Chapter 1—Money, Banking, and Financial Markets--An Overview
MULTIPLE CHOICE
1. Assuming that the inflation rate is positive, which of the following statements characterizes
the relationship between the actual or observed interest rate and the real interest rate?
a. Real interest rates are lower than actual interest rates.
b. Real interest rates are higher than actual interest rates.
c. They are equal.
d. None of the above is necessarily true.
ANS: A
2. Suppose you buy $1,000 worth of newly-issued IBM bonds. Which of the following is
correct?
a. You have loaned $1,000 to IBM corporation.
b. You now own a small portion of IBM corporation.
c. Both of the above are correct.
d. None of the above are correct.
ANS: A
3. Inflation is most often caused by:
a. unnecessary contraction of the availability of credit
b. demand side forces which depress the level of consumer spending
c. supply side forces such as oil prices, which increase costs to producers
d. rapid expansion of the money supply
ANS: D
,4. Which of the following statements is true about the United States?
a. Productivity fell between 1995 and 2001.
b. Stock prices fell between 1995 and 2000.
c. The number of commercial banks fell between 1980 and 2000.
d. The price of tech stocks rose after 2000.
ANS: C
5. Monetary policy does not influence which of the following?
a. the supply of money
b. the availability of credit
c. the level of interest rates
d. the velocity of the money supply
ANS: D
6. Monetary policy consists of:
a. adjusting the level of government expenditures to stimulate economic activity
b. controlling taxes to influence consumer and business spending
c. influencing the availability of bank credit by changing interest rates
d. all of the above
ANS: C
7. Which of the following characterizes budget deficits in the United States in the past 30
years?
a. They decreased in the 1980s and increased through the 1990s.
b. They increased in the 1980s and decreased in the 1990s.
, c. They increased in the 1970s and decreased in the 1980s.
d. They rose steadily throughout the 1990s.
ANS: B
8. Which of the following is true about inflation targeting?
a. It is used in Canada, Mexico, and the United States.
b. It involves an explicitly-stated range of inflation rates.
c. It is the only way to keep inflation within acceptable levels.
d. It is used in less than ten of the world's richest nations.
ANS: B
9. Persistent budget deficits may cause:
a. an acceleration in the rate of inflation
b. a reduction in the level of investment in plant and equipment
c. increases in both nominal and real interest rates
d. all of the above
ANS: D
10. A depreciation of the dollar:
a. can help alleviate persistent trade deficits
b. means that the dollar can buy more units of foreign currency
c. reduces the cost of imports to U.S. consumers
d. places undue competitive pressures on U.S. manufacturers
, ANS: A
11. According to the text, which of the following countries had the lowest money growth rate
and lowest inflation rate in the past 20 years?
a. Venezuela
b. Mexico
c. the United States
d. Korea
ANS: C
12. The interest rate:
a. is a single rate mandated by the central bank that does not change
b. is affected solely by Fed policy
c. consists of many interest rates that are all equal
d. is the cost of borrowing
ANS: D
13. The sum of currency held by the public and checking accounts held in depository
institutions by individuals and firms is commonly known as the:
a. budget deficit
b. national debt
c. money supply
d. monetary base
ANS: C
14. When we divide the money supply (M1) by the U.S. population, the number seems high.
Which of the following is a good explanation for this?
MULTIPLE CHOICE
1. Assuming that the inflation rate is positive, which of the following statements characterizes
the relationship between the actual or observed interest rate and the real interest rate?
a. Real interest rates are lower than actual interest rates.
b. Real interest rates are higher than actual interest rates.
c. They are equal.
d. None of the above is necessarily true.
ANS: A
2. Suppose you buy $1,000 worth of newly-issued IBM bonds. Which of the following is
correct?
a. You have loaned $1,000 to IBM corporation.
b. You now own a small portion of IBM corporation.
c. Both of the above are correct.
d. None of the above are correct.
ANS: A
3. Inflation is most often caused by:
a. unnecessary contraction of the availability of credit
b. demand side forces which depress the level of consumer spending
c. supply side forces such as oil prices, which increase costs to producers
d. rapid expansion of the money supply
ANS: D
,4. Which of the following statements is true about the United States?
a. Productivity fell between 1995 and 2001.
b. Stock prices fell between 1995 and 2000.
c. The number of commercial banks fell between 1980 and 2000.
d. The price of tech stocks rose after 2000.
ANS: C
5. Monetary policy does not influence which of the following?
a. the supply of money
b. the availability of credit
c. the level of interest rates
d. the velocity of the money supply
ANS: D
6. Monetary policy consists of:
a. adjusting the level of government expenditures to stimulate economic activity
b. controlling taxes to influence consumer and business spending
c. influencing the availability of bank credit by changing interest rates
d. all of the above
ANS: C
7. Which of the following characterizes budget deficits in the United States in the past 30
years?
a. They decreased in the 1980s and increased through the 1990s.
b. They increased in the 1980s and decreased in the 1990s.
, c. They increased in the 1970s and decreased in the 1980s.
d. They rose steadily throughout the 1990s.
ANS: B
8. Which of the following is true about inflation targeting?
a. It is used in Canada, Mexico, and the United States.
b. It involves an explicitly-stated range of inflation rates.
c. It is the only way to keep inflation within acceptable levels.
d. It is used in less than ten of the world's richest nations.
ANS: B
9. Persistent budget deficits may cause:
a. an acceleration in the rate of inflation
b. a reduction in the level of investment in plant and equipment
c. increases in both nominal and real interest rates
d. all of the above
ANS: D
10. A depreciation of the dollar:
a. can help alleviate persistent trade deficits
b. means that the dollar can buy more units of foreign currency
c. reduces the cost of imports to U.S. consumers
d. places undue competitive pressures on U.S. manufacturers
, ANS: A
11. According to the text, which of the following countries had the lowest money growth rate
and lowest inflation rate in the past 20 years?
a. Venezuela
b. Mexico
c. the United States
d. Korea
ANS: C
12. The interest rate:
a. is a single rate mandated by the central bank that does not change
b. is affected solely by Fed policy
c. consists of many interest rates that are all equal
d. is the cost of borrowing
ANS: D
13. The sum of currency held by the public and checking accounts held in depository
institutions by individuals and firms is commonly known as the:
a. budget deficit
b. national debt
c. money supply
d. monetary base
ANS: C
14. When we divide the money supply (M1) by the U.S. population, the number seems high.
Which of the following is a good explanation for this?
