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1) The trend in recent years is that more and more governments
A) have been granting greater independence to their central banks
B) have been reducing the independence of their central banks to make them more
accountable for poor economic performance
C) have mandated that their central banks focus on controlling inflation
D) have required their central banks to cooperate more with their Ministers of Finance
2) Financial intermediaries develop ________ in things such as computer technology
which allows them to lower transactions costs
A) expertise
B) diversification
C) regulations
D) equity
3) If a bank has ________ rate-sensitive assets than liabilities, a ________ in interest
rates will reduce bank profits, while a ________ in interest rates will raise bank profits
A) more; rise; decline
B) more; decline; rise
C) fewer; decline; decline
D) fewer; rise; rise
4) Which of the following is not a requirement in selecting a policy instrument?
A) Measurability
B) Controllability
C) Flexibility
D) Predictability
5) Because it provides some indication of what is happening to US claims on foreign
wealth and the demand for imports and exports, the ________ is closely followed by
economists wanting information on the future movement of exchange rates
A) trade balance
B) capital account
C) current account balance
D) statistical discrepancy
6) In the long-run ISLM model and with everything else held constant, the long-run
effect of a tax cut is to ________ real output and ________ the interest rate
A) increase; increase
B) increase; not change
C) not change; increase
D) not change; decrease
7) If people expect nominal interest rates to be higher in the future, the expected return
to bonds ________, and the demand for money ________
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
8) When a bank buys a government bond from the Federal Reserve, reserves in the
banking system ________ and the monetary base ________, everything else held
constant
A) increase; increases
B) increase; decreases
C) decrease; increases
D) decrease; decreases
9) Everything else held constant, if a central bank makes an unsterilized ________ of
foreign assets, then the domestic money supply will ________ and the domestic
currency will appreciate
A) purchase; increase
B) purchase; decrease
C) sale; increase
D) sale; decrease
10) Assume that you borrow $2000 at 10% annual interest to finance a new business
project For this loan to be profitable, the minimum amount this project must generate in
annual earnings is
A) $400
B) $201
C) $200
D) $199
11) What is the impact on interest rates when the Federal Reserve decreases the money
supply by selling bonds to the public?
12) What financial innovations helped banks to get around the bank branching
restrictions of the McFadden Act?
13) Make the case for and against an independent Federal Reserve
14) Corporations receive funds when their stock is sold in the primary market Why do
corporations pay attention to what is happening to their stock in the secondary market?
15) Why are most of the US dollars held outside of the United States?
16) Discuss three ways in which US banks can become involved in international
banking
