FIN 6320, 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
a.
John
Maynard Keynes
b.
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
Grade distribution:
If your total score is
grater than or equal to: your grade is
|
80 |
A |
|
75 |
B |
|
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