the economics of money banking and finance test bank 9th

Test Bank
to accompany
Kathy Kelly Richard G. Stahl
University of Texas, Arlington Louisiana State University
Pearson Addison-Wesley
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Contents


Chapter1 WhyStudyMoney,Banking,andFinancialMarkets? 1
Chapter2 AnOverviewoftheFinancialSystem 20
Chapter3 WhatIsMoney? 43
Chapter4 UnderstandingInterestRates 60
Chapter5 TheBehaviorofInterestRates 78
Chapter6 TheRiskandTermStructureofInterestRates 111
Chapter7 TheStockMarket,theTheory
ofRationalExpectations,
 andtheEfficientMarketHypothesis 133
Chapter8 AnEconomicAnalysisofFinancialStructure 150
Chapter9 FinancialCrisesandtheSubprimeMeltdown 169
Chapter10 BankingandtheManagementofFinancialInstitutions 181 
Chapter11 EconomicAnalysisofFinancialRegulation 208
Chapter12 BankingIndustry:StructureandCompetition 229
Chapter13
 CentralBanksandtheFederalReserveSystem 253
Chapter14 TheMoneySupplyProcess 274
Chapter15 ToolsforMonetaryPolicy 319
Chapter16 TheConductofMonetaryPolicy:StrategyandTactics 343
Chapter17 TheForeignExchangeMarket 363
Chapter18 TheInternationalFinancialSystem 389
Chapter19 TheDemandforMoney 418
Chapter20 The
ISLMModel 440

Chapter21 MonetaryandFiscalPolicyintheISLMModel 466
Chapter22 AggregateDemandandSupplyAnalysis 493
Chapter23 TransmissionMechanismsofMonetaryPolicy:TheEvidence 511
Chapter24 MoneyandInflation 529
Chapter25 RationalExpectations:ImplicationsforPolicy 549

















Chapter1
WhyStudyMoney,Banking,andFinancialMarkets?
1.1 WhyStudyFinancialMarkets?
1) Financialmarketspromoteeconomicefficiencyby
A) channelingfundsfrominvestorstosavers.
B) creatinginflation.
C) channelingfundsfromsaverstoinvestors.
D) reducinginvestment.

Answer: C
QuesStatus: PreviousEdition
2) Financialmarketspromotegreatereconomicefficiencybychannelingfundsfrom________to
________.
A) investors;savers
B)
b
orrowers;savers
C) savers;borrowers
D) savers;lenders
Answer: C
QuesStatus: PreviousEdition
3) Well
-
functioningfinancialmarketspromote
A) inflation.
B) deflation.
C) unemployment.
D) growth.
Answer: D
QuesStatus: PreviousEdition
4) 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
QuesStatus: New

5) Marketsinwhichfundsaretransferredfromthosewhohaveexcessfundsavailabletothose
whohaveashortageofavailablefundsarecalled
A) commoditymarkets.
B) fund
-
availablemarkets.
C) derivativeexchangemarkets.
D) financialmarkets.
Answer: D
QuesStatus: PreviousEdition
2Mishkin
·
TheEconomicsofMoney,Banking,andFinancialMarkets,9
th
Edition
6) ________marketstransferfundsfrompeoplewhohaveanexcessofavailablefundstopeople
whohaveashortage.
A) Commodity
B) Fund
-
available
C) Financial
D) Derivativeexchange
Answer: C
QuesStatus: PreviousEdition
7) Poorlyperformingfinancialmarketscanbethecauseof
A) wealth.
B) poverty.
C) financialstability.
D) financialexpansion.

Answer: B
QuesStatus: PreviousEdition
8) Thebondmarketsareimportantbecausetheyare
A) easilythemostwidelyfollowedfinancialmarketsintheUnitedStates.
B) themarketswhereforeignexchangeratesaredetermined.
C) themarketswhereinterestratesaredetermined.
D) themarketswhereallborrowersgettheirfunds.
Answer: C
QuesStatus: PreviousEdition
9) Thepricepaidfortherentalofborrowedfunds(usuallyexpressedasapercentageoftherental
of$100peryear)iscommonlyreferredtoasthe
A) inflationrate.
B) exchangerate.
C) interestrate.
D) aggregatepricelevel.
Answer: C
QuesStatus: PreviousEdition
10) Comparedtointerestratesonlong
-
termU.S.government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
QuesStatus: PreviousEdition
Chapter1WhyStudyMoney,Banking,andFinancialMarkets? 3

11) TheinterestrateonBaa(mediumquality)corporatebondsis________,onaverage,thanother
interestrates,andthespreadbetweenitandotherratesbecame________inthe1970s.
A) lower;smaller
B) lower;larger
C) higher;smaller
D) higher;larger
Answer: D
QuesStatus: PreviousEdition
12) Everythingelseheldconstant,adeclineininterestrateswillcausespendingonhousingto
A) fall.
B) remainunchanged.
C) eitherrise,fall,orremainthesame.
D) rise.
Answer: D
QuesStatus: PreviousEdition
13) 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
QuesStatus: New
14) Anincreaseininterestratesmight________savingbecausemorecanbeearnedininterest
income.
A) encourage
B) discourage
C) disallow
D) invalidate
Answer: A

QuesStatus: PreviousEdition
15) Everythingelseheldconstant,anincreaseininterestratesonstudentloans
A) increasesthecostofacollegeeducation.
B) reducesthecostofacollegeeducation.
C) hasnoeffectoneducationalcosts.
D) increasescostsforstudentswithnoloans.
Answer: A
QuesStatus: PreviousEdition
4Mishkin
·
TheEconomicsofMoney,Banking,andFinancialMarkets,9
th
Edition
16) Highinterestratesmightcauseacorporationto________buildinganewplantthatwould
providemorejobs.
A) complete
B) consider
C) postpone
D) contemplate
Answer: C
QuesStatus: PreviousEdition
17) Thestockmarketisimportantbecauseitis
A) whereinterestratesaredetermined.
B) themostwidelyfollowedfinancialmarketintheUnitedStates.
C) whereforeignexchangeratesaredetermined.
D) themarketwheremostborrowersgettheirfunds.
Answer: B
QuesStatus: PreviousEdition
18) Stockpricesare
A) relativelystabletrendingupwardatasteadypace.

B) relativelystabletrendingdownwardatamoderaterate.
C) extremelyvolatile.
D) unstabletrendingdownwardatamoderaterate.
Answer: C
QuesStatus: Revised
19) Arisingstockmarketindexduetohighershareprices
A) increasespeopleʹswealth,butisunlikelytoincreasetheirwillingnesstospend.
B) increasespeopleʹs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) decreases
peopleʹswealth,butisunlikelytoincreasetheirwillingnesstospend.
Answer: B
QuesStatus: PreviousEdition
20) Whenstockpricesfall
A) anindividualʹswealthisnotaffectednoristheirwillingnesstospend.
B) abusinessfirmwillbemorelikelytosellstocktofinanceinvestmentspending.
C) anindividualʹswealthmaydecreasebuttheirwillingnesstospendisnotaffected.
D) anindividualʹswealthmaydecreaseandtheir
willingnesstospendmaydecrease.
Answer: D
QuesStatus: PreviousEdition
21) Changesinstockprices
A) donotaffectpeopleʹswealthandtheirwillingnesstospend.
B) affectfirmsʹdecisionstosellstocktofinanceinvestmentspending.
C) occurinregularpatterns.
D) areunimportanttodecisionmakers.
Answer: B
QuesStatus: PreviousEdition

Chapter1WhyStudyMoney,Banking,andFinancialMarkets? 5
22) Anincreaseinstockprices________thesizeofpeopleʹswealthandmay________their
willingnesstospend,everythingelseheldconstant.
A) increases;increase
B) increases;decrease
C) decreases;increase
D) decreases;decrease
Answer: A
QuesStatus: PreviousEdition
23) Lowstockmarketpricesmight________consumerswillingnesstospendandmight________
businesseswillingnesstoundertakeinvestmentprojects.
A) increase;increase
B) increase;decrease
C) decrease;decrease
D) decrease;increase
Answer: C
QuesStatus: New
24) Fearofamajorrecessioncausesstockpricestofall,everythingelseheldconstant,whichinturn
causesconsumerspendingto
A) increase.
B) remainunchanged.
C) decrease.
D) cannotbedetermined.
Answer: C
QuesStatus: PreviousEdition
25) Ashareofcommonstockisaclaimonacorporationʹs
A) debt.
B) liabilities.
C) expenses.
D) earningsandassets.

Answer: D
QuesStatus: Revised
26) On________,October19,1987,themarketexperienceditsworstone
-
daydropinitsentire
historywiththeDIJAfallingbymorethan500points.
A) ʺTerribleTuesdayʺ
B) ʺWoefulWednesdayʺ
C) ʺFreakyFridayʺ
D) ʺBlackMondayʺ
Answer: D
QuesStatus: PreviousEdition
6Mishkin
·
TheEconomicsofMoney,Banking,andFinancialMarkets,9
th
Edition
27) Thedeclineinstockpricesfrom2000through2002
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)
b
anking
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)
b
arter.
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
Chapter1WhyStudyMoney,Banking,andFinancialMarkets? 7
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)
b
anks
C) over
-
the
-
countermarkets
D) financecompanies
Answer: B
QuesStatus: PreviousEdition
8Mishkin
·
TheEconomicsofMoney,Banking,andFinancialMarkets,9
th
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)
b
anks
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
-
b
usiness
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)
b
ills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)
b

usinesscycle
D) shockwave
Answer: C
QuesStatus: PreviousEdition
Chapter1WhyStudyMoney,Banking,andFinancialMarkets? 9
3) Sustaineddownwardmovementsinthebusinesscyclearereferredtoas
A) inflation.
B) recessions.
C) economicrecoveries.
D) expansions.
Answer: B
QuesStatus: PreviousEdition
4) Duringarecession,outputdeclinesresultingin
A) lowerunemploymentintheeconomy.
B) higherunemploymentintheeconomy.
C) noimpactontheunemploymentintheeconomy.
D) higherwagesfortheworkers.
Answer: B
QuesStatus: New
5) Priortoallrecessionssince1900,therehasbeenadropin
A) inflation.
B) themoneystock.
C) thegrowthrateofthemoneystock.
D) interestrates.
Answer: C
QuesStatus: PreviousEdition
6) EvidencefrombusinesscyclefluctuationsintheUnitedStatesindicatesthat
A) anegativerelationshipbetweenmoneygrowthandgeneraleconomicactivityexists.
B) recessionshavebeenprecededbydeclinesinsharepricesonthestockexchange.
C) recessionshavebeenprecededbydollardepreciation.

D) recessionshavebeenprecededbyadeclineinthegrowthrate
ofmoney.
Answer: D
QuesStatus: PreviousEdition
7) ________theoryrelateschangesinthequantityofmoneytochangesinaggregateeconomic
activityandthepricelevel.
A) Monetary
B) Fiscal
C) Financial
D) Systemic
Answer: A
QuesStatus: PreviousEdition
8) Asharpincreaseinthegrowthofthemoneysupplyislikelyfollowedby
A) arecession.
B) adepression.
C) anincreaseintheinflationrate.
D) nochangeintheeconomy.
Answer: C
QuesStatus: PreviousEdition
10Mishkin
·
TheEconomicsofMoney,Banking,andFinancialMarkets,9
th
Edition
9) Itistruethatinflationisa
A) continuousincreaseinthemoneysupply.
B) continuousfallinprices.
C) declineininterestrates.
D) continuallyrisingpricelevel.
Answer: D

QuesStatus: PreviousEdition
10) Whichofthefollowingisatruestatement?
A) MoneyorthemoneysupplyisdefinedasFederalReservenotes.
B) Theaveragepriceofgoodsandservicesinaneconomyiscalledtheaggregatepricelevel.
C) Theinflationrateismeasuredastherateofchangeinthefederalgovernmentbudget
deficit.
D) Theaggregate
pricelevelismeasuredastherateofchangeintheinflationrate.
Answer: B
QuesStatus: PreviousEdition
11) Iftenyearsagothepricesoftheitemsboughtlastmonthbytheaverageconsumerwouldhave
beenmuchhigher,thenonecanlikelyconcludethat
A) theaggregatepricelevelhasdeclinedduringthisten
-
yearperiod.
B) theaverageinflationrateforthisten
-
yearperiodhasbeenpositive.
C) theaveragerate
ofmoneygrowthforthisten
-
yearperiodhasbeenpositive.
D) theaggregatepricelevelhasrisenduringthisten
-
yearperiod.
Answer: A
QuesStatus: PreviousEdition
12) From1950
-
2008thepricelevelintheUnitedStatesincreasedmorethan________.

A) twofold
B) threefold
C) sixfold
D) ninefold
Answer: C
QuesStatus: Revised
13) CompleteMiltonFriedmanʹsfamousstatement,ʺInflationisalwaysandeverywherea________
phenomenon.ʺ
A) recessionary
B) discretionary
C) repressionary
D) monetary
Answer: D
QuesStatus: PreviousEdition
14) Thereisa________associationbetweeninflationandthegrowthrateofmoney________.
A) positive;demand
B) positive;supply
C) negative;demand
D) negative;supply
Answer: B
QuesStatus: New
Chapter1WhyStudyMoney,Banking,andFinancialMarkets? 11
15) EvidencefromtheUnitedStatesandotherforeigncountriesindicatesthat
A) thereisastrongpositiveassociationbetweeninflationandgrowthrateofmoneyoverlong
periodsoftime.
B) thereislittlesupportfortheassertionthatʺinflationisalwaysandeverywhereamonetary
phenomenon.ʺ
C) countrieswithlowmonetarygrowthratestendto
experiencehigherratesofinflation,all
elsebeingconstant.

D) moneygrowthisclearlyunrelatedtoinflation.
Answer: A
QuesStatus: PreviousEdition
16) Countriesthatexperienceveryhighratesofinflationmayalsohave
A)
b
alancedbudgets.
B) rapidlygrowingmoneysupplies.
C) fallingmoneysupplies.
D) constantmoneysupplies.
Answer: B
QuesStatus: Revised
17) Between1950and1980intheU.S.,interestratestrendedupward.Duringthissametimeperiod,
A) therateofmoneygrowthdeclined.
B) therateofmoneygrowthincreased.
C) thegovernmentbudgetdeficit(expressedasapercentageofGNP)trendeddownward.
D) theaggregatepriceleveldeclinedquitedramatically.
Answer: B
QuesStatus: PreviousEdition
18) Themanagementofmoneyandinterestratesiscalled________policyandisconductedbya
nationʹs________bank.
A) monetary;superior
B) fiscal;superior
C) fiscal;central
D) monetary;central
Answer: D
QuesStatus: PreviousEdition
19) TheorganizationresponsiblefortheconductofmonetarypolicyintheUnitedStatesisthe
A) ComptrolleroftheCurrency.
B) U.S.Treasury.

C) FederalReserveSystem.
D) BureauofMonetaryAffairs.
Answer: C
QuesStatus: PreviousEdition
12Mishkin
·
TheEconomicsofMoney,Banking,andFinancialMarkets,9
th
Edition
20) ________policyinvolvesdecisionsaboutgovernmentspendingandtaxation.
A) Monetary
B) Fiscal
C) Financial
D) Systemic
Answer: B
QuesStatus: PreviousEdition
21) Whentaxrevenuesaregreaterthangovernmentexpenditures,thegovernmenthasabudget
________.
A) crisis
B) deficit
C) surplus
D) revision
Answer: C
QuesStatus: PreviousEdition
22) Abudget________occurswhengovernmentexpendituresexceedtaxrevenuesforaparticular
timeperiod.
A) deficit
B) surplus
C) surge
D) surfeit

Answer: A
QuesStatus: New
23) Budgetsdeficitscanbeaconcernbecausetheymight
A) ultimatelyleadtohigherinflation.
B) leadtolowerinterestrates.
C) leadtoaslowerrateofmoneygrowth.
D) leadtohigherbondprices.
Answer: A
QuesStatus: PreviousEdition
24) Budgetdeficitsareimportantbecausedeficits
A) causebankfailures.
B) alwayscauseinterestratestofall.
C) canresultinhigherratesofmonetarygrowth.
D) alwayscausepricestofall.
Answer: C
QuesStatus: PreviousEdition
25) Whathappenstoeconomicgrowthandunemploymentduringabusinesscyclerecession?
Whatistherelationshipbetweenthemoneygrowthrateandabusinesscyclerecession?
Answer: Duringarecession,outputdeclinesandunemploymentincreases.Priortoevery
recessionintheU.S.themoneygrowthratehasdeclined,however,noteverydeclineis
followed
byarecession.
QuesStatus: PreviousEdition
Chapter1WhyStudyMoney,Banking,andFinancialMarkets? 13
1.4 WhyStudyInternationalFinance?
1) Americancompaniescanborrowfunds
A) onlyinU.S.financialmarkets.
B) onlyinforeignfinancialmarkets.
C) inbothU.S.andforeignfinancialmarkets.
D) onlyfromtheU.S.government.

Answer: C
QuesStatus: New
2) Thepriceofonecountryʹscurrencyintermsofanothercountryʹscurrencyiscalledthe
A) exchangerate.
B) interestrate.
C) DowJonesindustrialaverage.
D) primerate.
Answer: A
QuesStatus: PreviousEdition
3) Themarketwhereonecurrencyisconvertedintoanothercurrencyiscalledthe________
market.
A) stock
B)
b
ond
C) derivatives
D) foreignexchange
Answer: D
QuesStatus: PreviousEdition
4) Everythingelseconstant,astrongerdollarwillmeanthat
A) vacationinginEnglandbecomesmoreexpensive.
B) vacationinginEnglandbecomeslessexpensive.
C) Frenchcheesebecomesmoreexpensive.
D)
J
apanesecarsbecomemoreexpensive.
Answer: B
QuesStatus: PreviousEdition
5) Whichofthefollowingismostlikelytoresultfromastrongerdollar?
A) U.S.goodsexportedaboardwillcostlessinforeigncountries,andsoforeignerswillbuy

moreofthem.
B) U.S.goodsexportedaboardwillcostmoreinforeigncountriesandsoforeignerswillbuy
moreofthem.
C) U.S.goodsexportedabroad
willcostmoreinforeigncountries,andsoforeignerswillbuy
fewerofthem.
D) Americanswillpurchasefewerforeigngoods.
Answer: C
QuesStatus: PreviousEdition
14Mishkin
·
TheEconomicsofMoney,Banking,andFinancialMarkets,9
th
Edition
6) Everythingelseheldconstant,aweakerdollarwilllikelyhurt
A) textileexportersinSouthCarolina.
B) wheatfarmersinMontanathatselldomestically.
C) automobilemanufacturersinMichiganthatusedomesticallyproducedinputs.
D) furnitureimportersinCalifornia.
Answer: D
QuesStatus: PreviousEdition
7) Everythingelseheldconstant,astrongerdollarbenefits________andhurts________.
A) Americanbusinesses;Americanconsumers
B) Americanbusinesses;foreignbusinesses
C) Americanconsumers;Americanbusinesses
D) foreignbusinesses;Americanconsumers
Answer: C
QuesStatus: PreviousEdition
8) From1980toearly1985thedollar________invalue,therebybenefitingAmerican________.
A) appreciated;consumers

B) appreciated,businesses
C) depreciated;consumers
D) depreciated,businesses
Answer: A
QuesStatus: PreviousEdition
9) From1980to1985thedollarappreciatedrelativetotheBritishpound.Holdingeverythingelse
constant,onewouldexpectthat,whencomparedto1980,
A) fewerBritonstraveledtotheUnitedStatesin1985.
B) BritonsimportedmorewinefromCaliforniain1985.
C) AmericansexportedmorewheattoEnglandin1985.
D) moreBritonstraveledto
theUnitedStatesin1985.
Answer: A
QuesStatus: PreviousEdition
10) Whenin1985aBritishpoundcostapproximately$1.30,aShetlandsweaterthatcost100British
poundswouldhavecost$130.Withaweakerdollar,thesameShetlandsweaterwouldhave
cost
A) lessthan$130.
B) morethan$130.
C) $130,sincetheexchangeratedoesnotaffectthepricesthatAmericanconsumerspayfor
foreign
goods.
D) $130,sincethedemandforShetlandsweaterswilldecreasetopreventanincreaseinprice
duetothestrongerdollar.
Answer: B
QuesStatus: PreviousEdition
Chapter1WhyStudyMoney,Banking,andFinancialMarkets? 15
11) Everythingelseheldconstant,adecreaseinthevalueofthedollarrelativetoallforeign
currenciesmeansthatthepriceofforeigngoodspurchasedbyAmericans
A) increases

B) decreases.
C) remainsunchanged.
D) eitherincreases,decreases,orremainsunchanged.
Answer: A
QuesStatus: PreviousEdition
12) AmericanfarmerswhosellbeeftoEuropebenefitmostfrom
A) adecreaseinthedollarpriceofeuros.
B) anincreaseinthedollarpriceofeuros.
C) aconstantdollarpriceforeuros.
D) aEuropeanbanonimportsofAmericanbeef.
Answer: B
QuesStatus: PreviousEdition
13) Ifthepriceofaeuro(theEuropeancurrency)increasesfrom$1.00to$1.10,then,everythingelse
heldconstant,
A) aEuropeanvacationbecomeslessexpensive.
B) aEuropeanvacationbecomesmoreexpensive.
C) thecostofaEuropeanvacationisnotaffected.
D) foreigntravelbecomesimpossible.
Answer: B
QuesStatus: PreviousEdition
14) Everythingelseheldconstant,AmericanswholoveFrenchwinebenefitmostfrom
A) adecreaseinthedollarpriceofeuros.
B) anincreaseinthedollarpriceofeuros.
C) aconstantdollarpriceforeuros.
D) abanonimportsfromEurope.
Answer: A
QuesStatus: PreviousEdition
15) From1980
-
1985,thedollarstrengthenedinvalueagainstothercurrencies.Whowashelped

andwhowashurtbythisstrongdollar?
Answer: Americanconsumersbenefittedbecauseimportswerecheaperandconsumerscould
purchasemore.Americanbusinessesandworkersinthosebusinesseswerehurtas
domesticandforeignsalesofAmericanproductsfell.
QuesStatus: New
16Mishkin
·
TheEconomicsofMoney,Banking,andFinancialMarkets,9
th
Edition
1.5 Appendix:DefiningAggregateOutput,Income,thePriceLevel,andtheInflatio
n
Rate
1) Themostcomprehensivemeasureofaggregateoutputis
A) grossdomesticproduct.
B) netnationalproduct.
C) thestockvalueoftheindustrial500.
D) nationalincome.
Answer: A
QuesStatus: PreviousEdition
2) Thegrossdomesticproductisthe
A) thevalueofallwealthinaneconomy.
B) thevalueofallgoodsandservicessoldtoothernationsinayear.
C) themarketvalueofallfinalgoodsandservicesproducedinaneconomyinayear.
D) themarketvalueofallintermediategoodsandservices
producedinaneconomyinayear.
Answer: C
QuesStatus: PreviousEdition
3) WhichofthefollowingitemsarenotcountedinU.S.GDP?
A) yourpurchaseofanewFordMustang

B) yourpurchaseofnewtiresforyouroldcar
C) GMʹspurchaseoftiresfornewcars
D) aforeignconsumerʹspurchaseofanewFordMustang
Answer: C
QuesStatus: New
4) Ifaneconomyhasaggregateoutputof$20trillion,thenaggregateincomeis
A) $10trillion.
B) $20trillion.
C) $30trillion.
D) $40trillion.
Answer: B
QuesStatus: PreviousEdition
5) Whenthetotalvalueoffinalgoodsandservicesiscalculatedusingcurrentprices,theresulting
measureisreferredtoas
A) realGDP.
B) theGDPdeflator.
C) nominalGDP.
D) theindexofleadingindicators.
Answer: C
QuesStatus: PreviousEdition
Chapter1WhyStudyMoney,Banking,andFinancialMarkets? 17
6) NominalGDPisoutputmeasuredin________priceswhilerealGDPisoutputmeasuredin
________prices.
A) current;current
B) current;fixed
C) fixed;fixed
D) fixed;current
Answer: B
QuesStatus: New
7) GDPmeasuredwithconstantpricesisreferredtoas

A) realGDP.
B) nominalGDP.
C) theGDPdeflator.
D) industrialproduction.
Answer: A
QuesStatus: PreviousEdition
8) Ifyournominalincomein2002was$50,000,andpricesdoubledbetween2002and2008,tohave
thesamerealincome,yournominalincomein2008mustbe
A) $50,000.
B) $75,000.
C) $90,000.
D) $100,000.
Answer: D
QuesStatus: Revised
9) Ifyournominalincomein1998is$50,000,andpricesincreaseby50%between1998and2008,
thentohavethesamerealincome,yournominalincomein2008mustbe
A) $50,000.
B) $75,000.
C) $100,000.
D) $150,000.
Answer: B
QuesStatus: Revised
10) ToconvertanominalGDPtoarealGDP,youwoulduse
A) thePCEdeflator.
B) theCPImeasure.
C) theGDPdeflator.
D) thePPImeasure.
Answer: C
QuesStatus: New
18Mishkin

·
TheEconomicsofMoney,Banking,andFinancialMarkets,9
th
Edition
11) IfnominalGDPin2001is$9trillion,and2001realGDPin1996pricesis$6trillion,theGDP
deflatorpriceindexis
A) 7.
B) 100.
C) 150.
D) 200.
Answer: C
QuesStatus: PreviousEdition
12) Whenpricesaremeasuredintermsoffixed(base
-
year)pricestheyarecalled________prices.
A) nominal
B) real
C) inflated
D) aggregate
Answer: B
QuesStatus: PreviousEdition
13) Themeasureoftheaggregatepricelevelthatismostfrequentlyreportedinthemediaisthe
________.
A) GDPdeflator
B) producerpriceindex
C) consumerpriceindex
D) householdpriceindex
Answer: C
QuesStatus: PreviousEdition
14) Tocalculatethegrowthrateofavariable,youwill

A) calculatethepercentagechangefromonetimeperiodtothenext.
B) calculatethedifferencebetweenthetwovariables.
C) addtheendingvaluetothebeginningvalue.
D) dividetheincreasebythenumberoftimeperiods.
Answer: A
QuesStatus: New
15) IfrealGDPgrowsfrom$10trillionin2002to$10.5trillionin2003,thegrowthrateforrealGDP
is
A) 5%.
B) 10%.
C) 50%.
D) 0.5%.
Answer: A
QuesStatus: PreviousEdition
Chapter1WhyStudyMoney,Banking,andFinancialMarkets? 19
16) IfrealGDPin2002is$10trillion,andin2003realGDPis$9.5trillion,thenrealGDPgrowth
from2002to2003is
A) 0.5%.
B) 5%.
C) 0%.
D)
-
5%.
Answer: D
QuesStatus: PreviousEdition
17) IftheaggregatepricelevelattimetisdenotedbyPt,theinflationratefromtimet
-
1totis
definedas
A) π

t

=
(P
t

-
P
t
-
1
)
/
P
t
-
1
.
B) π
t

=
(P
t+1

-
P
t
-
1

)/P
t
-
1
.
C) π
t

=
(P
t
+
1

-
P
t
)/P
t
.
D) π
t

=
(P
t

-
P
t

-
1
)/P
t
.
Answer: A
QuesStatus: PreviousEdition
18) Ifthepricelevelincreasesfrom200inyear1to220inyear2,therateofinflationfromyear1to
year2is
A) 20%.
B) 10%.
C) 11%.
D) 120%.
Answer: B
QuesStatus: PreviousEdition
19) IftheCPIis120in1996and180in2002,thenbetween1996and2002,priceshaveincreasedby
A) 180%.
B) 80%.
C) 60%.
D) 50%.
Answer: D
QuesStatus: PreviousEdition
20) IftheCPIin2004is200,andin2005theCPIis180,therateofinflationfrom2004to2005is
A) 20%.
B) 10%.
C) 0%.
D)
-
10%.
Answer: D

QuesStatus: PreviousEdition
Chapter2
AnOverviewoftheFinancialSystem
2.1 FunctionofFinancialMarkets
1) Everyfinancialmarkethasthefollowingcharacteristic:
A) Itdeterminesthelevelofinterestrates.
B) Itallowscommonstocktobetraded.
C) Itallowsloanstobemade.
D) Itchannelsfundsfromlenders
-
saverstoborrowers
-
spenders.
Answer: D
QuesStatus: PreviousEdition
2) Financialmarketshavethebasicfunctionof
A) gettingpeoplewithfundstolendtogetherwithpeoplewhowanttoborrowfunds.
B) assuringthattheswingsinthebusinesscyclearelesspronounced.
C) assuringthatgovernmentsneedneverresorttoprintingmoney.
D) providingarisk
-
freerepositoryofspendingpower.
Answer: A
QuesStatus: PreviousEdition
3) Financialmarketsimproveeconomicwelfarebecause
A) theychannelfundsfrominvestorstosavers.
B) theyallowconsumerstotimetheirpurchasebetter.
C) theyweedoutinefficientfirms.
D) eliminatetheneedforindirectfinance.
Answer: B

QuesStatus: PreviousEdition
4) Well
-
functioningfinancialmarkets
A) causeinflation.
B) eliminatetheneedforindirectfinance.
C) causefinancialcrises.
D) produceanefficientallocationofcapital.
Answer: D
QuesStatus: PreviousEdition
5) Abreakdownoffinancialmarketscanresultin
A) financialstability.
B) rapideconomicgrowth.
C) politicalinstability.
D) stableprices.
Answer: C
QuesStatus: PreviousEdition
Chapter2AnOverviewoftheFinancialSystem 21
6) Theprincipallender
-
saversare
A) governments.
B)
b
usinesses.
C) households.
D) foreigners.
Answer: C
QuesStatus: New
7) Whichofthefollowingcanbedescribedasdirectfinance?

A) Youtakeoutamortgagefromyourlocalbank.
B) Youborrow$2500fromafriend.
C) Youbuysharesofcommonstockinthesecondarymarket.
D) Youbuysharesinamutualfund.
Answer: B
QuesStatus: PreviousEdition
8) Assumethatyouborrow$2000at10%annualinteresttofinanceanewbusinessproject.Forthis
loantobeprofitable,theminimumamountthisprojectmustgenerateinannualearningsis
A) $400.
B) $201.
C) $200.
D) $199.
Answer: B
QuesStatus: PreviousEdition
9) Youcanborrow$5000tofinanceanewbusinessventure.Thisnewventurewillgenerateannual
earningsof$251.Themaximuminterestratethatyouwouldpayontheborrowedfundsand
stillincreaseyourincomeis
A) 25%.
B) 12.5%.
C) 10%.
D) 5%.
Answer: D
QuesStatus: PreviousEdition
10) Whichofthefollowingcanbedescribedasinvolvingdirectfinance?
A) Acorporationissuesnewsharesofstock.
B) Peoplebuysharesinamutualfund.
C) Apensionfundmanagerbuysashort
-
termcorporatesecurityinthesecondarymarket.
D) Aninsurancecompanybuyssharesofcommonstockintheover

-
the
-
countermarkets.
Answer: A
QuesStatus: PreviousEdition
11) Whichofthefollowingcanbedescribedasinvolvingdirectfinance?
A) Acorporationtakesoutloansfromabank.
B) Peoplebuysharesinamutualfund.
C) Acorporationbuysashort
-
termcorporatesecurityinasecondarymarket.
D) Peoplebuysharesofcommonstockintheprimarymarkets.
Answer: D
QuesStatus: PreviousEdition