1) In the market for reserves, if the federal funds rate is between the discount rate and
the interest rate paid on excess reserves, an increase in the reserve requirement
________ the demand for reserves, ________ the federal funds rate, everything else
held constant
A) decreases; lowering
B) increases; lowering
C) increases; raising
D) decreases; raising
2) If there is an excess supply of money
A) individuals sell bonds, causing the interest rate to rise
B) individuals sell bonds, causing the interest rate to fall
C) individuals buy bonds, causing interest rates to fall
D) individuals buy bonds, causing interest rates to rise
3) Net worth can perform a similar role to
A) diversification
B) collateral
C) intermediation
D) economies of scale
4) If the CPI is 120 in 1996 and 180 in 2002, then between 1996 and 2002, prices have
increased by
A) 180%
B) 80%
C) 60%
D) 50%
5) The effect of an open market purchase on reserves differs depending on how the
seller of the bonds keeps the proceeds If the proceeds are kept in currency, the open
market purchase ________ reserves; if the proceeds are kept as deposits, the open
market purchase ________ reserves
A) has no effect on; has no effect on
B) has no effect on; increases
C) increases; has no effect on
D) decreases; increases
6) In the 1970s, the Fed selected an interest rate as an operating target rather than a
reserve aggregate primarily because it
A) had no interest in targeting a monetary aggregate, as evidenced by its unwillingness
to target a reserve aggregate
B) was still very concerned with achieving interest rate stability
C) was committed to targeting free reserves
D) was committed to the real bills doctrine
7) The evidence from banking crises in other countries indicates that
A) deposit insurance is to blame in each country
B) a government safety net for depositors need not increase moral hazard
C) regulatory forbearance never leads to problems
D) deregulation combined with poor regulatory supervision raises moral hazard
incentives
8) If the expected return on bonds increases, all else equal, the demand for bonds
increases, the price of bonds ________, and the interest rate ________
A) increases; decreases
B) increases; increases
C) decreases; decreases
D) decreases; increases
9) When the economy suffers a permanent negative supply shock and the central bank
does not respond by changing the autonomous component of monetary policy, then
A) inflation will be lower
B) output will be at its potential
C) output will be lower
D) inflation will not change
E) both A and B
10) ________ flexible wages and prices imply that the short-run aggregate supply curve
is ________
A) More; flatter
B) Less; steeper
C) less; vertical
D) More; steeper
11) ________ in the expected future domestic exchange rate causes the demand for
domestic assets to ________ and the domestic currency to appreciate, everything else
held constant
A) An increase; increase
B) An increase; decrease
C) A decrease; increase
D) A decrease; decrease
12) In order to reduce the ________ problem in loan markets, bankers collect
information from prospective borrowers to screen out the bad credit risks from the good
ones
A) moral hazard
B) adverse selection
C) moral suasion
D) adverse lending
13) The evolution of the payments system from barter to precious metals, then to fiat
money, then to checks can best be understood as a consequence of
A) government regulations designed to improve the efficiency of the payments system
B) government regulations designed to promote the safety of the payments system
C) innovations that reduced the costs of exchanging goods and services
D) competition among firms to make it easier for customers to purchase their products
14) A Fed purchase of gold, SDRs, a deposit denominated in a foreign currency or any
other asset is just an open market ________ of these assets, ________ the monetary
base
A) purchase; raising
B) sale; raising
C) purchase; lowering
D) sale; lowering
15) The Fed’s support of the Depository Institutions Deregulation and Monetary Control
Act of 1980 stemmed in part from its
A) concern over declining Fed membership
B) belief that all banking regulations should be eliminated
C) belief that interest rate ceilings were too high
D) belief that depositors had to become more knowledgeable of banking operations
16) ________ in the foreign interest rate causes the demand for domestic assets to
decrease and the domestic currency to ________, everything else held constant
A) An increase; appreciate
B) An increase; depreciate
C) A decrease; appreciate
D) A decrease; depreciate
17) Which of the following is a true statement concerning bank holding companies?
A) Bank holding companies own few large banks
B) Bank holding companies have experienced dramatic growth in the past three decades
C) The McFadden Act has prevented bank holding companies from establishing branch
banks
D) Bank holding companies can own only banks