Economics Of Money (2154) Chapter 1
Exam With Complete Solutions
1) Financial markets promote economic efficiency by ________.
A) channelling funds from investors to savers
B) creating inflation
C) channelling funds to those who have a productive use for them
D) reducing investment - ANSWER C
2) Well-functioning financial markets promote ________. - ANSWER Economic
growth
3) 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
4) Markets in which funds are transferred from those who do not have a
productive use for them to those who do are called ________.
A) commodity markets
B) fund-available markets
C) derivative exchange markets
D) financial markets - ANSWER D
________ markets transfer funds from people who do not have a productive use
for them to people who do. - ANSWER Financial
Poorly performing financial markets can be the cause of ________. - ANSWER
Poverty
7) The bond markets are important because they are ________.
A) easily the most widely followed financial markets in Canada
B) the markets where foreign exchange rates are determined
C) where corporations and governments borrow to finance their activities
D) the markets where all borrowers get their funds - ANSWER C
8) A security is also known as ________.
A) a financial instrument
B) a contingent claim
,C) the interest rate
D) a liability - ANSWER A
9) A bond is ________.
A) not as good as investment as stocks
B) pays interest sporadically
C) never pays interest
D) makes payments periodically for a specified period of time - ANSWER D
10) The fluctuation of interest rates ________.
A) never occurs because the central bank is involved in setting the rate
B) is due to changes in stock prices
C) cannot occur because there is only one interest rate
D) impacts all Canadians - ANSWER D
11) The cost of borrowing is commonly referred to as the ________.
A) inflation rate
B) exchange rate
C) interest rate
D) aggregate price level - ANSWER C
12) Compared to interest rates on long-term 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
13) The interest rate on long-term corporate bonds is ________, on average, than
other interest rates. The spread between it and other rates ________ over time.
A) lower; remains constant
B) lower; fluctuates
C) higher; remains constant
D) higher; fluctuates - ANSWER D
14) Everything else held constant, a rise in interest rates will cause spending on
housing to ________.
A) rise
B) remain unchanged
C) either rise, fall, or remain the same
D) fall - ANSWER D
15) 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
17) Everything else held constant, an increase in interest rates on student loans
________.
A) may increase the cost of education
B) may reduce the cost of education
C) has no effect on educational costs
D) increases costs for students with no loans - ANSWER A
18) A common stock ________.
A) cannot be purchased by individuals
B) is also known as a debt security
C) is a share of ownership in a corporation
D) is a claim on assets - ANSWER C
A share of common stock is a claim on a corporation's ________. - ANSWER
Earnings and assets
20) Lower interest rates might cause a corporation to ________ building a new
plant that would provide more jobs.
A) complete
B) postpone
C) consider
D) start - ANSWER C
21) Bonds of different maturities ________.
A) show no common features
B) have interest rates that tend to move together
C) have interest rates that can differ substantially
D) B and C only - ANSWER D
22) The stock market is important because it is ________.
A) where interest rates are determined
B) the most widely followed financial market in the Canada
C) where foreign exchange rates are determined
D) the market where most borrowers get their funds
Answer: B - ANSWER B
23) Stock prices, as measured by the S&P/TSX Composite Index, ________.
A) have not changed much over time
B) have risen smoothly over time
C) have been extremely volatile over time
D) have declined substantially since they peaked in the mid 1980s - ANSWER C
24) Stock prices are ________.
Exam With Complete Solutions
1) Financial markets promote economic efficiency by ________.
A) channelling funds from investors to savers
B) creating inflation
C) channelling funds to those who have a productive use for them
D) reducing investment - ANSWER C
2) Well-functioning financial markets promote ________. - ANSWER Economic
growth
3) 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
4) Markets in which funds are transferred from those who do not have a
productive use for them to those who do are called ________.
A) commodity markets
B) fund-available markets
C) derivative exchange markets
D) financial markets - ANSWER D
________ markets transfer funds from people who do not have a productive use
for them to people who do. - ANSWER Financial
Poorly performing financial markets can be the cause of ________. - ANSWER
Poverty
7) The bond markets are important because they are ________.
A) easily the most widely followed financial markets in Canada
B) the markets where foreign exchange rates are determined
C) where corporations and governments borrow to finance their activities
D) the markets where all borrowers get their funds - ANSWER C
8) A security is also known as ________.
A) a financial instrument
B) a contingent claim
,C) the interest rate
D) a liability - ANSWER A
9) A bond is ________.
A) not as good as investment as stocks
B) pays interest sporadically
C) never pays interest
D) makes payments periodically for a specified period of time - ANSWER D
10) The fluctuation of interest rates ________.
A) never occurs because the central bank is involved in setting the rate
B) is due to changes in stock prices
C) cannot occur because there is only one interest rate
D) impacts all Canadians - ANSWER D
11) The cost of borrowing is commonly referred to as the ________.
A) inflation rate
B) exchange rate
C) interest rate
D) aggregate price level - ANSWER C
12) Compared to interest rates on long-term 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
13) The interest rate on long-term corporate bonds is ________, on average, than
other interest rates. The spread between it and other rates ________ over time.
A) lower; remains constant
B) lower; fluctuates
C) higher; remains constant
D) higher; fluctuates - ANSWER D
14) Everything else held constant, a rise in interest rates will cause spending on
housing to ________.
A) rise
B) remain unchanged
C) either rise, fall, or remain the same
D) fall - ANSWER D
15) 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
17) Everything else held constant, an increase in interest rates on student loans
________.
A) may increase the cost of education
B) may reduce the cost of education
C) has no effect on educational costs
D) increases costs for students with no loans - ANSWER A
18) A common stock ________.
A) cannot be purchased by individuals
B) is also known as a debt security
C) is a share of ownership in a corporation
D) is a claim on assets - ANSWER C
A share of common stock is a claim on a corporation's ________. - ANSWER
Earnings and assets
20) Lower interest rates might cause a corporation to ________ building a new
plant that would provide more jobs.
A) complete
B) postpone
C) consider
D) start - ANSWER C
21) Bonds of different maturities ________.
A) show no common features
B) have interest rates that tend to move together
C) have interest rates that can differ substantially
D) B and C only - ANSWER D
22) The stock market is important because it is ________.
A) where interest rates are determined
B) the most widely followed financial market in the Canada
C) where foreign exchange rates are determined
D) the market where most borrowers get their funds
Answer: B - ANSWER B
23) Stock prices, as measured by the S&P/TSX Composite Index, ________.
A) have not changed much over time
B) have risen smoothly over time
C) have been extremely volatile over time
D) have declined substantially since they peaked in the mid 1980s - ANSWER C
24) Stock prices are ________.
