1) The opportunity cost of money is: a) growth rate of prices

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1) The opportunity cost of money is:

a) growth rate of prices.

b) real GDP.

c) interest rate.

d) none of the above

2) Household wealth affects the equilibrium yield on bonds due to its impact on:

a) the supply of bonds

b) the demand for bonds.

c) Inflation has no effect on bond yields.

d) the supply and demand for bonds.

3) A bank takes deposits and uses the funds to make home loans. Hence, the _ increases.

a) level of capital

b) ROA

c) quantity of reserves

d) none of the above

4) A decrease in the government budget deficit causes the _ bonds to shift and equilibrium interest rates to _.

a) demand for, rise

b) supply of, rise

c) demand for, fall

d) supply of, fall

5) The yield on a one-year bond is currently 4% and the expected yield on one-year bonds for the next two years is 5% and 6%. If the liquidity premium is 0.5%, what is the yield on a bond with two years to maturity?

a) 5.5%

b) 5%

c) 6%

d) 4.5%

6) The 'too big to fail' policy exacerbates the moral hazard problem between:

a) banks and borrowers.

b) regulators and banks

c) politicians and regulators

d) the public and politicians.

7) ARMs

a) force lenders to assume interest rate risk

b) became more prevalent during the Great Inflation.

c) both of the above.

d) neither of the above

8) Which of the following types of money are not self-equilibrating?

a) commodity

b) representative

c) all are self-equilibrating

d) fiat

9) Technology has helped to make possible which of the following innovations?

a) ATM

b) credit cards

c) mortgage backed securities

d) all of the above

10) All of the following EXCEPT one would have a strong propensity to initiate a financial crisis. Which is the exception?

a) banking panics

b) government fiscal deficits

c) exchange rate appreciation

d) increases in interest rates