A) increased individualsʹ willingness to spend.
B) had no effect on individual spending.
C) reduced individualsʹ willingness to spend.
D) increased individual wealth.
Answer: C
Ques Status: Previous Edition
28) The Dow reached a peak of over 11,000 before the collapse of the ________ bubble in 2000.
A) housing
B) manufacturing
C) high-tech
D) banking
Answer: C
Ques Status: Previous Edition
29) What is a stock? How do stocks affect the economy?
Answer: A stock represents a share of ownership of a corporation, or a claim on a firmʹs
earnings/assets. Stocks are part of wealth, and changes in their value affect peopleʹs
willingness to spend. Changes in stock prices affect a firmʹs ability to raise funds, and
thus their investment.
Ques Status: Previous Edition
30) Why is it important to understand the bond market?
Answer: The bond market supports economic activity by enabling the government and
corporations to borrow to undertake their projects and it is the market where interest
rates are determined.
Ques Status: New
1.2 Why Study Financial Institutions and Banking?
1) Channeling funds from individuals with surplus funds to those desiring funds when the saver
does not purchase the borrowerʹs security is known as
A) barter.
B) redistribution.
C) financial intermediation.
D) taxation.
Answer: C
Ques Status: Previous Edition
2) A financial crisis is
A) not possible in the modern financial environment.
B) a major disruption in the financial markets.
C) a feature of developing economies only.
D) typically followed by an economic boom.
Answer: B
Ques Status: New
3) Banks are important to the study of money and the economy because they
A) channel funds from investors to savers.
B) have been a source of rapid financial innovation.
C) are the only important financial institution in the U.S. economy.
D) create inflation.
Answer: B
Ques Status: Previous Edition
4) Financial intermediaries
A) provide a channel for linking those who want to save with those who want to invest.
B) produce nothing of value and are therefore a drain on societyʹs resources.
C) can hurt the performance of the economy.
D) hold very little of the average Americanʹs wealth.
Answer: A
Ques Status: Revised
5) Banks, savings and loan associations, mutual savings banks, and credit unions
A) are no longer important players in financial intermediation.
B) since deregulation now provide services only to small depositors.
C) have been adept at innovating in response to changes in the regulatory environment.
D) produce nothing of value and are therefore a drain on societyʹs resources.
Answer: C
Ques Status: Previous Edition
6) Financial institutions search for ________ has resulted in many financial innovations.
A) higher profits
B) regulations
C) respect
D) higher risk
Answer: A
Ques Status: New
7) Banks and other financial institutions engage in financial intermediation, which
A) can hurt the performance of the economy.
B) can benefit economic performance.
C) has no effect on economic performance.
D) involves borrowing from investors and lending to savers.
Answer: B
Ques Status: Previous Edition
8) Financial institutions that accept deposits and make loans are called ________.
A) exchanges
B) banks
C) over-the-counter markets
D) finance companies
Answer: B
Ques Status: Previous Edition
9) The financial intermediaries that the average person interacts with most frequently are
________.
A) exchanges
B) over-the-counter markets
C) finance companies
D) banks
Answer: D
Ques Status: Previous Edition
10) Which of the following is not a financial institution?
A) a life insurance company
B) a pension fund
C) a credit union
D) a business college
Answer: D
Ques Status: Previous Edition
11) The delivery of financial services electronically is called ________.
A) e-business
B) e-commerce
C) e-finance
D) e-possible
Answer: C
Ques Status: Previous Edition
12) What crucial role do financial intermediaries perform in an economy?
Answer: Financial intermediaries borrow funds from people who have saved and make loans to
other individuals and businesses and thus improve the efficiency of the economy.
Ques Status: New
1.3 Why Study Money and Monetary Policy?
1) Money is defined as
A) bills of exchange.
B) anything that is generally accepted in payment for goods and services or in the repayment
of debt.
C) a risk-free repository of spending power.
D) the unrecognized liability of governments.
Answer: B
Ques Status: Previous Edition
2) The upward and downward movement of aggregate output produced in the economy is
referred to as the ________.
A) roller coaster
B) see saw
C) business cycle
D) shock wave
Answer: C
Ques Status: Previous Edition
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