Econ 310 First Midterm F2007 v1

Econ 310 First - Form version number 1 Econ 310 Money and Banking First Midterm Examination The exam contains 25 multiple-choice questions Each

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Form version number: 1 Econ 310 Money and Banking First Midterm Examination The exam contains 25 multiple-choice questions. Each correct answer is worth 4 points. Each question left unanswered is worth 1 point. Each incorrect answer is worth 0 points. Please mark your answers with #2 pencil on the scantron provided. Please also give your name, UMID number and the form version number for your exam on the scantron. You will find the form version number on the top, right-hand corner of this page. No calculators, cell phones, personal digital media players, laptop computers or other electronic devices are to be used during the exam. Please ensure that all cell phones are switched off, and put away before the exam begins. You will have 80 minutes to complete your exam. Please check to ensure your exam has 25 questions. Do not begin the exam until you are told to do so. Please put pencils down when informed the exam is finished. You will not be allowed to copy answers onto your scantron after this time.
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1. The yield-to-maturity on a municipal bond tends to be lower than that offered on Treasury bonds with a similar maturity date. This is most readily explained by: (a) the lower default risk on municipal bonds; (b) the greater liquidity of the municipal bond market; (c) the fact that municipal bonds are indexed to account for inflation; (d) the fact that interest earned on municipal bonds is exempt from income tax. 2. If the central bank buys $1m-worth of bonds in the open market, then the money multiplier model predicts that (a) the M1money supply will increase, and that increase will be larger when bank customers like to hold very little currency; (b) the M1 money supply will decrease, and that decrease will be smaller if banks hold large amounts in excess reserves; (c) the M1 money supply will increase, and that increase will be smaller when the central bank requires low reserve holdings from the banks; (d) the M1 money supply will decrease, and that decrease will be larger when bank customers hold very little currency. 3. Suppose that interest rates tend to move pro-cyclically (i.e. tend to be high during boom periods and low during recession). If banks’ decisions to hold excess reserves are sensitive to interest rates, then we would anticipate that (a) banks will hold more excess reserves when interest rates are high, and the M1 money supply tends to be higher during recession; (b) banks will hold more excess reserves when interest rates are high, and the M1 money supply tends to be lower during recession; (c) banks will hold more excess reserves when interest rates are low, and the M1 money supply tends to be higher during recession; (d) banks will hold more excess reserves when interest rates are low, and the M1 money supply tends to be lower during recession. 4. Which of the following statements regarding the
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This note was uploaded on 04/02/2008 for the course ECON 310 taught by Professor Hogan during the Winter '08 term at University of Michigan.

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Econ 310 First - Form version number 1 Econ 310 Money and Banking First Midterm Examination The exam contains 25 multiple-choice questions Each

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