Exam Chapter 1

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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
Ques Status: Previous Edition
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
Ques Status: Previous Edition
3) Well-functioning financial markets promote
A) inflation.
B) deflation.
C) unemployment.
D) growth.
Answer: D
Ques Status: Previous Edition
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
Ques Status: New
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
Ques Status: Previous Edition
2 Mishkin · The Economics of Money, Banking, and Financial Markets, 9th Edition 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
Ques Status: Previous Edition
7) Poorly performing financial markets can be the cause of
A) wealth.
B) poverty.
C) financial stability.
D) financial expansion.
Answer: B
Ques Status: Previous Edition
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
Ques Status: Previous Edition
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
Ques Status: Previous Edition
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
Ques Status: Previous Edition
Chapter 1 Why Study Money, Banking, and Financial Markets? 3 11) 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
Ques Status: Previous Edition
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
Ques Status: Previous Edition
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
Ques Status: New
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
Ques Status: Previous Edition
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
Ques Status: Previous Edition
4 Mishkin · The Economics of Money, Banking, and...
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