Final Exam Spring 2014 Econ 3229 - Econ 3229 Final Exam BLUE Name MULTIPLE CHOICE Choose the one alternative that best completes the statement or

Final Exam Spring 2014 Econ 3229 - Econ 3229 Final Exam...

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Econ 3229 Final Exam BLUE Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A bank panic occurs when A) the situation in which many banks experience a bank run simultaneously. B) a bank is worried that its loans will not be repaid. C) a bank lacks sufficient funds with which to make loans. D) an individual bank cannot meet its reserve requirements. 2) Moral hazard arises from A) savers' difficulties in monitoring borrowers. B) the difficulty of distinguishing good-risk borrowers from bad-risk borrowers. C) borrowers' difficulties in locating savers. D) the likelihood that bad-risk borrowers are more likely to accept a loan than are good-risk borrowers. 3) The main argument in favor of Fed independence is that A) the Constitution requires it. B) congressional control of the Fed was tried during the 1960s and did not work well. C) interest rates would probably be lower if Congress controlled the Fed; thus hurting savers. D) monetary policy is too important and too technical to be determined in the political arena. 4) If 1-year interest rates for the next five years are expected to be 4, 4, 4, 4, and 4 percent, and the 5-year term premium is 1 percent, than the 5-year bond rate will be A) 2 percent. B) 3 percent. C)
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4 percent. D) 5 percent. 5) If a bank has a leverage ratio of 0.05 and a return on capital of 1.5%, what is its return on equity? A) 0.2% B) 5% C) 30% D) 2.1% 6) Suppose in 2012 you buy 5% coupon rate, $100 face value bond for $100 that has 2 years left till maturity. If in 2013 interest rates decrease to 3%, what will be the price of your bond and what will be your rate of return if you decide to sell it? A) $105 and 5% B) $101.94 and 6.94% C) $99 and 4% D) $99.05 and 4.05% 7) When the value of loans begins to drop, the net worth of financial institutions falls causing them to cut back on lending in a process called A) deleveraging. B) deflation. C) releveraging. D)
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capitulation. 8) Which of the following is included in M1 , but not in M2 ? A) travelers checks B) currency C) checking account deposits D) Everything in M1 is in M2 . 9) Currently, a three-year Treasury note pays 5.25%. Assuming that your tax rate is 20%, what is the minimum interest rate that you would you need to earn on a tax-free municipal bond in order to buy it instead? A) 3.8% B) 15.25% C) 4.2% D) 5.7% 10) A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called A) an exchange rate feedback rule. B) a sterilized foreign exchange intervention. C) a money neutral foreign exchange intervention. D) an unsterilized foreign exchange intervention. 11) If currency outstanding equals $200 million, checkable deposits equal $1 billion, reserves equal $150 million, and the required reserve ratio is 0.10, the money multiplier equals A) 3.14. B) 0.86.
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C) 3.43. D) 4. 12) Everything else held constant, in the market for reserves, when the federal funds rate is 3%, lowering the discount rate from 5% to 4% A) lowers the federal funds rate.
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  • Spring '13
  • Chikhladze
  • Monetary Policy, Federal Reserve System, federal funds rate

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