Money and Banking Test

Ranking assets from most liquid to least liquid, the correct order is A) savings bonds; house; currency. B) currency; savings bonds; house. C) currency; house; savings bonds. D) house; savings bonds; currency.

• savings bonds; house; currency.

• currency; savings bonds; house.

• currency; house; savings bonds.

• house; savings bonds; currency.

________ 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

• Commodity

• Fund-available

• Financial

• Derivative exchange

Which of the following are true concerning the distinction between interest rates and returns? A) The rate of return on a bond will not necessarily equal the interest rate on that bond. B) The return can be expressed as the difference between the current yield and the rate of capital gains. C) The rate of return will be greater than the interest rate when the price of the bond falls between time t and time t + 1. D) The return can be expressed as the sum of the discount yield and the rate of capital gains.

• The rate of return on a bond will not necessarily equal the interest rate on that bond.

• The return can be expressed as the difference between the current yield and the rate of capital gains.

• The rate of return will be greater than the interest rate when the price of the bond falls between time t and time t + 1.

• The return can be expressed as the sum of the discount yield and the rate of capital gains.

The total collection of pieces of property that serve to store value is a personʹs A) wealth. B) income. C) money. D) credit.

• wealth.

• income.

• money.

• credit.

As the payments system evolves from barter to a monetary system, A) commodity money is likely to precede the use of paper currency. B) transaction costs increase. C) the number of prices that need to be calculated increase rather dramatically. D) specialization decreases.

• commodity money is likely to precede the use of paper currency.

• transaction costs increase.

• the number of prices that need to be calculated increase rather dramatically.

• specialization decreases.

When the interest rate changes, A) the demand curve for bonds shifts to the right. B) the demand curve for bonds shifts to the left. C) the supply curve for bonds shifts to the right. D) it is because either the demand or the supply curve has shifted.

• the demand curve for bonds shifts to the right.

• the demand curve for bonds shifts to the left.

• the supply curve for bonds shifts to the right.

• it is because either the demand or the supply curve has shifted.

The M1 measure of money includes A) small denomination time deposits. B) travelerʹs checks. C) money market deposit accounts. D) money market mutual fund shares

• small denomination time deposits.

• travelerʹs checks.

• money market deposit accounts.

• money market mutual fund shares

In which of the following situations would you prefer to be the lender? A) The interest rate is 9 percent and the expected inflation rate is 7 percent. B) The interest rate is 4 percent and the expected inflation rate is 1 percent. C) The interest rate is 13 percent and the expected inflation rate is 15 percent. D) The interest rate is 25 percent and the expected inflation rate is 50 percent.

• The interest rate is 9 percent and the expected inflation rate is 7 percent.

• The interest rate is 4 percent and the expected inflation rate is 1 percent.

• The interest rate is 13 percent and the expected inflation rate is 15 percent.

• The interest rate is 25 percent and the expected inflation rate is 50 percent.

Which of the following statements accurately describes the two measures of the money supply? A) The two measures do not move together, so they cannot be used interchangeably by policymakers. B) The two measuresʹ movements closely parallel each other, even on a month-to-month basis. C) Short-run movements in the money supply are extremely reliable. D) M2 is the narrowest measure the Fed reports

• The two measures do not move together, so they cannot be used interchangeably by policymakers.

• The two measuresʹ movements closely parallel each other, even on a month-to-month basis.

• Short-run movements in the money supply are extremely reliable.

• M2 is the narrowest measure the Fed reports

Which of the following $1,000 face-value securities has the highest yield to maturity? A) A 5 percent coupon bond with a price of $600 B) A 5 percent coupon bond with a price of $800 C) A 5 percent coupon bond with a price of $1,000 D) A 5 percent coupon bond with a price of $1,200

• A 5 percent coupon bond with a price of $600

• A 5 percent coupon bond with a price of $800

• A 5 percent coupon bond with a price of $1,000

• A 5 percent coupon bond with a price of $1,200