1. The FED would expect that if investors shift funds out of domestic US deposit accounts (out of the US), this would ____the supply of loanable funds, and place ____ pressure on interest rates.

a. increase; downward b. increase; upward

c. decrease; upwardd. decrease; downward

1. FED expects if the aggregate demand for loanable funds increases with an equal corresponding ___ in aggregate supply, there will be a(n) ___ of loanable funds.

a. increase; shortageb. increase; equal amount

c. decrease; abundanced. decrease; surplus

1. Which of the following is a major component of the Federal Reserve System?

a. Senate Banking Committee b. Securities and Exchange Commission

c. FDICd. Federal Open Market Committee

1. Which of the following is the activity associated with the initial PRIMARY purpose of Fed District banks?

a. providing loans to member banksb. clearing checks

c. matching lenders & borrowers for loansd. replacing old currency

1. Which of the following is not a tool directly under the control of the FED?

a. setting the discount rateb. open market operations

c. adjusting the reserve requirement ratiod. setting the federal funds rate

1. Total funds of commercial banks will initially _____ by the dollar amount of the securities _____ by the FED.

a. decrease; soldb. increase; sold

c. remain unchanged; purchasedd. decrease; purchased

1. A tight money policy tends to ____ economic growth and ____ the inflation rate.

a.dampen; place downward pressure on

b.dampen; place upward pressure on

c.stimulate; place upward pressure on

d.stimulate; place downward pressure on

1. Subordinate notes and debentures are used as ___________ at ________:

a. primary capital; insurance companies b. secondary capital; pension funds

c. depository sources; mutual fundsd. secondary capital; banks.

1. Which of the following best describes the relationship between the FED and the Administration?

a.The Administration must receive approval from the FED before implementing fiscal policy.

b.The FED must implement a monetary policy specifically to support the Administration's policy.

c.The FED must receive approval by the Administration before conducting monetary policy.

d.None of these is an accurate description.

1. During a period of falling interest rates, a bank's net interest margin (GAP) will likely _______ if its liabilities are _________ rate-sensitive than its assets.

a. increase; equallyb. decrease; equallyc. increase; mored. decrease; more

1. A gap ratio of less than one suggests that:

a.an increase in interest rates would increase the bank's net profitability;

b.rate-sensitive liabilities exceed rate-sensitive assets;

c.rate-sensitive assets exceed rate-sensitive liabilities;

d.an increase in interest rates would increase the bank's net interest margin.

1. Banks could increase their liquid position by restructuring their asset portfolio to contain fewer _________ and more ____________ .

a. loans; treasury securitiesb. treasury securities; excess reserves

c. treasury securities; loansd. corporate stock holdings; treasury securities.

1. If the FED's current intention is to "buy the equivalent of most of the new Treasury debt issued," then the FED is following a(n) _______ monetary policy:

a. offensive (action to change the direction of monetary policy)

b. defensive (action to maintain achievement of current goals)

c. precautionary (action in anticipation of market action to prevent profit taking)

d. reactionary (action taken without clear policy intentions stated)

1. The portfolio of Treasury bonds amassed during 2009 swelled, about doubling; in the 2007 crisis the loan portfolio expanded on the FED's balance sheet. Which of the following reflects both actions taken by the FED as displayed in its balance sheet and discussed in class:

a. FED increased its security holdings associated with repos, acceptances, foreign securities, and foreign currencies.

b. FED sold Treasuries to add to its Loan portfolio and thereby provided large quantities of liquidity to the system.

c. FED expanded the money supply by expanding either the Loan or the Security Portfolio on its balance sheet.

d. FED forced gold prices to record prices to provide collateral to print additional money.

1. The statement that "Mr. Friedman argued that the FED could have prevented the Depression, and he rejected the Keynesian doctrine of using government spending to stimulate demand," implies that Mr Friedman is:

a. in favor of using both fiscal policy and monetary policy simultaneously and in coordination with each other to resolve economic challenges.

b. in favor of no government or agency (FED) interference with the operation of the free market.

c. in favor of using monetary policy to resolve economic challenges, but not fiscal policy.

d. in favor of using fiscal policy to resolve economic challenges, but not monetary policy.

1. Mr. Friedman often "called for limiting the growth of the money supply" since he believed the primary goal of the FED is to:

a. provide an environment of stable pricesb. stimulate the economy

c. provide an environment of full employmentd. provide a plentiful money supply

1. People who fear the FED is "stoking inflation to stimulate the economy" fear:

a. that the FED will not be able to time, recognize and/or control the removal of over-expansionary funds in the system;

b. their wealth will disappear in the lowering of the tax structure to repay the debt.

c. rapid employment growth will shrink the wealth gap reported over the past 20 years;

d. increased funds available in the US will be used to purchase overseas products harming our global competitiveness.

1. If your Total Liabilities are $5,000,000 and your Total Assets are $5,500,000, then your Capital Ratio is:

__________________________________________________________________

1. The normal relationship anticipated for Non-Interest Revenue and Non-Interest Expense is:
2. Undetermined, since there is no history on which to base assumptions
3. Neutral, resulting in a Sum Zero Game (neither losses nor gains)
4. Negative, resulting in net expenses offsetting profit from net interest
5. Positive, resulting in additional profit.
6. As a banker, if your deposits of $8 billion offer an average interest rate of T-bill + 0.5%, AND your Loan portfolio of $7 billion has an average interest Rate of T-bill + 4%, then:
7. you have a GAP of -3.5%c. you are earning 6.5%
8. you are facing a period of lossesd. your GAP is an expected 3.5%