Money Banking and Financial Markets Chapter 1 Correct Answers Exam 2025

1. Which item below is not one of the five parts of the Financial System? A) Money B) Central banks C) Financial Markets D) Credit cards - Correct Ans-D) Credit cards 2. In the United States control of the money supply is given to: A) the President. B) Congress. C) the Secretary of the Treasury. D) the Federal Reserve. - Correct Ans-D) the Federal Reserve. 3. Which of the following statements best describes financial markets? selling financial instruments since people are earning fees for these transactions. they also decrease the cost. A) Financial markets raise the cost and increase the speed of buying and B) Financial markets increase the speed of buying and selling, and they also decrease the cost. C) Financial markets are a good example of unregulated markets. D) b and c - Correct Ans-B) Financial markets increase the speed of buying and selling, and they also decrease the cost. 4. The New York Stock Exchange is an example of: A) a financial instrument. Money Banking Money Banking B) a central bank. C) a financial market. D) All of the above. - Correct Ans-C) a financial market. 5. Which of the following is NOT an accurate description of a trend associated with the U.S. financial system over the last few decades? to participate in financial markets through the use of mutual funds. A) It has become easier to withdraw funds from checking accounts. B) Financial innovations have made it easier for lower income households to participate in financial markets through the use of mutual funds. C) Banks have provided an expanding mix of services D) The Fed has become more secretive concerning its policy actions. - Correct Ans-D) The Fed has become more secretive concerning its policy actions. 6. Which of the following is NOT likely to be a goal of a central bank? A) encouraging the use of paper currency instead of checking deposits B) maintaining a low inflation rate C) encouraging economic growth D) maintaining a stable financial system - Correct Ans-A) encouraging the use of paper currency instead of checking deposits 7. The five core principles of Money and Banking include each of the following except: A) all people act rationally. B) time has value. C) information is the basis for decisions. D) risk requires compensation. - Correct Ans-A) all people act rationally. 8. The amount that a typical person would be willing to give up today (in the absence of anticipated deflation) to receive $1,000 next year is: Money Banking Money Banking A) less than $1,000. B) equal to $1,000. C) greater than $1,000. D) more or less than $1,000, depending on the level of the interest rate. - Correct Ans A) less than $1,000. 9. When an individual obtains a student loan and makes all of the regular monthly payments, the sum of the payments made will exceed the initial amount of the loan. This is due primarily to the core principle that states that: A) most people do not pay back student loans. B) time has value. C) markets are sometimes inefficient at allocating resources. D) information is the basis for decisions. - Correct Ans-B) time has value. 10. Banks usually offer lower rates of interest to people willing to keep their funds in the bank for a short time because: A) the banks really do not want these people as customers. B) banks really do not want a lot of people coming into the bank. C) bankers realize time has value and people need to be compensated if they are to keep their money in the bank longer. D) All of the above. - Correct Ans-C) bankers realize time has value and people need to be compensated if they are to keep their money in the bank longer. 11. The statement "risk requires compensation" implies: A) people only accept risk when they absolutely have to. B) people will only accept risk when they are rewarded for doing so. C) people do not take risk. D) people will pay to avoid risk. E) b and d - Correct Ans-E) b and d Money Banking Money Banking 12. The principle that "risk requires compensation" does NOT explain why: A) junk bonds provide a higher average return than do high-grade corporate bonds. B) college students pay high interest rates on credit cards than do adults with established credit histories. C) the interest rate is higher on 5-year CDs than on 1-year CDs. D) individuals with poor credit ratings must pay higher interest rates on car loans. - Correct Ans-C) the interest rate is higher on 5-year CDs than on 1-year CDs. 13. Monetary policy is best described as: A) attempts to keep inflation constant. B) determining the denominations and supply of a country's currency. C) one of the most important functions of Congress. D) attempts to keep inflation low and stable and growth high and stable. - Correct Ans D) attempts to keep inflation low and stable and growth high and stable. 14. When an individual is faced with a choice between receiving a random income that on average equals $40,000 per year or a certain income of $40,000 per year, most individuals prefer the certain income to the one that varies because: A) information is the basis for decisions. B) stability improves welfare. C) markets determine prices and allocate resources. D) time has value. - Correct Ans-B) stability improves welfare. 15. The core principles of money and banking would imply that if more students didn't pay back their student loans: A) student loans may become more difficult to obtain. B) the interest rate on student loans would increase. C) fewer people may attend college. D) All of the above. - Correct Ans-D) All of the above. Money Banking Money Banking 16. A bank is an example of: A) a financial instrument. B) a financial market. C) a financial institution D) None of the above is correct. - Correct Ans-C) a financial institution 17. Financial instruments are: A) used to transfer resources from savers to investors. B) used to transfer risk. C) sold in financial markets. D) All of the above are correct. - Correct Ans-D) All of the above are correct. 18. Money: A) consists solely of currency. B) consists solely of gold and silver coins. C) is used to purchase goods and services and to store wealth. D) is only rarely used to pay for transactions today. - Correct Ans-C) is used to purchase goods and services and to store wealth. 19. Which of the following correctly describes trends associated with financial instruments in the U.S.? A) Transactions have become relatively more costly