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Worksheets1...
Total questions: 114
Worksheet time: 1hrs 12mins
Financial markets promote economic efficiency by
channeling funds from investors to savers.
creating inflation.
channeling funds from savers to investors.
reducing investment.
Financial markets promote greater economic efficiency by channeling funds from ________ to ________.
investors; savers
borrowers; savers
savers; borrowers
savers; lenders
Well-functioning financial markets promote
inflation.
deflation.
unemployment.
growth.
A key factor in producing high economic growth is
eliminating foreign trade.
well-functioning financial markets.
high interest rates.
stock market volatility.
Markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds are called
commodity markets.
fund- available markets.
derivative exchange markets.
financial markets.
________ markets transfer funds from people who have an excess of available funds to people who have a shortage.
Commodity
Fund- available
Financial
Derivative exchange
Poorly performing financial markets can be the cause of
wealth.
poverty.
financial stability.
financial expansion.
The bond markets are important because they are
easily the most widely followed financial markets in the United States.
the markets where foreign exchange rates are determined.
the markets where interest rates are determined.
the markets where all borrowers get their funds.
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
inflation rate.
exchange rate.
interest rate.
aggregate price level.
Compared to interest rates on long-term U.S. government bonds, interest rates on three -month Treasury bills fluctuate ________ and are ________ on average.
more; lower
less; lower
more; higher
less; higher
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.
lower; smaller
lower; larger
higher; smaller
higher; larger
Everything else held constant, a decline in interest rates will cause spending on housing to
fall.
remain unchanged.
either rise, fall, or remain the same.
rise.
High interest rates might ________ purchasing a house or car but at the same time high interest rates might ________ saving.
discourage; encourage
discourage; discourage
encourage; encourage
encourage; discourage
An increase in interest rates might ________ saving because more can be earned in interest income.
encourage
discourage
disallow
invalidate
Everything else held constant, an increase in interest rates on student loans
increases the cost of a college education.
reduces the cost of a college education.
has no effect on educational costs.
increases costs for students with no loans.
High interest rates might cause a corporation to ________ building a new plant that would provide more jobs.
complete
consider
postpone
contemplate
The stock market is important because it is
where interest rates are determined.
the most widely followed financial market in the United States.
where foreign exchange rates are determined.
the market where most borrowers get their funds.
Stock prices are
relatively stable trending upward at a steady pace.
relatively stable trending downward at a moderate rate.
extremely volatile.
unstable trending downward at a moderate rate.
A rising stock market index due to higher share prices
increases people's wealth, but is unlikely to increase their willingness to spend.
increases people's wealth and as a result may increase their willingness to spend.
When stock prices fall
an individual's wealth is not affected nor is their willingness to spend.
a business firm will be more likely to sell stock to finance investment spending.
an individual's wealth may decrease but their willingness to spend is not affected.
an individual's wealth may decrease and their willingness to spend may decrease.
Changes in stock prices
do not affect people's wealth and their willingness to spend.
affect firms' decisions to sell stock to finance investment spending.
occur in regular patterns.
are unimportant to decision makers.
An increase in stock prices ________ the size of people's wealth and may ________ their willingness to spend, everything else held constant.
increases; increase
increases; decrease
decreases; increase
decreases; decrease
Low stock market prices might ________ consumers willingness to spend and might ________ businesses willingness to undertake investment projects.
increase; increase
increase; decrease
decrease; decrease
decrease; increase
Fear of a major recession causes stock prices to fall, everything else held constant, which in turn causes consumer spending to
increase.
remain unchanged.
decrease.
cannot be determined.
A share of common stock is a claim on a corporation's
debt.
liabilities.
expenses.
earnings and assets.
On ________, October 19, 1987, the market experienced its worst one -day drop in its entire history with the DIJA falling by more than 500 points.
"Terrible Tuesday"
"Woeful Wednesday"
"Freaky Friday"
"Black Monday"
The decline in stock prices from 2000 through 2002
increased individuals' willingness to spend.
had no effect on individual spending.
reduced individuals' willingness to spend.
increased individual wealth.
The Dow reached a peak of over 11,000 before the collapse of the ________ bubble in 2000.
housing
manufacturing
high-tech
banking
What is a stock? How do stocks affect the economy?
Why is it important to understand the bond market?
Channeling funds from individuals with surplus funds to those desiring funds when the saver does not purchase the borrower's security is known as
barter.
redistribution.
financial intermediation.
taxation.
A financial crisis is
not possible in the modern financial environment.
a major disruption in the financial markets.
a feature of developing economies only.
typically followed by an economic boom.
Banks are important to the study of money and the economy because they
channel funds from investors to savers.
have been a source of rapid financial innovation.
are the only important financial institution in the U.S. economy.
create inflation.
Financial intermediaries
provide a channel for linking those who want to save with those who want to invest.
produce nothing of value and are therefore a drain on society's resources.
can hurt the performance of the economy.
hold very little of the average American's wealth.
Banks, savings and loan associations, mutual savings banks, and credit unions
are no longer important players in financial intermediation.
since deregulation now provide services only to small depositors.
have been adept at innovating in response to changes in the regulatory environment.
produce nothing of value and are therefore a drain on society's resources.
Financial institutions search for ________ has resulted in many financial innovations.
higher profits
regulations
respect
higher risk
Banks and other financial institutions engage in financial intermediation, which
can hurt the performance of the economy.
can benefit economic performance.
has no effect on economic performance.
involves borrowing from investors and lending to savers.
Financial institutions that accept deposits and make loans are called ________.
exchanges
banks
over-the-counter markets
finance companies
The financial intermediaries that the average person interacts with most frequently are ________.
exchanges
over-the-counter markets
finance companies
banks
Which of the following is not a financial institution?
a life insurance company
a pension fund
a credit union
a business college
The delivery of financial services electronically is called ________.
e-business
e-commerce
e-finance
e-possible
What crucial role do financial intermediaries perform in an economy?
Money is defined as
bills of exchange.
anything that is generally accepted in payment for goods and services or in the repayment of debt.
a risk-free repository of spending power.
the unrecognized liability of governments.
The upward and downward movement of aggregate output produced in the economy is referred to as the ________.
roller coaster
see saw
business cycle
shock wave
Sustained downward movements in the business cycle are referred to as
inflation.
recessions.
economic recoveries.
expansions.
During a recession, output declines resulting in
lower unemployment in the economy.
higher unemployment in the economy.
no impact on the unemployment in the economy.
higher wages for the workers.
Prior to all recessions since 1900, there has been a drop in
inflation.
the money stock.
the growth rate of the money stock.
interest rates.
Evidence from business cycle fluctuations in the United States indicates that
a negative relationship between money growth and general economic activity exists.
recessions have been preceded by declines in share prices on the stock exchange.
recessions have been preceded by dollar depreciation.
recessions have been preceded by a decline in the growth rate of money.
________ theory relates changes in the quantity of money to changes in aggregate economic activity and the price level.
Monetary
Fiscal
Financial
Systemic
A sharp increase in the growth of the money supply is likely followed by
a recession.
a depression.
an increase in the inflation rate.
no change in the economy.
It is true that inflation is a
continuous increase in the money supply.
continuous fall in prices.
decline in interest rates.
continually rising price level.
Which of the following is a true statement?
Money or the money supply is defined as Federal Reserve notes.
The average price of goods and services in an economy is called the aggregate price level.
The inflation rate is measured as the rate of change in the federal government budget deficit.
The aggregate price level is measured as the rate of change in the inflation rate.
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
the aggregate price level has declined during this ten-year period.
the average inflation rate for this ten -year period has been positive.
the average rate of money growth for this ten-year period has been positive.
the aggregate price level has risen during this ten- year period.
From 1950-2008 the price level in the United States increased more than ________.
twofold
threefold
sixfold
ninefold
Complete Milton Friedman's famous statement, "Inflation is always and everywhere a ________
recessionary
discretionary
repressionary
monetary
There is a ________ association between inflation and the growth rate of money ________.
positive; demand
positive; supply
negative; demand
negative; supply
th rate of money ________.
positive; demand
positive; supply
negative; demand
negative; supply
Evidence from the United States and other foreign countries indicates that
there is a strong positive association between inflation and growth rate of money over long periods of time.
there is little support for the assertion that "inflation is always and everywhere a monetary phenomenon."
countries with low monetary growth rates tend to experience higher rates of inflation, all else being constant.
money growth is clearly unrelated to inflation.
Countries that experience very high rates of inflation may also have
balanced budgets.
rapidly growing money supplies.
falling money supplies.
constant money supplies.
Between 1950 and 1980 in the U.S., interest rates trended upward. During this same time period,
the rate of money growth declined.
the rate of money growth increased.
the government budget deficit (expressed as a percentage of GNP) trended downward.
the aggregate price level declined quite dramatically.
The management of money and interest rates is called ________ policy and is conducted by a nation's ________ bank.
monetary; superior
fiscal; superior
fiscal; central
monetary; central
The organization responsible for the conduct of monetary policy in the United States is the
Comptroller of the Currency.
U.S. Treasury.
Federal Reserve System.
Bureau of Monetary Affairs.
________ policy involves decisions about government spending and taxation.
Monetary
Fiscal
Financial
Systemic
When tax revenues are greater than government expenditures, the government has a budget ________.
crisis
deficit
surplus
revision
A budget ________ occurs when government expenditures exceed tax revenues for a particular time period.
deficit
surplus
surge
surfeit
Budgets deficits can be a concern because they might
ultimately lead to higher inflation.
lead to lower interest rates.
lead to a slower rate of money growth.
lead to higher bond prices.
Budget deficits are important because deficits
cause bank failures.
always cause interest rates to fall.
can result in higher rates of monetary growth.
always cause prices to fall.
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?
American companies can borrow funds
only in U.S. financial markets.
only in foreign financial markets.
in both U.S. and foreign financial markets.
only from the U.S. government.
The price of one country's currency in terms of another country's currency is called the
exchange rate.
interest rate.
Dow Jones industrial average.
prime rate.
The market where one currency is converted into another currency is called the ________ market.
stock
bond
derivatives
foreign exchange
Everything else constant, a stronger dollar will mean that
vacationing in England becomes more expensive.
vacationing in England becomes less expensive.
French cheese becomes more expensive.
Japanese cars become more expensive.
Which of the following is most likely to result from a stronger dollar?
U.S. goods exported aboard will cost less in foreign countries, and so foreigners will buy more of them.
U.S. goods exported aboard will cost more in foreign countries and so foreigners will buy more of them.
U.S. goods exported abroad will cost more in foreign countries, and so foreigners will buy fewer of them.
Americans will purchase fewer foreign goods.
Everything else held constant, a weaker dollar will likely hurt
textile exporters in South Carolina.
wheat farmers in Montana that sell domestically.
automobile manufacturers in Michigan that use domestically produced inputs.
furniture importers in California.
Everything else held constant, a stronger dollar benefits ________ and hurts ________.
American businesses; American consumers
American businesses; foreign businesses
American consumers; American businesses
foreign businesses; American consumers
From 1980 to early 1985 the dollar ________ in value, thereby benefiting American ________.
appreciated; consumers
appreciated, businesses
depreciated; consumers
depreciated, businesses
From 1980 to 1985 the dollar appreciated relative to the British pound. Holding everything else constant, one would expect that, when compared to 1980,
fewer Britons traveled to the United States in 1985.
Britons imported more wine from California in 1985.
Americans exported more wheat to England in 1985.
more Britons traveled to the United States in 1985.
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
less than $130.
more than $130.
$130, since the exchange rate does not affect the prices that American consumers pay for foreign goods.
$130, since the demand for Shetland sweaters will decrease to prevent an increase in price due to the stronger dollar.
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
increases
decreases.
remains unchanged.
either increases, decreases, or remains unchanged.
American farmers who sell beef to Europe benefit most from
a decrease in the dollar price of euros.
an increase in the dollar price of euros.
a constant dollar price for euros.
a European ban on imports of American beef.
If the price of a euro (the European currency) increases from $1.00 to $1.10, then, everything else held constant,
a European vacation becomes less expensive.
a European vacation becomes more expensive.
the cost of a European vacation is not affected.
foreign travel becomes impossible.
Everything else held constant, Americans who love French wine benefit most from
a decrease in the dollar price of euros.
an increase in the dollar price of euros.
a constant dollar price for euros.
a ban on imports from Europe.
From 1980- 1985, the dollar strengthened in value against other currencies. Who was helped and who was hurt by this strong dollar?
The most comprehensive measure of aggregate output is
gross domestic product.
net national product.
the stock value of the industrial 500.
national income.
The gross domestic product is the
the value of all wealth in an economy.
the value of all goods and services sold to other nations in a year.
the market value of all final goods and services produced in an economy in a year.
the market value of all intermediate goods and services produced in an economy in a year.
Which of the following items are not counted in U.S. GDP?
your purchase of a new Ford Mustang
your purchase of new tires for your old car
GM's purchase of tires for new cars
a foreign consumer's purchase of a new Ford Mustang
If an economy has aggregate output of $20 trillion, then aggregate income is
$10 trillion.
$20 trillion.
$30 trillion.
$40 trillion.
When the total value of final goods and services is calculated using current prices, the resulting measure is referred to as
real GDP.
the GDP deflator.
nominal GDP.
the index of leading indicators.
Nominal GDP is output measured in ________ prices while real GDP is output measured in ________ prices.
current; current
current; fixed
fixed; fixed
fixed; current
GDP measured with constant prices is referred to as
real GDP.
nominal GDP.
the GDP deflator.
industrial production.
If your nominal income in 2002 was $50,000, and prices doubled between 2002 and 2008, to have the same real income, your nominal income in 2008 must be
$50,000.
$75,000.
$90,000.
$100,000.
If your nominal income in 1998 is $50,000, and prices increase by 50% between 1998 and 2008, then to have the same real income, your nominal income in 2008 must be
In 2008, then to have the same real income, your nominal income in 2008 must be
$50,000.
$75,000.
$100,000.
$150,000.
To convert a nominal GDP to a real GDP, you would use
the PCE deflator.
the CPI measure.
the GDP deflator.
the PPI measure.
If nominal GDP in 2001 is $9 trillion, and 2001 real GDP in 1996 prices is $6 trillion, the GDP deflator price index is
7.
100.
150.
200.
When prices are measured in terms of fixed (base-year) prices they are called ________ prices.
nominal
real
inflated
aggregate
The measure of the aggregate price level that is most frequently reported in the media is the ________.
GDP deflator
producer price index
consumer price index
household price index
To calculate the growth rate of a variable, you will
calculate the percentage change from one time period to the next.
calculate the difference between the two variables.
add the ending value to the beginning value.
divide the increase by the number of time periods.
If real GDP grows from $10 trillion in 2002 to $10.5 trillion in 2003, the growth rate for real GDP is
5%.
10%.
50%.
0.5%.
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
0.5%.
5%.
0%.
- 5%.
If the aggregate price level at time t is denoted by Pt, the inflation rate from time t - 1 to t is defined as
t = (Pt - Pt - 1)/Pt - 1.
t = (Pt + 1 - Pt - 1) /Pt - 1.
t = (Pt + 1 - Pt) /Pt.
t = (Pt - Pt - 1) /Pt.
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
20%.
10%.
11%.
120%.
If the CPI is 120 in 1996 and 180 in 2002, then between 1996 and 2002, prices have increased by
180%.
80%.
60%.
50%.
If the CPI in 2004 is 200, and in 2005 the CPI is 180, the rate of inflation from 2004 to 2005 is
20%.
10%.
0%.
- 10%.
Every financial market has the following characteristic:
It determines the level of interest rates.
It allows common stock to be traded.
It allows loans to be made.
It channels funds from lenders- savers to borrowers-spenders.
Financial markets have the basic function of
getting people with funds to lend together with people who want to borrow funds.
assuring that the swings in the business cycle are less pronounced.
assuring that governments need never resort to printing money.
providing a risk-free repository of spending power.
Financial markets improve economic welfare because
they channel funds from investors to savers.
they allow consumers to time their purchase better.
they weed out inefficient firms.
eliminate the need for indirect finance.
Well-functioning financial markets
cause inflation.
eliminate the need for indirect finance.
cause financial crises.
produce an efficient allocation of capital.
A breakdown of financial markets can result in
financial stability.
rapid economic growth.
political instability.
stable prices.
The principal lender- savers are
governments.
businesses.
households.
foreigners.
Which of the following can be described as direct finance?
You take out a mortgage from your local bank.
You borrow $2500 from a friend.
You buy shares of common stock in the secondary market.
You buy shares in a mutual fund.
Assume that you borrow $2000 at 10% annual interest to finance a new business project. For this loan to be profitable, the minimum amount this project must generate in annual earnings is
$400.
$201.
$200.
$199.
You can borrow $5000 to finance a new business venture. This new venture will generate annual earnings of $251. The maximum interest rate that you would pay on the borrowed funds and still increase your income is
25%.
12.5%.
10%.
5%.
Which of the following can be described as involving direct finance?
A corporation issues new shares of stock.
People buy shares in a mutual fund.
A pension fund manager buys a short-term corporate security in the secondary market.
