1)The federal funds rate is the interest rate in the market for

a) mortgage loans.

b) loans of reserves between banks.

c) loans of government securities.

d) federal agency securities.

2) If the nominal interest rate was 4 percent, the expected real interest rate was 3 percent, and the realized real interest rate was 5 percent, then the expected inflation rate was ____ and the realized inflation rate was ____.

a) 1 percent; 1 percent

b) 1 percent; 2 percent

c) 1 percent; 1 percent

d) 1 percent; 1 percent

3) If a bank has assets with the same time to maturity as its liabilities, then

a) the interest rate on assets changes faster than the interest rate on liabilities.

b) the interest rate on liabilities changes faster than the interest rate on assets.

c) changes in interest rates will not affect the bank's overall portfolio.

d) changes in interest rates puts the bank at a high risk of default.

4) Consider a perpetuity making one payment each year that has a present value of $1,000. If the annual rate of discount is 7 percent, the annual payment is

a) $70.00.

b) $107.00.

c) $1,428.57.

d) $14,285.71.

5)A decrease in the money supply is an example of a(n) ____ policy.

a) countercyclical

b) procyclical

c) contractionary

d) expansionary