Chapter 1
Why Study Money, Banking, and Financial Markets?
1.1 Why Study 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.
Answer: C
Ques Status: Previous Edition
2) Financial markets promote greater economic efficiency by channeling funds from to
.
A) investors; savers
B) borrowers; savers
C) savers; borrowers
D) savers; lenders
Answer: C
Ques Status: Previous Edition
3) Well-functioning financial markets promote
A) inflation.
B) deflation.
C) unemployment.
D) growth.
Answer: D
Ques Status: Previous Edition
4) A key factor in producing high economic growth is
A) eliminating foreign trade.
B) well-functioning financial markets.
C) high interest rates.
D) stock market volatility.
Answer: B
Ques Status: New
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
A) commodity markets.
B) fund-available markets.
C) derivative exchange markets.
D) financial markets.
Answer: D
Ques Status: Previous Edition
,2 Mishkin · The Economics of Money, Banking, and Financial Markets, 9th Edition
6) markets transfer funds from people who have an excess of available funds to people
who have a shortage.
A) Commodity
B) Fund-available
C) Financial
D) Derivative exchange
Answer: C
Ques Status: Previous Edition
7) Poorly performing financial markets can be the cause of
A) wealth.
B) poverty.
C) financial stability.
D) financial expansion.
Answer: B
Ques Status: Previous Edition
8) The bond markets are important because they are
A) easily the most widely followed financial markets in the United States.
B) the markets where foreign exchange rates are determined.
C) the markets where interest rates are determined.
D) the markets where all borrowers get their funds.
Answer: C
Ques Status: Previous Edition
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
A) inflation rate.
B) exchange rate.
C) interest rate.
D) aggregate price level.
Answer: C
Ques Status: Previous Edition
10) Compared to interest rates on long-term U.S. government bonds, interest rates on three -month
Treasury bills fluctuate and are on average.
A) more; lower
B) less; lower
C) more; higher
D) less; higher
Answer: A
Ques Status: Previous Edition
, ChapterS4 1S 4 S 4 WhyS4 StudyS4 Money,S4 Banking,S4 andS4 FinancialS4
Markets?S 4 S 4 3
11) TheS4interestS4rateS4onS4BaaS4(mediumS4quality)S4corporateS4bondsS4isS4
,S4onS4average,S4thanS4
otherS4interestS4rates,S4andS4theS4spreadS4betweenS4itS4andS4otherS4ratesS4becameS4
S4inS4theS41970s.
A) lower;S4 smaller
B) lower;S4 larger
C) higher;S4 smaller
D) higher;S4large
rS4Answer:S 4 D
QuesS4Status:S 4 PreviousS4Edition
12) EverythingS4 elseS4 heldS4 constant,S4 aS4 declineS4 inS4 interestS4 ratesS4 willS4 causeS4 spendingS4 onS4 hou
singS4 to
A) fall.
B) remainS4 unchanged.
C) eitherS4 rise,S4 fall,S4 orS4 remainS4 theS4 same.
D) rise.
Answer:S
4D
QuesS4Status:S 4 PreviousS4Edition
13) HighS4interestS4ratesS4mightS4
S4purchasingS4aS4houseS4orS4carS4butS4atS4theS4sameS4timeS4highS4intere
stS4ratesS4mightS4 S4saving.
A) discourage;S 4 encourage
B) discourage;S 4 discourage
C) encourage;S 4 encourage
D) encourage;S4discourag
eS4Answer:S 4 A
QuesS4Status:S 4 New
14) AnS4increaseS4inS4interestS4ratesS4mightS4
S4savingS4becauseS4moreS4canS4beS4earnedS4i
nS4interestS4income.
A) encourage
B) discourage
C) disallow
D) invalidate
S4Answer:S 4 A
QuesS4Status:S 4 PreviousS4Edition
15) EverythingS4 elseS4 heldS4 constant,S4 anS4 increaseS4 inS4 interestS4 ratesS4 onS4 studentS4 loans
A) increasesS4 theS4 costS4 ofS4 aS4 collegeS4 education.
B) reducesS4 theS4 costS4 ofS4 aS4 collegeS4 education.
C) hasS4 noS4 effectS4 onS4 educationalS4 costs.
D) increasesS4costsS4forS4studentsS4withS4no
S4loans.S4Answer:S 4 A
QuesS4Status:S 4 PreviousS4Edition
, 4S 4 S 4 MishkinS4 ·S4TheS4 EconomicsS4 ofS4 Money,S4 Banking,S4 andS4 FinancialS4 Mark
ets,S 4 9thS4 Edition
16) HighS4interestS4ratesS4mightS4causeS4aS4corporationS4toS4
S4buildingS4aS4newS4plantS4thatS
4wouldS4provideS4moreS4jobs.
A) complete
B) consider
C) postpone
D) contemplate
S4Answer:S 4 C
QuesS4Status:S 4 PreviousS4Edition
17) TheS4 stockS4 marketS4 isS4 importantS4 becauseS4 itS4 i
s
A) whereS4 interestS4 ratesS4 areS4 determined.
B) theS4 mostS4 widelyS4 followedS4 financialS4 marketS4 inS4 theS4 UnitedS4 States.
C) whereS4 foreignS4 exchangeS4 ratesS4 areS4 determined.
D) theS4marketS4whereS4mostS4borrowersS4getS4thei
rS4funds.S4Answer:S 4 B
QuesS4Status:S 4 PreviousS4Edition
18) StockS4 pricesS4 are
A) relativelyS4 stableS4 trendingS4 upwardS4 atS4 aS4 steadyS4 pace.
B) relativelyS4 stableS4 trendingS4 downwardS4 atS4 aS4 moderateS4 rate.
C) extremelyS4 volatile.
D) unstableS4trendingS4downwardS4atS4aS4moderat
eS4rate.S4Answer:S 4 C
QuesS4Status:S 4 Revised
19) AS4 risingS4 stockS4 marketS4 indexS4 dueS4 toS4 higherS4 shareS4 prices
A) increasesS4 peopleʹsS4 wealth,S4 butS4 isS4 unlikelyS4 toS4 increaseS4 theirS4 willingnessS4 toS4 spend.
B) increasesS4 peopleʹsS4 wealthS4 andS4 asS4 aS4 resultS4 mayS4 increaseS4 theirS4 willingnessS4 toS4 spend.
C) decreasesS4 theS4 amountS4 ofS4 fundsS4 thatS4 businessS4 firmsS4 canS4 raiseS4 byS4 sellingS4 newlyS4-
issuedS4 stock.
D) decreasesS4peopleʹsS4wealth,S4butS4isS4unlikelyS4toS4increaseS4theirS4willingnes
sS4toS4spend.S4Answer:S 4 B
QuesS4Status:S 4 PreviousS4Edition
20) WhenS4 stockS4 pricesS4 fall
A) anS4 individualʹsS4 wealthS4 isS4 notS4 affectedS4 norS4 isS4 theirS4 willingnessS4 toS4 spend.
B) aS4 businessS4 firmS4 willS4 beS4 moreS4 likelyS4 toS4 sellS4 stockS4 toS4 financeS4 investmentS4 spending.
C) anS4 individualʹsS4 wealthS4 mayS4 decreaseS4 butS4 theirS4 willingnessS4 toS4 spendS4 isS4 notS4 affected.
D) anS4individualʹsS4wealthS4mayS4decreaseS4andS4theirS4willingnessS4toS4spendS4m
ayS4decrease.S4Answer:S 4 D
QuesS4Status:S 4 PreviousS4Edition
21) ChangesS4 inS4 stockS4 prices
A) doS4 notS4 affectS4 peopleʹsS4 wealthS4 andS4 theirS4 willingnessS4 toS4 spend.
B) affectS4 firmsʹS4 decisionsS4 toS4 sellS4 stockS4 toS4 financeS4 investmentS4 spending.
C) occurS4 inS4 regularS4 patterns.
D) areS4unimportantS4toS4decisionS4ma
kers.S4Answer:S 4 B
QuesS4Status:S 4 PreviousS4Edition
Why Study Money, Banking, and Financial Markets?
1.1 Why Study 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.
Answer: C
Ques Status: Previous Edition
2) Financial markets promote greater economic efficiency by channeling funds from to
.
A) investors; savers
B) borrowers; savers
C) savers; borrowers
D) savers; lenders
Answer: C
Ques Status: Previous Edition
3) Well-functioning financial markets promote
A) inflation.
B) deflation.
C) unemployment.
D) growth.
Answer: D
Ques Status: Previous Edition
4) A key factor in producing high economic growth is
A) eliminating foreign trade.
B) well-functioning financial markets.
C) high interest rates.
D) stock market volatility.
Answer: B
Ques Status: New
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
A) commodity markets.
B) fund-available markets.
C) derivative exchange markets.
D) financial markets.
Answer: D
Ques Status: Previous Edition
,2 Mishkin · The Economics of Money, Banking, and Financial Markets, 9th Edition
6) markets transfer funds from people who have an excess of available funds to people
who have a shortage.
A) Commodity
B) Fund-available
C) Financial
D) Derivative exchange
Answer: C
Ques Status: Previous Edition
7) Poorly performing financial markets can be the cause of
A) wealth.
B) poverty.
C) financial stability.
D) financial expansion.
Answer: B
Ques Status: Previous Edition
8) The bond markets are important because they are
A) easily the most widely followed financial markets in the United States.
B) the markets where foreign exchange rates are determined.
C) the markets where interest rates are determined.
D) the markets where all borrowers get their funds.
Answer: C
Ques Status: Previous Edition
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
A) inflation rate.
B) exchange rate.
C) interest rate.
D) aggregate price level.
Answer: C
Ques Status: Previous Edition
10) Compared to interest rates on long-term U.S. government bonds, interest rates on three -month
Treasury bills fluctuate and are on average.
A) more; lower
B) less; lower
C) more; higher
D) less; higher
Answer: A
Ques Status: Previous Edition
, ChapterS4 1S 4 S 4 WhyS4 StudyS4 Money,S4 Banking,S4 andS4 FinancialS4
Markets?S 4 S 4 3
11) TheS4interestS4rateS4onS4BaaS4(mediumS4quality)S4corporateS4bondsS4isS4
,S4onS4average,S4thanS4
otherS4interestS4rates,S4andS4theS4spreadS4betweenS4itS4andS4otherS4ratesS4becameS4
S4inS4theS41970s.
A) lower;S4 smaller
B) lower;S4 larger
C) higher;S4 smaller
D) higher;S4large
rS4Answer:S 4 D
QuesS4Status:S 4 PreviousS4Edition
12) EverythingS4 elseS4 heldS4 constant,S4 aS4 declineS4 inS4 interestS4 ratesS4 willS4 causeS4 spendingS4 onS4 hou
singS4 to
A) fall.
B) remainS4 unchanged.
C) eitherS4 rise,S4 fall,S4 orS4 remainS4 theS4 same.
D) rise.
Answer:S
4D
QuesS4Status:S 4 PreviousS4Edition
13) HighS4interestS4ratesS4mightS4
S4purchasingS4aS4houseS4orS4carS4butS4atS4theS4sameS4timeS4highS4intere
stS4ratesS4mightS4 S4saving.
A) discourage;S 4 encourage
B) discourage;S 4 discourage
C) encourage;S 4 encourage
D) encourage;S4discourag
eS4Answer:S 4 A
QuesS4Status:S 4 New
14) AnS4increaseS4inS4interestS4ratesS4mightS4
S4savingS4becauseS4moreS4canS4beS4earnedS4i
nS4interestS4income.
A) encourage
B) discourage
C) disallow
D) invalidate
S4Answer:S 4 A
QuesS4Status:S 4 PreviousS4Edition
15) EverythingS4 elseS4 heldS4 constant,S4 anS4 increaseS4 inS4 interestS4 ratesS4 onS4 studentS4 loans
A) increasesS4 theS4 costS4 ofS4 aS4 collegeS4 education.
B) reducesS4 theS4 costS4 ofS4 aS4 collegeS4 education.
C) hasS4 noS4 effectS4 onS4 educationalS4 costs.
D) increasesS4costsS4forS4studentsS4withS4no
S4loans.S4Answer:S 4 A
QuesS4Status:S 4 PreviousS4Edition
, 4S 4 S 4 MishkinS4 ·S4TheS4 EconomicsS4 ofS4 Money,S4 Banking,S4 andS4 FinancialS4 Mark
ets,S 4 9thS4 Edition
16) HighS4interestS4ratesS4mightS4causeS4aS4corporationS4toS4
S4buildingS4aS4newS4plantS4thatS
4wouldS4provideS4moreS4jobs.
A) complete
B) consider
C) postpone
D) contemplate
S4Answer:S 4 C
QuesS4Status:S 4 PreviousS4Edition
17) TheS4 stockS4 marketS4 isS4 importantS4 becauseS4 itS4 i
s
A) whereS4 interestS4 ratesS4 areS4 determined.
B) theS4 mostS4 widelyS4 followedS4 financialS4 marketS4 inS4 theS4 UnitedS4 States.
C) whereS4 foreignS4 exchangeS4 ratesS4 areS4 determined.
D) theS4marketS4whereS4mostS4borrowersS4getS4thei
rS4funds.S4Answer:S 4 B
QuesS4Status:S 4 PreviousS4Edition
18) StockS4 pricesS4 are
A) relativelyS4 stableS4 trendingS4 upwardS4 atS4 aS4 steadyS4 pace.
B) relativelyS4 stableS4 trendingS4 downwardS4 atS4 aS4 moderateS4 rate.
C) extremelyS4 volatile.
D) unstableS4trendingS4downwardS4atS4aS4moderat
eS4rate.S4Answer:S 4 C
QuesS4Status:S 4 Revised
19) AS4 risingS4 stockS4 marketS4 indexS4 dueS4 toS4 higherS4 shareS4 prices
A) increasesS4 peopleʹsS4 wealth,S4 butS4 isS4 unlikelyS4 toS4 increaseS4 theirS4 willingnessS4 toS4 spend.
B) increasesS4 peopleʹsS4 wealthS4 andS4 asS4 aS4 resultS4 mayS4 increaseS4 theirS4 willingnessS4 toS4 spend.
C) decreasesS4 theS4 amountS4 ofS4 fundsS4 thatS4 businessS4 firmsS4 canS4 raiseS4 byS4 sellingS4 newlyS4-
issuedS4 stock.
D) decreasesS4peopleʹsS4wealth,S4butS4isS4unlikelyS4toS4increaseS4theirS4willingnes
sS4toS4spend.S4Answer:S 4 B
QuesS4Status:S 4 PreviousS4Edition
20) WhenS4 stockS4 pricesS4 fall
A) anS4 individualʹsS4 wealthS4 isS4 notS4 affectedS4 norS4 isS4 theirS4 willingnessS4 toS4 spend.
B) aS4 businessS4 firmS4 willS4 beS4 moreS4 likelyS4 toS4 sellS4 stockS4 toS4 financeS4 investmentS4 spending.
C) anS4 individualʹsS4 wealthS4 mayS4 decreaseS4 butS4 theirS4 willingnessS4 toS4 spendS4 isS4 notS4 affected.
D) anS4individualʹsS4wealthS4mayS4decreaseS4andS4theirS4willingnessS4toS4spendS4m
ayS4decrease.S4Answer:S 4 D
QuesS4Status:S 4 PreviousS4Edition
21) ChangesS4 inS4 stockS4 prices
A) doS4 notS4 affectS4 peopleʹsS4 wealthS4 andS4 theirS4 willingnessS4 toS4 spend.
B) affectS4 firmsʹS4 decisionsS4 toS4 sellS4 stockS4 toS4 financeS4 investmentS4 spending.
C) occurS4 inS4 regularS4 patterns.
D) areS4unimportantS4toS4decisionS4ma
kers.S4Answer:S 4 B
QuesS4Status:S 4 PreviousS4Edition
