Chapter 1 Why Study Money, Banking, and Financial Markets?

1 Copyright © 2019 Pearson Education, Inc.

Chapter 1 Why Study Money, Banking, and Financial Markets?

1.1 Why Study Financial Markets?

1) Financial markets promote economic efficiency by

• channeling funds from investors to savers.
• creating inflation.
• channeling funds from savers to investors.
• reducing investment.

Answer: C

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AACSB: Reflective Thinking

2) Financial markets promote greater economic efficiency by channeling funds from ________ to ________.

• investors; savers
• borrowers; savers
• savers; borrowers
• savers; lenders

Answer: C

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AACSB: Reflective Thinking

3) Well-functioning financial markets promote

• inflation.
• deflation.
• unemployment.
• growth.

Answer: D

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AACSB: Reflective Thinking

4) A key factor in producing high economic growth is

• eliminating foreign trade.
• well-functioning financial markets.
• high interest rates.
• stock market volatility.

Answer: B

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AACSB: Reflective Thinking

(The Economics of Money, Banking and Financial Markets, 12e Frederic Mishkin) (Test Bank all Chapters) 1 / 4

2 Copyright © 2019 Pearson Education, Inc.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

• commodity markets.
• fund-available markets.
• derivative exchange markets.
• financial markets.

Answer: D

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AACSB: Application of Knowledge

6) ________ markets transfer funds from people who have an excess of available funds to people who have a shortage.

• Commodity
• Fund-available
• Financial
• Derivative exchange

Answer: C

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AACSB: Application of Knowledge

7) Poorly performing financial markets can be the cause of

• wealth.
• poverty.
• financial stability.
• financial expansion.

Answer: B

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AACSB: Reflective Thinking

8) The bond markets are important because they are

• easily the most widely followed financial markets in the United States.
• the markets where foreign exchange rates are determined.
• the markets where interest rates are determined.
• the markets where all borrowers get their funds.

Answer: C

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AACSB: Reflective Thinking

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

• inflation rate.
• exchange rate.
• interest rate.
• aggregate price level.

Answer: C

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AACSB: Application of Knowledge 2 / 4

3 Copyright © 2019 Pearson Education, Inc.

10) Compared to interest rates on long-term U.S. government bonds, interest rates on three- month Treasury bills fluctuate ________ and are ________ on average.

• more; lower
• less; lower
• more; higher
• less; higher

Answer: A

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AACSB: Reflective Thinking

11) The interest rate on Baa corporate bonds is ________, on average, than interest rates on Treasuries, and the spread between these rates became ________ in the 1970s.

• lower; smaller
• lower; larger
• higher; smaller
• higher; larger

Answer: D

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AACSB: Reflective Thinking

12) Everything else held constant, a decline in interest rates will cause spending on housing to

• fall.
• remain unchanged.
• either rise, fall, or remain the same.
• rise.

Answer: D

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AACSB: Analytical Thinking

13) High interest rates might ________ purchasing a house or car but at the same time high interest rates might ________ saving.

• discourage; encourage
• discourage; discourage
• encourage; encourage
• encourage; discourage

Answer: A

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AACSB: Analytical Thinking

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4 Copyright © 2019 Pearson Education, Inc.14) An increase in interest rates might ________ saving because more can be earned in interest income.

• encourage
• discourage
• disallow
• invalidate

Answer: A

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AACSB: Analytical Thinking

15) Everything else held constant, an increase in interest rates on student loans

• increases the cost of a college education.
• reduces the cost of a college education.
• has no effect on educational costs.
• increases costs for students with no loans.

Answer: A

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AACSB: Analytical Thinking

16) High interest rates might cause a corporation to ________ building a new plant that would provide more jobs.

• complete
• consider
• postpone
• contemplate

Answer: C

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AACSB: Analytical Thinking

17) The stock market is

• where interest rates are determined.
• the most widely followed financial market in the United States.
• where foreign exchange rates are determined.
• the market where most borrowers get their funds.

Answer: B

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AACSB: Reflective Thinking

18) Stock prices are

• relatively stable trending upward at a steady pace.
• relatively stable trending downward at a moderate rate.
• extremely volatile.
• unstable trending downward at a moderate rate.

Answer: C

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AACSB: Reflective Thinking

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