Question 1
If you buy a bond issued by Intel, the bond is a(n):
a. liability to Intel and an asset to you
b. liability to you and an asset to Intel.
c. liability to both you and Intel
d. asset to both you and Intel
Question 2
A bank lending depositors' money to a local business and a pension fund investing contributions in shares of a company are similar financial activities in that
a. both involve the use of financial markets.
b. both involve funds being channeled from savers to borrowers through financial intermediaries
c. both involve a reduction in the overall level of liquidity in the financial system.
d. both involve in an increase in the overall level of risk in the financial system
Question 3
In the United States, the lender of last resort is
a. Fannie Mae
b. the Federal Reserve
c. the Federal Deposit Insurance Corporation
d. Securities and Exchange Commission
Question 4
The financial system performs the role of communicating information by
a. constantly increasing the liquidity of most assets
b. constantly reducing the riskiness of most assets
c. incorporating all available information into the prices of financial assets
d. providing to investors for a nominal charge all government reports available about a particular company
Question 5
The most important economic benefit from specialization is that it
a. makes it possible for an economy to begin using money
b. leads to an increase in the standard of living in an economy
c. makes barter possible
d. eliminates the need for financial markets
Question 6
Money is a medium of exchange in that
a. money is generally accepted for buying and selling goods and services
b. currency may be exchanged for gold at any national bank
c. other assets may be better or worse in facilitating exchange than money
d. it must maintain most of its value over time
Question 7
If money is declared to be legal tender, it must be
a. minted from a precious metal
b. acceptable to citizens of foreign countries
c. possible to exchange it for an equivalent amount of precious metal
d. accepted to settle private transactions and it must be used in paying taxes
Question 8
Why has M2 grown more quickly than M1 in recent decades?
a. Currency in circulation has declined.
b. People own more shares of stock than in the past
c. The amount of funds in CDs and money market mutual funds shares has grown faster than currency or checking deposits.
d. Most people use debit cards instead of checking accounts.
Question 9
Which of the following will lead to a higher interest rate on a loan?
a. lower inflation
b. lower opportunity cost
c. increased perceived risk of default
d. reduced likelihood of borrower not paying the loan
Question 10
A debt instrument represents
a. an ownership claim by the purchaser on the issuer
b. a promise by a borrower to repay principal plus interest to a lender
c. an attempt by a borrower in default to restore his or her credit
d. a nontaxable asset, owned primarily by large corporations
Question 11
A capital gain occurs when the
a. coupon rate increases
b. current yield increases
c. price of an asset increases.
d. yield to maturity increases
Question 12
Interest-rate risk can best be characterized as the risk that
a. you could have earned a higher interest rate if you waited to purchase a bond
b. fluctuations in the price of a financial asset in response to changes in market interest rates.
c. you could have gotten a lower interest rate if you waited to lock in a mortgage
d. short-term interest rates may exceed long-term interest rates
Question 13
Risk that is common to all assets of a certain type is referred to as
a. systematic risk
b. Idiosyncratic risk
c. unsystematic risk
d. structural risk
Question 14
How is the interest rate that prevails in the bond market determined?
a. by the interaction of stock prices and bond prices
b. by the decision of the president, in consultation with Congress
c. by the demand for and supply of bonds
d. by the Board of Governors of the New York Stock Exchange
Question 15
The demand curve for bonds would be shifted to the left by
a. an increase in expected returns on other assets
b. a decrease in the information costs of bonds relative to other assets
c. a decrease in expected inflation
d. an increase in the liquidity of bonds relative to other assets
Question 16
The supply curve for loanable funds would decline due to
a. an increase in wealth
b. an increase in the expected return on bonds.
c. an increase in expected inflation
d. a decrease in the riskiness of bonds relative to other assets
Question 17
How can a global savings glut affect the United States?
a. It can reduce the world real interest rate, thus encouraging borrowing by Americans.
b. It can increase the world real interest rate, thus encouraging saving by Americans
c. It can reduce the supply of loanable funds for the United States.
d. It can reduce the demand for loanable funds for the United States
Question 18
In an open economy, desired domestic lending
a. must equal desired domestic borrowing
b. must equal desired domestic borrowing plus the amount of international lending
c. is always greater than desired domestic borrowing
d. is always less than desired domestic borrowing
Question 19
An open economy is one that
a. has a large government sector
b. lends and borrows in the international capital market
c. produces mainly agricultural goods
d. produces mainly manufactured goods
Question 20
Hyperinflations are usually caused by large budget deficits financed by
a. selling bonds to private investors
b. selling bonds to the central bank
c. raising taxes
d. borrowing from commercial banks.