front 1 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. | back 1 Answer: C |
front 2 Financial markets promote greater economic efficiency by channeling funds from ________ to ________. A) investors; savers B) borrowers; savers C) savers; borrowers D) savers; lenders | back 2 Answer: C |
front 3 Well-functioning financial markets promote A) inflation. B) deflation. C) unemployment. D) growth. | back 3 Answer: D |
front 4 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. | back 4 Answer: B |
front 5 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. | back 5 Answer: D |
front 6 ________ 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 | back 6 Answer: C |
front 7 Poorly performing financial markets can be the cause of A) wealth. B) poverty. C) financial stability. D) financial expansion. | back 7 Answer: B |
front 8 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. | back 8 Answer: C |
front 9 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. | back 9 Answer: C |
front 10 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 | back 10 Answer: A |
front 11 The interest rate on Baa corporate bonds is ________, on average, than interest rates on Treasuries, and the spread between these rates became ________ in the 1970s. A) lower; smaller B) lower; larger C) higher; smaller D) higher; larger | back 11 Answer: D |
front 12 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. | back 12 Answer: D |
front 13 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 | back 13 Answer: A |
front 14 An increase in interest rates might ________ saving because more can be earned in interest income. A) encourage B) discourage C) disallow D) invalidate | back 14 Answer: A |
front 15 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. | back 15 Answer: A |
front 16 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 | back 16 Answer: C |
front 17 The stock market 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. | back 17 Answer: B |
front 18 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. | back 18 Answer: C |
front 19 A rising stock market index due to higher share prices
D) decreases people's wealth, but is unlikely to increase their willingness to spend. | back 19 Answer: B |
front 20 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. | back 20 Answer: D |
front 21 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. | back 21 Answer: B |
front 22 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 | back 22 Answer: A |
front 23 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 | back 23 Answer: C |
front 24 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. | back 24 Answer: C |
front 25 A share of common stock is a claim on a corporation's A) debt. B) liabilities. C) expenses. D) earnings and assets. | back 25 Answer: D |
front 26 On ________, October 19, 1987, the stock 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" | back 26 Answer: D |
front 27 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. | back 27 Answer: C |
front 28 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 | back 28 Answer: C |
front 29 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 | back 29 Answer: A |
front 30 What is a stock? How do stocks affect the economy? | back 30 Answer: A stock represents a share of ownership of a corporation, or a claim on a firm's earnings/assets. Stocks are part of wealth, and changes in their value affect people's willingness to spend. Changes in stock prices affect a firm's ability to raise funds, and thus their investment. |
front 31 Why is it important to understand the bond market? | back 31 Answer: The bond market supports economic activity by enabling the government and corporations to borrow to undertake their projects and it is the market where interest rates are determined. |
front 32 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. | back 32 Answer: C |
front 33 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. | back 33 Answer: B |
front 34 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. | back 34 Answer: B |
front 35 Banks 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) are the only financial institutions allowed to give loans. D) hold very little of the average American's wealth. | back 35 Answer: A |
front 36 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. | back 36 Answer: C |
front 37 Financial institutions search for ________ has resulted in many financial innovations. A) higher profits B) regulations C) respect D) higher risk | back 37 Answer: A |
front 38 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. | back 38 Answer: B |
front 39 Financial institutions that accept deposits and make loans are called A) exchanges. B) banks. C) over-the-counter markets. D) finance companies. | back 39 Answer: B |
front 40 The financial intermediaries that the average person interacts with most frequently are A) exchanges. B) over-the-counter markets. C) finance companies. D) banks. | back 40 Answer: D |
front 41 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 | back 41 Answer: D |
front 42 The delivery of financial services electronically is called A) e-business. B) e-commerce. C) e-finance. D) e-possible. | back 42 Answer: C |
front 43 What crucial role do financial intermediaries perform in an economy? | back 43 Answer: Financial intermediaries borrow funds from people who have saved and make loans to other individuals and businesses and thus improve the efficiency of the economy. |
front 44 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. | back 44 Answer: B |
front 45 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. | back 45 Answer: C |
front 46 Sustained downward movements in the business cycle are referred to as A) inflation. B) recessions. C) economic recoveries. D) expansions. | back 46 Answer: B |
front 47 During a recession, output declines result 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. | back 47 Answer: B |
front 48 Prior to almost all recessions since 1950, there has been a drop in A) inflation. B) the money stock. C) the growth rate of the money stock. D) interest rates. | back 48 Answer: C |
front 49 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. | back 49 Answer: D |
front 50 ________ 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 | back 50 Answer: A |
front 51 A continuing increase in the growth of the money supply is likely followed by A) a recession. B) a depression. C) an increase in the price level. D) no change in the economy. | back 51 Answer: C |
front 52 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. | back 52 Answer: D |
front 53 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. | back 53 Answer: B |
front 54 If the prices would have been much higher ten years ago for the items the average consumer purchased last month, 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. | back 54 Answer: A |
front 55 From 1950-2014 the price level in the United States increased more than A) twofold. B) threefold. C) sixfold. D) tenfold. | back 55 Answer: D |
front 56 Complete Milton Friedman's famous statement, "Inflation is always and everywhere a ________ phenomenon." A) recessionary B) discretionary C) repressionary D) monetary | back 56 Answer: D |
front 57 There is a ________ association between inflation and the growth rate of money ________. A) positive; demand B) positive; supply C) negative; demand D) negative; supply | back 57 Answer: B |
front 58 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. | back 58 Answer: A |
front 59 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. | back 59 Answer: B |
front 60 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. | back 60 Answer: B |
front 61 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 | back 61 Answer: D |
front 62 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. | back 62 Answer: C |
front 63 ________ policy involves decisions about government spending and taxation. A) Monetary B) Fiscal C) Financial D) Systemic | back 63 Answer: B |
front 64 When tax revenues are greater than government expenditures, the government has a budget A) crisis. B) deficit. C) surplus. D) revision. | back 64 Answer: C |
front 65 A budget ________ occurs when government expenditures exceed tax revenues for a particular time period. A) deficit B) surplus C) surge D) surfeit | back 65 Answer: A |
front 66 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. | back 66 Answer: A |
front 67 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. | back 67 Answer: C |
front 68 When a budget deficit occurs in the United States, the U.S. Treasury finances this deficit by
| back 68 Answer: A |
front 69 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? | back 69 Answer: During a recession, output declines and unemployment increases. Prior to almost every recession in the U.S. the money growth rate has declined, however, not every decline is followed by a recession. |
front 70 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. | back 70 Answer: C |
front 71 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. | back 71 Answer: A |
front 72 The market where one currency is converted into another currency is called the ________ market. A) stock B) bond C) derivatives D) foreign exchange | back 72 Answer: D |
front 73 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. | back 73 Answer: B |
front 74 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. | back 74 Answer: C |
front 75 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. | back 75 Answer: D |
front 76 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 | back 76 Answer: C |
front 77 From 1980 to early 1985 the dollar ________ in value, thereby benefiting American ________. A) appreciated; consumers B) appreciated, businesses C) depreciated; consumers D) depreciated, businesses | back 77 Answer: A |
front 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. | back 78 Answer: A |
front 79 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. | back 79 Answer: B |
front 80 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. | back 80 Answer: A |
front 81 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. | back 81 Answer: B |
front 82 If the price of a euro (the European currency) increases from $1.00 to $1.10, then, everything else held constant A) a European vacation becomes less expensive. B) a European vacation becomes more expensive. C) the cost of a European vacation is not affected. D) foreign travel becomes impossible. | back 82 Answer: B |
front 83 Everything else held constant, Americans who love French wine 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 ban on imports from Europe. | back 83 Answer: A |
front 84 From 2000 to 2014, the dollar depreciated substantially against other currencies. This drop in value most likely benefited A) European citizens traveling in the U.S. B) U.S. citizens traveling in Europe. C) U.S. manufacturers importing parts from abroad. D) U.S. citizens purchasing foreign-made automobiles. | back 84 Answer: A |
front 85 From 1980-1985, the dollar strengthened in value against other currencies. Who was helped and who was hurt by this strong dollar? | back 85 Answer: American consumers benefitted because imports were cheaper and consumers could purchase more. American businesses and workers in those businesses were hurt as domestic and foreign sales of American products fell. |
front 86 The basic concepts used in the analytic framework of this text include all of the following EXCEPT A) the not-for-profit nature of most financial institutions. B) a basic supply and demand analysis to explain the behavior of financial markets. C) an approach to financial structure based on transaction costs and asymmetric information. D) the concept of equilibrium. | back 86 Answer: A |
front 87 Using a unified analytic framework to present the information in the text keeps the knowledge A) focused on theories that have little to do with actual behavior. B) theoretical and uninteresting. C) abstract and not applicable to real life. D) from becoming obsolete. | back 87 Answer: D |
front 88 The most comprehensive measure of aggregate output is A) gross domestic product. B) net national product. C) the stock value of the industrial 500. D) national income. | back 88 Answer: A |
front 89 The gross domestic product is the A) the value of all wealth in an economy. B) the value of all goods and services sold to other nations in a year. C) the market value of all final goods and services produced in an economy in a year. D) the market value of all intermediate goods and services produced in an economy in a year. | back 89 Answer: C |
front 90 Which of the following items are NOT counted in U.S. GDP? A) your purchase of a new Ford Mustang B) your purchase of new tires for your old car C) GM's purchase of tires for new cars D) a foreign consumer's purchase of a new Ford Mustang | back 90 Answer: C |
front 91 If an economy has aggregate output of $20 trillion, then aggregate income is A) $10 trillion. B) $20 trillion. C) $30 trillion. D) $40 trillion. | back 91 Answer: B |
front 92 When the total value of final goods and services is calculated using current prices, the resulting measure is referred to as A) real GDP. B) the GDP deflator. C) nominal GDP. D) the index of leading indicators. | back 92 Answer: C |
front 93 Nominal GDP is output measured in ________ prices while real GDP is output measured in ________ prices. A) current; current B) current; fixed C) fixed; fixed D) fixed; current | back 93 Answer: B |
front 94 GDP measured with constant prices is referred to as A) real GDP. B) nominal GDP. C) the GDP deflator. D) industrial production. | back 94 Answer: A |
front 95 If your nominal income in 2014 was $50,000, and prices doubled between 2014 and 2017, to have the same real income, your nominal income in 2017 must be A) $50,000. B) $75,000. C) $90,000. D) $100,000. | back 95 Answer: D |
front 96 If your nominal income in 2014 is $50,000, and prices increase by 50% between 2014 and 2017, then to have the same real income, your nominal income in 2017 must be A) $50,000. B) $75,000. C) $100,000. D) $150,000. | back 96 Answer: B |
front 97 To convert a nominal GDP to a real GDP, you would use A) the PCE deflator. B) the CPI measure. C) the GDP deflator. D) the PPI measure. | back 97 Answer: C |
front 98 If nominal GDP in 2001 is $9 trillion, and 2001 real GDP in 1996 prices is $6 trillion, the GDP deflator price index is A) 7. B) 100. C) 150. D) 200. | back 98 Answer: C |
front 99 When prices are measured in terms of fixed (base-year) prices they are called ________ prices. A) nominal B) real C) inflated D) aggregate | back 99 Answer: B |
front 100 The measure of the aggregate price level that is most frequently reported in the media is the A) GDP deflator. B) producer price index. C) consumer price index. D) household price index. | back 100 Answer: C |
front 101 The measure of the aggregate price level that is frequently the focus of Federal Reserve officials is the A) consumer price index. B) producer price index. C) GDP deflator. D) PCE deflator. | back 101 Answer: D |
front 102 To calculate the growth rate of a variable, you will A) calculate the percentage change from one time period to the next. B) calculate the difference between the two variables. C) add the ending value to the beginning value. D) divide the increase by the number of time periods. | back 102 Answer: A |
front 103 If real GDP grows from $10 trillion in 2002 to $10.5 trillion in 2003, the growth rate for real GDP is A) 5%. B) 10%. C) 50%. D) 0.5%. | back 103 Answer: A |
front 104 If real GDP in 2002 is $10 trillion, and in 2003 real GDP is $9.5 trillion, then real GDP growth from 2002 to 2003 is A) 0.5%. B) 5%. C) 0%. D) -5%. | back 104 Answer: D |
front 105 If the aggregate price level at time t is denoted by Pt, the inflation rate from time t - 1 to t is defined as
| back 105 Answer: A |
front 106 If the price level increases from 200 in year 1 to 220 in year 2, the rate of inflation from year 1 to year 2 is A) 20%. B) 10%. C) 11%. D) 120%. | back 106 Answer: B |
front 107 If the CPI is 120 in 1996 and 180 in 2002, then between 1996 and 2002, prices have increased by A) 180%. B) 80%. C) 60%. D) 50%. | back 107 Answer: D |
front 108 If the CPI in 2004 is 200, and in 2005 the CPI is 180, the rate of inflation from 2004 to 2005 is A) 20%. B) 10%. C) 0%. D) -10%. | back 108 Answer: D |