following a behavior rule
A) inflation rate
B) unemployment rate
C) interest rate
D) foreign exchange rate
14) The price paid for the rental of borrowed funds (usually expressed as a percentage
of the rental of $100 per year) is commonly referred to as the
A) inflation rate
B) exchange rate
C) interest rate
D) aggregate price level
15) If the price of a euro (the European currency) increases from $100 to $110, then,
everything else held constant,
A) a European vacation becomes less expensive
B) a European vacation becomes more expensive
C) the cost of a European vacation is not affected
D) foreign travel becomes impossible