Q&A Hero

Q: 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.

Q: 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?

Q: 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.

Q: 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.

Q: A budget ________ occurs when government expenditures exceed tax revenues for a particular time period. A) deficit B) surplus C) surge D) surfeit

Q: When tax revenues are greater than government expenditures, the government has a budget. A) crisis. B) deficit. C) surplus. D) revision.

Q: ________ policy involves decisions about government spending and taxation. A) Monetary B) Fiscal C) Financial D) Systemic

Q: 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.

Q: 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

Q: 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.

Q: 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.

Q: 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.

Q: There is a ________ association between inflation and the growth rate of money ________. A) positive; demand B) positive; supply C) negative; demand D) negative; supply

Q: Complete Milton Friedman's famous statement, "Inflation is always and everywhere a ________ phenomenon." A) recessionary B) discretionary C) repressionary D) monetary

Q: From 1950-2011 the price level in the United States increased more than. A) twofold. B) threefold. C) sixfold. D) ninefold.

Q: 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 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.

Q: 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.

Q: 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.

Q: A sharp increase in the growth of the money supply is likely followed by A) a recession. B) a depression. C) an increase in the inflation rate. D) no change in the economy.

Q: ________ 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

Q: 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.

Q: Prior to almost all recessions since 1900, there has been a drop in A) inflation. B) the money stock. C) the growth rate of the money stock. D) interest rates.

Q: During a recession, output declines resulting 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.

Q: Sustained downward movements in the business cycle are referred to as A) inflation. B) recessions. C) economic recoveries. D) expansions.

Q: 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.

Q: 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.

Q: The delivery of financial services electronically is called A) e-business. B) e-commerce. C) e-finance. D) e-possible.

Q: 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

Q: The financial intermediaries that the average person interacts with most frequently are A) exchanges. B) over-the-counter markets. C) finance companies. D) banks.

Q: Financial institutions that accept deposits and make loans are called A) exchanges. B) banks. C) over-the-counter markets. D) finance companies.

Q: 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.

Q: Financial institutions search for ________ has resulted in many financial innovations. A) higher profits B) regulations C) respect D) higher risk

Q: 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.

Q: Financial intermediaries 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) can hurt the performance of the economy. D) hold very little of the average American's wealth.

Q: 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.

Q: 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.

Q: 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.

Q: What is a stock? How do stocks affect the economy?

Q: 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

Q: 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

Q: 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.

Q: On ________, October 19, 1987, the 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"

Q: A share of common stock is a claim on a corporation's A) debt. B) liabilities. C) expenses. D) earnings and assets.

Q: 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.

Q: 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

Q: 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

Q: 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.

Q: 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.

Q: 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.

Q: 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.

Q: The stock market is important because it 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.

Q: 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

Q: 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.

Q: An increase in interest rates might ________ saving because more can be earned in interest income. A) encourage B) discourage C) disallow D) invalidate

Q: 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

Q: 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.

Q: 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

Q: 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

Q: 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.

Q: 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.

Q: Poorly performing financial markets can be the cause of A) wealth. B) poverty. C) financial stability. D) financial expansion.

Q: ________ 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

Q: 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.

Q: 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.

Q: Well-functioning financial markets promote A) inflation. B) deflation. C) unemployment. D) growth.

Q: Financial markets promote greater economic efficiency by channeling funds from ________ to ________. A) investors; savers B) borrowers; savers C) savers; borrowers D) savers; lenders

Q: 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.

Q: 1.1 Why Study Financial Markets?

Q: Foreign banks taking retail deposits in the U.S. can qualify for federal deposit insurance.

Q: The International Banking Act of 1978, prohibited foreign-owned banks from crossing state lines unless the state or states involved allow cross-border entry.

Q: Under U.S. regulations, Edge Act subsidiaries must devote at least 50 percent of their business to assist customers with export-import trade and international credit.

Q: Under U.S. regulations, a U.S. international bank can invest more than 50 percent of its consolidated capital and surplus in an export trading company.

Q: The barriers between securities dealers and international banks are falling in many countries, making it harder for the public to see real differences between financial institutions.

Q: One of the most comprehensive country-risk indicators is provided by ______________. This guide supplies political, economic, and financial risk ratings and an overall composite rating for about 100 countries monthly.

Q: An international loan risk evaluation system that uses expert opinion is the ______________.

Q: An international loan risk evaluation system that lists economic and political factors believed to be correlated with loan risk is called the ______________. It may apply comparative weights to each factor or consider each factor equally.

Q: When a foreign government takes actions that interfere with the repayment of an international loan, it causes a special type of risk called ______________.

Q: When a loan is made in a foreign country and where the court system and bankruptcy laws needed to support the enforcement of contracts and loans are missing, it causes a special type of risk called ______________.

Q: A(n) _______________ is a draft for payment due and payable only on a specific future date.

Q: A(n) _______________ is a draft for payment due and payable upon presentation to the bank.