|
40.
|
Which of the following is not considered a legitimate concern of a large public debt?
|
A.
|
Bankruptcy of the federal government.
|
|
B.
|
Disincentives created by higher taxes.
|
|
C.
|
Crowding-out of private investment.
|
|
D.
|
Increased income inequality.
|
Chapter 32: Money, Banking, and Financial Institutions
|
41.
|
If you are estimating your total expenses for school next semester, you are using money primarily as:
|
D.
|
an economic investment.
|
|
|
42.
|
When economists say that money serves as a store of value, they mean that it is:
|
A.
|
a way to keep wealth in a readily spendable form for future use.
|
|
C.
|
a monetary unit for measuring and comparing the relative values of goods.
|
|
D.
|
declared as legal tender by the government.
|
|
|
43.
|
To say that coins are “token money” means that:
|
A.
|
their face value is less than their intrinsic value.
|
|
B.
|
their face value is greater than their intrinsic value.
|
|
C.
|
their face value is equal to their intrinsic value.
|
|
D.
|
they are not legal tender.
|
|
|
44.
|
The amount of money reported as M2:
|
A.
|
is smaller than the amount reported as M1.
|
|
B.
|
is larger than the amount reported as M1.
|
|
C.
|
excludes coins and currency.
|
|
D.
|
includes large ($100,000 or more) certificates of deposit.
|
|
|
45.
|
The difference between M1 and M2 is that:
|
A.
|
the former includes time deposits.
|
|
B.
|
the latter includes small-denominated time deposits, noncheckable savings accounts, money market deposit accounts, and money market mutual fund balances.
|
|
C.
|
the latter includes negotiable government bonds.
|
|
D.
|
the latter includes cash held by commercial banks and the U.S. Treasury.
|
|
|
46.
|
Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the:
|
A.
|
M1 money supply will decline.
|
|
B.
|
M1 money supply will not change.
|
|
C.
|
M2 money supply will decline.
|
|
D.
|
M2 money supply will increase.
|
|
|
47.
|
Refer to the information. Money supply M2 for this economy is:
|
|
48.
|
Which of the following does not explain what backs the money supply in the United States?
|
B.
|
It is widely accepted in transactions.
|
|
C.
|
It is designated “legal tender” by the federal government.
|
|
D.
|
It is relatively scarce.
|
|
|
49.
|
The purchasing power of money and the price level vary:
|
B.
|
directly during recessions but inversely during inflations.
|
|
C.
|
directly but not proportionately.
|
|
D.
|
directly and proportionately.
|
|
|
50.
|
In the U.S. economy, the money supply is controlled by the:
|
A.
|
U.S. Treasury.
|
|
B.
|
Federal Reserve System.
|
|
C.
|
Senate Committee on Banking and Finance.
|
|
D.
|
Congress.
|
|
|
51.
|
To say that the Federal Reserve Banks are quasi-public banks means that:
|
A.
|
they are privately owned but managed in the public interest.
|
|
B.
|
they deal only with banks of foreign nations and do not have direct business contact with U.S. banks.
|
|
C.
|
they deal only with commercial banks, and not the public.
|
|
D.
|
they are publicly owned but privately managed.
|
|
|
52.
|
When banks bundled mortgage loans and sold the resulting mortgage-backed securities:
|
A.
|
they insulated the banking system from any risk associated with mortgage defaults.
|
|
B.
|
they greatly reduced the overall risk of mortgage defaults.
|
|
C.
|
buyers of these securities assumed all of the risk of mortgage defaults.
|
|
D.
|
they reduced their direct exposure to mortgage default risk but were still exposed through loans to investors in mortgage-backed securities.
|
|
|
53.
|
In the financial industry, “securitization” refers to:
|
A.
|
increasing insurance protection on bank deposits.
|
|
B.
|
requiring greater down payments on home purchases to reduce mortgage default risk.
|
|
C.
|
bundling groups of loans, bonds, mortgages, and other financial debts into new securities.
|
|
D.
|
increasing collateral requirements on loans.
|
|
|
54.
|
The “shadow banking system” refers to:
|
A.
|
the provision of credit through the underground economy when the financial crisis of 2007 and 2008 occurred.
|
|
B.
|
the process by which securities exchanges provide credit for personal and business needs apart from traditional bank lending.
|
|
C.
|
the series of illegal financial transactions that precipitated the financial crisis of 2007 and 2008.
|
|
D.
|
mortgage loans made to homebuyers who are poor credit risks.
|
|
|
55.
|
Some economists are concerned that the financial rescue provided by the TARP will encourage financial investors and firms to take on greater risks in the future. This is an example of:
|
|
56.
|
Which of these pairs of financial institutions are most alike in terms of their main lines of business?
|
A.
|
Commercial banks and thrifts.
|
|
B.
|
Insurance companies and mutual fund companies.
|
|
C.
|
Thrifts and securities firms.
|
|
D.
|
Pension fund companies and commercial banks.
|
Chapter 34: Interest Rates and Monetary Policy
|
57.
|
The asset demand for money:
|
A.
|
is unrelated to both the interest rate and the level of GDP.
|
|
B.
|
varies inversely with the rate of interest.
|
|
C.
|
varies inversely with the level of real GDP.
|
|
D.
|
varies directly with the level of nominal GDP.
|
|
|
58.
|
Which of the following varies directly with the interest rate?
|
A.
|
The opportunity cost of holding money
|
|
B.
|
The transactions demand for money
|
|
C.
|
The asset demand for money
|
|
D.
|
The level of investment
|
|
|
59.
|
If nominal GDP is $600 billion and, on the average, each dollar is spent three times per year, then the amount of money demanded for transactions purposes will be:
|
|
60.
|
If the quantity of money demanded exceeds the quantity supplied:
|
A.
|
the supply-of-money curve will shift to the left.
|
|
B.
|
the demand-for-money curve will shift to the right.
|
|
C.
|
the interest rate will rise.
|
|
D.
|
the interest rate will fall.
|
|
|
61.
|
The equilibrium rate of interest in the market for money is determined by the intersection of the:
|
A.
|
supply-of-money curve and the asset-demand-for-money curve.
|
|
B.
|
supply-of-money curve and the transactions-demand-for-money curve.
|
|
C.
|
supply-of-money curve and the total-demand-for-money curve.
|
|
D.
|
investment-demand curve and the total-demand-for-money curve.
|
|
|
62.
|
Refer to the graph above, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. If the interest rate was 4 percent, the asset demand for money would be:
|
|
63.
|
The interest rate will fall when the:
|
A.
|
Quantity of money demanded exceeds the quantity of money supplied
|
|
B.
|
Quantity of money supplied exceeds the quantity of money demanded
|
|
C.
|
Demand for money increases
|
|
D.
|
Supply of money decreases
|
|
|
64.
|
Which of the following statements is correct?
|
A.
|
Interest rates and bond prices vary directly.
|
|
B.
|
Interest rates and bond prices vary inversely.
|
|
C.
|
Interest rates and bond prices are unrelated.
|
|
D.
|
Interest rates and bond prices vary directly during inflations and inversely during recessions.
|
|
|
|
65.
|
A few years ago, you bought a bond with no expiration and a fixed annual interest payment of $1000 at a price of $10,000. If the interest rate in the economy is now 12.5% a year and you want to sell the bond, the maximum price that you can get for it is:
|
A.
|
$7,500
|
|
B.
|
$8,000
|
|
C.
|
$9,750
|
|
D.
|
$12,500
|
|
|
66.
|
Answer the question based on the information given in the table below that shows the items and figures taken from a consolidated balance sheet of the twelve Federal Reserve Banks. All figures are in billions of dollars.
In the balance sheet above for the Federal Reserve, there would be assets of:
|
|
67.
|
Reserves must be deposited in the Federal Reserve Banks by:
|
A.
|
only commercial banks that are members of the Federal Reserve System.
|
|
B.
|
all depository institutions, that is, all commercial banks and thrift institutions.
|
|
C.
|
state-chartered commercial banks only.
|
|
D.
|
federally chartered commercial banks only.
|
|
|
68.
|
Assume that the required reserve ratio is 25 percent. If the Federal Reserve sells $120 million in government securities to the general public, the money supply will immediately:
|
A.
|
Decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $480 million
|
|
B.
|
Decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $360 million
|
|
C.
|
Increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $480 million
|
|
D.
|
Increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $360 million
|
|
|
69.
|
Refer to the graphs above, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve, respectively. All numbers are in billions of dollars. The interest rate and the level of investment spending in the economy are at point D on the investment demand curve. To achieve the long-run goal of a noninflationary full-employment output Qf in the economy, the Fed should try to:
|
A.
|
Decrease aggregate demand by increasing the interest rate from 2 to 4 percent
|
|
B.
|
Decrease aggregate demand by increasing the interest rate from 4 to 6 percent
|
|
C.
|
Increase aggregate demand by decreasing the interest rate from 4 to 2 percent
|
|
D.
|
Increase the level of investment spending from $120 billion to $150 billion
|
|
|
70.
|
When a commercial bank borrows from a Federal Reserve Bank:
|
A.
|
the supply of money automatically increases.
|
|
B.
|
it indicates that the commercial bank is unsound financially.
|
|
C.
|
the commercial bank’s lending ability is increased.
|
|
|
|
