[The Economics of Money, Banking and Financial Markets,Mishkin,11e] Test Bank: Your Study Companion

Economics of Money, Banking, and Financial Markets, 11e (Mishkin)
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
AACSB: Reflective Thinking

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
AACSB: Reflective Thinking

3) Well-functioning financial markets promote
A) inflation.
B) deflation.
C) unemployment.
D) growth.
Answer: D
AACSB: Reflective Thinking

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
AACSB: Reflective Thinking

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
AACSB: Application of Knowledge
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
AACSB: Application of Knowledge

7) Poorly performing financial markets can be the cause of
A) wealth.
B) poverty.
C) financial stability.

,D) financial expansion.
Answer: B
AACSB: Reflective Thinking

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
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
A) inflation rate.
B) exchange rate.
C) interest rate.
D) aggregate price level.
Answer: C
AACSB: Application of Knowledge

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
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.
A) lower; smaller
B) lower; larger
C) higher; smaller
D) higher; larger
Answer: D
AACSB: Reflective Thinking

12) Everything else held constant, a decline in interest rates will cause spending
on housing to
A) fall.
B) remain unchanged.
C) either rise, fall, or remain the same.
D) rise.
Answer: D
AACSB: Analytical Thinking

13) High interest rates might ________ purchasing a house or car but at the same
time high interest rates might ________ saving.
A) discourage; encourage
B) discourage; discourage
C) encourage; encourage
D) encourage; discourage
Answer: A
AACSB: Analytical Thinking

14) An increase in interest rates might ________ saving because more can be earned
in interest income.
A) encourage
B) discourage
C) disallow
D) invalidate
Answer: A
AACSB: Analytical Thinking

15) Everything else held constant, an increase in interest rates on student loans
A) increases the cost of a college education.
B) reduces the cost of a college education.
C) has no effect on educational costs.
D) increases costs for students with no loans.
Answer: A
AACSB: Analytical Thinking

, 16) High interest rates might cause a corporation to ________ building a new plant
that would provide more jobs.
A) complete
B) consider
C) postpone
D) contemplate
Answer: C
AACSB: Analytical Thinking

17) The stock market is
A) where interest rates are determined.
B) the most widely followed financial market in the United States.
C) where foreign exchange rates are determined.
D) the market where most borrowers get their funds.
Answer: B
AACSB: Reflective Thinking

18) Stock prices are
A) relatively stable trending upward at a steady pace.
B) relatively stable trending downward at a moderate rate.
C) extremely volatile.
D) unstable trending downward at a moderate rate.
Answer: C
AACSB: Reflective Thinking

19) A rising stock market index due to higher share prices
A) increases people's wealth, but is unlikely to increase their willingness to
spend.
B) increases people's wealth and as a result may increase their willingness to
spend.
C) decreases the amount of funds that business firms can raise by selling newly-
issued stock.
D) decreases people's wealth, but is unlikely to increase their willingness to
spend.
Answer: B
AACSB: Analytical Thinking

20) When stock prices fall
A) an individual's wealth is not affected nor is their willingness to spend.
B) a business firm will be more likely to sell stock to finance investment
spending.
C) an individual's wealth may decrease but their willingness to spend is not
affected.
D) an individual's wealth may decrease and their willingness to spend may decrease.
Answer: D
AACSB: Analytical Thinking