Deck 1: Introduction and Overview

Question 1

The study of economics is most concerned with which of the following?

A)What gets produced, how it gets produced and who gets what
B)How to make a lot of money
C)Why stock prices fluctuate
D)What determines who owns the capital in society

Answer 1

A

Question 2

The study of economics is least concerned with which of the following?

A)What gets produced, how it gets produced and who gets what
B)How to allocate scarce resources
C)Why stock and bond prices fluctuate
D)What determines the overall health of individual households

Answer 2

D

Question 3

Microeconomics is most concerned with which of the following?

A)The Federal Reserve System
B)The overall price level
C)The individual decision making processes of business firms and households
D)Business cycles and unemployment

Answer 3

C

Question 4

Macroeconomics is most concerned with which of the following?

A)Consumer decision making
B)The level of economic activity in the aggregate economy
C)International Business Machines
D)The individual decision making processes of business firms

Question 5

The best definition of finance is that it is concerned primarily with

A)game theoretic microeconomic behavior
B)the rules of the game
C)the study of the financial or monetary aspects of the production, spending, borrowing, and lending decisions of an economy.
D)the way the "invisible hand" allocates resources in a command economy

Question 6

What do financial regulators do?

A)promote competition and efficiency in the system
B)preserve safety and soundness
C)establish wage and price controls
D)both a and b

Question 7

The removing or phasing out of regulations is referred to as

A)irregularity
B)deflation
C)deregulation
D)reregulation

Question 8

Which of the following is true of money?

A)it must only and always be issued by a central bank
B)it is something that is acceptable in payment
C)government must authorize its use
D)it must be a physical commodity

Question 9

Which of the following is not a depository institution?

A)Insurance companies
B)Mutual savings banks
C)Savings and loan associations
D)Commercial banks

Question 10

Which of the following is a depository institution?

A)Insurance companies
B)Finance Companies
C)Pension Plans
D)Commercial banks

Question 11

Saving is

A)income not spent on consumption.
B)income spent on investment goods and financial assets.
C)income invested in financial assets only.
D)None of the above.

Question 12

Consumption is

A)income not saved.
B)income spent on investment goods and financial assets.
C)income invested in financial assets only.
D)None of the above.

Question 13

A net lender is which of the following?

A)A person or firm that spends less than the income received on consumption or investment
B)A unit of measure used by the Federal Reserve
C)Someone who gets a loan on the internet
D)Persons or firms that spend more than the income they receive

Question 14

If you spend more on your consumption or investment goods than the amount of your current income then you are called a

A)loanshark
B)investment expenditure
C)net borrower
D)uninformed consumer

Question 15

If you spend less on your consumption or investment goods than your current income allows, then you are called a

A)loanshark
B)investment expenditure
C)net borrower
D)net lender

Question 16

Financial markets are defined as situations where

A)net borrowers can lend their funds directly to net lenders.
B)net lenders can lend their funds directly to net borrowers.
C)net borrowers can lend their funds indirectly to net lenders.
D)contestable markets exist.

Question 17

Purchasing bonds for the expansion of a software firm would be considered

A)direct finance.
B)indirect finance.
C)bond refunding.
D)bond discounting.

Question 18

Which of the following would not be considered a financial intermediary?

A)Benson's Credit Union
B)Palmyra State Bank
C)Whitewater Savings and Loan
D)a large stock brokerage firm

Question 19

Which of the following would be considered a financial intermediary?

A)Benson's Credit Union
B)Palmyra State Bank
C)Whitewater Savings and Loan
D)All of the above are financial intermediaries

Question 20

Financial intermediaries serve as go betweens to link net lenders and net borrowers. Here the linkage between saver and borrower is one of

A)direct finance
B)indirect finance
C)refinance
D)compensatory finance

Question 21

Default on a loan occurs when

A)the borrower is unable to make principal or interest payments when due.
B)the borrower pays off the loan early.
C)The true risks of making the loan were not considered.
D)The borrower pays the principal early but not the interest payments.

Question 22

Liquidity is the

A)ease with which a financial instrument can be converted to cash without loss of value.
B)rate at which the economy is changing.
C)term used to describe the Federal Reserve quasi-independent government relationship.
D)amount of time a borrower has to repay a debt.

Question 23

Of the following, which would be the most liquid financial asset?

A)One share of stock in Disney
B)A ten-carat diamond
C)$1000 cash
D)house

Question 24

Of the following, which would be the least liquid financial asset?

A)One share of stock in Disney
B)A check drawn on a depository instituition
C)$1000 cash
D)house

Question 25

Which of the following is/are true of checkable deposits?

A)withdrawal by writing a check
B)offered by all depository institutions
C)are considered as money because they can be used as a means of payment
D)all of the above are true of checkable deposits

Question 26

Which of the following is/are not true of checkable deposits?

A)withdrawal by writing a check
B)the FDIC does not insure checkable deposits
C)are considered as money because they can be used as a means of payment
D)both a and c

Question 27

Checkable deposits are

A)subject to withdrawal by writing a check
B)issued only by commercial banks
C)issued by all financial intermediaries
D)not money.

Question 28

Transaction costs are best defined as

A)costs associated with checkable deposits.
B)charges associated with making financial assets only.
C)costs associated with borrowing and lending or making other exchanges.
D)charges from failing to repay a financial claim.

Question 29

If Moe purchases a newly issued share of stock in a well-known corporation, then he is engaging in which of the following?

A)Deficit spending
B)Indirect finance
C)Direct finance
D)Discrete finance

Question 30

An example of indirect finance would be

A)purchasing a corporate bond issued by PepsiCo.
B)borrowing money from Norwest Bank to buy a used car.
C)lending money to someone to start a publishing company.
D)borrowing money from a friend to buy my '84 Mercury.

Question 31

An example of direct finance would be

A)your professors deposits his or her salary in a checking account.
B)you purchase stock in IBM from a stock broker.
C)you use your ATM card to get cash on the weekend.
D)your employer makes a contribution to your pension fund.

Question 32

Which of the following can the Federal Reserve influence?

A)Congress in all fiscal policy actions
B)the level of interest rates
C)aggregate total demand in the economy
D)both b and c

Question 33

Which of the following can the Federal Reserve not influence?

A)Congress in all fiscal policy actions
B)the level of interest rates
C)aggregate total demand in the economy
D)both b and c

Question 34

Which of the following is not true?

A)The Federal Reserve is a quasi-independent government agency that serves as our nation's central bank.
B)The Fed's influence begins with the depository institutions and their role in the money supply process and then spreads to other intermediaries and financial markets in general.
C)The Fed implements fiscal policy which is all the attempts by the Fed to affect the level of economic activity.
D)The Fed affects the total volume of funds available for lending in the economy.

Question 35

Monetary policy is determined by

A)the Federal Government.
B)the Federal Reserve.
C)the business cycle.
D)depository institutions.

Question 36

The Federal Reserve's monetary policy influences which of the following?

A)Interest rates
B)The volume of funds available for lending
C)The overall health and stability of the economy
D)All of the above

Question 37

Which institutions are central to the process of determining the nation's money supply?

A)Commercial banks, savings and loan associations, credit unions, and mutual savings banks
B)Insurance companies
C)Private and public pension funds
D)None of the above; the amount of gold determines nation's money supply

Question 38

The business cycle describes

A)long-run fluctuations in the level of economic activity.
B)short-run fluctuations in the level of economic activity.
C)low inflation.
D)full employment.

Question 39

During periods of expansion, the economy usually has

A)high levels of unemployment and output.
B)decreases in the total quantity of goods and services produced.
C)sharp troughs.
D)falling levels of unemployment and increases in employment and output.

Question 40

In a recession,

A)unemployment falls and economic activity rises.
B)unemployment falls and economic activity falls.
C)unemployment rises and economic activity falls.
D)employment rises and economic activity falls.

Question 41

Fiscal policy refers to

A)short-run government monetary policy.
B)deliberate changes in government spending and taxing decisions to affect the level of economic activity.
C)changes in government regulation and/or deregulation.
D)The changing of interest rates by the Fed to affect the level of economic activity.

Question 42

The spending and taxing decisions of the Congress and president that affect household and business decisions are called

A)monetary policy.
B)deficit reduction policy.
C)fiscal policy.
D)None of the above

Question 43

Prior to the Great Depression of the 1930s, many economists viewed the economy as

A)self-correcting.
B)inherently stable.
C)usually operating at full employment equilibrium.
D)All of the above.

Question 44

The government's economic policy prior to the Great Depression of the 1930s was one of

A)activist stabilization.
B)Keynesian theory.
C)laissez faire.
D)recession.

Question 45

The "Misery" index is defined as

A)the unemployment rate.
B)the inflation rate.
C)the sum of the unemployment rate and the inflation rate.
D)None of the above.

Question 46

Economics is typically broken down into microeconomics and macroeconomics. Which of the following statements is true?

A)Microeconomics is the study of the aggregate economy.
B)Macroeconomics is the study of individual households and firms in a particular market.
C)Macroeconomics is the study of the aggregate economy.
D)Microeconomics is concerned with overall unemployment and inflation.

Question 47

Which of the following fails to meet the economist's definition of a capital good?

A)A factory that produces shoes
B)Cash on hand
C)A brand new computer system used by a business
D)Produced goods used to produce other goods

Question 48

The financial system is regulated and supervised to promote which of the following?

A)Competition and efficiency
B)A smooth-running financial system
C)The system's overall health and stability
D)All of the above

Question 49

History has shown that financial systems are

A)largely unchanging.
B)continuing changing and evolving.
C)inherently stable.
D)unaffected by financial innovation and regulatory changes.

Question 50

The primary role of the financial system is to

A)allow the Fed to conduct monetary policy.
B)act as fiscal agent for the U.S. government.
C)print money.
D)channel the flow of funds from net lenders to net borrowers

Question 51

Which would be considered a use of saving?

A)Buying stock in IBM
B)Buying a newly constructed vacation home in Idaho
C)Buying a new tractor for the farm
D)All of the above are uses of saving

Question 52

When will saving equal the surplus funds a spending unit has available to lend?

A)When the spending unit purchases primary financial assets
B)When the spending unit purchases either direct or indirect financial assets
C)When the spending unit does not make any investment in capital, inventories, or newly-constructed houses
D)When the spending unit purchases primary or secondary assets

Question 53

Which of the following is not a universal characteristic of financial intermediaries?

A)Transferring funds from net borrowers to net lenders
B)Issuing their own liabilities
C)Investing in financial assets
D)Issuing checkable deposits

Question 54

The aim of regulatory policy in the financial system is to

A)generate government revenues.
B)promote a smooth-running and efficient financial system.
C)make it difficult for firms to enter the financial services market.
D)raise banking costs and create an outflow in the circular flow model.

Question 55

Money is

A)only cash and currency.
B)cash, currency, and credit cards.
C)something which is used and generally accepted as payment.
D)income not spent on consumption.

Question 56

Which of the following would be an example of saving?

A)The purchase of a study guide for your class
B)The purchase of a corporate bond
C)Paying your rent
D)Using coupons to buy diapers at a department store

Question 57

One factor complicating the analysis of the financial system and the economy is

A)the influence of politicians on both the economy and the financial system.
B)the lack of regulation of the financial system.
C)the continuous change and innovation in the financial system.
D)the lack of change in the financial system compared to the constantly fluctuating economy.

Question 58

A net borrower is which of the following?

A)The department in a bank that issues credit cards
B)Another unit of measure used by the Federal Reserve
C)A person or firm that spends less money than they receive in income
D)A person or firm that spends more than they receive in income

Question 59

If John receives $2000 monthly in net wages and spends $700 in rent, $500 on a car payment, $250 on entertainment, and $200 on groceries he is a(n)

A)net borrower.
B)negative cash disbursement.
C)net lender.
D)accrued wage unit.

Question 60

Which of the following is an example of investment?

A)The purchase of a new computer system by a business firm
B)The acquisition of a newly constructed starter home by a young couple
C)The purchase of a new forklift by a construction company
D)All of the above are examples of investment

Question 61

Deregulation

A)is the implementing or phasing in of new regulations.
B)is the removing or phasing out of some existing regulations.
C)is any regulation which pertains to accounting debits.
D)was a trend in the financial system prior to the 1970s, but the trend of the 1970s and 1980s was toward greater regulation.

Question 62

Nguyen's income is $40,000. If Nguyen spends $36,000 on consumption, $4,000 on a newly-constructed vacation home, then Nguyen

A)Is not saving.
B)Has saving equal to $4,000.
C)Has surplus funds of $4,000.
D)Has saving of an indeterminate amount.

Question 63

The FDIC was created

A)during the Great Depression of the 1930s.
B)during the Second World War.
C)during the Korean War.
D)during the 1970s oil crisis.

Question 64

The principal source of funds for depository institutions consists of which of the following?

A)Deposits of domestic and foreign individuals, business firms, and governments
B)Loans from the Federal Reserve
C)Loans from foreigners
D)U.S. Government notes

Question 65

The largest group of financial intermediaries is

A)money market mutual funds.
B)insurance companies.
C)depository institutions.
D)finance companies.

Question 66

One of the reasons that financial intermediaries exist is that

A)it is illegal for net lenders to lend directly to net borrowers
B)the vaults at financial intermediaries are safer for your money than your mattress or piggy bank.
C)there is no system for net lenders to lend directly to net borrowers
D)financial intermediaries are better equipped to assess risk and to diversify portfolios.

Question 67

Which of the following is a specialized secondary claim?

A)A checking account
B)Life insurance
C)A savings account
D)Cash

Question 68

If J.P. purchases a newly issued share of stock in a well-known corporation, then he is engaging in which of the following?

A)Deficit spending
B)Indirect finance
C)Direct finance
D)Discrete finance

Question 69

Which of the following would best describe the Federal Reserve's most important function?

A)To influence the general health and performance of the economy
B)To lower interest rates always
C)To increase the volume of funds transferred from net borrowers to net lenders
D)To print and circulate money

Question 70

The United States economy is composed of

A)the household and business sectors.
B)the government sector.
C)the rest-of-the-world sector.
D)All of the above are sectors of the U.S. economy.

Question 71

Which of the following best describes the order of business cycle phases?

A)Recession, trough, expansion, peak
B)Recession, expansion, peak, trough
C)Recession, peak, expansion, trough
D)Recession, trough, contraction, peak

Question 72

Which of the following statements is false?

A)Finance studies how the financial system coordinates and channels the flows of funds from net lenders to net borrowers
B)Household saving may be used for investment in new housing or to acquire financial assets.
C)Business saving may be used for investment in capital and inventories or to acquire financial assets.
D)Financial instruments are financial assets to the issuer of the instrument and financial liabilities to the holder.

Question 73

In economic terms, equilibrium refers to a state of the economy

A)from which there is no tendency to deviate from; a state of rest.
B)when it is at the upper or lower turning point of the business cycle.
C)when there are both high unemployment and inflation.
D)when markets fail to clear.

Question 74

The Fed took action to lower interest rates in late 2007 and 2008 due to

A)an unprecedented financial crisis that started in the housing market and spread to the broader economy.
B)escalating inflation.
C)a burgeoning government defidit.
D)None of the above; the Fed increased interest rates through 2008.

Question 75

The recession of the early 1990s caused many to be concerned due to

A)the depth of the contraction.
B)the lengthy time frame over which it occurred.
C)the lethargic or slow recovery that followed.
D)the rapid inflation that accompanied it.

Question 76

By increasing interest rates seven times within a 1year period beginning in early 1994, the Fed attempted to

A)slow the growth of the economy.
B)increase inflation rates.
C)decrease direct foreign investment.
D)stimulate the U.S. Savings Bond market.

Question 77

If we divide U.S. government policy history into two phases-pre-1930s, post 1930s-which of the following sets of labels would be most applicable, respectively?

A)Activist, laissez faire
B)Laissez faire, activist
C)Activist, more activist
D)Laissez faire, more laissez faire

Question 78

The financial system

A)coordinates the flow of funds from lenders to borrowers.
B)creates new liquidity for the economy.
C) both a and b.
D)
None of the above.

Question 79

Credit card balances are considered which of the following?

A)Money
B)Loans
C)Cash
D)None of the above

Question 80

Monetary policy is defined as

A)the rules regarding borrowing and lending at banks.
B)those policies which limit the interest rates banks may pay on deposits.
C)the Federal Reserve's efforts to promote the overall health and stability of the economy.
D)the policy regarding to whom net lenders should lend money.