Q&A Hero

Q: The Federal Reserve may prevent the formation of a financial holding company if one of its insured depository institution subsidiaries is not well capitalized.

Q: For a commodity to function effectively as money it must be A. easily standardized, making it easy to ascertain its value. B. difficult to make change. C. deteriorate quickly so that its supply does not become too large. D. hard to carry around.

Q: Financial holding company and bank holding company are different names for the same type of entity.

Q: Money ________ transaction costs, allowing people to specialize in what they do best. A. reduces B. increases C. enhances D. eliminates

Q: It is more difficult for multibank holding companies to realize economies of scale if they allow subsidiary banks to retain key decision-making authority.

Q: When economists say that money promotes ________, they mean that money encourages specialization and the division of labor. A. bargaining B. contracting C. efficiency D. greed

Q: Thrifts are supervised by the Office of Thrift Supervision.

Q: Which of the following statements best explains how the use of money in an economy increases economic efficiency? A. Money increases economic efficiency because it is costless to produce. B. Money increases economic efficiency because it discourages specialization. C. Money increases economic efficiency because it decreases transactions costs. D. Money cannot have an effect on economic efficiency.

Q: An independent bank operates a single organization that accepts deposits and makes loans.

Q: The conversion of a barter economy to one that uses money A. increases efficiency by reducing the need to exchange goods and services. B. increases efficiency by reducing the need to specialize. C. increases efficiency by reducing transactions costs. D. does not increase economic efficiency.

Q: During the past 20 years, the number of distinct U.S. banking organizations has increased.

Q: When compared to exchange systems that rely on money, disadvantages of the barter system include A. the requirement of a double coincidence of wants. B. lowering the cost of exchanging goods over time. C. lowering the cost of exchange to those who would specialize. D. encouraging specialization and the division of labor.

Q: Super-regional banks typically have limited global operations.

Q: Compared to an economy that uses a medium of exchange, in a barter economy A. transaction costs are higher. B. transaction costs are lower. C. liquidity costs are higher. D. liquidity costs are lower.

Q: Community banks tend to operate in a limited geographic region.

Q: Even economists have no single, precise definition of money because A. money supply statistics are a state secret. B. the Federal Reserve does not employ or report different measures of the money supply. C. the "moneyness" or liquidity of an asset is a matter of degree. D. economists find disagreement interesting and refuse to agree for ideological reasons.

Q: ________ are the time and resources spent trying to exchange goods and services. A. Bargaining costs B. Transaction costs C. Contracting costs D. Barter costs

Q: In 2008, the U.S. Treasury committed over $50 trillion dollars in financial support for financial institutions.

Q: Currency includes A. paper money and coins. B. paper money, coins, and checks. C. paper money and checks. D. paper money, coins, checks, and savings deposits.

Q: Money is A. anything that is generally accepted in payment for goods and services or in the repayment of debt. B. a flow of earnings per unit of time. C. the total collection of pieces of property that are a store of value. D. always based on a precious metal like gold or silver.

Q: To an economist, ________ is anything that is generally accepted in payment for goods and services or in the repayment of debt. A. wealth B. income C. money D. credit

Q: Why are most of the U.S. dollars held outside of the United States?

Q: From 2004 to 2007, the growth rates of M1 and M2 A. were identical. B. both increased but at different rates. C. both decreased but at different rates. D. moved in opposite directions.

Q: 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 measures' 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.

Q: The M2 monetary aggregate contains everything that is in M1 plus other assets that are highly ________ (can be turned into cash quickly at very little cost). A. liquid B. stable C. consistent D. efficient

Q: Small-denomination time deposits refer to certificates of deposit with a denomination of less than A. $1,000. B. $10,000. C. $100,000. D. $1,000,000.

Q: If an individual uses money from a demand deposit account to purchase a U.S. savings bond A. M1 decreases and M2 stays the same. B. M1 stays the same and M2 increases. C. M1 stays the same and M2 stays the same. D. M1 decreases and M2 decreases.

Q: An investment intermediary that lends funds to consumers is A. a finance company. B. an investment bank. C. a finance fund. D. a consumer company.

Q: If an individual moves money from a money market deposit account to currency A. M1 increases and M2 stays the same. B. M1 stays the same and M2 increases. C. M1 stays the same and M2 stays the same. D. M1 increases and M2 decreases.

Q: Which of the following are investment intermediaries? A. life insurance companies B. mutual funds C. pension funds D. state and local government retirement funds

Q: The primary assets of a pension fund are A. money market instruments. B. corporate bonds and stock. C. consumer and business loans. D. mortgages.

Q: Which of the following is NOT a contractual savings institution? A. a life insurance company B. a pension fund C. a savings and loan association D. a fire and casualty insurance company

Q: Which of the following are NOT contractual savings institutions? A. life insurance companies B. credit unions C. pension funds D. state and local government retirement funds

Q: Contractual savings institutions include A. mutual savings banks. B. money market mutual funds. C. commercial banks. D. life insurance companies.

Q: Which of the following is a contractual savings institution? A. a life insurance company B. a credit union C. a savings and loan association D. a mutual fund

Q: ________ institutions are financial intermediaries that acquire funds at periodic intervals on a contractual basis. A. Investment B. Contractual savings C. Thrift D. Depository

Q: The primary liabilities of depository institutions are A. premiums from policies. B. shares. C. deposits. D. bonds.

Q: Which of the following financial intermediaries is NOT a depository institution? A. a savings and loan association B. a commercial bank C. a credit union D. a finance company

Q: The primary liabilities of a commercial bank are A. bonds. B. mortgages. C. deposits. D. commercial paper.

Q: Which of the following is a depository institution? A. a life insurance company B. a mutual savings bank C. a pension fund D. a finance company

Q: The primary assets of credit unions are A. municipal bonds. B. business loans. C. consumer loans. D. mortgages.

Q: Which of the following is a depository institution? A. a life insurance company B. a credit union C. a pension fund D. a mutual fund

Q: Thrift institutions include A. banks, mutual funds, and insurance companies. B. savings and loan associations, mutual savings banks, and credit unions. C. finance companies, mutual funds, and money market funds. D. pension funds, mutual funds, and banks.

Q: Financial institutions that accept deposits and make loans are called ________ institutions. A. investment B. contractual savings C. depository D. underwriting

Q: Because there is an imbalance of information in a lending situation, we must deal with the problems of adverse selection and moral hazard. Define these terms and explain how financial intermediaries can reduce these problems.

Q: Although the dominance of ________ over ________ is clear in all countries, the relative importance of bond versus stock markets differs widely. A. financial intermediaries; securities markets B. financial intermediaries; government agencies C. government agencies; financial intermediaries D. government agencies; securities markets

Q: The countries that have made the least use of securities markets are ________ and ________; in these two countries finance from financial intermediaries has been almost ten times greater than that from securities markets. A. Germany; Japan B. Germany; Great Britain C. Great Britain; Canada D. Canada; Japan

Q: Which of the following instruments are traded in a money market? A. state and local government bonds B. U.S. Treasury bills C. corporate bonds D. U.S. government agency securities

Q: Studies of the major developed countries show that when businesses go looking for funds to finance their activities they usually obtain these funds from A. government agencies. B. equities markets. C. financial intermediaries. D. bond markets.

Q: Which of the following are short-term financial instruments? A. a repurchase agreement B. a share of Walt Disney Corporation stock C. a Treasury note with a maturity of four years D. a residential mortgage

Q: Conflicts of interest are a type of ________ problem that can happen when an institution provides multiple services. A. adverse selection B. free-riding C. discounting D. moral hazard

Q: An important source of short-term funds for commercial banks are ________ which can be resold on the secondary market. A. negotiable CDs B. commercial paper C. mortgage-backed securities D. municipal bonds

Q: Banks can lower the cost of information production by applying one information resource to many different services. This process is called A. economies of scale. B. asset transformation. C. economies of scope. D. asymmetric information.

Q: Federal funds are A. funds raised by the federal government in the bond market. B. loans made by the Federal Reserve System to banks. C. loans made by banks to the Federal Reserve System. D. loans made by banks to each other.

Q: Collateral is ________ the lender receives if the borrower does not pay back the loan. A. a liability B. an asset C. a present D. an offering

Q: ________ are short-term loans in which Treasury bills serve as collateral. A. Repurchase agreements B. Negotiable certificates of deposit C. Federal funds D. U.S. government agency securities

Q: A short-term debt instrument issued by well-known corporations is called A. commercial paper. B. corporate bonds. C. municipal bonds. D. commercial mortgages.

Q: A debt instrument sold by a bank to its depositors that pays annual interest of a given amount and at maturity pays back the original purchase price is called A. commercial paper. B. a certificate of deposit. C. a municipal bond. D. federal funds.

Q: Describe the two methods of organizing a secondary market.

Q: U.S. Treasury bills are considered the safest of all money market instruments because there is a low probability of A. defeat. B. default. C. desertion. D. demarcation.

Q: Corporations receive funds when their stock is sold in the primary market. Why do corporations pay attention to what is happening to their stock in the secondary market?

Q: U.S. Treasury bills pay no interest but are sold at a ________. That is, you will pay a lower purchase price than the amount you receive at maturity. A. premium B. collateral C. default D. discount

Q: Because these securities are more liquid and generally have smaller price fluctuations, corporations and banks use the ________ securities to earn interest on temporary surplus funds. A. money market B. capital market C. bond market D. stock market

Q: Prices of money market instruments undergo the least price fluctuations because of A. the short terms to maturity for the securities. B. the heavy regulations in the industry. C. the price ceiling imposed by government regulators. D. the lack of competition in the market.

Q: Equity instruments are traded in the ________ market. A. money B. bond C. capital D. commodities

Q: A financial market in which only short-term debt instruments are traded is called the ________ market. A. bond B. money C. capital D. stock

Q: Which of the following statements about financial markets and securities is TRUE? A. Many common stocks are traded over-the-counter, although the largest corporations usually have their shares traded at organized stock exchanges such as the New York Stock Exchange. B. As a corporation gets a share of the broker's commission, a corporation acquires new funds whenever its securities are sold. C. Capital market securities are usually more widely traded than shorter-term securities and so tend to be more liquid. D. Prices of capital market securities are usually more stable than prices of money market securities, and so are often used to hold temporary surplus funds of corporations.

Q: Forty or so dealers establish a "market" in these securities by standing ready to buy and sell them. A. secondary stocks B. surplus stocks C. U.S. government bonds D. common stocks

Q: In a(n) ________ market, dealers in different locations buy and sell securities to anyone who comes to them and is willing to accept their prices. A. exchange B. over-the-counter C. common D. barter

Q: The measure of the aggregate price level that is most frequently reported in the media is the A. GDP deflator. B. producer price index. C. consumer price index. D. household price index.

Q: When secondary market buyers and sellers of securities meet in one central location to conduct trades the market is called a(n) A. exchange. B. over-the-counter market. C. common market. D. barter market.

Q: When prices are measured in terms of fixed (base-year) prices they are called ________ prices. A) nominal A. B) real B. C) inflated C. D) aggregate

Q: The higher a security's price in the secondary market the ________ funds a firm can raise by selling securities in the ________ market. A. more; primary B. more; secondary C. less; primary D. less; secondary

Q: If nominal GDP in 2001 is $9 trillion, and 2001 real GDP in 1996 prices is $6 trillion, the GDP deflator price index is A. 7. B. 100. C. 150. D. 200.

Q: A liquid asset is A. an asset that can easily and quickly be sold to raise cash. B. a share of an ocean resort. C. difficult to resell. D. always sold in an over-the-counter market.

Q: To convert a nominal GDP to a real GDP, you would use A. the PCE deflator. B. the CPI measure. C. the GDP deflator. D. the PPI measure.

Q: If your nominal income in 2014 is $50,000, and prices increase by 50% between 2014 and 2017, then to have the same real income, your nominal income in 2017 must be A. $50,000. B. $75,000. C. $100,000. D. $150,000.

Q: If your nominal income in 2014 was $50,000, and prices doubled between 2014 and 2017, to have the same real income, your nominal income in 2017 must be A. $50,000. B. $75,000. C. $90,000. D. $100,000.

Q: GDP measured with constant prices is referred to as A. real GDP. B. nominal GDP. C. the GDP deflator. D. industrial production.

Q: Nominal GDP is output measured in ________ prices while real GDP is output measured in ________ prices. A. current; current B. current; fixed C. fixed; fixed D. fixed; current