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1) The starting point for understanding how exchange rates are determined is a simple
idea called ________, which states: if two countries produce an identical good, the
price of the good should be the same throughout the world no matter which country
produces it
A) Gresham's law
B) the law of one price
C) purchasing power parity
D) arbitrage
2) The steepest increase in the currency ratio since 1892 occurred during
A) World War II
B) the Great Depression
C) the interwar years
D) the past twenty years
3) If the required reserve ratio is 10 percent, currency in circulation is $400 billion,
checkable deposits are $800 billion, and excess reserves total $08 billion, then the
excess reserves-checkable deposit ratio is
A) 0001
B) 010
C) 001
D) 005
4) Everything else held constant, if workers expect an increase in inflation, ________
aggregate supply ________
A) long-run; increases
B) long-run; decreases
C) short-run; decreases
D) short-run; increases
5) The decision by inflation targeters to choose inflation targets ________ zero reflects
the concern of monetary policymakers that particularly ________ inflation can have
substantial negative effects on real economic activity
A) below; high
B) below; low
C) above; high
D) above; low
6) ________ in the expected future domestic exchange rate causes the demand for
domestic assets to shift to the ________ and the domestic currency to appreciate,
everything else held constant
A) An increase; right
B) An increase; left
C) A decrease; right
D) A decrease; left
7) The mandate for the monetary policy goals that has been given to the Federal
Reserve System is an example of a ________ mandate
A) primary
B) dual
C) secondary
D) hierarchical
8) Increased uncertainty resulting from the global financial crisis ________ the required
return on investment in equity
A) raised
B) lowered
C) had no impact on
D) decreased
9) The demand curve for bonds has the usual downward slope, indicating that at
________ prices of the bond, everything else equal, the ________ is higher
A) higher; demand
B) higher; quantity demanded
C) lower; demand
D) lower; quantity demanded
10) A major difference between the United States and Japanese banking systems is that
A) American banks are allowed to hold substantial equity stakes in commercial firms,
whereas Japanese banks cannot
B) Japanese banks are allowed to hold substantial equity stakes in commercial firms,
whereas American banks cannot
C) bank holding companies are illegal in the United States
D) Japanese banks are usually organized as bank holding companies
11) The subprime financial crisis caused a recession because of the ________ in
adverse selection and moral hazard problems and the ________ in housing prices
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
12) Each governor on the Board of Governors can serve
A) only one nonrenewable fourteen-year term
B) one full nonrenewable fourteen-year term plus part of another term
C) only one nonrenewable eight-year term
D) one full nonrenewable eight-year term plus part of another term
13) Examples of off-balance-sheet activities include
A) loan sales
B) extending loans to depositors
C) borrowing from other banks
D) selling negotiable CDs
14) If reserves in the banking system increase by $100, then checkable deposits will
increase by $2,000 in the simple model of deposit creation when the required reserve
ratio is
A) 001
B) 005
C) 010
D) 020
15) The demand for gold increases, other things equal, when
A) the market for silver becomes more liquid
B) interest rates are expected to rise
C) interest rates are expected to fall
D) real estate prices are expected to increase
16) The bailout of the savings and loan industry was much delayed and, therefore, much
more costly to taxpayers because
A) of regulators' initial attempts to downplay the seriousness of problems within the
thrift industry
B) politicians listened to the taxpayers rather than the S&L lobbyists
C) Congress did not wait long enough for many of the problems in the thrift industry to
correct themselves
D) regulators could not be fired, therefore, they didn't care if they did a good job or not
17) The formula that links checkable deposits to the money supply is
A) M =
B) M = D
C) D = M
D) D = (1 + c) M
