BA 4345, Summer
2003 - Final. Peter Lewin.
Please read the following carefully:
Multiple
Choice -60 questions. Please use a
half page scantron (882-ES) with a pencil.
Hand in only the scantron (you may keep this question paper).
This is a closed book exam. Cheating will result in a zero (among other
possible sanctions).
Among the possibilities given in each
question select the best
alternative.
Solution and
grade distribution at end.
___________________________________________________________________
1.
The most
prominent role for money is to serve as a
a.
form of credit
b.
source of income
c.
means of payment
d.
standard of value
2.
Which of the
following is not
true?
a.
Money is a means
of payment
b.
Money is an evolved
unintended outcome of human actions
c.
All moneys
evolved, directly or indirectly, from a commodity that was once not money
d.
Governments
invariably get involved and end up monopolizing the issue of money
e.
Money must be
"legal tender" enforced by the government in order to work properly
3.
The measure of
the money supply called M1 consists of
a.
currency outside
banks plus checkable accounts Eurodollars
b.
currency outside
banks plus checkable accounts plus money market deposit accounts
c.
currency outside
banks plus checkable accounts plus travelers' checks
d.
currency outside
banks plus checkable accounts plus small denomination time deposits
4.
The principal
policy-maker of the Federal Reserve is the
a.
Chairman of the
Federal Reserve Board of Governors
b.
president of the
New York Federal Reserve bank
c.
president of the
Washington, D.C. Federal Reserve bank
d.
Comptroller of
the Currency
5.
The Comptroller
of the Currency
a.
serves as
Chairman of the Board of Governors
b.
serves as a
member of the Board of Governors
c.
serves as an
alternate member of the Board of Governors
d.
does not serve on
the Board of Governors
6.
To make sure that
no one group could dominate the direction of monetary policy, the 1913 Federal
Reserve Act diffused power in all of the following ways except
a.
geographically
b.
between the
public and private sectors
c.
internationally
d.
within the
Federal Reserve System
7.
Funding for the
operations of the Board of Governors of the Federal Reserve is derived from
a.
taxes collected
from commercial banks
b.
the governments
of the states in which the district banks operate
c.
appropriations
from the United States Congress
d.
earnings of the
Federal Reserve district banks
8.
Each regional
Federal Reserve Bank is owned by
a.
the member banks
in its district
b.
the Federal
Deposit Insurance Corporation
c.
those who
purchase its stock on the open market
d.
the taxpayers in
its district
9.
The Board of
Governors appoint ________ directors for each Federal
Reserve Bank and the member banks elect __________ for the Federal Reserve Bank
in their district.
a.
three, three
b.
three, six
c.
six, three
d.
six, six
10.
The Federal
Reserve's primary monetary policy-making body is the
a.
Federal Open
Market Committee
b.
Council of
Economic Advisors
c.
Federal Advisory
Council
d.
Federal Deposit
Insurance Corporation
11.
The Federal
Reserve Bank of New York
a.
executes open
market operations
b.
sets reserve
requirements
c.
establishes the
prime rate
d.
establishes the
three-month Treasury bill rate
12.
Supporters of
Federal Reserve independence contend that independence from the rest of the
federal government leads to lower
a.
inflation rates
b.
interest rates
c.
reserve
requirements
d.
rates of
unemployment
13.
The largest
component of the money supply (M1) is
a.
time deposits
b.
large CDs
c.
demand deposits
d.
coin and currency
14.
The Federal
Reserve's ability to control the amount of demand deposits in the system
depends on its ability to
a.
clear checks
b.
charter national
banks
c.
print currency
d.
regulate bank
reserves
15.
Which of the
following is classified as a liability for a commercial bank?
a.
reserves
b.
commercial loans
c.
demand deposits
d.
deposits with the
Federal Reserve
16.
Which of the
following is classified as an asset for a commercial bank customer?
a.
a car loan
b.
a commercial loan
c.
demand deposits
d.
deposits with the
Federal Reserve
17.
If the required
reserve ratio is .25, demand deposits are $400 million, and total reserves are
$150 million, then excess reserves are
a.
$25 million
b.
$50 million
c.
$75 million
d.
$125 million
18.
Assume that
excess reserves are $10 million, demand deposits are $500 million, and total
reserves are $135 million. The required
reserve ratio is
a.
.05
b.
.1
c.
.2
d.
.25
19.
Which of the
following assets yields a 0 percent return?
a.
U.S. Treasury
Bills
b.
excess reserves
c.
deposits with
correspondent banks
d.
municipal bonds
20.
A commercial bank's
ability to lend is determined by its
a.
required reserves
b.
excess reserves
c.
total reserves
d.
capital
21.
The demand
deposit multiplier __________ as the required reserve ratio _________
a.
increases,
increases
b.
increases,
decreases
c.
does not change,
increases
d.
does not change,
decreases
22.
If the ratio of
net worth to vault cash is .2, the prime rate is .05, and the required reserve
ratio is .25, the demand deposit expansion multiplier is
a.
2
b.
4
c.
5
d.
0.25
23.
Assume an economy
with a single bank, no excess reserves, no savings accounts, and no currency
held by the public. With a required
reserve ratio of .4, the demand deposit expansion multiplier is
a.
20
b.
10
c.
4
d.
2.5
24.
If the required
reserve ratio is decreased from .2 to .1 the demand deposit expansion
multiplier
a.
increases from 5
to 10
b.
increases from 4
to 4.5
c.
decreases from 5
to 2.5
d.
decreases from 2
to 1
25.
The primary
function of reserve requirements is to serve as
a.
a source of bank
liquidity
b.
an instrument of
monetary control
c.
a means of
reducing bank profits
d.
a means of
controlling the amount of currency in the banking system
26.
When the Federal
Reserve sells $100 worth of government securities, bank reserves
a.
rise by $100
b.
rise by $100
times the deposit expansion multiplier
c.
fall by $100
d.
fall by $100
times the deposit expansion multiplier
27.
Assume that the
M1 multiplier is 3 and the Federal Reserve sells $100 million worth of
government securities. Bank reserves
will
a.
rise by $100
million
b.
fall by $100
million
c.
fall by $300
million
d.
fall by $33.33
million
28.
Federal funds
rate targets and reserve targets are incompatible when the Federal Reserve
wants to
a.
expand reserves
and lower interest rates
b.
expand reserves
and raise interest rates
c.
contract reserves
and the money supply
d.
contract reserves
and raise interest rates
29.
The effectiveness
of the federal funds rate as an operating target is limited because the
a.
Treasury often
uses the federal funds market
b.
reserve
requirements often change
c.
demand for
reserves is difficult to predict
d.
deposit expansion
multiplier is difficult to predict
30.
The two
cornerstones of Classical economics are the Quantity Theory and
a.
Liquidity
Preference Theory
b.
disequilibrium
analysis
c.
Say's Law
d.
the Phillips
Curve
31.
Which of the following
statements is inconsistent with Say's Law?
a.
The economy has
flexible wages and prices
b.
The economy will
produce at the full employment level of output.
c.
The economy has
an environment of "laissez faire."
d.
The economy's
level of saving depends solely on the level of income.
32.
In the Classical
Theory, saving and investment determine
a.
the price level
b.
unemployment
c.
the money supply
d.
interest rates
33.
In the Classical
view, the money supply determines
a.
interest rates
b.
the saving rate
c.
aggregate supply
d.
the price level
34.
Keynesian theory
emphasizes
a.
aggregate supply
b.
rational
expectations
c.
short-run
analysis
d.
Say's Law
35.
In the simple
Keynesian framework, the price level
a.
is fixed
b.
varies directly
with unemployment
c.
varies inversely
with wages
d.
is indeterminate
36.
When examining
the causes of unemployment, Keynes focused on
a.
financial markets
b.
inflationary
expectations
c.
changes in
technology
d.
aggregate demand
37.
In the Keynesian
model, an unwanted decrease in inventories leads to
a.
falling interest rates
b.
rising
unemployment
c.
rising output
d.
falling money
wages
38.
If consumption
increases by $400 when income increases by $500, then the marginal propensity
to consume is
a.
900
b.
100
c.
1.20
d.
0.80
39.
In the Keynesian
model, liquidity preference refers to the
a.
demand for
capital
b.
demand for
consumer goods
c.
demand for money
d.
money supply
40.
A President who
favors the use of government spending and taxes as tools to offset instability
in the economy is likely to have advisers who are oriented toward
a.
Keynesian economics
b.
Monetarist
economics
c.
rational
expectations
d.
the policies
advocated by Milton Friedman
41.
A relatively flat
aggregate demand curve indicates that
a.
velocity is
relatively constant
b.
the economy is
near full employment
c.
inflation is
relatively low
d.
spending is
sensitive to changes in the price level
42.
The velocity of
M2 is equal to
a.
M3 minus M1
b.
GDP divided by M2
c.
GDP multiplied by
M2
d.
the velocity of
M1
43.
An example of
direct finance would be
a.
a person
purchases a certificate of deposit from a bank
b.
a person buys a
life insurance policy
c.
a person buys 100
shares of stock
d.
a bank makes a
loan to a customer
44.
The largest group
of saver-lenders in the financial system is
a.
businesses
b.
government
c.
households
d.
financial
intermediaries
45.
The total future amount
a saver would get back on a $600 two-year loan with an annual compound interest
rate of 8 percent is equal to
a.
$48
b.
$96
c.
$648
d.
$699.84
46.
The demand for
loanable funds is equivalent to the
a.
supply of
loanable funds
b.
supply of
securities
c.
demand for
securities
d.
supply of bonds
47.
The yield curve
depicts the relationship between
a.
interest rates
and risk
b.
yield and risk
c.
yield and
interest rates
d.
yield and
maturity
48.
If the yield on
short-term securities is the same as the yield on comparable long-term securities,
the yield curve will have a
a.
positive slope
b.
negative slope
c.
constant slope
d.
zero slope
49.
Which of the
following is a derivative financial asset?
a.
mortgages
b.
commercial paper
c.
Treasury bills
d.
options
50.
Which of the
following is defined as a standardized agreement to buy or sell a particular
asset or commodity at a future date at a currently agreed upon price?
a.
an option
contract
b.
a futures
contract
c.
a derivative
asset
d.
a financial
contract
51.
The precise terms
of each futures contract are
a.
negotiated by the
long and the short
b.
set by the short
c.
set by the long
d.
established by
the exchange in which the trade takes place
52.
If person A sells
a 1995 Treasury bond futures contract to person B, in market terminology
a.
A is the long and
B is the short
b.
A is the short
and B is the long
c.
A is the short
and B is the broker
d.
A is the long and
B is the dealer
53.
Which of the
following statements regarding the options market is correct?
a.
Option buyers
have rights; option sellers have obligations.
b.
Option sellers
have rights; option buyers have obligations.
c.
Option buyers and
sellers have obligations but not rights
d.
Options buyers
and sellers each have rights and obligations
54.
If a buyer of a
particular stock purchased a call option at a strike price of $80 and the stock
is selling for $83 on the expiration date, the call option is worth
a.
$163 per share
b.
$83 per share
c.
$3 per share
d.
$0 per share
55.
Importing a good
gives rise to a _________ foreign exchange and a _________ the currency of the
importing country in the foreign exchange market.
a.
demand for,
demand for
b.
demand for,
supply of
c.
supply of, demand
for
d.
supply of, supply
of
56.
Considerable
day-to-day volatility in major exchange rates is caused by
a.
shifts in tastes or
preferences for domestic versus foreign goods
b.
international
capital mobility
c.
sudden changes in
productivity in one nation versus others
d.
highly variable
inflation rates in some industrialized countries
57.
Which of the
following was the most influential economist of his time?
a.
Friederich Hayek
b.
Lionel Robbins
c.
John Maynard
Keynes
d.
John Neville
Keynes
58.
Which of the
following was Keynes’s most effective rival?
a.
Hayek
b.
Lerner
c.
Samuel son
d.
Lucas
59.
Hayek was a
member of which of the following schools of thought?
a.
the Classical
School
b.
the Neoclassical
School
c.
the Keynesian
School
d.
the Austrian
School
60.
Which of the
following Schools emphasizes the structure of capital and the influence of
interest rates on it in determining the business cycle?
a.
the Keynesians
b.
the Neoclassicals
c.
the Austrians
d.
all of the above
e.
none of the above
If you total score (both tests) is
greater than or equal
to: your grade is
|
85 |
A+ |
|
75 |
A |
|
70 |
A- |
|
68 |
B+ |
|
65 |
B |
|
64 |
B |
|
62 |
C+ |
|
60 |
C |
|
ELSE |
C- |
Solution:
1.
c
2.
e
3.
c
4.
a
5.
d
6.
c
7.
d
8.
a
9.
b
10.
a
11.
a
12.
a
13.
c
14.
d
15.
c
16.
c
17.
b
18.
d
19.
b
20.
b
21.
b
22.
b
23.
d
24.
a
25.
b
26.
c
27.
b
28.
b
29.
c
30.
c
31.
d
32.
d
33.
d
34.
c
35.
a
36.
d
37.
c
38.
d
39.
c
40.
a
41.
d
42.
b
43.
c
44.
c
45.
d
46.
b
47.
d
48.
d
49.
d
50.
b
51.
d
52.
b
53.
a
54.
c
55.
b
56.
b
57.
c
58.
a
59.
d
60.
c