According to class lectures on Mishkin (Chapter 1), a business cycle is a record of the

A. duration of a company from its founding date to its dissolution date.

B. currently hottest trends in business product innovation. C. recurrent fluctuations that occur in time series data for key macro variables such as aggregate output.

D. average duration of product cycles, from introduction to obsolescence

According to class lectures on Mishkin (Chapter 1), an interest rate measures .

A. the cost of borrowing, i.e., the price paid for the rental of funds.

B. the payment to a stock holder.

C. the face value of a debt instrument.

D. the amount an investor is willing to pay to purchase a security in a securities market

According to class lectures on Mishkin (Chapter 1), a government is currently running a BUDGET DEFICIT when A. current government expenditures exceed the debt ceiling.

B. current government tax revenues exceed current government expenditures.

C. current government expenditures exceed current government tax revenues.

D. bonds previously issued by the government are held by private-sector nationals or by foreign nationals.

C. current government expenditures exceed current government tax revenues.

According to class lectures on Mishkin (Chapter 1), assuming no major changes are made in U.S. federal tax rates and U.S. federal government expenditure commitments, the U.S. federal debt held by the public, as a percentage of gross domestic product (GDP), is expected to

A. exhibit much greater fluctuations starting around 2025. B. rise rapidly starting around 2025.

C. stay at a high but steady level starting around 2025.

D. start to decline starting around 2025.

According to class lectures on Mishkin (Chapter 1), one likely reason for the increase in the inequality of wealth in the U.S. during 1983-2006 is the

A. dramatic decrease in the U.S. current account during this time period.

B. dramatic increase in U.S. interest rates during this time period.

C. dramatic overall increase in U.S. stock prices and housing prices during this time period.

D. dramatic rise in the Euro/U.S.$ exchange rate during this time period.

dramatic overall increase in U.S. stock prices and housing prices during this time period.

Some commentators have blamed Federal Reserve Chairman Alan Greenspan (1987- 2006) for keeping interest rates too low between 2002 and 2005, which in turn encouraged and permitted “subprime” borrowers with insufficient income and assets to take out residential home mortgages. However, Jones attributes these low interest rates in large part to .

A. poor monetary policy choices by the National Bureau of Economic Research (NBER).

B. the high personal saving rate of U.S. consumers.

C. unusually low spending levels by the U.S. Federal government.

D. a global saving glut resulting from developing country financial crises in the 1990s.

Jones lists several major shocks to the economy as proximate (near) causes of the U.S. financial crisis of 2007-2009. These shocks include .

A. a sudden sharp decline in the Fed funds rate starting around mid-2006.

B. a sudden sharp decline in housing prices starting around mid-2006.

C. a sudden sharp increase in stock prices starting around mid-2006.

D. a sudden sharp fall in the U.S. employment level starting around mid-2006.

Jones argues that an innovation known as , in combination with excessive subprime lending, made it difficult for investors to understand the riskiness of their portfolios and for regulators to understand the degree to which systemic (correlated) risk was increasing throughout the economy. A. free riding, i.e., the ability of some people to obtain information “for free” about the earnings prospects of financial assets by simply watching the investment choices of other people who have paid to obtain this information. B. securitization, i.e., the bundling together of large numbers of individual financial instruments (such as mortgates) followed by the slicing and dicing of these bundled instruments into different pieces for different types of investors.

C. junk bonds, i.e., bonds with poor credit ratings due to their high risk of default that offer high yields in compensation for their riskiness.

D. moral hazard, i.e., the possibility that a borrower will use his borrowed funds for riskier projects then the lender intended when the lender set the terms of the loan.

B. securitization, i.e., the bundling together of large numbers of individual financial instruments (such as mortgates) followed by the slicing and dicing of these bundled instruments into different pieces for different types of investors

By definition, a FINANCIAL ASSET is .

A. an asset denominated in money units.

B. a liability.

C. a claim against real assets.

D. any asset owned by a financial institution

C. a claim against real assets.

One of the six essential functions of FINANCIAL MARKETS is to .

A. facilitate the transfer of funds (purchasing power) from savers who have spent less than their income to investors or consumers who have spending needs that exceed their income.

B. permit corporations to obtain mark-to-market valuations for their firms.

C. permit the decentralization of financial information across many investors.

D. provide rankings of financial instruments as guides for investors

SECURITIES are for the individual or agency that buys them and for the individual or agency that newly issues them

A. liabilities; assets

B. assets; liabilities

C. illiquid assets; liquid assets

D. call options; put options

A major function of FINANCIAL INTERMEDIARIES that is NOT also performed by dealers is .

A. “making the market” by posting both purchase and sale prices for financial assets

B. matching buyers of financial assets with sellers of financial assets

C. financial asset transformation

D. the holding of inventories of securities for future resale

Examples of OVER-THE-COUNTER MARKETS include .

A. the foreign exchange market

B. the U.S. government bond market

C. the New York Stock Exchange

D. all of the above.

E. only A and B.

E. only A and B.

A. the foreign exchange market

B. the U.S. government bond market

According to Ref.[1] and required course materials related to Mishkin Chapter 2:Part A, TRADITIONAL investment banking activities in the U.S. have included .

A. underwriting of initial public offerings (IPOs) for raising new equity capital

B. assistance with the sales of IPOs to the public

C. advising services, e.g., advice regarding mergers and acquisitions (M&A) and the timing/ form of IPOs

D. all of the above

E. only B and C

According to Ref.[2], the financial crisis led to the following major changes for U.S. investment banks: the collapse of ; the acquisition of Merrill Lynch by Bank of America; and a change in status (to bank holding companies) for Goldman Sachs and Morgan Stanley.

A. Wells Fargo Bank and Wachovia Bank

B. Bear Stearns and Lehman Brothers

C. Barclays Bank and ING Bank

D. Charles Schwab and TD Ameritrade

According to Ref.[1], in recent years profit-seeking investment banks have increasingly turned their attention away from traditional investment banking activities and more towards activities such as .

A. virtual (online) banking with offices distributed worldwide.

B. residential and commercial lending funded by deposit accounts.

C. internal and client-driven securities trading, and wealth management for high-net-worth individuals.

D. retail banking services emphasizing checking accounts, savings accounts, and mutual funds.

A new incidence of BORROWING occurs whenever .

A. the current owner of a financial asset sells this asset to someone else.

B. a newly issued security is purchased by a party different from the issuer.

C. a household receives funds from a bank under the terms of a new residential mortgage contract

D. all of the above

E. only B and C above

E. only B and C above

B. a newly issued security is purchased by a party different from the issuer.

C. a household receives funds from a bank under the terms of a new residential mortgage contract

An example of DIRECT FINANCE is .

A. China (PRC) sells some of its holdings of U.S. Treasury bonds in the U.S. government bond market

B. You acquire a residential mortgage from Midwestern Bank

C. Jipu.com sells newly issued stock shares in an initial public offering (IPO)

D. You buy shares of Intel on the Nasdaq stock market.

C. Jipu.com sells newly issued stock shares in an initial public offering (IPO)

Which of the following are SECONDARY markets.

A. U.S. Treasury bill auctions conducted by the U.S. Treasury

B. The Nasdaq stock market

C. The U.S. government bond market conducted through dealers

D. All of the above

E. Only B and C

E. Only B and C

B. The Nasdaq stock market

C. The U.S. government bond market conducted through dealers

Suppose a person has a chance to use $100 to buy either a debt instrument issued by Dewey, Cheetum, and Howe (DCAH) Corporation or common stock shares issued by DCAH. Specify which of the following statements is FALSE:

A. If DCAH remains solvent, the DCAH debt instrument holders will receive a known stream of payments as determined by their debt contracts.

B. Purchasing the DCAH common stock shares is risky even if DCAH remains solvent, because the return rate obtained by holders of DCAH common stock shares depends on uncertain future share prices and dividend payouts.

C. Purchasing the DCAH common stock shares is risky because, if DCAH goes bankrupt, the claims of DCAH debt instrument holders have first priority.

D. In order to obtain higher net earnings, an investor should definitely choose the DCAH debt instrument over the DCAH common stock shares.

D. In order to obtain higher net earnings, an investor should definitely choose the DCAH debt instrument over the DCAH common stock shares.

According to Ref.[1], the expression “IRRATIONAL EXUBERANCE” first used in 1996 by Alan Greenspan (then-chairman of the Federal Reserve Board) has become a useful term for describing .

A. the unreasonable optimism of inexperienced young investors first entering into stock market transactions.

B. the ill-informed trading activities of “technical” stock investors who do not adhere to the efficient market hypothesis.

C. a situation in which market prices have been bid up to unusually high and unsustainable levels under the influence of market psychology.

D. the poorly-timed trading activities of traders who do not sufficiently understand and participate in ongoing market trends regarding the purchases and sales of particular stocks.

C. a situation in which market prices have been bid up to unusually high and unsustainable levels under the influence of market psychology.

The PRICE-EARNINGS RATIO depicted in Fig. 1.3 in Ref.[1] is calculated for each January of each year as the ratio of . A. the base-year U.S. aggregate price level to U.S. gross national income

B. the real (inflation-corrected) S&P Composite Stock Price Index to U.S. gross domestic product

C. The base-year U.S. aggregate price level to a moving average of real S&P Composite earnings

D. the real (inflation-corrected) S&P Composite Stock Price Index to a moving average of real S&P Composite earnings

the real (inflation-corrected) S&P Composite Stock Price Index to a moving average of real S&P Composite earnings

As depicted in Fig. 1.3 of Ref.[1], on March 24, 2000 the PRICE-EARNINGS RATIO for the stocks represented in the S&P Composite Index reached an historically high level of 47.2. According to Ref.[1], this historically high level was PRIMARILY a reflection of .

A. the extraordinary surge during 1982-2000 in labor productivity for the U.S. corporations whose stocks were included in the S&P Composite Index

B. the extraordinary increase during 1982-2000 in the prices of the stocks included in the S&P Composite Index, a speculative bubble driven strongly by market psychology (“animal spirits”)

C. the extraordinary change during 1982-2000 in dividend earnings for the stocks included in the S&P Stock Index

D. the extraordinary decline in the interest rate on long-term government bonds during 1982-2000

E. the extraordinary increase in the net earnings of the corporations whose stocks were included in the S&P Composite Index, due to fundamental changes in the U.S. economy (e.g., the surge in Internet usage)

B. the extraordinary increase during 1982-2000 in the prices of the stocks included in the S&P Composite Index, a speculative bubble driven strongly by market psychology (“animal spirits”)

By definition, MONEY has a number of interesting aspects, including: .

A. it does not necessarily have to be issued by government or any other official source.

B. it is defined in terms of its function and not its form.

 C. it is a social construction, in the sense that its value depends on general social acceptance.

D. all of the above.

E. only B and C above.

D. all of the above.

A. it does not necessarily have to be issued by government or any other official source.

B. it is defined in terms of its function and not its form.

C. it is a social construction, in the sense that its value depends on general social acceptance.

By definition, a COMMODITY MONEY is .

A. any form of money that is bought and sold.

B. any form of money that is bought and sold in the foreign exchange market as a commodity.

C. any commodity that is generally accepted in payment for goods and services and for the repayment of debts.

D. any money that finds use as a medium of exchange for commodity trading

Under the Coinage Act of 1965, LEGAL TENDER IN THE U.S. consists of .

A. all currency (coins and paper money) issued by the U.S. government.

B. all forms of money officially backed by gold reserves held by U.S. Federal Reserve Banks

C. all reserves held in the vaults of U.S. banks.

D. all forms of money included in the M1 measure of the U.S. money supply

For an economy with exactly 9 distinct types of goods, goods-for-goods prices are needed to fully support exchange under a barter payment system while money-for-goods prices are needed to fully support exchange under a monetary payment system.

A. 36; 18

B. 18; 9

C. 72; 18

D. 36; 9

E. 72; 9

When a person withdraws funds from a U.S. checkable deposit account and deposits them in a (noninstitutional) U.S. money market mutual fund, then

A. M1 and M2 both increase for the U.S.

B. M1 and M2 both decrease for the U.S.

C. M1 decreases and M2 stays the same for the U.S.

D. M1 increases and M2 decreases for the U.S.

According to Ref.[1], the mobile-money system (M-PESA) introduced into Kenya starting in 2007 permits participants .

A. to carry money into or out of the country without limit and without any imposed fees.

B. to deposit, transfer, and withdraw funds via text messages on their cellphones.

C. to carry money freely from one part of the country to another, with governmentprovided insurance.

D. to deposit, transfer, and withdraw funds at small mobile government-provided banking facilities that the government systematically moves around the country.

According to Ref.[2], the T-Cash service launched in Haiti in 2010 after the devastating earthquake .

A. has permitted the Haitian government to collect back-taxes more easily through cellphone transfers.

B. has permitted foreign aid to reach Haiti more efficiently via direct cellphone transfers to local government officials. C. has permitted the aid group Mercy Corps to help Haitian earthquake victims by giving them cheap cellphones loaded with “T-cash” that can be used to pay for food and other necessities.

D. has run into major problems due to the inexperience of Haitians with cellphone technology (e.g., the purchase and sale of cellphone minutes).

According to Ref.[3], the purpose of the Haiti Mobile Money Initiative (HMMI) launched by the Bill & Melinda Gates Foundation and USAID is to .

A. jumpstart the introduction of mobile money for the Haitian people, encouraged by the earlier successful introduction of a mobile-money system in Kenya.

B. explore ways of introducing a mobile-money system for Haiti that avoids the disasterous experiences of Kenya with its mobile-money system.

C. encourage profit-seeking foreign companies to compete to develop a mobile-money system for Haiti.

D. encourage the Haitian government to launch an efficient, centralized, governmentmanaged mobile-money system for Haiti

Which of the following items would NOT be counted as part of U.S. Gross Domestic Product (GDP) in 2011:

A. your 2011 purchase of a Ford Mustang sports car newly produced in 2011 by the Ford Motor Company in a Michigan plant.

B. your 2011 purchase of BF Goodrich tires newly produced in the U.S. for use on your 2008 Ford Mustang. C. Ford’s purchase of BF Goodrich tires for its Ford Mustangs newly produced in 2011 in its Michigan plant.

D. the 2011 purchase by a UK citizen of a Ford Mustang newly produced in 2011 by the Ford Motor Company in a Michigan plant.

The key difference between NOMINAL GDP and REAL GDP for an economy is that

A. nominal GDP includes production outside the borders of the U.S. whereas real GDP does not.

B. nominal GDP includes earnings from financial assets whereas real GDP does not.

C. real GDP is corrected for price movements whereas nominal GDP is not.

D. nominal GDP includes sales of financial assets whereas real GDP includes only sales of real assets.

E. nominal GDP is the initial measure of output and real GDP is the final revised measure of output.

The REAL GDP for an economy during any time period T is a measure of

A. the growth of the economy during T.

B. the strength of the economy’s currency during T.

C. the trade balance of the economy during T.

D. the size of the economy during T.

The AGGREGATE PRICE LEVEL for an economy for any time period T

A. is the total value of all goods and services sold in the economy during T

B. is the average price of goods and services in the economy during T

C. is the total sum of prices for goods and services in the economy during T

D. is the average cost of the assets owned by citizens of the economy at the end of T E. is the aggregate value of the economy’s money supply in T.

By definition, a RECESSION is a period of time during which .

A. inflation is high

B. the current account is in deficit

C. the real money supply is low

D. real GDP is declining

E. real wages are low

If the prices of the goods and services purchased by a typical U.S. urban household have INCREASED over the past ten years, one can expect to see

A. a corresponding increase in the Consumer Sentiment Index (CSI).

B. a corresponding decrease in the GDP Deflator.

C. a corresponding increase in the Consumer Price Index (CPI).

D. a corresponding increase in real GDP

The U.S. government budget DEFICIT measures the extent to which

A. U.S. government expenditures exceed U.S. government tax revenues.

B. the U.S. government is relying on foreign borrowing.

C. U.S. government tax revenues exceed U.S. government expenditures.

D. the U.S. capital account is in deficit

According to U.S. time series data presented in Mishkin (Chapter 1) and Empirical Data Packet #1,

A. U.S. stock prices dramatically increased between 1980 and 2000.

B. average inflation rates and average money growth rates exhibit positive correlation in the sense that a higher value for one tends to be associated with a higher value for the other (and vice versa).

C. the U.S. aggregate price level dramatically increased between 1950 and 2010.

D. all of the above.

E. none of the above

D. all of the above.

A. U.S. stock prices dramatically increased between 1980 and 2000.

B. average inflation rates and average money growth rates exhibit positive correlation in the sense that a higher value for one tends to be associated with a higher value for the other (and vice versa).

C. the U.S. aggregate price level dramatically increased between 1950 and 2010.

According to U.S. time series data presented in Mishkin (Chapter 1) and Empirical Data Packet #1, the FEDERAL FUNDS RATE

A. closely tracks long-term interest rates, such as the rate on Corporate Baa Bonds (secondary market).

B. closely tracks short-term interest rates, such as the rates on 3-month and 6-month Treasury bills (secondary market).

C. closely tracks the interest rate on 30-year mortgages. D. closely tracks the growth rate in the money supply (M1).

B. closely tracks short-term interest rates, such as the rates on 3-month and 6-month Treasury bills (secondary market).

If the U.S. dollar (USD) has WEAKENED (DEPRECIATED) against the euro, this means that

A. there has been a decrease in the euro-to-USD exchange rate, i.e., each USD is worth fewer euros.

B. there has been a decrease in the USD-to-euro exchange rate, i.e., each euro is worth fewer USDs.

C. there has been a decrease in the U.S. inflation rate relative to the European inflation rate.

D. there has been an increase in the U.S. inflation rate relative to the European inflation rate.

If the price of a stock that you own has increased over the past year, this implies (all else equal) that

A. your income has increased, which could encourage you to consume more.

B. your wealth has increased, which could encourage you to consume more.

C. the inflation rate has increased, which could encourage you to consume less.

 D. a speculative bubble is under way, hence you had better sell this stock.

Which of the following is most likely to result when the U.S. dollar (USD) STRENGTHENS (APPRECIATES) against the Mexican peso:

A. the U.S. will definitely be better off.

B. U.S. goods exported to Mexico will cost less in Mexico, so Mexicans will buy more of them.

C. U.S. goods exported to Mexico will cost more in Mexico, so Mexicans will buy fewer of them.

D. U.S. citizens will buy fewer Mexican goods.

High interest rates might the purchase of a house or a car but at the same time high interest rates might also saving. A. encourage; discourage

B. discourage; encourage

C. encourage; encourage

D. discourage; discourage

As discussed in class in relation to Empirical Data Packet #2, a major concern of U.S. government policy makers is that a large portion of the spending contributing to the current U.S. federal deficit

A. is in the form of mandatory spending (i.e., spending required by law, such as social security benefit entitlements)

B. is in the form of discretionary spending (i.e., spending that can be changed by Congressional appropriations bills, such as the budget for the Department of Defense)

C. is in the form of questionable foreign aid.

D. has been shown to be due to corruption and inefficient management practices.

By definition, an ASSET is

A. a standardized commodity bought and sold in organized exchanges.

B. any commodity in physical form.

C. anything of durable value.

D. any claim against real income.

Debt instruments (e.g., bonds) are for the issuer and for the purchaser.

A. put options; call options

B. primary assets; secondary assets

C. assets; liabilities

D. liquid assets; illiquid assets

E. liabilities; assets

Key ways in which a broker DIFFERS from a dealer include A. brokers facilitate financial asset trades.

B. brokers take positions in the financial assets they trade. C. brokers make profits by charging commissions to users of their services.

D. all of the above.

E. only B and C above.

Types of FINANCIAL INTERMEDIARIES include

A. commercial banks.

B. life insurance companies.

C. money market mutual funds.

D. all of the above.

E. only B and C above.

A type of financial player that has a major role in ensuring the sale of corporate bonds in PRIMARY markets is

A. an investment banker.

B. a specialized trader on a stock exchange.

C. a commercial banker.

D. a savings and loan officer.

E. a Securities and Exchange Commissioner.

Which of the following are PRIMARY markets:

A. Auction markets conducted by the U.S. Treasury for U.S. Treasury bills.

B. The New York Stock Exchange.

C. The foreign exchange market.

D. The over-the-counter market for U.S. government bonds

E. Only B, C, and D above

Corporations do NOT acquire new funds when their securities are sold

A. in a domestic primary market.

B. as initial public offerings.

C. in a secondary market.

D. directly in an overseas primary market.

E. through investment banks

Equity instruments are traded in the

A. bond market.

B. capital market.

C. money market.

D. commodities market.

Which of the following statements are TRUE:

A. In case of bankruptcy, the claims of a corporation’s debt holders are settled (paid off) before the claims of its preferred stock holders.

B. Corporate debt payments are pre-determined contractual payments that do not depend on the financial conditions of the corporation, except when the corporation declares bankrupcty.

C. Holders of a corporation’s debt do not normally participate in the management of the corporation except under conditions of duress (e.g., bankruptcy proceedings). D. All of the above.

E. Only B and C above

By definition, SECURITIES are financial assets

A. that have been approved for sale by the Federal Reserve Board.

B. whose earnings have been underwritten (“made secure”) by some government agency.

C. that have been transformed into relatively liquid marketable assets by means of various legally enforceable guarantees provided either by the original issuer of the asset or by other parties.

D. that have received at least a BBB rating in accordance with Standard & Poor’s rating system.

E. whose market value is derived from some underlying pool of financial assets that have been packaged together and sold in the form of shares.

The LIQUIDITY of a financial asset is a measure of

A. the ease with which the financial asset can be converted into a means of payment for goods and services.

B. the likelihood that the original issuer of the asset will go into default (liquidation).

C. the degree to which the riskiness of the asset has been spread across many investors.

D. the number of assets of this type that are currently held by private investors.

E. the market value of all financial assets of this type currently held by private investors.

Which of the following statements are TRUE:

A. The maturity of a financial asset is the length of time to the financial asset’s expiration date.

B. A U.S. Treasury bill has a maturity of one year or less. C. A stock share has no maturity.

 D. All of the above statements are true. E. Only A and B above

Which of the following are instances of DIRECT finance:

A. The Coca Cola Company sells newly issued corporate bonds to the King of Saudi Arabia.

B. In 2011 you buy U.S. Treasury bonds in the U.S. government bond market that were originally issued in 2008.

C. A pension fund manager buys U.S. Treasury bills in a secondary market.

D. You make a deposit to a deposit account at a commercial bank.

 E. All of the above.

Which of the following are instances of INDIRECT finance: A. The U.S. government buys commercial paper on a secondary market.

B. You obtain a mortgage loan from Second Ames Bank.

C. You buy PepsiCo stock shares on the New York Stock Exchange.

D. All of the above.

E. Only A and C above.

If a financial intermediary that has entered into a mortgage contract with a corporation has no way of checking what the corporation subsequently does with its borrowed funds, then the corporation could have

A. a free-riding problem.

B. a risk diversification problem.

C. an adverse selection problem.

D. an interest rate risk problem.

E. a moral hazard problem.

The main purpose of the disclosure requirements of the Securities and Exchange Commission (SEC) is

A. to prevent bank panics.

B. to increase the information available to investors engaging in securities trades.

C. to improve the ability of monetary policy authorities to control the economy.

D. to insure investors in securities against financial losses. E. to discourage investors from investing in securities trading.

U.S. dollar deposits in foreign banks outside the U.S. or in foreign branches of U.S. banks are

A. referred to as foreign dollars.

B. illegal.

C. referred to as Eurodollars.

D. subject to special oversight by the Federal Reserve Board.

E. typically found to be owned by people trying to evade U.S. tax liabilities.

By definition, MONEY is

A. anything that functions as a unit of account.

B. financial claims in the form of coins or paper bills.

C. a stream of income.

D. any generally accepted means of payment for goods and services and for repayment of debts, by social custom. E. any government-issued paper that must be accepted in repayment of debt, by law.

If the U.S. aggregate price level were to double, then (all else equal) the real value of a dollar would

A. double.

B. fall by 50 percent.

C. more than double.

D. rise but not double due to diminishing returns.

E. none of the above

The conversion of a pure barter economy to one that uses money tends to increase efficiency because

A. it encourages people to specialize in the production of goods for which they have a comparative advantage.

B. it reduces the number of prices needed to support trading (assuming the economy has four or more tradeable goods).

C. it increases the need to rely on “double coincidence of wants”.

D. all of the above.

E. only A and B above.

Which of the following statements about FIAT MONEY are TRUE:

A. fiat money is backed, i.e., it is collateralized by some precious commodity.

B. fiat money is legal tender – i.e., by law, citizens must accept it as repayment for debts.

C. fiat money is paper money.

D. only A and B above.

E. only B and C above.

The particular U.S. agency charged with the responsibility for carrying out monetary policy in the U.S. is

A. the Federal Deposit Insurance Corporation (FDIC).

B. the Monetary Policy Oversight Board (MPOB).

C. the Federal Reserve System (Fed).

D. the Office of the Comptroller of the Currency (OCC).

E. the U.S. Secret Service.

U.S. monetary policy makers worry about being able to accurately measure and control the money supply because A. management of the money supply (as well as interest rates) is thought to be important for ensuring the well-being of the U.S. economy.

B. they are obliged by law to keep close track of the flow of money through the economy.

C. their prime responsibility is to use money supply changes to keep the national debt in check.

D. their prime responsibility is to use money supply changes to ensure the re-election of the President who appointed them to office.

Economists have no single precise measure of money because

A. the money supply data supplied by private commercial banks is confidential information (not to be released publicly), by law.

B. the Federal Reserve System does not allow the public release of money supply data on the grounds that this release would encourage speculative trading.

C. the “moneyness” (liquidity) of an asset is a matter of degree.

D. economists are sharply divided on ideological grounds about the definition of “money.”

Which of the following financial assets are NOT included in the M1 measure of the U.S. money supply:

A. checkable deposit accounts at banks.

B. currency.

C. money market mutual fund shares.

D. small-denomination time deposits.

E. both C and D.

If a person sells a 30-year U.S. Treasury bond back to the U.S. government in return for currency, then

A. M1 stays the same and M2 increases.

B. M1 increases and M2 stays the same.

C. M1 stays the same and M2 increases.

D. M1 increases and M2 increases.

The reason monetary policy makers are keenly interested in the VELOCITY OF MONEY, defined as the ratio V = GDP/M of nominal gross domestic product (GDP) to the money supply (M), is that

A. a higher value for V implies a higher GDP growth rate. B. the constancy of V over time would imply the Fed could control nominal GDP by controlling the money supply M.

C. a higher value for V implies a higher inflation rate.

D. a higher value for V implies a strengthening (appreciation) of the U.S. dollar.

In his summary overview of the U.S. financial crisis of 2007-2009, Charles Jones (Ex 1 required reading) lists several major shocks to the economy as proximate (near) causes of the crisis. These shocks include .

 A. a sudden sharp increase in housing prices starting around mid-2006.

B. a sudden sharp decrease in housing prices starting around mid-2006.

C. a sudden sharp increase in global savings starting around mid-2006.

D. a sudden sharp decrease in global savings starting around mid-2006.

In his summary overview of the U.S. financial crisis of 2007-2009, Charles Jones (Ex 1 required reading) stresses that the growing percentage of in the portfolios of financial institutions prior to 2007 resulted in a

A. stock shares; speculative bubble on stock share prices due to market psychology (“animal spirits”).

B. derivative financial instruments based on subprime residential mortgages; high level of systemic (aggregate) risk because the values of all of these assets depended on U.S. housing prices continuing to rise.

C. long-term government bonds; debt crisis due to the inability of the U.S. government to sell more bonds.

D. corporate commercial paper; moral hazard problem because the corporations were not being adequately monitored in order to detect and prevent undesirable behaviors that could increase default risk.

According to the required notes for Mishkin Chapter 2:Part B, INVESTMENT BANKING activities in the U.S. have traditionally included UNDERWRITING, which refers to .

A. the guaranteeing to corporations of a price on their initial public offerings (IPOs) of newly issued securities.

B. a guarantee provided to a corporation’s stockholders against loss of their asset value in case the corporation goes bankrupt.

C. assistance provided to corporations with the writing of their legal documents sent out to shareholders.

D. assistance offered to corporations with the writing of the terms of sale for their initial public offerings of newly issued securities.

According to the required Ex 2 readings, a major reason why the big U.S. investment banks Goldman Sachs and Morgan Stanley changed their status from “investment banks” to “bank holding companies” in 2008 is

A. to avoid the stigma associated with the collapse of other investment banks such as Bear Stearns and Lehman Brothers.

B. to avoid scrutiny of their business practices in Senate hearings.

C. this change permitted both firms to gain increased access to emergency funds from the Federal Reserve.

D. to gain increased control over commercial banks.

According to Shiller (Ex 3 required reading), the term “IRRATIONAL EXUBERANCE” .

A. was first used in 1929 to describe the run-up in stock market prices just before the Great Depression.

B. was first used in 1996 by Alan Greenspan to describe a situation in which stock market prices appeared to have been bid up to unusually high and unsustainable levels not justified by market fundamentals (e.g., actual profit conditions).

C. was first used in 1998 by stock analysts worried about the growing “dot.com” bubble on technical Internet stocks.

D. was first used in 2000 by Shiller to refer to his growing concern about the dramatic increase in U.S. housing prices.

As seen in the Ex 3 required reading, a PRICE-EARNINGS RATIO .

A. is the ratio of the average price of goods in an economy to the average earnings of the households who purchase these goods.

B. is the ratio of the average price of stocks in an economy to the average earnings of the households who purchase these stocks.

C. is the ratio of the average price of a particular specified collection of corporate stocks to the average per-share net earnings of the corporations whose stocks are represented in this collection.

D. is the ratio of the average price of a corporation’s products to the profits earned on the sale of these products.

According to the Ex 4 required readings, a MOBILE MONEY SYSTEM is a money system that permits participants .

A. to deposit, transfer, and withdraw funds at small mobile government-provided banking facilities that the government systematically moves around the country.

B. to carry money into or out of a country without limit and without any imposed fees.

C. to carry money freely from one part of the country to another, with governmentprovided insurance.

D. to deposit, transfer, and withdraw funds via text messages on their cellphones.

According to the Ex 4 required readings, the experiences of with a mobile money system first launched in pilot-project form in 2007 have been very successful, and it is hoped that the more recent launch of a mobile money system in in 2010 will also be successful.

A. Haiti; Dominican Republic

B. Kenya; Haiti

C. Iraq; Afghanistan

D. Vietnam; Iraq