1) In the figure above, one factor not responsible for the decline in the demand for
money is
A) a decline the price level
B) a decline in income
C) an increase in income
D) a decline in the expected inflation rate
2) Banks develop statistical models to calculate their maximum loss over a given time
period This approach is known as the
A) stress-testing approach
B) value-at-risk approach
C) trading-loss approach
D) doomsday approach
3) The primary difference between the “payoff” and the “purchase and assumption”
methods of handling failed banks is
A) that the FDIC guarantees all deposits when it uses the “payoff” method
B) that the FDIC guarantees all deposits when it uses the “purchase and assumption”
method
C) that the FDIC is more likely to use the “payoff” method when the bank is large and it
fears that depositor losses may spur business bankruptcies and other bank failures
D) that the FDIC is more likely to use the purchase and assumption method for small
institutions because it will be easier to find a purchaser for them compared to large
institutions
4) Which of the following are generally true of bonds?
A) The only bond whose return equals the initial yield to maturity is one whose time to
maturity is the same as the holding period
B) A rise in interest rates is associated with a fall in bond prices, resulting in capital
gains on bonds whose terms to maturity are longer than the holding periods
C) The longer a bond’s maturity, the smaller is the size of the price change associated
with an interest rate change
D) Prices and returns for short-term bonds are more volatile than those for longer-term
bonds
5) A monetary policy strategy that uses a fixed exchange rate regime that ties the value
of a currency to the currency of a large, low inflation country is called ________
targeting
A) exchange-rate
B) currency
C) monetary
D) inflation
6) The Resolution Trust Corporation was created by the FIRREA in order to
A) manage and resolve insolvent S&Ls
B) build up trust in government regulation
C) regulate the S&L industry
D) purchase large amounts of government debt
7) To claim that a lottery winner who is to receive $1 million per year for twenty years
has won $20 million ignores the process of
A) face value
B) par value
C) deflation
D) discounting the future
8) Suppose the economy is producing at the natural rate of output An open market
purchase of bonds by the Fed will cause ________ in real GDP the the short run and
________ in inflation in the short run, everything else held constant
A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease
9) Which of the following are bank assets?
A) the building owned by the bank
B) a discount loan
C) a negotiable CD
D) a customer’s checking account
10) Rising interest-rate risk
A) increased the cost of financial innovation
B) increased the demand for financial innovation
C) reduced the cost of financial innovation
D) reduced the demand for financial innovation
11) In the ISLM framework, an expansionary monetary policy causes aggregate output
to ________ and the interest rate to ________, everything else held constant
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
12) Assuming initially that rr = 15%, c = 40%, and e = 5%, a decrease in e to 0% causes
the M1 money multiplier to ________, everything else held constant
A) increase from 233 to 255
B) decrease from 255 to 233
C) increase from 167 to 182
D) decrease from 182 to 167