Money & Banking Final from practice
test and actual exams
A rising stock market index due to higher share prices
a. decreases 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. increases people's wealth, but is unlikely to increase their willingness to spend -
CORRECT ANSWER b. increases people's wealth and as a result may increase
their willingness to spend
Money is defined as
a. a risk-free repository of spending power
b. bills of exchange
c. anything that is generally accepted in payment for goods and services or in the
repayment of debt
d. the unrecognized liability of governments - CORRECT ANSWER c. anything that
is generally accepted in payment for goods and services or in the repayment of
debt
Evidence from business cycle fluctuations in the United States indicates that
a. recessions have been preceded by declines in share prices on the stock
exchange
,b. recessions have been preceded by dollar depreciation
c. recessions have been preceded by a decline in the growth rate of money
d. a negative relationship between money growth and general economic activity
exists - CORRECT ANSWER c. recessions have been preceded by a decline in the
growth rate of money
Every financial market has the following characteristic:
a. it allows loans to be made
b. it channels funds from lenders-savers to borrowers-spenders
c. it allows common stock to be traded
d. it determines the level of interest rates - CORRECT ANSWER b. it channels
funds from lenders-savers to borrowers-spenders
Financial markets improve economic welfare because
a. they allow consumers to time their purchase better
b. they weed out inefficient firms
c. they channel funds from investors to savers
d. eliminate the need for indirect finance - CORRECT ANSWER a. they allow
consumers to time their purchase better
An important function of secondary markets is to
a. make it easier for governments to raise taxes
b. create a market for newly constructed houses
c. make it easier to sell financial instruments to raise funds
d. raise funds for corporations through the sale of securities - CORRECT ANSWER
c. make it easier to sell financial instruments to raise funds
,Which of the following statements about the characteristics of debt and equity
are true?
a. debt is a claim on the issuer's assets, but equity is a claim on the issuer's
income
b. they can both be long-term financial instruments
c. they can both be short-term financial instruments
d. both (a) and (b) of the above
e. both (a) and (c) of the above - CORRECT ANSWER b. they can both be long-
term financial instruments
The problem created by asymmetric information before the transaction occurs is
called ________, while the problem created after the transaction occurs is called
________.
a. moral hazard; adverse selection
b. free-riding; costly state verification
c. costly state verification; free-riding
d. adverse selection; moral hazard - CORRECT ANSWER d. adverse selection;
moral hazard
Financial intermediaries promote economic efficiency and thereby increases
people's wealth
a. to the extent that they help solve the problems due to asymmetric information
b. by reducing the transactions cost of linking together borrowers and lenders
c. by reducing the exposure of investors to risk through the process of risk sharing
d. because of all of the above
, e. because of only A and B of the above - CORRECT ANSWER d. because of all of
the above
A goal of the Securities and Exchange Commissions (SEC) is to reduce problems
arising from
a. banking panics
b. asymmetric information
c. competition
d. risk - CORRECT ANSWER b. asymmetric information
The primary purpose of deposit insurance is to
a. protect bank shareholders
b. improve the flow of information to investors
c. protect bank employees from unemployment
d. prevent banking panics - CORRECT ANSWER d. prevent banking panics
The conversion of a barter economy to one that uses money
a. increases efficiency by reducing transactions costs
b. increases efficiency by reducing the need to exchange goods and services
c. does not increase economic efficiency
d. increases efficiency by reducing the need to specialize - CORRECT ANSWER a.
increases efficiency by reducing transactions costs
During hyperinflations,
a. the value of money rises rapidly
test and actual exams
A rising stock market index due to higher share prices
a. decreases 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. increases people's wealth, but is unlikely to increase their willingness to spend -
CORRECT ANSWER b. increases people's wealth and as a result may increase
their willingness to spend
Money is defined as
a. a risk-free repository of spending power
b. bills of exchange
c. anything that is generally accepted in payment for goods and services or in the
repayment of debt
d. the unrecognized liability of governments - CORRECT ANSWER c. anything that
is generally accepted in payment for goods and services or in the repayment of
debt
Evidence from business cycle fluctuations in the United States indicates that
a. recessions have been preceded by declines in share prices on the stock
exchange
,b. recessions have been preceded by dollar depreciation
c. recessions have been preceded by a decline in the growth rate of money
d. a negative relationship between money growth and general economic activity
exists - CORRECT ANSWER c. recessions have been preceded by a decline in the
growth rate of money
Every financial market has the following characteristic:
a. it allows loans to be made
b. it channels funds from lenders-savers to borrowers-spenders
c. it allows common stock to be traded
d. it determines the level of interest rates - CORRECT ANSWER b. it channels
funds from lenders-savers to borrowers-spenders
Financial markets improve economic welfare because
a. they allow consumers to time their purchase better
b. they weed out inefficient firms
c. they channel funds from investors to savers
d. eliminate the need for indirect finance - CORRECT ANSWER a. they allow
consumers to time their purchase better
An important function of secondary markets is to
a. make it easier for governments to raise taxes
b. create a market for newly constructed houses
c. make it easier to sell financial instruments to raise funds
d. raise funds for corporations through the sale of securities - CORRECT ANSWER
c. make it easier to sell financial instruments to raise funds
,Which of the following statements about the characteristics of debt and equity
are true?
a. debt is a claim on the issuer's assets, but equity is a claim on the issuer's
income
b. they can both be long-term financial instruments
c. they can both be short-term financial instruments
d. both (a) and (b) of the above
e. both (a) and (c) of the above - CORRECT ANSWER b. they can both be long-
term financial instruments
The problem created by asymmetric information before the transaction occurs is
called ________, while the problem created after the transaction occurs is called
________.
a. moral hazard; adverse selection
b. free-riding; costly state verification
c. costly state verification; free-riding
d. adverse selection; moral hazard - CORRECT ANSWER d. adverse selection;
moral hazard
Financial intermediaries promote economic efficiency and thereby increases
people's wealth
a. to the extent that they help solve the problems due to asymmetric information
b. by reducing the transactions cost of linking together borrowers and lenders
c. by reducing the exposure of investors to risk through the process of risk sharing
d. because of all of the above
, e. because of only A and B of the above - CORRECT ANSWER d. because of all of
the above
A goal of the Securities and Exchange Commissions (SEC) is to reduce problems
arising from
a. banking panics
b. asymmetric information
c. competition
d. risk - CORRECT ANSWER b. asymmetric information
The primary purpose of deposit insurance is to
a. protect bank shareholders
b. improve the flow of information to investors
c. protect bank employees from unemployment
d. prevent banking panics - CORRECT ANSWER d. prevent banking panics
The conversion of a barter economy to one that uses money
a. increases efficiency by reducing transactions costs
b. increases efficiency by reducing the need to exchange goods and services
c. does not increase economic efficiency
d. increases efficiency by reducing the need to specialize - CORRECT ANSWER a.
increases efficiency by reducing transactions costs
During hyperinflations,
a. the value of money rises rapidly
