Midterm-Econ301-Sec06-Money+and+Banking-Fall+2009 - Money...

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1 Money and Banking 01:220:301 Sec.06 Instructor: Carl Shu-Ming Lin Name: Midterm Fall 2009 October 22, 2009 Each question is 20 pts 1. 1) Financial markets have the basic function of A) getting people with funds to lend together with people who want to borrow funds. B) assuring that the swings in the business cycle are less pronounced. C) assuring that governments need never resort to printing money. D) providing a risk-free repository of spending power. 2) An important financial institution that assists in the initial sale of securities in the primary market is the A) investment bank. B) commercial bank. C) stock exchange. D) brokerage house. 3) If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries, then financial intermediaries face the problem of A) moral hazard. B) adverse selection. C) free-riding D) costly state verification. 4) A professional baseball player may be contractually restricted from skiing. The team owner includes this clause in the player's contract to protect against A) risk sharing. B) moral hazard. C) adverse selection. D) regulatory circumvention. 5) Ranking assets from most liquid to least liquid, the correct order is A) savings bonds; house; currency. B) currency; savings bonds; house. C) currency; house; savings bonds. D) house; savings bonds; currency. 2. 1) If an individual moves money from a demand deposit account to a money market deposit account, A) M1 decreases and M2 stays the same. B) M1 stays the same and M2 increases. C) M1 stays the same and M2 stays the same. D) M1 increases and M2 decreases. 2) When a new depositor opens a checking account at the First National Bank, the bank's assets ________ and its liabilities ________.
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2 A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease 3) If a bank has $100,000 of checkable deposits, a required reserve ratio of 20 percent, and it holds $40,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is A) $30,000. B) $25,000. C) $20,000. D) $10,000. 4) In general, banks would prefer to meet deposit outflows by ________ rather than ________. A) selling loans; selling securities B) selling loans; borrowing from the Fed C) borrowing from the Fed; selling loans D) "calling in" loans; selling securities 5) If the First National Bank has a gap equal to a negative $30 million, then a 5 percentage point increase in interest rates will cause profits to A) increase by $15 million. B) increase by $1.5 million. C) decline by $15 million. D) decline by $1.5 million. 3. The Obama Tax Reform President Barack Obama on February 26 proposed $634 billion in new taxes on upper-income Americans by allowing the Bush tax cuts to sunset and cuts in government spending over the next decade to pay for his promised health-care expansion. The tax increases and spending cuts will be included in President Obama's
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Midterm-Econ301-Sec06-Money+and+Banking-Fall+2009 - Money...

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