Econ 2035 Exam 3 Review Questions
and All Correct Answers 2025-2026
Updated.
The size of the money multiplier depends upon all of the following EXCEPT
A.the currency-deposit ratio.
B.excess reserves relative to deposits.
C.the required reserve ratio.
D.the discount rate. - Answer D. the discount rate
How does the use of adjustable-rate mortgages affect interest-rate risk?
A.It reduces the interest-rate risk of borrowers.
B.It reduces the interest-rate risk of lenders.
C.It reduces the interest-rate risk of both lenders and borrowers.
D.It increases the interest-rate risk of both lenders and borrowers. - Answer B. It reduces the
interest-rate risk of lenders.
If the duration of a bank's assets is greater than the duration of a bank's liabilities, an increase in
the market interest rate will ____.
A.increase bank's profits.
B. decrease bank's profits.
C. decrease bank capital.
D. increase bank capital. - Answer C. decrease bank capital.
The political business cycle theory predicts that
A. political factors over which the Fed has no control are most important in explaining the
business cycle.
B. the Fed acts to promote the interests of the general public.
C. the president's appointments to the Board of Governors will usually be politicians.
D. the Fed acts to stimulate economic activity before an election. - Answer D. the Fed acts to
stimulate economic activity before an election.
Suppose the currency-to-checkable deposit ratio decreases while, at the same time, the excess
reserve-to-checkable deposit ratio also decreases. Everything else held constant, these changes
would______the money supply.
Select one:
, A. have no effect on
B. increase
C. decrease
D. have an ambiguous effect on - Answer B. increase
Which of the following statements is correct?
A. The Fed's control over discount lending is more complete than its control over open market
operations.
B. The discount rate is determined by market forces.
C. The discount rate is typically greater than other short-term market interest rates.
D. Decisions by both banks and the Fed determine the volume of discount loans. - Answer D.
Decisions by both banks and the Fed determine the volume of discount loans.
Which of the following is NOT considered one of the four groups in the Federal Reserve System?
A. Federal Open Market Committee
B. Board of Governors
C. Federal Reserve banks
D. Federal Deposit Insurance Corporation - Answer D. Federal Deposit Insurance Corporation
Which asset is sometimes referred to as a bank's secondary reserve?
A. U.S government securities.
B. Vault cash.
C. Federal funds.
D. Repurchase agreements. - Answer A. U.S government securities.
Which of the following is NOT a reason that firms in the shadow banking system were more
vulnerable than commercial banks during the financial crisis of 2007-2009?
A. Investors had no insurance against loss of principal.
B. They could invest in riskier assets.
C. They made investments that would lose value if housing prices decline.
D. They were more heavily regulated than commercial banks, making them less able to adjust to
changing market conditions. - Answer D. They were more heavily regulated than commercial
banks, making them less able to adjust to changing market conditions.
All of the following are new rules affecting the shadow banking system as a result of the Dodd-
Frank Act EXCEPT
A. securitized loans must now be insured.
and All Correct Answers 2025-2026
Updated.
The size of the money multiplier depends upon all of the following EXCEPT
A.the currency-deposit ratio.
B.excess reserves relative to deposits.
C.the required reserve ratio.
D.the discount rate. - Answer D. the discount rate
How does the use of adjustable-rate mortgages affect interest-rate risk?
A.It reduces the interest-rate risk of borrowers.
B.It reduces the interest-rate risk of lenders.
C.It reduces the interest-rate risk of both lenders and borrowers.
D.It increases the interest-rate risk of both lenders and borrowers. - Answer B. It reduces the
interest-rate risk of lenders.
If the duration of a bank's assets is greater than the duration of a bank's liabilities, an increase in
the market interest rate will ____.
A.increase bank's profits.
B. decrease bank's profits.
C. decrease bank capital.
D. increase bank capital. - Answer C. decrease bank capital.
The political business cycle theory predicts that
A. political factors over which the Fed has no control are most important in explaining the
business cycle.
B. the Fed acts to promote the interests of the general public.
C. the president's appointments to the Board of Governors will usually be politicians.
D. the Fed acts to stimulate economic activity before an election. - Answer D. the Fed acts to
stimulate economic activity before an election.
Suppose the currency-to-checkable deposit ratio decreases while, at the same time, the excess
reserve-to-checkable deposit ratio also decreases. Everything else held constant, these changes
would______the money supply.
Select one:
, A. have no effect on
B. increase
C. decrease
D. have an ambiguous effect on - Answer B. increase
Which of the following statements is correct?
A. The Fed's control over discount lending is more complete than its control over open market
operations.
B. The discount rate is determined by market forces.
C. The discount rate is typically greater than other short-term market interest rates.
D. Decisions by both banks and the Fed determine the volume of discount loans. - Answer D.
Decisions by both banks and the Fed determine the volume of discount loans.
Which of the following is NOT considered one of the four groups in the Federal Reserve System?
A. Federal Open Market Committee
B. Board of Governors
C. Federal Reserve banks
D. Federal Deposit Insurance Corporation - Answer D. Federal Deposit Insurance Corporation
Which asset is sometimes referred to as a bank's secondary reserve?
A. U.S government securities.
B. Vault cash.
C. Federal funds.
D. Repurchase agreements. - Answer A. U.S government securities.
Which of the following is NOT a reason that firms in the shadow banking system were more
vulnerable than commercial banks during the financial crisis of 2007-2009?
A. Investors had no insurance against loss of principal.
B. They could invest in riskier assets.
C. They made investments that would lose value if housing prices decline.
D. They were more heavily regulated than commercial banks, making them less able to adjust to
changing market conditions. - Answer D. They were more heavily regulated than commercial
banks, making them less able to adjust to changing market conditions.
All of the following are new rules affecting the shadow banking system as a result of the Dodd-
Frank Act EXCEPT
A. securitized loans must now be insured.
