1. Which statement concerning banks is true?

A. Banks can suffer liquidity problems because their liabilities are liquid and their assets are illiquid.

B. Banks borrow short and lend long.

C. Banks are exposed to default risk because they make risky loans and cannot impose losses on their depositors and creditors.

D. All the statements are true

E. Banks make money transforming maturities.

2. In the diagram above, which statement concerning the yield curve is likely to be true?

A. The demand for money has decreased shifting the entire term structure of interest rates up.

B. The Federal Reserve has decreased long-term interest rates using monetary policy shifting the entire term structure of interest rates up.

C. The Federal Reserve has increased short-term rates using monetary policy shifting the entire term structure of interest rates up.

D. The Federal Reserve has decreased short-term rates using monetary policy shifting the entire term structure of interest rates up.

E. The amount of planned transactions has decreased shifting the entire structure of interest rates up.

3. The interest rate on securities affects the demand for money because:

A. The interest rate is the cost of borrowing money.

B. The interest rate is the opportunity cost of holding money.

C. The interest rate is both the cost of borrowing money and the reward for lending money.

D. The interest rate is the reward for lending money.

4. Which statement concerning the market for money is TRUE?

A. The Federal Reserve can increase/decrease the supply of money with its monetary policies.

B. The Federal Reserve has no influence on the market for money.

C. The Federal Reserve can increase/decrease both the demand and supply of money with its monetary policies.

D. The Federal Reserve can increase/decrease the demand for money with its monetary policies.

E. The President and Congress can increase/decrease the supply of money with its fiscal policies.

5. In the market for money shown in the diagram above, which statement concerning this diagram is likely to be TRUE?

A. There has been a substantial increase in income and planned transactions.

B. There has been a substantial decrease in income and planned transactions.

C. The Federal Reserve has lowered interest rates by using its monetary policy.

D. There has been a fall in interest rates that has increased the demand for money.

E. There has been a fall in interest rates that has decreased the demand for money.