Question 1

Which of the following is NOT a financial intermediary?

Accepted Answer

A) NASDAQ 
B) Allstate Insurance Company 
C) Bank of America 
D) Vanguard Total Stock Market Index Fund 
A) NASDAQ 
B) Allstate Insurance Company 
C) Bank of America 
D) Vanguard Total Stock Market Index Fund A

Question 2

Why are stories about movements in the money supply prominent in the news media?

Accepted Answer

Movements in the money supply are associated with changes in economic variables, such as output and prices.

Question 3

The Federal Reserve System

Accepted Answer

A) is in charge of managing the New York Stock Exchange. 
B) is headed by the Secretary of the Treasury. 
C) is the central bank of the United States. 
D) was dissolved in the late 1980s. 
A) is in charge of managing the New York Stock Exchange. 
B) is headed by the Secretary of the Treasury. 
C) is the central bank of the United States. 
D) was dissolved in the late 1980s. C

Question 4

Which of the following is NOT a key financial service provided by the financial system?

Accepted Answer

A) Risk sharing 
B) Profitability 
C) Liquidity 
D) Information 
A) Risk sharing 
B) Profitability 
C) Liquidity 
D) Information

Question 5

The financial system is primarily a means by which

Accepted Answer

A) borrowers can use savers' funds until the savers themselves need the funds. 
B) money is put into circulation. 
C) the government puts into operation its plans for the economy. 
D) business firms distribute their goods. 
A) borrowers can use savers' funds until the savers themselves need the funds. 
B) money is put into circulation. 
C) the government puts into operation its plans for the economy. 
D) business firms distribute their goods.

Question 6

The experiences of Eastern Europe and the former Soviet Union have demonstrated that

Accepted Answer

A) using private networks in a financial system to channel funds from savers to borrowers is not a good approach. 
B) using the government to channel funds from savers to borrowers is not a good approach. 
C) the government can be very effective in increasing private saving. 
D) savers are usually willing to lend greater amounts than borrowers wish to borrow. 
A) using private networks in a financial system to channel funds from savers to borrowers is not a good approach. 
B) using the government to channel funds from savers to borrowers is not a good approach. 
C) the government can be very effective in increasing private saving. 
D) savers are usually willing to lend greater amounts than borrowers wish to borrow.

Question 7

Which of the following was an important consequence of the regulatory reforms that followed the deposit insurance crisis of the 1980s and early 1990s?

Accepted Answer

A) An unprecedented consolidation of the U.S. banking industry 
B) A series of bank panics 
C) Unprecedentedly high interest rates 
D) New restrictions on interstate banking 
A) An unprecedented consolidation of the U.S. banking industry 
B) A series of bank panics 
C) Unprecedentedly high interest rates 
D) New restrictions on interstate banking

Question 8

Why would a saver with $10,000 be more likely to put it into a bank account than to lend it directly to a borrower?

Accepted Answer

A) Direct loans of that sort are not legal in the United States. 
B) Banks pay higher interest rates on deposits than individual borrowers are likely to pay to individual lenders. 
C) It is easier and less risky to save money in a bank account and allow the bank to serve as a go-between with potential borrowers. 
D) Interest received from a bank is deductible on the federal income tax, whereas interest received from an individual borrower is not. 
A) Direct loans of that sort are not legal in the United States. 
B) Banks pay higher interest rates on deposits than individual borrowers are likely to pay to individual lenders. 
C) It is easier and less risky to save money in a bank account and allow the bank to serve as a go-between with potential borrowers. 
D) Interest received from a bank is deductible on the federal income tax, whereas interest received from an individual borrower is not.

Question 9

The "international capital market" refers to

Accepted Answer

A) the London Stock Exchange. 
B) the market for lending and borrowing across national boundaries. 
C) the buying and selling of machinery and equipment across national boundaries. 
D) the international section of the New York Stock Exchange. 
A) the London Stock Exchange. 
B) the market for lending and borrowing across national boundaries. 
C) the buying and selling of machinery and equipment across national boundaries. 
D) the international section of the New York Stock Exchange.

Question 10

Which of the following statements is correct?

Accepted Answer

A) The financial sector is a large source of jobs in the U.S. economy, but a relatively small source of jobs in other major economies. 
B) The financial sector is a relatively small source of jobs in the U.S. economy, but a large source of jobs in other major economies. 
C) The financial sector is a large source of jobs in the U.S. and other major economies. 
D) The financial sector is a relatively small but important source of jobs in the U.S. and other major economies. 
A) The financial sector is a large source of jobs in the U.S. economy, but a relatively small source of jobs in other major economies. 
B) The financial sector is a relatively small source of jobs in the U.S. economy, but a large source of jobs in other major economies. 
C) The financial sector is a large source of jobs in the U.S. and other major economies. 
D) The financial sector is a relatively small but important source of jobs in the U.S. and other major economies.

Question 11

Formerly in Eastern Europe and the Soviet Union, funds were transferred between savers and borrowers primarily through the

Accepted Answer

A) banking system. 
B) stock market. 
C) bond market. 
D) government. 
A) banking system. 
B) stock market. 
C) bond market. 
D) government.

Question 12

Which of the following is NOT a financial instrument?

Accepted Answer

A) a bond issued by Google 
B) Wachovia Bank 
C) A home mortgage loan 
D) a certificate of deposit 
A) a bond issued by Google 
B) Wachovia Bank 
C) A home mortgage loan 
D) a certificate of deposit

Question 13

The financial system accounts for about what percentage of the U.S. economy's value added (GDP)?

Accepted Answer

A) 2% 
B) 22% 
C) 42% 
D) 72% 
A) 2% 
B) 22% 
C) 42% 
D) 72%

Question 14

Monetary policy refers to the government's

Accepted Answer

A) decisions on how much money to spend. 
B) decisions on how much money to collect in taxes. 
C) plans for retiring the national debt. 
D) management of the money supply. 
A) decisions on how much money to spend. 
B) decisions on how much money to collect in taxes. 
C) plans for retiring the national debt. 
D) management of the money supply.

Question 15

Economists define liquidity as

Accepted Answer

A) the difference between the return on the asset and the return on a long-term U.S. Treasury bond. 
B) the fraction the asset makes up of an investor's portfolio. 
C) the ease with which an asset can be exchanged for other assets or for goods and services. 
D) the difference between the total demand for an asset and the total supply of the asset. 
A) the difference between the return on the asset and the return on a long-term U.S. Treasury bond. 
B) the fraction the asset makes up of an investor's portfolio. 
C) the ease with which an asset can be exchanged for other assets or for goods and services. 
D) the difference between the total demand for an asset and the total supply of the asset.

Question 16

A bank lending depositors' money to a local business and a pension fund investing contributions in shares of a company are similar financial activities in that

Accepted Answer

A) both involve the use of financial markets. 
B) both involve funds being channeled from savers to borrowers through financial intermediaries. 
C) both involve a reduction in the overall level of liquidity in the financial system. 
D) both involve in an increase in the overall level of risk in the financial system. 
A) both involve the use of financial markets. 
B) both involve funds being channeled from savers to borrowers through financial intermediaries. 
C) both involve a reduction in the overall level of liquidity in the financial system. 
D) both involve in an increase in the overall level of risk in the financial system.

Question 17

In the United States, monetary policy is carried out by

Accepted Answer

A) the Federal Reserve System. 
B) Congress. 
C) the President. 
D) Congress and the President acting together. 
A) the Federal Reserve System. 
B) Congress. 
C) the President. 
D) Congress and the President acting together.

Question 18

If you had been advising one of the governments in Eastern Europe following the fall of Communism, would you have stressed the importance for economic growth of establishing strong financial markets or the importance of establishing a strong system of financial intermediaries? Explain.

Accepted Answer

Financial intermediaries play a more imp

Question 19

Economists define money as

Accepted Answer

A) cash in circulation. 
B) deposits in commercial banks. 
C) anything that people are willing to accept in payment for goods and services or to pay off debts. 
D) bonds issued by large corporations. 
A) cash in circulation. 
B) deposits in commercial banks. 
C) anything that people are willing to accept in payment for goods and services or to pay off debts. 
D) bonds issued by large corporations.

Question 20

When a saver deposits funds in a bank, she may earn about 5% on the deposit. When the bank lends these funds out, it may charge the borrower 9% on the loan. Why don't the saver and the borrower get together directly and avoid the bank? In that situation wouldn't the saver be able to earn more on her funds and the borrower have to pay less to borrow these funds?

Accepted Answer

Banks provide the services of risk shari

Exam 1: Introducing Money and the Financial System

Which of the following is NOT a financial intermediary?

Why are stories about movements in the money supply prominent in the news media?

The Federal Reserve System

Which of the following is NOT a key financial service provided by the financial system?

The financial system is primarily a means by which

The experiences of Eastern Europe and the former Soviet Union have demonstrated that

Which of the following was an important consequence of the regulatory reforms that followed the deposit insurance crisis of the 1980s and early 1990s?

Why would a saver with $10,000 be more likely to put it into a bank account than to lend it directly to a borrower?

The "international capital market" refers to

Which of the following statements is correct?

Formerly in Eastern Europe and the Soviet Union, funds were transferred between savers and borrowers primarily through the

Which of the following is NOT a financial instrument?

The financial system accounts for about what percentage of the U.S. economy's value added (GDP)?

Monetary policy refers to the government's

Economists define liquidity as

A bank lending depositors' money to a local business and a pension fund investing contributions in shares of a company are similar financial activities in that

In the United States, monetary policy is carried out by

If you had been advising one of the governments in Eastern Europe following the fall of Communism, would you have stressed the importance for economic growth of establishing strong financial markets or the importance of establishing a strong system of financial intermediaries? Explain.

Economists define money as

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

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