CHAPTER 1
Introduction to Money and Banking
Multiple Choice Questions
Ans: d 1Number range NL_a. The policymaking institution that determines the
Difficulty: Basic money supply, sets the rules for how checks are cleared and how banks
Type: factual obtain new currency, and determines what activities banks may or may not
engage in and whether banks are operating in a prudent fashion is the
aNumber range NL_1_. Treasury Department.
bNumber range NL_1_. Commerce Department.
cNumber range NL_1_. Securities and Exchange Commission.
dNumber range NL_1_. Federal Reserve System.
Ans: c 2Number range NL_a. Earning interest on past interest is
Difficulty: Basic eNumber range NL_1_. present value.
Type: factual fNumber range NL_1_. super interest.
gNumber range NL_1_. compounding.
hNumber range NL_1_. interest squared.
Ans: a 3Number range NL_a. More than half of all U.S. dollars can be found
Difficulty: Basic iNumber range NL_1_. in foreign countries.
Type: factual jNumber range NL_1_. in the United States.
kNumber range NL_1_. in the underground economy.
lNumber range NL_1_. in bank vaults.
Ans: b 4Number range NL_a. Americans should not worry about all the dollars held
Difficulty: Basic by foreigners because
Type: factual mNumber range NL_1_. foreigners like Americans.
nNumber range NL_1_. taxes are lower as a result.
oNumber range NL_1_. interest rates are lower as a result.
pNumber range NL_1_. stock prices are higher as a result.
Ans: c 5Number range NL_a. Interest rates on long-term loans are generally _____
Difficulty: Basic than interest rates on short-term loans in part because _____ loans are
Type: factual riskier.
qNumber range NL_1_. lower; short-term
rNumber range NL_1_. lower; long-term
sNumber range NL_1_. higher; long-term
tNumber range NL_1_. higher; short-term
Ans: d 6Number range NL_a. The expected rate of change of prices is known as the
Difficulty: Basic uNumber range NL_1_. forecasted mean CPI.
Type: factual vNumber range NL_1_. Okun’s law coefficient.
wNumber range NL_1_. natural rate of interest.
, xNumber range NL_1_. expected inflation rate.
Ans: d 7Number range NL_a. The nominal interest rate minus the expected inflation
Difficulty: Basic rate equals the
Type: factual yNumber range NL_1_. potential interest rate.
zNumber range NL_1_. natural interest rate.
aaNumber range NL_1_. true interest rate.
abNumber range NL_1_. real interest rate.
Ans: b 8Number range NL_a. Buying stocks gives an investor
Difficulty: Basic acNumber range NL_1_. a very low but safe return.
Type: factual adNumber range NL_1_. ownership in corporations.
aeNumber range NL_1_. the most risk possible in the market.
afNumber range NL_1_. a pure, speculative gamble.
Ans: c 9Number range NL_a. During the 2000s, banks became complacent about
Difficulty: Basic making mortgage loans because
Type: factual agNumber range NL_1_. there was not a single bank failure in the
decade.
ahNumber range NL_1_. bank stocks performed better than the rest of
the stock market.
aiNumber range NL_1_. the banks counted on housing prices to keep
appreciating.
ajNumber range NL_1_. the government eliminated the FDIC.
Ans: c 10Number range NL_a. When the overall level of business activity declines
Difficulty: Basic persistently, there is said to be
Type: factual akNumber range NL_1_. a revolution.
alNumber range NL_1_. a depression.
amNumber range NL_1_. a recession.
anNumber range NL_1_. a banana.
Ans: b 11Number range NL_a. Economists who try to predict recessions find that
Difficulty: Basic recessions are
Type: factual aoNumber range NL_1_. easy to predict.
apNumber range NL_1_. difficult to predict.
aqNumber range NL_1_. easy to predict in recent years, but they were
more difficult to predict before 2000.
arNumber range NL_1_. non-existent since 2000.
Ans: c 12Number range NL_a. The Federal Reserve creates money by
Difficulty: Basic asNumber range NL_1_. printing bills and dropping them from
Type: factual helicopters.
atNumber range NL_1_. giving dollar bills to banks to circulate.
auNumber range NL_1_. changing a number in its computer system.
avNumber range NL_1_. spending money on government purchases.
Ans: a 13Number range NL_a. In the long run, the Federal Reserve can affect
Difficulty: Basic awNumber range NL_1_. inflation.
Type: factual axNumber range NL_1_. output.
, ayNumber range NL_1_. unemployment.
azNumber range NL_1_. the exchange rate.
Ans: d 14Number range NL_a. The simple equation that can be used to predict how
Difficulty: Basic the Federal Reserve will change interest rates is known as
Type: factual baNumber range NL_1_. the Phillips relation.
bbNumber range NL_1_. the Sharpe ratio.
bcNumber range NL_1_. Okun’s law.
bdNumber range NL_1_. the Taylor rule.
, CHAPTER 2
The Financial System and the Economy
Multiple Choice Questions
Ans: a 15Number range NL_a. The financial system consists of
Difficulty: Basic beNumber range NL_1_. all the securities, intermediaries, and markets
Type: factual that exist to match savers and borrowers.
bfNumber range NL_1_. all the securities that exist to match savers and
borrowers.
bgNumber range NL_1_. all the intermediaries that exist to match
savers and borrowers.
bhNumber range NL_1_. all the markets that exist to match savers and
borrowers.
Ans: b 16Number range NL_a. All the securities, intermediaries, and markets that exist
Difficulty: Basic to match savers and borrowers are called
Type: factual biNumber range NL_1_. the market.
bjNumber range NL_1_. the financial system.
bkNumber range NL_1_. free enterprise.
blNumber range NL_1_. the SIM system.
Ans: c 17Number range NL_a. In the financial system, savers transfer funds to
Difficulty: Basic borrowers in exchange for
Type: factual bmNumber range NL_1_. cash.
bnNumber range NL_1_. gold.
boNumber range NL_1_. financial securities.
bpNumber range NL_1_. derivative securities.
Financial Securities
Multiple Choice Questions
Ans: d 18Number range NL_a. A contract whereby a borrower, who seeks to obtain
Difficulty: Basic money from someone, promises to compensate the lender in the future is
Type: factual known as
bqNumber range NL_1_. a warrant.
brNumber range NL_1_. an exchange rate.
bsNumber range NL_1_. a derivative security.
btNumber range NL_1_. a financial security.
Ans: a 19Number range NL_a. A contract that promises to pay a given amount of
Difficulty: Basic money to the owner of the security at specific dates in the future is known
Introduction to Money and Banking
Multiple Choice Questions
Ans: d 1Number range NL_a. The policymaking institution that determines the
Difficulty: Basic money supply, sets the rules for how checks are cleared and how banks
Type: factual obtain new currency, and determines what activities banks may or may not
engage in and whether banks are operating in a prudent fashion is the
aNumber range NL_1_. Treasury Department.
bNumber range NL_1_. Commerce Department.
cNumber range NL_1_. Securities and Exchange Commission.
dNumber range NL_1_. Federal Reserve System.
Ans: c 2Number range NL_a. Earning interest on past interest is
Difficulty: Basic eNumber range NL_1_. present value.
Type: factual fNumber range NL_1_. super interest.
gNumber range NL_1_. compounding.
hNumber range NL_1_. interest squared.
Ans: a 3Number range NL_a. More than half of all U.S. dollars can be found
Difficulty: Basic iNumber range NL_1_. in foreign countries.
Type: factual jNumber range NL_1_. in the United States.
kNumber range NL_1_. in the underground economy.
lNumber range NL_1_. in bank vaults.
Ans: b 4Number range NL_a. Americans should not worry about all the dollars held
Difficulty: Basic by foreigners because
Type: factual mNumber range NL_1_. foreigners like Americans.
nNumber range NL_1_. taxes are lower as a result.
oNumber range NL_1_. interest rates are lower as a result.
pNumber range NL_1_. stock prices are higher as a result.
Ans: c 5Number range NL_a. Interest rates on long-term loans are generally _____
Difficulty: Basic than interest rates on short-term loans in part because _____ loans are
Type: factual riskier.
qNumber range NL_1_. lower; short-term
rNumber range NL_1_. lower; long-term
sNumber range NL_1_. higher; long-term
tNumber range NL_1_. higher; short-term
Ans: d 6Number range NL_a. The expected rate of change of prices is known as the
Difficulty: Basic uNumber range NL_1_. forecasted mean CPI.
Type: factual vNumber range NL_1_. Okun’s law coefficient.
wNumber range NL_1_. natural rate of interest.
, xNumber range NL_1_. expected inflation rate.
Ans: d 7Number range NL_a. The nominal interest rate minus the expected inflation
Difficulty: Basic rate equals the
Type: factual yNumber range NL_1_. potential interest rate.
zNumber range NL_1_. natural interest rate.
aaNumber range NL_1_. true interest rate.
abNumber range NL_1_. real interest rate.
Ans: b 8Number range NL_a. Buying stocks gives an investor
Difficulty: Basic acNumber range NL_1_. a very low but safe return.
Type: factual adNumber range NL_1_. ownership in corporations.
aeNumber range NL_1_. the most risk possible in the market.
afNumber range NL_1_. a pure, speculative gamble.
Ans: c 9Number range NL_a. During the 2000s, banks became complacent about
Difficulty: Basic making mortgage loans because
Type: factual agNumber range NL_1_. there was not a single bank failure in the
decade.
ahNumber range NL_1_. bank stocks performed better than the rest of
the stock market.
aiNumber range NL_1_. the banks counted on housing prices to keep
appreciating.
ajNumber range NL_1_. the government eliminated the FDIC.
Ans: c 10Number range NL_a. When the overall level of business activity declines
Difficulty: Basic persistently, there is said to be
Type: factual akNumber range NL_1_. a revolution.
alNumber range NL_1_. a depression.
amNumber range NL_1_. a recession.
anNumber range NL_1_. a banana.
Ans: b 11Number range NL_a. Economists who try to predict recessions find that
Difficulty: Basic recessions are
Type: factual aoNumber range NL_1_. easy to predict.
apNumber range NL_1_. difficult to predict.
aqNumber range NL_1_. easy to predict in recent years, but they were
more difficult to predict before 2000.
arNumber range NL_1_. non-existent since 2000.
Ans: c 12Number range NL_a. The Federal Reserve creates money by
Difficulty: Basic asNumber range NL_1_. printing bills and dropping them from
Type: factual helicopters.
atNumber range NL_1_. giving dollar bills to banks to circulate.
auNumber range NL_1_. changing a number in its computer system.
avNumber range NL_1_. spending money on government purchases.
Ans: a 13Number range NL_a. In the long run, the Federal Reserve can affect
Difficulty: Basic awNumber range NL_1_. inflation.
Type: factual axNumber range NL_1_. output.
, ayNumber range NL_1_. unemployment.
azNumber range NL_1_. the exchange rate.
Ans: d 14Number range NL_a. The simple equation that can be used to predict how
Difficulty: Basic the Federal Reserve will change interest rates is known as
Type: factual baNumber range NL_1_. the Phillips relation.
bbNumber range NL_1_. the Sharpe ratio.
bcNumber range NL_1_. Okun’s law.
bdNumber range NL_1_. the Taylor rule.
, CHAPTER 2
The Financial System and the Economy
Multiple Choice Questions
Ans: a 15Number range NL_a. The financial system consists of
Difficulty: Basic beNumber range NL_1_. all the securities, intermediaries, and markets
Type: factual that exist to match savers and borrowers.
bfNumber range NL_1_. all the securities that exist to match savers and
borrowers.
bgNumber range NL_1_. all the intermediaries that exist to match
savers and borrowers.
bhNumber range NL_1_. all the markets that exist to match savers and
borrowers.
Ans: b 16Number range NL_a. All the securities, intermediaries, and markets that exist
Difficulty: Basic to match savers and borrowers are called
Type: factual biNumber range NL_1_. the market.
bjNumber range NL_1_. the financial system.
bkNumber range NL_1_. free enterprise.
blNumber range NL_1_. the SIM system.
Ans: c 17Number range NL_a. In the financial system, savers transfer funds to
Difficulty: Basic borrowers in exchange for
Type: factual bmNumber range NL_1_. cash.
bnNumber range NL_1_. gold.
boNumber range NL_1_. financial securities.
bpNumber range NL_1_. derivative securities.
Financial Securities
Multiple Choice Questions
Ans: d 18Number range NL_a. A contract whereby a borrower, who seeks to obtain
Difficulty: Basic money from someone, promises to compensate the lender in the future is
Type: factual known as
bqNumber range NL_1_. a warrant.
brNumber range NL_1_. an exchange rate.
bsNumber range NL_1_. a derivative security.
btNumber range NL_1_. a financial security.
Ans: a 19Number range NL_a. A contract that promises to pay a given amount of
Difficulty: Basic money to the owner of the security at specific dates in the future is known
