Question 1

The financial system

Accepted Answer

A)  coordinates the flow of funds from lenders to borrowers.
B)  creates new liquidity for the economy.
C)   both a and b.
D)  None of the above.

Question 2

Which of the following can the Federal Reserve not influence?

Accepted Answer

A)  Congress in all fiscal policy actions
B)  the level of interest rates
C)  aggregate total demand in the economy
D)  both b and c

Question 3

Which of the following would be an example of saving?

Accepted Answer

A)  The purchase of a study guide for your class
B)  The purchase of a corporate bond
C)  Paying your rent
D)  Using coupons to buy diapers at a department store

Question 4

One factor complicating the analysis of the financial system and the economy is

Accepted Answer

A)  the influence of politicians on both the economy and the financial system.
B)  the lack of regulation of the financial system.
C)  the continuous change and innovation in the financial system.
D)  the lack of change in the financial system compared to the constantly fluctuating economy.

Question 5

Transaction costs are best defined as

Accepted Answer

A)  costs associated with checkable deposits.
B)  charges associated with making financial assets only.
C)  costs associated with borrowing and lending or making other exchanges.
D)  charges from failing to repay a financial claim.

Question 6

The business cycle describes

Accepted Answer

A)  long-run fluctuations in the level of economic activity.
B)  short-run fluctuations in the level of economic activity.
C)  low inflation.
D)  full employment.

Question 7

Consumption is

Accepted Answer

A)  income not saved.
B)  income spent on investment goods and financial assets.
C)  income invested in financial assets only.
D)  None of the above.

Question 8

The FDIC was created

Accepted Answer

A)  during the Great Depression of the 1930s.
B)  during the Second World War.
C)  during the Korean War.
D)  during the 1970s oil crisis.

Question 9

Which of the following is/are not true of checkable deposits?

Accepted Answer

A)  withdrawal by writing a check
B)  the FDIC does not insure checkable deposits
C)  are considered as money because they can be used as a means of payment
D)  both a and c

Question 10

If John receives $2000 monthly in net wages and spends $700 in rent, $500 on a car payment, $250 on entertainment, and $200 on groceries he is a(n)

Accepted Answer

A)  net borrower.
B)  negative cash disbursement.
C)  net lender.
D)  accrued wage unit.

Question 11

Monetary policy is defined as

Accepted Answer

A)  the rules regarding borrowing and lending at banks.
B)  those policies which limit the interest rates banks may pay on deposits.
C)  the Federal Reserve's efforts to promote the overall health and stability of the economy.
D)  the policy regarding to whom net lenders should lend money.

Question 12

One of the reasons that financial intermediaries exist is that

Accepted Answer

A)  it is illegal for net lenders to lend directly to net borrowers
B)  the vaults at financial intermediaries are safer for your money than your mattress or piggy bank.
C)  there is no system for net lenders to lend directly to net borrowers
D)  financial intermediaries are better equipped to assess risk and to diversify portfolios.

Question 13

Which of the following fails to meet the economist's definition of a capital good?

Accepted Answer

A)  A factory that produces shoes
B)  Cash on hand
C)  A brand new computer system used by a business
D)  Produced goods used to produce other goods

Question 14

Purchasing bonds for the expansion of a software firm would be considered

Accepted Answer

A)  direct finance.
B)  indirect finance.
C)  bond refunding.
D)  bond discounting.

Question 15

By increasing interest rates seven times within a 1year period beginning in early 1994, the Fed attempted to

Accepted Answer

A)  slow the growth of the economy.
B)  increase inflation rates.
C)  decrease direct foreign investment.
D)  stimulate the U.S. Savings Bond market.

Question 16

Which of the following is not a universal characteristic of financial intermediaries?

Accepted Answer

A)  Transferring funds from net borrowers to net lenders
B)  Issuing their own liabilities
C)  Investing in financial assets
D)  Issuing checkable deposits

Question 17

Financial intermediaries serve as go betweens to link net lenders and net borrowers. Here the linkage between saver and borrower is one of

Accepted Answer

A)  direct finance
B)  indirect finance
C)  refinance
D)  compensatory finance

Question 18

Which of the following is/are true of checkable deposits?

Accepted Answer

A)  withdrawal by writing a check
B)  offered by all depository institutions
C)  are considered as money because they can be used as a means of payment
D)  all of the above are true of checkable deposits

Question 19

The spending and taxing decisions of the Congress and president that affect household and business decisions are called

Accepted Answer

A)  monetary policy.
B)  deficit reduction policy.
C)  fiscal policy.
D)  None of the above

Question 20

Of the following, which would be the most liquid financial asset?

Accepted Answer

A)  One share of stock in Disney
B)  A ten-carat diamond
C)  $1000 cash
D)  house

Exam 1: Introduction and Overview

One factor complicating the analysis of the financial system and the economy is

Correct AnswerverifiedShow Answer

Purchasing bonds for the expansion of a software firm would be considered

Correct AnswerverifiedShow Answer

By increasing interest rates seven times within a 1year period beginning in early 1994, the Fed attempted to

Correct AnswerverifiedShow Answer

Which of the following is/are true of checkable deposits?

Correct AnswerverifiedShow Answer

Transaction costs are best defined as

Correct AnswerverifiedShow Answer

The business cycle describes

Correct AnswerverifiedShow Answer

If John receives $2000 monthly in net wages and spends $700 in rent, $500 on a car payment, $250 on entertainment, and $200 on groceries he is a(n)

Correct AnswerverifiedShow Answer

Which of the following can the Federal Reserve not influence?

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One of the reasons that financial intermediaries exist is that

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Which of the following would be an example of saving?

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Consumption is

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Which of the following is not a universal characteristic of financial intermediaries?

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Monetary policy is defined as

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The financial system

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Which of the following fails to meet the economist's definition of a capital good?

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The spending and taxing decisions of the Congress and president that affect household and business decisions are called

Correct AnswerverifiedShow Answer

Of the following, which would be the most liquid financial asset?

Correct AnswerverifiedShow Answer

Which of the following is/are not true of checkable deposits?

Correct AnswerverifiedShow Answer

Financial intermediaries serve as go betweens to link net lenders and net borrowers. Here the linkage between saver and borrower is one of

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The FDIC was created

Correct AnswerverifiedShow Answer

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