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1) Banks hold capital because
A) they are required to by regulatory authorities
B) higher capital increases the returns to the owners
C) it increases the likelihood of bankruptcy
D) higher capital increases the return on equity
2) The most common type of discount lending, ________ credit loans, are intended to
help healthy banks with short-term liquidity problems that often result from temporary
deposit outflows
A) secondary
B) primary
C) temporary
D) seasonal
3) When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and
the bank chooses not to make any loans but to hold excess reserves instead, then, in the
bank's final balance sheet,
A) the assets at the bank increase by $1 million
B) the liabilities of the bank decrease by $1 million
C) reserves increase by $200,000
D) liabilities increase by $200,000
4) Equity and debt instruments with maturities greater than one year are called
________ market instruments
A) capital
B) money
C) federal
D) benchmark
5) From 1980 to 1985 the dollar appreciated relative to the British pound Holding
everything else constant, one would expect that, when compared to 1980,
A) fewer Britons traveled to the United States in 1985
B) Britons imported more wine from California in 1985
C) Americans exported more wheat to England in 1985
D) more Britons traveled to the United States in 1985
6) An increase in ________ leads to an equal ________ in the monetary base in the
short run
A) float; decrease
B) float; increase
C) discount loans; decrease
D) Treasury deposits at the Fed; increase
7) An autonomous decrease in money demand, other things equal, shifts the ________
curve to the ________
A) IS; right
B) IS; left
C) LM; left
D) LM; right
8) According to the Taylor rule, the Fed should raise the federal funds interest rate when
inflation ________ the Fed's inflation target or when real GDP ________ the Fed's
output target
A) rises above; drops below
B) drops below; drops below
C) rises above; rises above
D) drops below; rises above
9) Banks hold excess and secondary reserves to
A) reduce the interest-rate risk problem
B) provide for deposit outflows
C) satisfy margin requirements
D) achieve higher earnings than they can with loans
10) If a bank needs to acquire funds quickly to meet an unexpected deposit outflow, the
bank could
A) borrow from another bank in the federal funds market
B) buy US Treasury bills
C) increase loans
D) buy corporate bonds
11) The Federal Reserve Banks are ________ institutions since they are owned by the
________
A) quasi-public; private commercial banks in the district where the Reserve Bank is
located
B) public; private commercial banks in the district where the Reserve Bank is located
C) quasi-public; Board of Governors
D) public; Board of Governors
