(Test Bank) Economics Of Money, Banking, And Financial Markets

Mishkin, 13

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Test Bank

13th Edition

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Test Bank for Economics Of Money, Banking, And Financial Markets, The downloadable file consists of 708 pages, and the total size of the file is 4.48 MB. Purchase now only for highly discounted price.

Author(s): Mishkin

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1 Copyright © 2022 Pearson Education, Inc. The Economics of Money, Banking and Financial Markets, 13e (Mishkin) Chapter 1 Why Study Money, Banking, and Financial Markets? 1.1 Why Study Financial Markets? 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. Answer: C Question Status: Previous Edition AACSB: Reflective Thinking 2) Financial markets promote greater economic efficiency by channeling funds from ________ to ________. A) investors; savers B) borrowers; savers C) savers; borrowers D) savers; lenders Answer: C Question Status: Previous Edition AACSB: Reflective Thinking 3) Well-functioning financial markets promote A) inflation. B) deflation. C) unemployment. D) growth. Answer: D Question Status: Previous Edition AACSB: Reflective Thinking 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. Answer: B Question Status: Previous Edition AACSB: Reflective Thinking 2 Copyright © 2022 Pearson Education, Inc. 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. Answer: D Question Status: Previous Edition AACSB: Application of Knowledge 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 Answer: C Question Status: Previous Edition AACSB: Application of Knowledge 7) Poorly performing financial markets can be the cause of A) wealth. B) poverty. C) financial stability. D) financial expansion. Answer: B Question Status: Previous Edition AACSB: Reflective Thinking 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. Answer: C Question Status: Previous Edition AACSB: Reflective Thinking 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. Answer: C Question Status: Previous Edition AACSB: Application of Knowledge 3 Copyright © 2022 Pearson Education, Inc. 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 Answer: A Question Status: Previous Edition AACSB: Reflective Thinking 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 Answer: D Question Status: Previous Edition AACSB: Reflective Thinking 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. Answer: D Question Status: Previous Edition AACSB: Analytical Thinking 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 Answer: A Question Status: Previous Edition AACSB: Analytical Thinking 4 Copyright © 2022 Pearson Education, Inc. 14) An increase in interest rates might ________ saving because more can be earned in interest income. A) encourage B) discourage C) disallow D) invalidate Answer: A Question Status: Previous Edition AACSB: Analytical Thinking 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. Answer: A Question Status: Previous Edition AACSB: Analytical Thinking 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 Answer: C Question Status: Previous Edition AACSB: Analytical Thinking 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. Answer: B Question Status: Previous Edition AACSB: Reflective Thinking 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. Answer: C Question Status: Previous Edition AACSB: Reflective Thinking 5 Copyright © 2022 Pearson Education, Inc. 19) 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: B Question Status: Previous Edition AACSB: Analytical Thinking 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. Answer: D Question Status: Previous Edition AACSB: Analytical Thinking 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. Answer: B Question Status: Previous Edition AACSB: Reflective Thinking 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 Answer: A Question Status: Previous Edition AACSB: Analytical Thinking 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 Answer: C Question Status: Previous Edition AACSB: Analytical Thinking 6 Copyright © 2022 Pearson Education, Inc. 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. Answer: C Question Status: Previous Edition AACSB: Reflective Thinking 25) A share of common stock is a claim on a corporation's A) debt. B) liabilities. C) expenses. D) earnings and assets. Answer: D Question Status: Previous Edition AACSB: Application of Knowledge 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" Answer: D Question Status: Previous Edition AACSB: Application of Knowledge 27) A decline in stock prices A) increases individuals' willingness to spend. B) has no effect on individual spending. C) reduces individuals' willingness to spend. D) increases individual wealth. Answer: C Question Status: Revised AACSB: Analytical Thinking 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 Answer: C Question Status: Previous Edition AACSB: Application of Knowledge 7 Copyright © 2022 Pearson Education, Inc. 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 Answer: A Question Status: Previous Edition AACSB: Application of Knowledge 30) What is a stock? How do stocks affect the economy? 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. Question Status: Previous Edition AACSB: Application of Knowledge 31) Why is it important to understand the bond market? 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. Question Status: Previous Edition AACSB: Application of Knowledge 1.2 Why Study Financial Institutions and Banking? 1) 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. Answer: C Question Status: Previous Edition AACSB: Application of Knowledge 2) 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. Answer: B Question Status: Previous Edition AACSB: Application of Knowledge 8 Copyright © 2022 Pearson Education, Inc. 3) 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. Answer: B Question Status: Previous Edition AACSB: Reflective Thinking 4) 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. Answer: A Question Status: Previous Edition AACSB: Reflective Thinking 5) 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. Answer: C Question Status: Previous Edition AACSB: Reflective Thinking 6) Financial institutions search for ________ has resulted in many financial innovations. A) higher profits B) regulations C) respect D) higher risk Answer: A Question Status: Previous Edition AACSB: Application of Knowledge 7) 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. Answer: B Question Status: Previous Edition AACSB: Reflective Thinking 9 Copyright © 2022 Pearson Education, Inc. 8) Financial institutions that accept deposits and make loans are called A) exchanges. B) banks. C) over-the-counter markets. D) finance companies. Answer: B Question Status: Previous Edition AACSB: Application of Knowledge 9) The financial intermediaries that the average person interacts with most frequently are A) exchanges. B) over-the-counter markets. C) finance companies. D) banks. Answer: D Question Status: Previous Edition AACSB: Application of Knowledge 10) 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 Answer: D Question Status: Previous Edition AACSB: Application of Knowledge 11) The delivery of financial services electronically is called A) e-business. B) e-commerce. C) e-finance. D) e-possible. Answer: C Question Status: Previous Edition AACSB: Application of Knowledge 12) What crucial role do financial intermediaries perform in an economy? 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. Question Status: Previous Edition AACSB: Reflective Thinking 10 Copyright © 2022 Pearson Education, Inc. 1.3 Why Study Money and Monetary Policy? 1) Money is defined as A) bills of exchange. B) anything that is generally accepted in payment for goods or services or in the repayment of debt. C) a risk-free repository of spending power. D) the unrecognized liability of governments. Answer: B Question Status: Previous Edition AACSB: Application of Knowledge 2) 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. Answer: C Question Status: Previous Edition AACSB: Application of Knowledge 3) Sustained downward movements in the business cycle are referred to as A) inflation. B) recessions. C) economic recoveries. D) expansions. Answer: B Question Status: Previous Edition AACSB: Application of Knowledge 4) 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. Answer: B Question Status: Previous Edition AACSB: Analytical Thinking 11 Copyright © 2022 Pearson Education, Inc. 5) Prior to most 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. Answer: C Question Status: Revised AACSB: Application of Knowledge 6) 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. Answer: D Question Status: Previous Edition AACSB: Reflective Thinking 7) ________ 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 Answer: A Question Status: Previous Edition AACSB: Application of Knowledge 8) 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. Answer: C Question Status: Previous Edition AACSB: Reflective Thinking 9) 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. Answer: D Question Status: Previous Edition AACSB: Application of Knowledge 12 Copyright © 2022 Pearson Education, Inc. 10) 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. Answer: B Question Status: Previous Edition AACSB: Application of Knowledge 11) 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. Answer: A Question Status: Previous Edition AACSB: Analytical Thinking 12) From 1960-2020 the price level in the United States increased more than A) twofold. B) threefold. C) sixfold. D) eightfold. Answer: D Question Status: Revised AACSB: Reflective Thinking 13) Complete Milton Friedman's famous statement, "Inflation is always and everywhere a ________ phenomenon." A) recessionary B) discretionary C) repressionary D) monetary Answer: D Question Status: Previous Edition AACSB: Application of Knowledge 14) There is a ________ association between inflation and the growth rate of money ________. A) positive; demand B) positive; supply C) negative; demand D) negative; supply Answer: B Question Status: Previous Edition AACSB: Application of Knowledge 13 Copyright © 2022 Pearson Education, Inc. 15) 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. Answer: A Question Status: Previous Edition AACSB: Reflective Thinking 16) 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. Answer: B Question Status: Previous Edition AACSB: Reflective Thinking 17) 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. Answer: B Question Status: Previous Edition AACSB: Reflective Thinking 18) 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 Answer: D Question Status: Previous Edition AACSB: Application of Knowledge 14 Copyright © 2022 Pearson Education, Inc. 19) 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. Answer: C Question Status: Previous Edition AACSB: Application of Knowledge 20) ________ policy involves decisions about government spending and taxation. A) Monetary B) Fiscal C) Financial D) Systemic Answer: B Question Status: Previous Edition AACSB: Application of Knowledge 21) When tax revenues are greater than government expenditures, the government has a budget A) crisis. B) deficit. C) surplus. D) revision. Answer: C Question Status: Previous Edition AACSB: Application of Knowledge 22) A budget ________ occurs when government expenditures exceed tax revenues for a particular time period. A) deficit B) surplus C) surge D) surfeit Answer: A Question Status: Previous Edition AACSB: Application of Knowledge 23) 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. Answer: A Question Status: Previous Edition AACSB: Reflective Thinking 15 Copyright © 2022 Pearson Education, Inc. 24) 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. Answer: C Question Status: Previous Edition AACSB: Reflective Thinking 25) When a budget deficit occurs in the United States, the U.S. Treasury finances this deficit by A) borrowing. B) imposing a moratorium of new government spending. C) increasing the tax rate. D) printing more dollars. Answer: A Question Status: Previous Edition AACSB: Application of Knowledge 26) 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? 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. Question Status: Previous Edition AACSB: Reflective Thinking 1.4 Why Study International Finance? 1) 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. Answer: C Question Status: Previous Edition AACSB: Diverse and Multicultural Work Environments 2) 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. Answer: A Question Status: Previous Edition AACSB: Application of Knowledge