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ECO 315 Midterm # 1 - MC + answer - Chapter 1

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ECO 315 Midterm # 1 - MC
smjackson7
Quiz by smjackson7, updated more than 1 year ago
smjackson7
Created by smjackson7 almost 9 years ago
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Resource summary

Question 1

Question
Financial markets promote economic efficiency by
Answer
  • channeling funds from investors to savers
  • creating inflation
  • channeling funds from savers to investors
  • reducing investment

Question 2

Question
Financial markets promote greater economic efficiency by channeling funds from ________ to
Answer
  • investors; savers
  • borrowers; savers
  • savers; borrowers
  • savers; lenders

Question 3

Question
Well-function financial markets promote
Answer
  • inflation
  • deflation
  • unemployment
  • growth

Question 4

Question
A key factor in producing high economic growth is
Answer
  • eliminating foreign trade
  • well-functioning financial markets
  • high interest rates
  • stock market volatility

Question 5

Question
Markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds are called
Answer
  • commodity markets
  • fund-available markets
  • derivative exchange markets
  • financial markets

Question 6

Question
Poorly performing financial markets can be the cause of
Answer
  • wealth
  • poverty
  • financial stability
  • financial expansion

Question 7

Question
The bond markets are important because they are
Answer
  • easily the most widely followed financial markets in the US
  • the markets where foreign exchange rates are determined
  • the markets where interest rates are determined
  • the markets where all borrowers get their funds

Question 8

Question
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
Answer
  • inflation rate
  • exchange rate
  • interest rate
  • aggregate price level

Question 9

Question
Compared to interest rates on long-term U.S. government bonds, interest rates on three-month Treasury bills fluctuate ________ and are ________ on average.
Answer
  • more; lower
  • less; lower
  • more; higher
  • less; higher

Question 10

Question
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
Answer
  • lower; smaller
  • lower; larger
  • higher; smaller
  • higher; larger

Question 11

Question
Everything else held constant, a decline in interest rates will cause spending on housing to
Answer
  • fall
  • remain unchanged
  • either rise, fall, or remain the same
  • rise

Question 12

Question
High interest rates might ________ purchasing a house or car but at the same time high interest rates might ________ saving.
Answer
  • discourage; encourage
  • discourage; discourage
  • encourage; encourage
  • encourage; discourage

Question 13

Question
An increase in interest rates might ________ saving because more can be earned in interest income.
Answer
  • encourage
  • discourage
  • disallow
  • invalidate

Question 14

Question
Everything else held constant, an increase in interest rates on student loans
Answer
  • increases the cost of a college education
  • reduces the cost of a college education
  • has no effect on educational costs
  • increases costs for students with no loans

Question 15

Question
High interest rates might cause a corporation to ________ building a new plant that would provide more jobs.
Answer
  • complete
  • consider
  • postpone
  • contemplate

Question 16

Question
The stock market is important because it is
Answer
  • where interest rates are determined
  • the most widely followed financial market in the United States
  • Where foreign exchange rates are determined
  • the market where most borrowers get their funds

Question 17

Question
Stock prices are
Answer
  • relatively stable trending upward at a steady pace
  • relatively stable trending downward at a moderate rate
  • extremely volative
  • unstable trending downward at a moderate rate

Question 18

Question
A rising stock market index due to higher share prices
Answer
  • increases peopleʹs wealth, but is unlikely to increase their willingness to spend.
  • increases peopleʹs wealth and as a result may increase their willingness to spend.
  • decreases the amount of funds that business firms can raise by selling newly -issued stock.
  • decreases peopleʹs wealth, but is unlikely to increase their willingness to spend.

Question 19

Question
20) When stock prices fall
Answer
  • an individualʹs wealth is not affected nor is their willingness to spend.
  • a business firm will be more likely to sell stock to finance investment spending.
  • an individualʹs wealth may decrease but their willingness to spend is not affected.
  • an individualʹs wealth may decrease and their willingness to spend may decrease.

Question 20

Question
Changes in stock prices
Answer
  • do not affect peopleʹs wealth and their willingness to spend.
  • affect firmsʹ decisions to sell stock to finance investment spending.
  • occur in regular patterns.
  • are unimportant to decision makers.

Question 21

Question
An increase in stock prices ________ the size of peopleʹs wealth and may ________ their willingness to spend, everything else held constant.
Answer
  • increases; increase
  • increases; decrease
  • decreases; increase
  • decreases; decrease

Question 22

Question
Low stock market prices might ________ consumers willingness to spend and might ________ businesses willingness to undertake investment projects.
Answer
  • increase; increase
  • increase; decrease
  • decrease; decrease
  • decrease; increase

Question 23

Question
Fear of a major recession causes stock prices to fall, everything else held constant, which in turn causes consumer spending to
Answer
  • increase
  • remain unchanged
  • decrease
  • cannot be determined

Question 24

Question
A share of common stock is a claim on a corporationʹs
Answer
  • debt
  • liabilities
  • expenses
  • earnings and assets

Question 25

Question
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.
Answer
  • ʺTerrible Tuesdayʺ
  • ʺWoeful Wednesdayʺ
  • ʺFreaky Fridayʺ
  • ʺBlack Mondayʺ

Question 26

Question
27) The decline in stock prices from 2000 through 2002
Answer
  • increased individualsʹ willingness to spend.
  • had no effect on individual spending.
  • reduced individualsʹ willingness to spend.
  • increased individual wealth.

Question 27

Question
28) The Dow reached a peak of over 11,000 before the collapse of the ________ bubble in 2000.
Answer
  • housing
  • manufacturing
  • high-tech
  • banking

Question 28

Question
What is a stock? How do stocks affect the economy? 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.
Answer
  • True
  • False

Question 29

Question
Why is it important to understand the bond market? 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.
Answer
  • True
  • False

Question 30

Question
Channeling funds from individuals with surplus funds to those desiring funds when the saver does not purchase the borrowerʹs security is known as
Answer
  • barter
  • redistribution
  • financial intermediation
  • taxation

Question 31

Question
A financial crisis is
Answer
  • not possible in the modern financial environment.
  • B) a major disruption in the financial markets.
  • a feature of developing economies only.
  • typically followed by an economic boom.
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