Question 1

The Fed took action to lower interest rates in late 2007 and 2008 due to

Accepted Answer

A) an unprecedented financial crisis that started in the housing market and spread to the broader economy. 
B) escalating inflation. 
C) a burgeoning government defidit. 
D) None of the above; the Fed increased interest rates through 2008.

Question 2

The "Misery" index is defined as

Accepted Answer

A) the unemployment rate. 
B) the inflation rate. 
C) the sum of the unemployment rate and the inflation rate. 
D) None of the above.

Question 3

The study of economics is least concerned with which of the following?

Accepted Answer

A) What gets produced, how it gets produced and who gets what 
B) How to allocate scarce resources 
C) Why stock and bond prices fluctuate 
D) What determines the overall health of individual households

Question 4

If we divide U.S. government policy history into two phases-pre-1930s, post 1930s-which of the following sets of labels would be most applicable, respectively?

Accepted Answer

A) Activist, laissez faire 
B) Laissez faire, activist 
C) Activist, more activist 
D) Laissez faire, more laissez faire

Question 5

Of the following, which would be the least liquid financial asset?

Accepted Answer

A) One share of stock in Disney 
B) A check drawn on a depository instituition 
C) $1000 cash 
D) house

Question 6

Money is

Accepted Answer

A) only cash and currency. 
B) cash, currency, and credit cards. 
C) something which is used and generally accepted as payment. 
D) income not spent on consumption.

Question 7

Which of the following is true of money?

Accepted Answer

A) it must only and always be issued by a central bank 
B) it is something that is acceptable in payment 
C) government must authorize its use 
D) it must be a physical commodity

Question 8

Fiscal policy refers to

Accepted Answer

A) short-run government monetary policy. 
B) deliberate changes in government spending and taxing decisions to affect the level of economic activity. 
C) changes in government regulation and/or deregulation. 
D) The changing of interest rates by the Fed to affect the level of economic activity.

Question 9

During periods of expansion, the economy usually has

Accepted Answer

A) high levels of unemployment and output. 
B) decreases in the total quantity of goods and services produced. 
C) sharp troughs. 
D) falling levels of unemployment and increases in employment and output.

Question 10

The removing or phasing out of regulations is referred to as

Accepted Answer

A) irregularity 
B) deflation 
C) deregulation 
D) reregulation

Question 11

Maturity is which of the following?

Accepted Answer

A) The degree to which a financial instrument can be converted to cash without loss of value 
B) The rate at which the economy is changing 
C) The term used to describe the Federal Reserve quasi-independent government relationship 
D) The amount of time a net borrower has to repay a debt

Question 12

A net lender is which of the following?

Accepted Answer

A) A person or firm that spends less than the income received on consumption or investment 
B) A unit of measure used by the Federal Reserve 
C) Someone who gets a loan on the internet 
D) Persons or firms that spend more than the income they receive

Question 13

The United States economy is composed of

Accepted Answer

A) the household and business sectors. 
B) the government sector. 
C) the rest-of-the-world sector. 
D) All of the above are sectors of the U.S. economy.

Question 14

In a recession,

Accepted Answer

A) unemployment falls and economic activity rises. 
B) unemployment falls and economic activity falls. 
C) unemployment rises and economic activity falls. 
D) employment rises and economic activity falls.

Question 15

The largest group of financial intermediaries is

Accepted Answer

A) money market mutual funds. 
B) insurance companies. 
C) depository institutions. 
D) finance companies.

Question 16

Monetary policy is determined by

Accepted Answer

A) the Federal Government. 
B) the Federal Reserve. 
C) the business cycle. 
D) depository institutions.

Question 17

Liquidity is the

Accepted Answer

A) ease with which a financial instrument can be converted to cash without loss of value. 
B) rate at which the economy is changing. 
C) term used to describe the Federal Reserve quasi-independent government relationship. 
D) amount of time a borrower has to repay a debt.

Question 18

Which of the following statements is false?

Accepted Answer

A) Finance studies how the financial system coordinates and channels the flows of funds from net lenders to net borrowers 
B) Household saving may be used for investment in new housing or to acquire financial assets. 
C) Business saving may be used for investment in capital and inventories or to acquire financial assets. 
D) Financial instruments are financial assets to the issuer of the instrument and financial liabilities to the holder.

Question 19

A net borrower is which of the following?

Accepted Answer

A) The department in a bank that issues credit cards 
B) Another unit of measure used by the Federal Reserve 
C) A person or firm that spends less money than they receive in income 
D) A person or firm that spends more than they receive in income

Question 20

Macroeconomics is most concerned with which of the following?

Accepted Answer

A) Consumer decision making 
B) The level of economic activity in the aggregate economy 
C) International Business Machines 
D) The individual decision making processes of business firms

Exam 1: Introduction and Overview