test Flashcards
(35 cards)
The financial system is primarily a means by which A) the government puts into operation its plans for the economy. B) money is put into circulation. C) funds are transferred from savers to borrowers. D) business firms distribute their goods
C) funds are transferred from savers to borrowers
Economists define risk as A) the difference between the return on common stock and the return on corporate bonds. B) the difference between the interest rate borrowers pay and the interest rate lenders receive .C) the ease with which an asset can be exchanged for other assets or for goods and services. D) the chance that the value of financial assets will change from what you expect
D) the chance that the value of financial assets will change from what you expect
Economists define liquidity as A) the difference between the total demand for an asset and the total supply of the asset. B) the ease with which an asset can be exchanged for money. C) the fraction the asset makes up of an investor’s portfolio. D) the difference between the return on the asset and the return on a long-term U.S. Treasurybond
B) the ease with which an asset can be exchanged for money
By providing and communicating information, the financial system A) eliminates the risk in investing in the stock market. B) guarantees investors a reasonable return on their money. C) reduces the difference between the return on three-month U.S. Treasury bills and the return on thirty-year U.S. Treasury bonds. D) relieves individual savers from the necessity of searching out individual borrowers
relieves individual savers from the necessity of searching out individual borrowers
If a bank grants you a mortgage, the mortgage is A) a liability to you, but an asset to the bank. B) an asset to you, but a liability to the bank. C) a liability to you as well as a liability to the bank. D) an asset to you as well as an asset to the bank
A) a liability to you, but an asset to the bank
The main role of financial intermediaries is to A) borrow funds from savers and lend them to borrowers. B) provide advice to consumers on how they should handle their finances. C) provide funds to the federal government to cover the budget deficit. D) help ensure that there is enough money in circulation
A) borrow funds from savers and lend them to borrowers.
The Federal Reserve System A) is responsible for conducting fiscal policy for the United States. B) is in charge of managing the New York Stock Exchange. C) is the central bank of the United States. D) is headed by the Secretary of the Treasury.
C) is the central bank of the United States
Monetary policy refers to the government’s A) decisions on how much money to collect in taxes. B) plans for retiring the national debt. C) management of the money supply and interest rates to achieve macroeconomic objectives. D )decisions on how much money to spend
C) management of the money supply and interest rates to achieve macroeconomic objectives
The purpose of diversification is to A) reduce risk. B) reduce tax liability. C) Increase the liquidity of a financial portfolio. D) reduce the brokerage fees involved in managing a financial portfolio
A) reduce risk
Ordinary (non-securitized) loans cannot be resold after they have been granted by a bank oranother lender. Therefore, these loans are A) neither financial assets nor financial securities. B) both financial assets and financial securities. C) financial assets but not financial securities. D) financial securities but not financial assets
C) financial assets but not financial securities
Andy can’t make a deal with Danny. Andy has an Alex Rodriguez baseball card and would like totrade it to Danny for Danny’s Albert Pujols card, but Danny doesn’t want an Alex Rodriguez card.Andy’s problem illustrates the drawback to a barter system known as A) the specialization problem. B )the many prices problem. C) the transactions problem. D) the double coincidence of wants problem
D) the double coincidence of wants problem
When economists refer to the role of money as a unit of account, they mean that A) money gives traders a way of measuring value in the economy. B) money makes it possible for specialization to take place. C) most accounting systems reflect that goods are purchased with currency. D) most accounting systems reflect that goods are purchased with checks
A) money gives traders a way of measuring value in the economy
Why do individuals hold money when it does NOT provide the services that, say, a house does? A) Money is useful in avoiding taxes on certain transactions. B) Money is the only form in which wealth may be held. C) Money is the most liquid asset. D) Money increases in value faster than other assets
C) Money is the most liquid asset.
Suppose $100 buys less in the year 2021 than in 2015. Then we can say that A) the economy must have been growing slowly between 2015 and 2021. B) the economy must have been growing rapidly between 2015 and 2021. C) money’s store of value has increased. D) money’s store of value has decreased.
D) money’s store of value has decreased.
In what sense do self-fulfilling expectations determine the acceptability of a medium of exchange? A) People expect that money will never lose its value. B) People value something as money only if they believe others will accept it from them as payment. C) People expect that eventually every country will use the same medium of exchange. D) People like to do what the government expects them to do.
B) People value something as money only if they believe others will accept it from them as payment
Fiat money A) is usually some type of precious metal. B) is money that would have no value if it were not usable as money. C) is illegal in most advanced, industrial countries. D) will generally be accepted in trade for less than its face value.
B) is money that would have no value if it were not usable as money
Which function of money eliminates the need for multiple prices for each good as in a barter system? A) unit of account B) store of value C) standard of deferred payment D) valuable relative to its weight
A) unit of account
Which function of money allows for specialization to take place? A) medium of exchange B) unit of account C) standard of deferred payment D) store of value
A) medium of exchange
Which function of money enhances the ability of households to accumulate wealth? A) store of value B) medium of exchange C) valuable relative to its weight D) does not become worn out too quickly
A) store of value
The M2 aggregate A) includes M1 plus large-denomination time deposits. B) is the best definition of money purely as a medium of exchange. C) includes M1 plus short-term investment accounts. D) equals currency plus checking account deposits at commercial banks.
C) includes M1 plus short-term investment accounts
If consumers were to shift funds from savings accounts to checking accounts, which of thefollowing is true? A) M1 decreases and M2 does not change B) M2 increases and M1 does not change C) Both M1 and M2 increase D) M1 increases and M2 does not change
D) M1 increases and M2 does not change
Suppose nominal GDP is $14 trillion and the money supply is $2 trillion. What is the velocity of money? A) 0.143 B) 7 C) 12 D) 28
B) 7
Quantity theory of money formula
inflation rate= % change in m - % change in Y
According to the quantity theory of money, if the long-run economic growth rate is 2.5%, by how much should the Fed increase the money supply if it wants inflation to be 2%? A) 0.5% B) 1.25% C) 4.5% D) 5%
C) 4.5%
