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: Applied questions (2 points)
A) Residential mortgages. B) U.S. Treasury Bills. Which $10,000 bond has the higher yield to maturity, a 20-year bond selling for $8,000 with a current
C) Negotiable bank certificates of deposit. D) Commercial paper. yield of 20% or a 1-year bond selling for $8,000 with a current yield of 10%?
2. ________ is used to make purchases while ________ is the total collection of pieces of property
that serve to store value.
A) Money; income B) Wealth; income Part 3: Answer the question and give the explanation
C) Income; money D) Money; wealth Question 6 (3 points)
3. Which of the following is a depository institution? Classify each of these transactions as an asset, a liability, or neither for each of the “players” in the
A) A life insurance company B) A mutual savings bank money supply process—the Federal Reserve, banks, and depositors.
C) A pension fund D) A finance company a. You get a $10,000 loan from the bank to buy an automobile.
4. Financial markets improve economic welfare because b. You deposit $400 into your checking account at the local bank.
A) they channel funds from investors to savers. c. The Fed provides an emergency loan to a bank for $1,000,000.
B) they allow consumers to time their purchase better. d. A bank borrows $500,000 in overnight loans from another bank.
C) they weed out inefficient firms. e. You use your debit card to purchase a meal at a restaurant for $100.
D) eliminate the need for indirect finance.
5. Dennis notices that jackets are on sale for $99. In this case money is functioning as a ________. Question 7 (2 points)
A) medium of exchange B) unit of account C) store of value D) payments-system ruler6. For the following operations, what happens to the central bank’s and commercial bank’s reserves and
6. When you deposit $50 in currency at Old National Bank, the monetary base? Use T-account to show changes in balances. Assume that the amount is $10
A) its assets increase by less than $50 because of reserve requirements. million.
B) its reserves increase by less than $50 because of reserve requirements. a. The central bank provides loans to commercial banks.
C) its liabilities increase by $50. b. The central bank sells securities to the commercial bank.
D) its liabilities decrease by $50
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.
A) supply; supply; right B) supply; supply; left
C) demand; demand; right D) demand; demand; left
8. Managers (________) may act in their own interest rather than in the interest of the stockholder-
owners (________) because the managers have less incentive to maximize profits than the ----------- THE END ----------
stockholder-owners do.
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
sheet is

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