A) $30,000. B) $25,000.

MOCK EXAM C) $20,000. D) $10,000.

Course: Monetary and Financial Theories 11. A ________ is bought at a price below its face value, and the ________ value is repaid at the
maturity date.
A) coupon bond; discount B) discount bond; discount
Remarks: This is a closed-book exam C) coupon bond; face D) discount bond; face
12. The most common definition that monetary policymakers use for price stability is
Part 1: Choose the alternative that best completes the statement or answers the question. (3 points A) low and stable deflation. B) an inflation rate of zero percent.
in total, each weighing 0.25 points). C) high and stable inflation. D) low and stable inflation.
Question 1:
1. Which of the following instruments is not traded in a money market? Part 2: Are the following statements TRUE or FALSE? Give brief explanations (2 points in total, each
A) Residential mortgages. B) U.S. Treasury Bills. weighs 0.5 point).
C) Negotiable bank certificates of deposit. D) Commercial paper.
2. ________ is used to make purchases while ________ is the total collection of pieces of property Question 2:
that serve to store value. Economies of scale enable financial institutions to reduce transaction costs.
A) Money; income B) Wealth; income Question 3:
C) Income; money D) Money; wealth The free-rider problem occurs because people who pay for information use it freely.
3. Which of the following is a depository institution? Question 4:
A) A life insurance company B) A mutual savings bank Bank capital is recorded as an asset on the bank balance sheet.
C) A pension fund D) A finance company Question 5:
4. Financial markets improve economic welfare because Everything else held constant, when prices in the art market become more uncertain, the demand
A) they channel funds from investors to savers. curve for bonds shifts to the left and the interest rate rises.
B) they allow consumers to time their purchase better.
C) they weed out inefficient firms. Part 3: Answer the question and give the explanation
D) eliminate the need for indirect finance. Question 6 (3 points)
5. Dennis notices that jackets are on sale for $99. In this case money is functioning as a ________. Classify each of these transactions as an asset, a liability, or neither for each of the “players” in the
A) medium of exchange B) unit of account C) store of value D) payments-system ruler6. money supply process—the Federal Reserve, banks, and depositors.
6. When you deposit $50 in currency at Old National Bank, a. You get a $10,000 loan from the bank to buy an automobile.
A) its assets increase by less than $50 because of reserve requirements. b. You deposit $400 into your checking account at the local bank.
B) its reserves increase by less than $50 because of reserve requirements. c. The Fed provides an emergency loan to a bank for $1,000,000.
C) its liabilities increase by $50. d. A bank borrows $500,000 in overnight loans from another bank.
D) its liabilities decrease by $50 e. You use your debit card to purchase a meal at a restaurant for $100.
7. In a business cycle expansion, the ________ of bonds increases and the ________ curve shifts to
the ________ as business investments are expected to be more profitable. Question 7 (2 points)
A) supply; supply; right B) supply; supply; left For the following operations, what happens to the central bank’s and commercial bank’s reserves and
C) demand; demand; right D) demand; demand; left the monetary base? Use T-account to show changes in balances. Assume that the amount is $10
8. Managers (________) may act in their own interest rather than in the interest of the stockholder- million.
owners (________) because the managers have less incentive to maximize profits than the a. The central bank provides loans to commercial banks.
stockholder-owners do. b. The central bank sells securities to the commercial bank.
A) principals; agents B) principals; principals
C) agents; agents D) agents; principals
9. Banks acquire the funds that they use to purchase income-earning assets from such sources as
A) cash items in the process of collection B) savings accounts.
C) reserves. D) deposits at other banks.
10. 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 ----------- THE END ----------
sheet is

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