1) On January 25, 2009, one US dollar traded on the foreign exchange market for about
333 Romanian new lei Therefore, one Romanian new lei would have purchased about
________ US dollars
A) 030
B) 186
C) 286
D) 333
2) The key factor leading to the financial crises in Mexico and the East Asian countries
was
A) a deterioration in banks’ balance sheets because of increasing loan losses
B) severe fiscal imbalances
C) a sharp increase in the stock market
D) a sharp decline in interest rates
3) If the required reserve ratio is one-third, currency in circulation is $300 billion,
checkable deposits are $900 billion, and there is no excess reserve, then the M1 money
multiplier is
A) 25
B) 28
C) 20
D) 067
4) If $22,050 is the amount payable in two years for a $20,000 simple loan made today,
the interest rate is
A) 5 percent
B) 10 percent
C) 22 percent
D) 25 percent
5) Economists consider the ________ to be the most accurate measure of interest rates
A) simple interest rate
B) current yield
C) yield to maturity
D) real interest rate
6) Regulations that reduced competition between banks included
A) branching restrictions
B) bank reserve requirements
C) the dual system of granting bank charters
D) interest-rate ceilings
7) When the Fed supplies the banking system with an extra dollar of reserves, deposits
________ by ________ than one dollara process called multiple deposit creation
A) increase; less
B) increase; more
C) decrease; less
D) decrease; more
8) If interest rates increase from 9 percent to 10 percent, a bank with a duration gap of 2
years would experience a decrease in its net worth of
A) 09 percent of its assets
B) 09 percent of its liabilities
C) 18 percent of its liabilities
D) 18 percent of its assets
9) To say that stock prices follow a “random walk” is to argue that stock prices
A) rise, then fall, then rise again
B) rise, then fall in a predictable fashion
C) tend to follow trends
D) cannot be predicted based on past trends
10) Off-balance sheet activities involving guarantees of securities and back-up credit
lines
A) have no impact on the risk a bank faces
B) greatly reduce the risk a bank faces
C) increase the risk a bank faces
D) slightly reduce the risk a bank faces
11) The interest rate for primary credit is usually set ________ basis points ________
the federal funds rate In March 2008, this gap was changed to ________ basis points
A) 50; below; 100
B) 100; above; 25
C) 100; below; 50
D) 50; above; 25
12) The leverage ratio is the ratio of a bank’s
A) assets divided by its liabilities
B) income divided by its assets
C) capital divided by its total assets
D) capital divided by its total liabilities
13) GDP measured with constant prices is referred to as
A) real GDP
B) nominal GDP
C) the GDP deflator
D) industrial production
14) Monetary aggregates are
A) measures of the money supply reported by the Federal Reserve
B) measures of the wealth of individuals
C) never redefined since “money” never changes
D) reported by the Treasury Department annually
15) The M2 monetary aggregate contains everything that is in M1 plus other assets that
are highly ________ (can be turned into cash quickly at very little cost)
A) liquid
B) stable
C) consistent
D) efficient
16) In the simple deposit expansion model, a decline in checkable deposits of $1,000
when the required reserve ratio is equal to 20 percent implies that the Fed
A) sold $200 in government bonds
B) sold $500 in government bonds
C) purchased $200 in government bonds
D) purchased $500 in government bonds
17) In the simple deposit expansion model, an expansion in checkable deposits of
$1,000 when the required reserve ratio is equal to 10 percent implies that the Fed
A) sold $1,000 in government bonds
B) sold $100 in government bonds
C) purchased $1000 in government bonds
D) purchased $100 in government bonds
18) A bond that is bought at a price below its face value and the face value is repaid at a
maturity date is called a
A) simple loan
B) fixed-payment loan
C) coupon bond
D) discount bond
19) Microprudential supervision does all of the following except
A) checking capital ratios of a bank
B) checking a bank’s compliance with disclosure requirements
C) assessing the riskiness of an individual bank’s activities
D) focusing on financial system liquidity
20) Explain the Taylor rule, including the formula for setting the federal funds rate
target, and the components of the formula If the Fed were to use this rule, how many
goals would it use to set monetary policy?
21) What happens to economic growth and unemployment during a business cycle
recession? What is the relationship between the money growth rate and a business cycle
recession?
22) How can specializing in lending help to reduce the adverse selection problem in
lending?
23) What two key factors trigger speculative attacks leading to currency cries in
emerging market countries?
24) What crucial role do financial intermediaries perform in an economy?
25) Your bank has the following balance sheet
AssetsLiabilities
Rate-sensitive$100 millionRate-sensitive$75 million
Fixed-rate100 millionFixed-rate125 million
What would happen to bank profits if the interest rates in the economy go down? Is
there anything that you could do to keep your bank from being so vulnerable to interest
rate movements?
26) Show graphically and explain why targeting an interest rate is preferable when
money demand is unstable and the IS curve is stable
27) The monetary base increased by 20% during the contraction of 1929-1933, but the
money supply fell by 25% Explain why this occurred How can the money supply fall
when the base increases?