ECO 315
ECO 315 Midterm Exam Study Guide
Revised 2026
What is the typical relationship between interest rates on 6-month Treasury bills, 10-
year Treasury notes, and Baa corporate bonds? - -They tend to move together over
time with the corporate bond having the highest rate of interest.
When interest rates decrease, how might businesses and consumers change their
economic behavior? - -There will be more consumption spending on interest-sensitive
items and more investment by businesses.
Which of the following is not an important financial intermediary in the economy? - -The
Fed
Why do managers of financial institutions care so much about the activities of the
Federal Reserve System? - -Because the Federal Reserve affects interest rates,
inflation, and business cycles, all of which have an important impact on the profitability
of financial institutions.
Evidence from business cycle fluctuations in the United States indicates that: - -
Recessions have been preceded by a decline in the growth rate of money.
Evidence from the United States and other foreign countries indicates that: - -there is a
strong positive association between inflation and the growth rate of money over long
periods of time.
A strong U.S. dollar means that U.S. goods exported abroad will cost: - -more in foreign
countries and foreign goods imported will cost less in the United States.
What is the difference between a mortgage and a mortgage-backed security? - -
Mortgages are loans, whereas mortgage-backed securities are bond-like debt
instruments.
Stocks - -These are equity claims on the net income and assets of a corporation.
Government Security - -These long-term debt instruments are issued by the U.S.
Treasury to finance the deficits of the federal government.
ECO 315
, ECO 315
Agency Securities - -These long-term bonds are issued by institutions such as Ginnie
Mae, the Federal Farm Credit Bank, and the TVA. Many of these securities are
guaranteed by the federal government.
Corporate Bonds - -These long-term bonds are issued by corporations with very strong
credit ratings.
Mortgages - -These are loans to households or firms to purchase housing, land, or other
real structures, where the structure or land itself serves as collateral for the loans.
Financial markets improve economic welfare because: - -they allow consumers to time
their purchases better
they channel funds from savers to investors
Which of the following is not true regarding primary and secondary markets? - -Primary
and Secondary markets both sell assets directly from the institution that offers the
bonds.
Other things being the same, the financial instrument that is the most risky to own is the
- -equity
Which of the following is true regarding primary and secondary markets? - -Secondary
markets sell old issues of securities.
Other things being the same, the financial instrument that is the least risky to own is the
- -short term bond
Money - -A tool used to facilitate transactions, store wealth, or to be used as a yardstick
to compare values.
Brooke accepts money in exchange for performing her daily tasks at her office, since
she knows she can use that money to buy goods and services. In this case, money is
being used as a - -medium of exchange
Tim wants to calculate the relative value of oranges and apples, and therefore checks
the price per pound of each of these goods quoted in currency units.
In this case, money is being used as a - -unit of account
Maria is currently pregnant. She expects her expenditures to increase in the future and
decides to increase the balance in her savings account.
In this case, money is being used as a - -store of value
What is the main disadvantage of moving to e-money or moving to a cashless society? -
-There are problems with security and privacy.
Money - -is the most liquid store of value in the economy.
ECO 315
ECO 315 Midterm Exam Study Guide
Revised 2026
What is the typical relationship between interest rates on 6-month Treasury bills, 10-
year Treasury notes, and Baa corporate bonds? - -They tend to move together over
time with the corporate bond having the highest rate of interest.
When interest rates decrease, how might businesses and consumers change their
economic behavior? - -There will be more consumption spending on interest-sensitive
items and more investment by businesses.
Which of the following is not an important financial intermediary in the economy? - -The
Fed
Why do managers of financial institutions care so much about the activities of the
Federal Reserve System? - -Because the Federal Reserve affects interest rates,
inflation, and business cycles, all of which have an important impact on the profitability
of financial institutions.
Evidence from business cycle fluctuations in the United States indicates that: - -
Recessions have been preceded by a decline in the growth rate of money.
Evidence from the United States and other foreign countries indicates that: - -there is a
strong positive association between inflation and the growth rate of money over long
periods of time.
A strong U.S. dollar means that U.S. goods exported abroad will cost: - -more in foreign
countries and foreign goods imported will cost less in the United States.
What is the difference between a mortgage and a mortgage-backed security? - -
Mortgages are loans, whereas mortgage-backed securities are bond-like debt
instruments.
Stocks - -These are equity claims on the net income and assets of a corporation.
Government Security - -These long-term debt instruments are issued by the U.S.
Treasury to finance the deficits of the federal government.
ECO 315
, ECO 315
Agency Securities - -These long-term bonds are issued by institutions such as Ginnie
Mae, the Federal Farm Credit Bank, and the TVA. Many of these securities are
guaranteed by the federal government.
Corporate Bonds - -These long-term bonds are issued by corporations with very strong
credit ratings.
Mortgages - -These are loans to households or firms to purchase housing, land, or other
real structures, where the structure or land itself serves as collateral for the loans.
Financial markets improve economic welfare because: - -they allow consumers to time
their purchases better
they channel funds from savers to investors
Which of the following is not true regarding primary and secondary markets? - -Primary
and Secondary markets both sell assets directly from the institution that offers the
bonds.
Other things being the same, the financial instrument that is the most risky to own is the
- -equity
Which of the following is true regarding primary and secondary markets? - -Secondary
markets sell old issues of securities.
Other things being the same, the financial instrument that is the least risky to own is the
- -short term bond
Money - -A tool used to facilitate transactions, store wealth, or to be used as a yardstick
to compare values.
Brooke accepts money in exchange for performing her daily tasks at her office, since
she knows she can use that money to buy goods and services. In this case, money is
being used as a - -medium of exchange
Tim wants to calculate the relative value of oranges and apples, and therefore checks
the price per pound of each of these goods quoted in currency units.
In this case, money is being used as a - -unit of account
Maria is currently pregnant. She expects her expenditures to increase in the future and
decides to increase the balance in her savings account.
In this case, money is being used as a - -store of value
What is the main disadvantage of moving to e-money or moving to a cashless society? -
-There are problems with security and privacy.
Money - -is the most liquid store of value in the economy.
ECO 315
