Deck 1: Why Study Money, banking, and Financial Markets

Question 1

Financial markets promote greater economic efficiency by channeling funds from ________ to ________.

A) investors; savers
B) borrowers; savers
C) savers; borrowers
D) savers; lenders

Answer 1

C

Question 2

A rising stock market index due to higher share prices

A) increases people's wealth, but is unlikely to increase their willingness to spend.
B) increases people's wealth and as a result may increase their willingness to spend.
C) decreases the amount of funds that business firms can raise by selling newly-issued stock.
D) decreases people's wealth, but is unlikely to increase their willingness to spend.

Answer 2

B

Question 3

Everything else held constant,a decline in interest rates will cause spending on housing to

A) fall.
B) remain unchanged.
C) either rise, fall, or remain the same.
D) rise.

Answer 3

D

Question 4

Markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds are called

A) commodity markets.
B) fund-available markets.
C) derivative exchange markets.
D) financial markets.

Question 5

The price paid for the rental of borrowed funds (usually expressed as a percentage of the rental of $100 per year)is commonly referred to as the

A) inflation rate.
B) exchange rate.
C) interest rate.
D) aggregate price level.

Question 6

Everything else held constant,an increase in interest rates on student loans

A) increases the cost of a college education.
B) reduces the cost of a college education.
C) has no effect on educational costs.
D) increases costs for students with no loans.

Question 7

Stock prices are

A) relatively stable trending upward at a steady pace.
B) relatively stable trending downward at a moderate rate.
C) extremely volatile.
D) unstable trending downward at a moderate rate.

Question 8

High interest rates might cause a corporation to ________ building a new plant that would provide more jobs.

A) complete
B) consider
C) postpone
D) contemplate

Question 9

High interest rates might ________ purchasing a house or car but at the same time high interest rates might ________ saving.

A) discourage; encourage
B) discourage; discourage
C) encourage; encourage
D) encourage; discourage

Question 10

The stock market is important because it is

A) where interest rates are determined.
B) the most widely followed financial market in the United States.
C) where foreign exchange rates are determined.
D) the market where most borrowers get their funds.

Question 11

A key factor in producing high economic growth is

A) eliminating foreign trade.
B) well-functioning financial markets.
C) high interest rates.
D) stock market volatility.

Question 12

The interest rate on Baa (medium quality)corporate bonds is ________,on average,than other interest rates,and the spread between it and other rates became ________ in the 1970s.

A) lower; smaller
B) lower; larger
C) higher; smaller
D) higher; larger

Question 13

Well-functioning financial markets promote

A) inflation.
B) deflation.
C) unemployment.
D) growth.

Question 14

Compared to interest rates on long-term U.S.government bonds,interest rates on three-month Treasury bills fluctuate ________ and are ________ on average.

A) more; lower
B) less; lower
C) more; higher
D) less; higher

Question 15

________ markets transfer funds from people who have an excess of available funds to people who have a shortage.

A) Commodity
B) Fund-available
C) Financial
D) Derivative exchange

Question 16

When stock prices fall

A) an individual's wealth is not affected nor is their willingness to spend.
B) a business firm will be more likely to sell stock to finance investment spending.
C) an individual's wealth may decrease but their willingness to spend is not affected.
D) an individual's wealth may decrease and their willingness to spend may decrease.

Question 17

An increase in interest rates might ________ saving because more can be earned in interest income.

A) encourage
B) discourage
C) disallow
D) invalidate

Question 18

The bond markets are important because they are

A) easily the most widely followed financial markets in the United States.
B) the markets where foreign exchange rates are determined.
C) the markets where interest rates are determined.
D) the markets where all borrowers get their funds.

Question 19

Poorly performing financial markets can be the cause of

A) wealth.
B) poverty.
C) financial stability.
D) financial expansion.

Question 20

Financial markets promote economic efficiency by

A) channeling funds from investors to savers.
B) creating inflation.
C) channeling funds from savers to investors.
D) reducing investment.

Question 21

An increase in stock prices ________ the size of people's wealth and may ________ their willingness to spend,everything else held constant.

A) increases; increase
B) increases; decrease
C) decreases; increase
D) decreases; decrease

Question 22

A financial crisis is

A) not possible in the modern financial environment.
B) a major disruption in the financial markets.
C) a feature of developing economies only.
D) typically followed by an economic boom.

Question 23

Banks are important to the study of money and the economy because they

A) channel funds from investors to savers.
B) have been a source of rapid financial innovation.
C) are the only important financial institution in the U.S. economy.
D) create inflation.

Question 24

Banks,savings and loan associations,mutual savings banks,and credit unions

A) are no longer important players in financial intermediation.
B) since deregulation now provide services only to small depositors.
C) have been adept at innovating in response to changes in the regulatory environment.
D) produce nothing of value and are therefore a drain on society's resources.

Question 25

A share of common stock is a claim on a corporation's

A) debt.
B) liabilities.
C) expenses.
D) earnings and assets.

Question 26

Financial institutions search for ________ has resulted in many financial innovations.

A) higher profits
B) regulations
C) respect
D) higher risk

Question 27

Banks and other financial institutions engage in financial intermediation,which

A) can hurt the performance of the economy.
B) can benefit economic performance.
C) has no effect on economic performance.
D) involves borrowing from investors and lending to savers.

Question 28

On ________,October 19,1987,the market experienced its worst one-day drop in its entire history with the DJIA falling by 22%.

A) "Terrible Tuesday"
B) "Woeful Wednesday"
C) "Freaky Friday"
D) "Black Monday"

Question 29

The financial intermediaries that the average person interacts with most frequently are

A) exchanges.
B) over-the-counter markets.
C) finance companies.
D) banks.

Question 30

Changes in stock prices

A) do not affect people's wealth and their willingness to spend.
B) affect firms' decisions to sell stock to finance investment spending.
C) occur in regular patterns.
D) are unimportant to decision makers.

Question 31

Financial institutions that accept deposits and make loans are called

A) exchanges.
B) banks.
C) over-the-counter markets.
D) finance companies.

Question 32

The Dow reached a peak of over 11,000 before the collapse of the ________ bubble in 2000.

A) housing
B) manufacturing
C) high-tech
D) banking

Question 33

Channeling funds from individuals with surplus funds to those desiring funds when the saver does not purchase the borrower's security is known as

A) barter.
B) redistribution.
C) financial intermediation.
D) taxation.

Question 34

When I purchase a corporate ________,I am lending the corporation funds for a specific time. When I purchase a corporation's ________,I become an owner in the corporation.

A) bond; stock
B) stock; bond
C) stock; debt security
D) bond; debt security

Question 35

What is a stock? How do stocks affect the economy?

Question 36

Why is it important to understand the bond market?

Question 37

Low stock market prices might ________ consumers willingness to spend and might ________ businesses willingness to undertake investment projects.

A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase

Question 38

Financial intermediaries

A) provide a channel for linking those who want to save with those who want to invest.
B) produce nothing of value and are therefore a drain on society's resources.
C) can hurt the performance of the economy.
D) hold very little of the average American's wealth.

Question 39

Fear of a major recession causes stock prices to fall,everything else held constant,which in turn causes consumer spending to

A) increase.
B) remain unchanged.
C) decrease.
D) cannot be determined.

Question 40

The decline in stock prices from 2000 through 2002

A) increased individuals' willingness to spend.
B) had no effect on individual spending.
C) reduced individuals' willingness to spend.
D) increased individual wealth.

Question 41

Evidence from the United States and other foreign countries indicates that

A) there is a strong positive association between inflation and growth rate of money over long periods of time.
B) there is little support for the assertion that "inflation is always and everywhere a monetary phenomenon."
C) countries with low monetary growth rates tend to experience higher rates of inflation, all else being constant.
D) money growth is clearly unrelated to inflation.

Question 42

The delivery of financial services electronically is called

A) e-business.
B) e-commerce.
C) e-finance.
D) e-possible.

Question 43

Prior to almost all recessions since 1900,there has been a drop in

A) inflation.
B) the money stock.
C) the growth rate of the money stock.
D) interest rates.

Question 44

Between 1950 and 1980 in the U.S.,interest rates trended upward.During this same time period,

A) the rate of money growth declined.
B) the rate of money growth increased.
C) the government budget deficit (expressed as a percentage of GNP) trended downward.
D) the aggregate price level declined quite dramatically.

Question 45

Sustained downward movements in the business cycle are referred to as

A) inflation.
B) recessions.
C) economic recoveries.
D) expansions.

Question 46

Which of the following is a true statement?

A) Money or the money supply is defined as Federal Reserve notes.
B) The average price of goods and services in an economy is called the aggregate price level.
C) The inflation rate is measured as the rate of change in the federal government budget deficit.
D) The aggregate price level is measured as the rate of change in the inflation rate.

Question 47

If ten years ago the prices of the items bought last month by the average consumer would have been much higher,then one can likely conclude that

A) the aggregate price level has declined during this ten-year period.
B) the average inflation rate for this ten-year period has been positive.
C) the average rate of money growth for this ten-year period has been positive.
D) the aggregate price level has risen during this ten-year period.

Question 48

Evidence from business cycle fluctuations in the United States indicates that

A) a negative relationship between money growth and general economic activity exists.
B) recessions are usually preceded by declines in bond prices.
C) recessions are usually preceded by dollar depreciation.
D) recessions are usually preceded by a decline in the growth rate of money.

Question 49

Which of the following is not a financial institution?

A) a life insurance company
B) a pension fund
C) a credit union
D) a business college

Question 50

During a recession,output declines resulting in

A) lower unemployment in the economy.
B) higher unemployment in the economy.
C) no impact on the unemployment in the economy.
D) higher wages for the workers.

Question 51

From 1950-2011 the price level in the United States increased more than.

A) twofold.
B) threefold.
C) sixfold.
D) ninefold.

Question 52

There is a ________ association between inflation and the growth rate of money ________.

A) positive; demand
B) positive; supply
C) negative; demand
D) negative; supply

Question 53

Money is defined as

A) bills of exchange.
B) anything that is generally accepted in payment for goods and services or in the repayment of debt.
C) a risk-free repository of spending power.
D) the unrecognized liability of governments.

Question 54

________ theory relates the quantity of money and monetary policy to changes in aggregate economic activity and inflation.

A) Monetary
B) Fiscal
C) Financial
D) Systemic

Question 55

It is true that inflation is a

A) continuous increase in the money supply.
B) continuous fall in prices.
C) decline in interest rates.
D) continually rising price level.

Question 56

The upward and downward movement of aggregate output produced in the economy is referred to as the

A) roller coaster.
B) see saw.
C) business cycle.
D) shock wave.

Question 57

A sharp increase in the growth of the money supply is likely followed by

A) a recession.
B) a depression.
C) an increase in the inflation rate.
D) no change in the economy.

Question 58

Countries that experience very high rates of inflation may also have

A) balanced budgets.
B) rapidly growing money supplies.
C) falling money supplies.
D) constant money supplies.

Question 59

What crucial role do financial intermediaries perform in an economy?

Question 60

Complete Milton Friedman's famous statement,"Inflation is always and everywhere a ________ phenomenon."

A) recessionary
B) discretionary
C) repressionary
D) monetary

Question 61

Everything else held constant,a stronger dollar benefits ________ and hurts ________.

A) American businesses; American consumers
B) American businesses; foreign businesses
C) American consumers; American businesses
D) foreign businesses; American consumers

Question 62

When tax revenues are greater than government expenditures,the government has a budget.

A) crisis.
B) deficit.
C) surplus.
D) revision.

Question 63

Everything else constant,a stronger dollar will mean that

A) vacationing in England becomes more expensive.
B) vacationing in England becomes less expensive.
C) French cheese becomes more expensive.
D) Japanese cars become more expensive.

Question 64

Everything else held constant,a weaker dollar will likely hurt

A) textile exporters in South Carolina.
B) wheat farmers in Montana that sell domestically.
C) automobile manufacturers in Michigan that use domestically produced inputs.
D) furniture importers in California.

Question 65

Budget deficits are important because deficits

A) cause bank failures.
B) always cause interest rates to fall.
C) can result in higher rates of monetary growth.
D) always cause prices to fall.

Question 66

The price of one country's currency in terms of another country's currency is called the

A) exchange rate.
B) interest rate.
C) Dow Jones industrial average.
D) prime rate.

Question 67

American companies can borrow funds

A) only in U.S. financial markets.
B) only in foreign financial markets.
C) in both U.S. and foreign financial markets.
D) only from the U.S. government.

Question 68

The market where one currency is converted into another currency is called the ________ market.

A) stock
B) bond
C) derivatives
D) foreign exchange

Question 69

Which of the following is most likely to result from a stronger dollar?

A) U.S. goods exported aboard will cost less in foreign countries, and so foreigners will buy more of them.
B) U.S. goods exported aboard will cost more in foreign countries and so foreigners will buy more of them.
C) U.S. goods exported abroad will cost more in foreign countries, and so foreigners will buy fewer of them.
D) Americans will purchase fewer foreign goods.

Question 70

The organization responsible for the conduct of monetary policy in the United States is the

A) Comptroller of the Currency.
B) U.S. Treasury.
C) Federal Reserve System.
D) Bureau of Monetary Affairs.

Question 71

Budgets deficits can be a concern because they might

A) ultimately lead to higher inflation.
B) lead to lower interest rates.
C) lead to a slower rate of money growth.
D) lead to higher bond prices.

Question 72

Everything else held constant,a decrease in the value of the dollar relative to all foreign currencies means that the price of foreign goods purchased by Americans

A) increases
B) decreases.
C) remains unchanged.
D) either increases, decreases, or remains unchanged.

Question 73

What happens to economic growth and unemployment during a business cycle recession? What is the relationship between the money growth rate and a business cycle recession?

Question 74

________ policy involves decisions about government spending and taxation.

A) Monetary
B) Fiscal
C) Financial
D) Systemic

Question 75

The management of money and interest rates is called ________ policy and is conducted by a nation's ________ bank.

A) monetary; superior
B) fiscal; superior
C) fiscal; central
D) monetary; central

Question 76

From 1980 to early 1985 the dollar ________ in value,thereby benefiting American ________.

A) appreciated; consumers
B) appreciated, businesses
C) depreciated; consumers
D) depreciated, businesses

Question 77

A budget ________ occurs when government expenditures exceed tax revenues for a particular time period.

A) deficit
B) surplus
C) surge
D) surfeit

Question 78

From 1980 to 1985 the dollar appreciated relative to the British pound.Holding everything else constant,one would expect that,when compared to 1980,

A) fewer Britons traveled to the United States in 1985.
B) Britons imported more wine from California in 1985.
C) Americans exported more wheat to England in 1985.
D) more Britons traveled to the United States in 1985.

Question 79

American farmers who sell beef to Europe benefit most from

A) a decrease in the dollar price of euros.
B) an increase in the dollar price of euros.
C) a constant dollar price for euros.
D) a European ban on imports of American beef.

Question 80

When in 1985 a British pound cost approximately $1.30,a Shetland sweater that cost 100 British pounds would have cost $130.With a weaker dollar,the same Shetland sweater would have cost

A) less than $130.
B) more than $130.
C) $130, since the exchange rate does not affect the prices that American consumers pay for foreign goods.
D) $130, since the demand for Shetland sweaters will decrease to prevent an increase in price due to the stronger dollar.