FIN 6320 Money and Capital
Markets, Summer 2004 – Test 2. Peter Lewin.
Please read the following carefully:
Multiple
Choice – 25 questions. Please use a 50 question 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.
Which of the
following Schools favors a constant growth rate of the money supply?
a.
the Keynesians
b.
the Austrians
c.
the Monetarists
d.
the body
snatchers
2.
Which of the
following is the biggest problem in conducting finely-tuned monetary policy?
a.
we don’t know what
causes inflation
b.
we don’t know
where the money supply comes from
c.
there are long
and variable lags involved in implementing policy
d.
the public knows
too much
3.
Which of the
following Schools emphasizes the quantity of money as determining the business
cycle?
a.
the Keynesians
b.
the Monetarists
c.
the Austrians
d.
all of the above
e.
none of the above
4.
Friedman
contended what about the unemployment rate?
a.
there is a
natural rate of unemployment
b.
unemployment is
unnecessary
c.
there is a
trade-off between inflation and unemployment
d.
there is no
trade-off between inflation and unemployment
e.
a and d of the
above
5.
Which of the
following may be said to agree with Hayek on the question of unemployment?
a.
Keynes
b.
Friedman
c.
d.
Samuelson
6.
Which of the
following was Keynes’s most effective rival?
a.
Hayek
b.
Mises
c.
Friedman
d.
Lucas
7.
Which of the
following was the originator of macroeconomics?
a.
Friederich Hayek
b.
Lionel Robbins
c.
John Maynard
Keynes
d.
John Neville
Keynes
8.
Adam Smith was a
member of which of the following schools of thought?
a.
the Classical
School
b.
the Neoclassical
School
c.
the
d.
the
9.
Exporting a good
gives rise to a _________ foreign exchange and a _________ the currency of the
exporting 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
10.
Considerable
day-to-day volatility in major exchange rates is caused by
a.
shifts in tastes
or preferences for domestic versus foreign goods
b.
sudden changes in
productivity in one nation versus others
c.
highly variable
inflation rates in some industrialized countries
d.
international
capital mobility
11.
If country A has
a permanent inflation rate of 10% and country B has a permanent deflationary
rate of 5%
a.
country A’s
currency will depreciate against B’s currency at a rate of 15% per year
b.
country A’s
currency will depreciate against B’s currency at a rate of 5% per year
c.
country B’s
currency will depreciate against A’s currency at a rate of 15% per year
d.
country B’s
currency will depreciate against A’s currency at a rate of 5% per year
12.
If a buyer of a
particular stock purchased a call option at a strike price of $100 and the
stock is selling for $110 on the expiration date, the call option is worth
a.
$110 per share
b.
$800 per share
c.
$10 per share
d.
$0 per share
13.
If a buyer of a
particular stock purchased a put option at a strike price of $100 and the stock
is selling for $110 on the expiration date, the put option is worth
a.
$110 per share
b.
$800 per share
c.
$10 per share
d.
$0 per share
14.
If person A buys
a 1995 Treasury bond futures contract from 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
15.
Which of the
following is correct?
a.
the holder of a
put is a short
b.
the holder of a
call is a long
c.
the seller of a
put is a short
d.
the seller of a
call is a short
e.
c and d of the
above
16.
Which of the
following is defined as a standardized agreement which gives one the right 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
17.
Which of the
following is a derivative financial asset?
a.
mortgages
b.
commercial paper
c.
Treasury bills
d. an interest rate swap
18.
Which of the
following statements regarding the futures market is correct?
a.
buyers have rights; sellers have obligations.
b.
sellers have
rights; buyers have obligations.
c.
buyers and
sellers have obligations but not rights
d.
buyers and
sellers each have rights and obligations
19.
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
20.
The principal
policy-making committee of the Federal Reserve is the
a.
Federal Advisory
Council
b.
Board of
Governors
c.
president of the
d.
Federal Open
Market Committee
21.
Which of the
following is the most important consideration in ensuring that the Fed not
engage in inflationary policy?
a.
the Fed is
geographically dispersed
b.
the Fed is owned
by the member banks
c.
the Fed is
independent of the various branches of government
d.
the Fed is
staffed by clever people
22.
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
23.
In which of the
following ways does money get created?
a.
the Fed prints
money
b.
the Treasury
prints money
c.
the Treasury
writes a check drawn on its newly created deposit at the Fed, the funds for
which come from the Fed purchasing Treasury bonds
d.
the Treasury
writes a check drawn on its newly created deposit at the Fed, the funds for
which come from the general public purchasing Treasury bonds
24.
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
25.
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
26.
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
27.
The Federal
Reserve Bank of
a.
executes open
market operations
b.
sets reserve
requirements
c.
establishes the
prime rate
d.
establishes the
three-month Treasury bill rate
28.
The largest component
of the money supply (M1) is
a.
time deposits
b.
large CDs
c.
demand deposits
d.
coin and currency
29.
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
30.
Which of the
following is the basic ingredient controlled by the Fed necessary for the
creation of the money supply?
a.
reserves
b.
commercial loans
c.
demand deposits
d.
currency
31.
Which of the
following is classified as a liability for a commercial bank customer?
a.
a car loan
b.
a commercial loan
c.
a demand deposit
d.
a deposit with
the Federal Reserve
32.
If the required
reserve ratio is .20, demand deposits are $400 million, and total reserves are
$150 million, then excess reserves are
a.
$25 million
b.
$50 million
c.
$70 million
d.
$125 million
33.
Assume that
excess reserves are $10 million, demand deposits are $500 million, and total
reserves are $110 million. The required
reserve ratio is
a.
.05
b.
.1
c.
.2
d.
.25
34.
Which of the
following are stated purposes of financial regulation?
a.
protect the
consumer (or someone?)
b.
promote
competition
c.
achieve financial
stability
d.
conduct monetary
policy
e.
all of the above
f.
35.
Which of the
following regulates the
a.
the SEC
b.
the CES
c.
the Fed
d.
the FDIC
36.
Which of the
following is true for the period 1970-2002?
a.
banks have
shifted out of loans into other assets
b.
banks have
shifted into loans out of other assets
c.
banks have
reduced their bank fees
d.
banks have
reduced the volume of mortgage loans they make
37.
Which of the
following is true for the period 1970-2002?
a.
banks have
increased the proportion of their liabilities accounted for by demand deposits
b.
banks have
decreased the proportion of their liabilities accounted for by demand deposits
c.
banks no longer
accept demand deposits
d.
banks no longer
use the funds from demand deposits
38.
Insurance
companies are regulated at
a.
the federal level
b.
the state level
c.
the city level
d.
the international
level
39.
The principles
of the economics of insurance works
essentially on
a.
the law of large
numbers
b.
the stupidity of
the insurance holders
c.
the greed of the
insurance companies
d.
the regularity of
the seasons
40.
Which of the
following regulated branch banking?
a.
the McFadden Act
b.
the Glass-Stegall
Act
c.
the
d.
the Smith-Taylor
Act
41.
41. Which of the
following regulated bank investment activities?
a.
the McFadden Act
b.
the Glass-Stegall
Act
c.
the
d.
the Smith-Taylor
Act
42.
A commercial
bank's ability to lend is determined by its
a.
required reserves
b.
excess reserves
c.
total reserves
d.
capital
43.
The demand
deposit multiplier __________ as the currency-deposit ratio _________
a.
increases,
increases
b.
increases,
decreases
c.
does not change,
increases
d.
does not change,
decreases
44.
Assume that the
M1 multiplier is 4 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
45.
Assume that the
M1 multiplier is 3 and the Federal Reserve sells $100 million worth of
government securities. The maximum
ultimate change in the supply of M1 will be to
a.
rise by $100
million
b.
fall by $100
million
c.
fall by $300
million
d.
rise by $300
million
46.
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.
47.
In the Classical
view, the money supply determines
a.
interest rates
b.
the saving rate
c.
aggregate supply
d.
the price level
48.
Classical
monetary theory relies on
a.
aggregate supply
b.
rational
expectations
c.
short-run
analysis
d.
Say's Law
49.
In the simple
Keynesian framework, the price level
a.
is fixed
b.
varies directly
with unemployment
c.
varies inversely
with wages
d.
is indeterminate
50.
The velocity of
M1 is equal to
a.
M3 minus M1
b.
GDP divided by M1
c.
GDP multiplied by
M1
d.
the velocity of
M2
Grade distribution:
If your total score on the two
tests was greater than or equal to your final grade is:
|
84 |
A |
|
75 |
B |
|
Else |
C |
Solution:
1. c
2. c
3. b
4. a
5. b
6. a
7. c
8. a
9. c
10. d
11. a
12. c
13. d
14. a
15. e
16. b
17. d
18. d
19. c
20. d
21. c
22. d
23. c
24. a
25. b
26. a
27. a
28. c
29. d
30. a
31. b
32. c
33. c
34. e
35. a
36. a
37. b
38. b
39. a
40. a
41. b
42. b
43. b
44. b
45. c
46. d
47. d
48. d
49. a
50. b