Chapter 1
Why Study Money, Banking, and Financial Markets?
? Multiple Choice
1)
Financial markets and institutions
(a) involve the movement of huge flows of money. (b) affect the profits of businesses.
(c) affect the types of goods and services produced in an economy. (d) do each of the above.
(e) do only (a) and (b) of the above. Answer: D
Question Status: Previous Edition 2)
Financial markets and institutions
(a) involve the movement of huge flows of money. (b) affect the location of businesses.
(c) affect the types of goods and services produced in an economy. (d) do each of the above.
(e) do only (a) and (c) of the above. Answer: E
Question Status: Previous Edition 3)
Money, financial institutions, and financial markets in the United States can have a major impact on (a) economic well being of other countries besides the United States. (b) the kinds of goods and services that are produced. (c) the outcome of political elections. (d) all of the above.
(e) only (a) and (b) of the above. Answer: D
Question Status: Previous Edition
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
4)
2 Frederic S. Mishkin ? Economics of Money, Banking, and Financial Markets, Seventh Edition
5)
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) theft. (d) taxation.
(e) financial intermediation. Answer: E
Question Status: Study Guide
6)
Financial markets promote economic efficiency by (a) channeling funds from investors to savers. (b) creating inflation. (c) causing recessions.
(d) channeling funds from savers to investors. (e) reducing investment. Answer: D
Question Status: New
7)
Well-functioning financial markets promote (a) inflation. (b) deflation.
(c) unemployment. (d) growth.
(e) none of the above. Answer: D
Question Status: New
Poorly performing financial markets can be the cause of (a) wealth. (b) poverty.
(c) financial stability. (d) all of the above. (e) none of the above. Answer: B
Question Status: New
The bond markets are important because
(a) they are easily the most widely followed financial markets in the United States. (b) they are the markets where foreign exchange rates are determined. (c) they are the markets where interest rates are determined. (d) of each of the above.
(e) of only (a) and (b) of the above. Answer: C
Question Status: Previous Edition
8)
9)
Chapter 1 Why Study Money, Banking, and Financial Markets? 3
10) The bond markets are important because
(a) they are the markets where interest rates are determined. (b) they are the markets where most borrowers get their funds.
(c) they are easily the most widely followed financial markets in the United States. (d) of each of the above.
(e) of only (a) and (b) of the above.
Answer: A
Question Status: Previous Edition
11) 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 12) Compared to interest rates on long-term U.S. government bonds, interest rates on _____ fluctuate
more and are lower on average.
(a) medium-quality corporate bonds (b) low-quality corporate bonds (c) high-quality corporate bonds (d) three-month Treasury bills (e) none of the above
Answer: D
Question Status: Previous Edition
13) 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 14) 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
Answer: D
Question Status: Previous Edition
4 Frederic S. Mishkin ? Economics of Money, Banking, and Financial Markets, Seventh Edition
15) A decline in interest rates will cause spending on housing to
(a) fall.
(b) remain unchanged. (c) cannot be determined. (d) rise.
(e) none of the above.
Answer: D
Question Status: Study Guide
16) 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. (e) none of the above. Answer: A
Question Status: New 17) Interest rates affect
(a) individuals. (b) businesses.
(c) the overall economy. (d) all of the above.
(e) only (b) and (c) of the above. Answer: D
Question Status: New
18) Stock prices boomed in the 1980s until “Black Monday” in _____ , when the DJIA fell by more than
500 points, a 22 percent decline. (a) 1985 (b) 1986 (c) 1987 (d) 1988
Answer: C
Question Status: Previous Edition
19) The stock market is important because
(a) it is where interest rates are determined.
(b) it is the most widely followed financial market in the United States. (c) it is where foreign exchange rates are determined. (d) all of the above.
Answer: B
Question Status: Previous Edition
Chapter 1 Why Study Money, Banking, and Financial Markets? 5
20) Stock prices since the 1950s have been
(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
21) 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) increases the amount of funds that business firms can raise by selling newly-issued stock. (d) both (b) and (c) of the above. Answer: D
Question Status: Previous Edition 22) A rising stock market index due to higher share prices
(a) increases people’s wealth and as a result may increase their willingness to spend.
(b) increases the amount of funds that business firms can raise by selling newly-issued stock. (c) decreases the amount of funds that business firms can raise by selling newly-issued stock. (d) both (a) and (b) of the above.
Answer: D
Question Status: Previous Edition
23) 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) both (a) and (c) of the above. (e) both (b) and (c) of the above.
Answer: B
Question Status: Previous Edition
24) A declining stock market index due to lower share prices
(a) reduces people’s wealth and as a result may reduce their willingness to spend. (b) increases people’s wealth and as a result may increase their willingness to spend.
(c) increases the amount of funds that business firms can raise by selling newly-issued stock. (d) both (a) and (c) of the above. (e) both (b) and (c) of the above. Answer: A
Question Status: Previous Edition