Chapter 1—Introduction to Money and Banking
MULTIPLE CHOICE
1. Economic policy affects
a. only the amount of money in the economy.
b. how banks operate and only banks.
c. the entire financial system.
d. how financial securities are traded and no other part of the financial system.
ANS: C PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
2. A financial policymaker not mentioned in Chapter 1 is the
a. Securities and Exchange Commission (SEC).
b. Federal Deposit Insurance Corporation (FDIC).
c. Consumer Financial Protection Bureau (CFPB).
d. Federal Reserve System (the Fed).
ANS: C PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
3. The policymaking institution that determines the money supply, sets the rules for how
checks are cleared and how banks 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
a. Treasury Department.
, b. Commerce Department.
c. Securities and Exchange Commission.
d. Federal Reserve System.
ANS: D PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
4. Earning interest on past interest is
a. present value.
b. super interest.
c. compounding.
d. interest squared.
ANS: C PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
5. More than half of all U.S. dollars can be found
a. in foreign countries.
b. in the United States.
c. in the underground economy.
d. in bank vaults.
ANS: A PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
,6. Americans should not worry about all the dollars held by foreigners because
a. foreigners like Americans.
b. taxes are lower as a result.
c. interest rates are lower as a result.
d. stock prices are higher as a result.
ANS: B PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
7. Interest rates on long-term loans are generally ____ than interest rates on short-term loans
in part because ____ loans are riskier.
a. lower; short-term
b. lower; long-term
c. higher; long-term
d. higher; short-term
ANS: C PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
8. The expected rate of change of prices is known as the
a. forecasted mean CPI.
b. Okun's law coefficient.
c. natural rate of interest.
d. expected inflation rate.
ANS: D PTS: 1 DIF: Basic
, TOP: Introduction to Money and Banking TYP: Factual
9. The nominal interest rate minus the expected inflation rate equals the
a. potential interest rate.
b. natural interest rate.
c. true interest rate.
d. real interest rate.
ANS: D PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
10. Buying stocks gives an investor
a. a very low but safe return.
b. ownership in corporations.
c. the most risk possible in the market.
d. a pure, speculative gamble.
ANS: B PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
MULTIPLE CHOICE
1. Economic policy affects
a. only the amount of money in the economy.
b. how banks operate and only banks.
c. the entire financial system.
d. how financial securities are traded and no other part of the financial system.
ANS: C PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
2. A financial policymaker not mentioned in Chapter 1 is the
a. Securities and Exchange Commission (SEC).
b. Federal Deposit Insurance Corporation (FDIC).
c. Consumer Financial Protection Bureau (CFPB).
d. Federal Reserve System (the Fed).
ANS: C PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
3. The policymaking institution that determines the money supply, sets the rules for how
checks are cleared and how banks 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
a. Treasury Department.
, b. Commerce Department.
c. Securities and Exchange Commission.
d. Federal Reserve System.
ANS: D PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
4. Earning interest on past interest is
a. present value.
b. super interest.
c. compounding.
d. interest squared.
ANS: C PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
5. More than half of all U.S. dollars can be found
a. in foreign countries.
b. in the United States.
c. in the underground economy.
d. in bank vaults.
ANS: A PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
,6. Americans should not worry about all the dollars held by foreigners because
a. foreigners like Americans.
b. taxes are lower as a result.
c. interest rates are lower as a result.
d. stock prices are higher as a result.
ANS: B PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
7. Interest rates on long-term loans are generally ____ than interest rates on short-term loans
in part because ____ loans are riskier.
a. lower; short-term
b. lower; long-term
c. higher; long-term
d. higher; short-term
ANS: C PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
8. The expected rate of change of prices is known as the
a. forecasted mean CPI.
b. Okun's law coefficient.
c. natural rate of interest.
d. expected inflation rate.
ANS: D PTS: 1 DIF: Basic
, TOP: Introduction to Money and Banking TYP: Factual
9. The nominal interest rate minus the expected inflation rate equals the
a. potential interest rate.
b. natural interest rate.
c. true interest rate.
d. real interest rate.
ANS: D PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
10. Buying stocks gives an investor
a. a very low but safe return.
b. ownership in corporations.
c. the most risk possible in the market.
d. a pure, speculative gamble.
ANS: B PTS: 1 DIF: Basic
TOP: Introduction to Money and Banking TYP: Factual
