Inflation and Financial Markets

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EC369 Money and Banking
Semester 1, 2012-13

National University of Ireland, Galway

Lecture 1 Why Study Money, Banking, and 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.

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

3) 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.

4) 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

5) 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.

6) 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.

7) 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.

8) It is true that inflation is a
A) continuous increase in the money supply.
B) continuous fall in prices....
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