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8/14/2019 Mishkin Tb01

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Chapter 1Why Study Money, Banking, and Financial Markets?

Multiple Choice)1 Financial markets and institutions

()a involve the movement of huge flows of money.

()b affect the profits of businesses.

()c affect the types of goods and services produced in an economy.

()d do each of the above.

()e do only (a) and (b) of the above.

Answer:Question tatus: !revious "dition

)# Financial markets and institutions

()f involve the movement of huge flows of money.

()g affect the location of businesses.

()h affect the types of goods and services produced in an economy.

()i do each of the above.

()$ do only (a) and (c) of the above.


)% &oney' financial institutions' and financial markets in the nited tates can have a ma$or impact on

()k economic well being of other countries besides the nited tates.

()l the kinds of goods and services that are produced.

()m the outcome of political elections.

()n all of the above.

()o only (a) and (b) of the above.



2/25

# Frederic . &ishkin Economics of Money, Banking, and Financial Markets,eventh "dition)* &arkets in which funds are transferred from those who have e+cess funds available to those who

have a shortage of available funds are called

()p commodity markets.

(), fund-available markets.

()r derivative e+change markets.

()s financial markets.


) /hanneling funds from individuals with surplus funds to those desiring funds when the saver doesnot purchase the borrower0s security is known as

()t barter.

()u redistribution.

()v theft.

()w ta+ation.

()+ financial intermediation.

Answer:Question tatus: tudy uide

)2 Financial markets promote economic efficiency by

()y channeling funds from investors to savers.

()3 creating inflation.

()aacausing recessions.

()bb channeling funds from savers to investors.

()ccreducing investment.

Answer:Question tatus: 4ew

)5 6ell-functioning financial markets promote()dd inflation.

()eedeflation.

()ff unemployment.

()gg growth.

()hh none of the above.


)7 !oorly performing financial markets can be the cause of

()ii wealth.

()$$ poverty.

()kk financial stability.

()ll all of the above.

()mm none of the above.



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/hapter 1 6hy tudy &oney' 8anking' and Financial &arkets9 %) ;he bond markets are important because

()nn they are easily the most widely followed financial markets in the nited tates.

()oo they are the markets where foreign e+change rates are determined.

()pp they are the markets where interest rates are determined.

(),, of each of the above.

()rr of only (a) and (b) of the above.


)1< ;he bond markets are important because

()ss they are the markets where interest rates are determined.

()tt they are the markets where most borrowers get their funds.

()uu they are easily the most widely followed financial markets in the nited tates.

()vv of each of the above.

()ww of only (a) and (b) of the above.


)11 ;he price paid for the rental of borrowed funds (usually e+pressed as a percentage of the rental of=1


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* Frederic . &ishkin Economics of Money, Banking, and Financial Markets,eventh "dition)1* ;he interest rate on 8aa (medium ,uality) corporate bonds is >>>>>' on average' than other interest

rates' and the spread between it and other rates became >>>>> in the 15


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/hapter 1 6hy tudy &oney' 8anking' and Financial &arkets9 )1 ;he stock market is important because

()hhhh it is where interest rates are determined.

()iiii it is the most widely followed financial market in the nited tates.

()$$$$ it is where foreign e+change rates are determined.

()kkkk all of the above.


)#< tock prices since the 1


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2 Frederic . &ishkin Economics of Money, Banking, and Financial Markets,eventh "dition)#* A declining stock market inde+ due to lower share prices

()ccccc reduces people0s wealth and as a result may reduce their willingness to spend.

()dddddincreases people0s wealth and as a result may increase their willingness to spend.

()eeeee increases the amount of funds that business firms can raise by selling newly-issued stock.

()fffff both (a) and (c) of the above.

()gggggboth (b) and (c) of the above.


)# A declining stock market inde+ due to lower share prices

()hhhhhreduces people0s wealth and as a result may reduce their willingness to spend.

()iiiii increases people0s 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.

()kkkkkboth (a) and (c) of the above.

()lllll both (b) and (c) of the above.


)#2 /hanges in stock prices

()mmmmm affect people0s wealth and their willingness to spend

()nnnnnaffect firms0 decisions to sell stock to finance investment spending.

()oooooare characteri3ed by considerable fluctuations.

()pppppall of the above.

(),,,,,only (a) and (b) of the above.


)#5 Fear of a ma$or recession causes stock prices to fall' which in turn causes consumer spending to

()rrrrr increase.

()sssss remain unchanged.

()ttttt decrease.

()uuuuucannot be determined.

()vvvvvnone of the above.


)#7 A common stock is a claim on a corporation0s

()wwwww debt.

()+++++liabilities.

()yyyyye+penses.

()33333 employees.

()aaaaaa earnings and assets.



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/hapter 1 6hy tudy &oney' 8anking' and Financial &arkets9 5)# ;he decline in stock prices from #


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7 Frederic . &ishkin Economics of Money, Banking, and Financial Markets,eventh "dition)%* A change in the e+change rate has a direct effect on Americans because it affects

()wwwwww the price of foreign goods to American consumers.

()++++++ the price of American goods to foreign consumers.

()yyyyyy the price Americans will pay to travel abroad.

()333333 the price foreigners will pay to travel to the ..

()aaaaaaa all of the above.


)% A stronger dollar will likely hurt

()bbbbbbb te+tile producers in outh /arolina.

()ccccccc wheat farmers in &ontana.

()ddddddd automobile manufacturers in &ichigan.

()eeeeeee all of the above since their e+ports will decline.

()fffffff none of the above since their e+ports will increase.


)%2 A weaker dollar will likely hurt

()ggggggg te+tile producers in outh /arolina.

()hhhhhhh wheat farmers in &ontana.

()iiiiiii automobile manufacturers in &ichigan.

()$$$$$$$ all of the above since their e+ports will decline.

()kkkkkkk none of the above since their e+ports will increase.


)%5 A stronger dollar benefits >>>>> and hurts >>>>>.

()lllllll American businesses? American consumers

()mmmmmmm American businesses? foreign businesses

()nnnnnnn American consumers? American businesses

()ooooooo foreign businesses? American consumers


)%7 A weaker dollar benefits >>>>> and hurts >>>>>.

()ppppppp American businesses? American consumers

(),,,,,,, American businesses? foreign consumers

()rrrrrrr American consumers? American businesses

()sssssss foreign businesses? American consumers



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/hapter 1 6hy tudy &oney' 8anking' and Financial &arkets9 )% From 17< to early 17 the dollar appreciated in value' thereby benefiting >>>>> and harming

>>>>>.

()ttttttt American businesses? American consumers

()uuuuuuu American businesses? foreign businesses

()vvvvvvv American consumers? American businesses

()wwwwwww foreign businesses? American consumers


)*< From 17< to early 17 the dollar >>>>> in value' thereby benefiting American >>>>>.

()+++++++ appreciated? consumers

()yyyyyyy appreciated' businesses

()3333333 depreciated? consumers

()aaaaaaaa depreciated' businesses


)*1 From 17< to 17 the dollar appreciated relative to the 8ritish pound. Eolding everything elseconstant' one would e+pect that' when compared to 17


10/25

1< Frederic . &ishkin Economics of Money, Banking, and Financial Markets,eventh "dition)** From 17< to 17 the dollar appreciated relative to the 8ritish pound. Eolding everything else

constant' one would e+pect that' when compared to 17


11/25

/hapter 1 6hy tudy &oney' 8anking' and Financial &arkets9 11)*7 @n 17 a hetland sweater would have cost =1%


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1# Frederic . &ishkin Economics of Money, Banking, and Financial Markets,eventh "dition)% 8anks are important to the study of money and the economy because they

()dddddddddd provide a channel for linking those who want to save with those who want toinvest.

()eeeeeeeeee have been a source of rapid financial innovation that is e+panding the alternativesavailable to those wanting to invest their money.

()ffffffffffhold a large proportion of individuals0 wealth.

()gggggggggg do each of the above.()hhhhhhhhhh do only (a) and (b) of the above.

Answer:Question tatus: evised

)* 8anks are important to the study of money and the economy because they

()iiiiiiiiii provide a channel for linking those who want to save with those who want to invest.

()$$$$$$$$$$ have been a source of rapid financial innovation that is e+panding the alternativesavailable to those wanting to invest their money.

()kkkkkkkkkk are the only important financial institution in the .. economy.

()llllllllll each of the above.

()mmmmmmmmmm only (a) and (b) of the above.


) "conomists group commercial banks' savings and loan associations' credit unions' mutual funds'mutual savings banks' insurance companies' pension funds' and finance companies together underthe heading financial intermediaries. Financial intermediaries

()nnnnnnnnnn act as middlemen' borrowing funds from those who have saved and lending thesefunds to others.

()oooooooooo produce nothing of value and are therefore a drain on society0s resources.

()pppppppppp help promote a more efficient and dynamic economy.

(),,,,,,,,,, do each of the above.()rrrrrrrrrrdo only (a) and (c) of the above.


)2 "conomists group commercial banks' savings and loan associations' credit unions' mutual funds'mutual savings banks' insurance companies' pension funds' and finance companies together underthe heading financial intermediaries. Financial intermediaries

()ssssssssss act as middlemen' borrowing funds from those who have saved and lending thesefunds to others.

()tttttttttt hold a significant proportion of individuals0 wealth.

()uuuuuuuuuu help promote a more efficient and dynamic economy.()vvvvvvvvvv do each of the above.

()wwwwwwwwww do only (a) and (c) of the above.



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/hapter 1 6hy tudy &oney' 8anking' and Financial &arkets9 1%)5 8anks' savings and loan associations' mutual savings banks' and credit unions

()++++++++++ link those who want to save with these who want to invest.

()yyyyyyyyyy hold a large proportion of individuals0 wealth.

()3333333333 have been adept at innovating in response to changes in the regulatoryenvironment.

()aaaaaaaaaaa all of the above.

()bbbbbbbbbbb only (a) and (c) of the above.


)7 8anks' savings and loan associations' mutual savings banks' and credit unions

()ccccccccccc are no longer important players in financial intermediation.

()ddddddddddd since deregulation now provide services only to small depositors.

()eeeeeeeeeee have been adept at innovating in response to changes in the regulatoryenvironment.

()fffffffffff all of the above.

()ggggggggggg only (a) and (c) of the above.


) 8anks and other financial institutions engage in financial intermediation' which

()hhhhhhhhhhh can hurt the performance of the economy.

()iiiiiiiiiii can benefit economic performance.

()$$$$$$$$$$$ has no effect on economic performance.

()kkkkkkkkkkk involves borrowing from investors and lending to savers.

()lllllllllll none of the above.


)2< &oney is defined as

()mmmmmmmmmmm bills of e+change.

()nnnnnnnnnnn anything that is generally accepted in payment for goods and services or in therepayment of debt.

()ooooooooooo a risk-free repository of spending power.

()ppppppppppp the unrecogni3ed liability of governments.


)21 &oney is defined as

(),,,,,,,,,,, anything that is generally accepted in payment for goods and services or in therepayment of debt.

()rrrrrrrrrrr bills of e+change.

()sssssssssss a risk-free repository of spending power.

()ttttttttttt all of the above.

()uuuuuuuuuuu only (a) and (b) of the above.



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1* Frederic . &ishkin Economics of Money, Banking, and Financial Markets,eventh "dition)2# "conomists take the study of money seriously because evidence suggests that

()vvvvvvvvvvv the money supply and the price level move closely together.

()wwwwwwwwwww money and interest rate movements are related.

()+++++++++++ business cycle downturns are preceded by downturns in money growth.

()yyyyyyyyyyy all of the above are true.

()33333333333 only (a) and (b) of the above are true.


)2% &oney has a ma$or impact on

()aaaaaaaaaaaa inflation.

()bbbbbbbbbbbb the business cycle.

()cccccccccccc interest rates.

()dddddddddddd each of the above.

()eeeeeeeeeeee none of the above.


)2* A decrease in the rate of growth of money often results in

()ffffffffffff inflation.

()gggggggggggg economic e+pansion.

()hhhhhhhhhhhh recession.

()iiiiiiiiiiiifalling unemployment.

()$$$$$$$$$$$$both (b) and (d).


)2 "vidence from the nited tates and other foreign countries indicates that

()kkkkkkkkkkkk there is a strong positive association between inflation and growth rate of moneyover long periods of time.

()llllllllllllthere is little support for the assertion that inflation is always and everywhere a monetaryphenomenon.B

()mmmmmmmmmmmm countries with low monetary growth rates tend to e+perience higher ratesof inflation' all else being constant.

()nnnnnnnnnnnn money growth is clearly unrelated to inflation.


)22 ustained downward movements in the business cycle are referred to as

()oooooooooooo inflation.()pppppppppppp recessions.

(),,,,,,,,,,,, economic recoveries.

()rrrrrrrrrrrr e+pansions.



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/hapter 1 6hy tudy &oney' 8anking' and Financial &arkets9 1)25 !rior to all recessions since 1


16/25

12 Frederic . &ishkin Economics of Money, Banking, and Financial Markets,eventh "dition)5# "vidence from business cycle fluctuations in the nited tates indicates that

()nnnnnnnnnnnnn a negative relationship between money growth and general economic activitye+ists.

()ooooooooooooo recessions have been preceded by declines in share prices on the stock e+change.

()ppppppppppppp recessions have been preceded by dollar depreciation.

(),,,,,,,,,,,,, recessions have been preceded by a decline in the growth rate of money.


)5% A decrease in the growth rate of the money supply is likely followed by

()rrrrrrrrrrrrr a recession.

()sssssssssssss a recovery.

()ttttttttttttt a boom.

()uuuuuuuuuuuuu inflation.

()vvvvvvvvvvvvv all of the above.


)5* A sharp increase in the growth of the money supply is likely followed by

()wwwwwwwwwwwww a recession.

()+++++++++++++ a depression.

()yyyyyyyyyyyyy inflation.

()3333333333333 no change in the economy.

()aaaaaaaaaaaaaa none of the above.


)5 @t is true that inflation is

()bbbbbbbbbbbbbb a continuous increase in the money supply.

()cccccccccccccc a continuous fall in prices.

()dddddddddddddd a decline in interest rates.

()eeeeeeeeeeeeee constant prices.

()ffffffffffffff a continually rising price level.


)52 A rapid rate of growth of money results in

()gggggggggggggg inflation.

()hhhhhhhhhhhhhh constant prices.

()iiiiiiiiiiiiii deflation.

()$$$$$$$$$$$$$$ recession.

()kkkkkkkkkkkkkk depression.



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/hapter 1 6hy tudy &oney' 8anking' and Financial &arkets9 15)55 ;he organi3ation responsible for the conduct of monetary policy in the nited tates is the

()llllllllllllll /omptroller of the /urrency.

()mmmmmmmmmmmmmm .. ;reasury.

()nnnnnnnnnnnnnn Federal eserve ystem.

()oooooooooooooo 8ureau of &onetary Affairs.


)57 6hich of the following are true statements9

()pppppppppppppp &oney or the money supply is defined as anything that is generallyaccepted in payment for goods and services or in the repayment of debts.

(),,,,,,,,,,,,,, @nflation is a condition of a continually rising price level.

()rrrrrrrrrrrrrr ;he inflation rate is measured as the rate of change in the aggregate price level.

()ssssssssssssss All of the above are true statements.

()tttttttttttttt Gnly (a) and (b) of the above are true statements.


)5 6hich of the following are true statements9

()uuuuuuuuuuuuuu &oney or the money supply is defined as Federal eserve notes.

()vvvvvvvvvvvvvv ;he average price of goods and services in an economy is called theaggregate price level.

()wwwwwwwwwwwwww ;he inflation rate is measured as the rate of change in the federalgovernment budget deficit.

()++++++++++++++ All of the above are true statements.

()yyyyyyyyyyyyyy Gnly (a) and (b) of the above are true statements.


)7< 6hich of the following are true statements9

()33333333333333 &oney or the money supply is defined as anything that is generally accepted inpayment for goods and services or in the repayment of debts.

()aaaaaaaaaaaaaaa;he inflation rate is measured as the rate of change in the aggregate price level.

()bbbbbbbbbbbbbbb @nflation occurs whenever the price level rises.

()cccccccccccccccAll of the above are true statements.

()ddddddddddddddd Gnly (a) and (b) of the above are true statements.



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17 Frederic . &ishkin Economics of Money, Banking, and Financial Markets,eventh "dition)71 6hich of the following are true statements9

()eeeeeeeeeeeeeee&oney or the money supply is defined as anything that is generally accepted inpayment for goods and services or in the repayment of debts.

()fffffffffffffff ;he average price of goods and services in an economy is called the aggregateprice level.

()ggggggggggggggg ;he aggregate price level is measured as the rate of change in the inflation

rate.()hhhhhhhhhhhhhhh All of the above are true statements.

()iiiiiiiiiiiiiii Gnly (a) and (b) of the above are true statements.


)7# 6hich of the following are true statements9

()$$$$$$$$$$$$$$$ &oney or the money supply is defined as anything that is generally accepted inpayment for goods and services or in the repayment of debts.

()kkkkkkkkkkkkkkk ;he average price of goods and services in an economy is called theinflation rate.

()lllllllllllllll ;he aggregate price level is measured as the rate of change in the inflation rate.()mmmmmmmmmmmmmmm All of the above are true statements.

()nnnnnnnnnnnnnnn Gnly (a) and (b) of the above are true statements.


)7% 6hich of the following are true statements9

()ooooooooooooooo ;hose countries with the highest inflation rates are also the ones with thehighest money growth rates.

()ppppppppppppppp ;he average price of goods and services in an economy is called theaggregate price level.

(),,,,,,,,,,,,,,, ;he inflation rate is measured as the rate of change in the aggregate pricelevel.

()rrrrrrrrrrrrrrr All of the above are true statements.

()sssssssssssssss Gnly (a) and (b) of the above are true statements.


)7* 6hich of the following are true statements9

()ttttttttttttttt ;hose countries with the highest inflation rates are also the ones with the highestmoney growth rates.

()uuuuuuuuuuuuuuu ;he average price of goods and services in an economy is called theinflation rate.

()vvvvvvvvvvvvvvv 6hen the average price of goods and services in an economy increases'the inflation rate increases.

()wwwwwwwwwwwwwww All of the above are true statements.

()+++++++++++++++ Gnly (a) and (b) of the above are true statements.



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/hapter 1 6hy tudy &oney' 8anking' and Financial &arkets9 1)7 @f ten years ago the prices of the items bought last month by the average consumer would have been

much lower' then one can likely conclude that

()yyyyyyyyyyyyyyy the aggregate price level has risen during this ten-year period.

()333333333333333the average inflation rate for this ten-year period has been positive.

()aaaaaaaaaaaaaaaa the average rate of money growth for this ten-year period has beenpositive.

()bbbbbbbbbbbbbbbb all of the above.


)72 @f ten years ago the prices of the items bought last month by the average consumer would have beenmuch higher' then one can likely conclude that

()cccccccccccccccc the aggregate price level has declined during this ten-year period.

()dddddddddddddddd the average inflation rate for this ten-year period has been positive.

()eeeeeeeeeeeeeeee the average rate of money growth for this ten-year period has beenpositive.

()ffffffffffffffff all of the above.


)75 Gne likely e+planation for the relatively high rates of inflation e+perienced in many Hatin Americancountries is the

()gggggggggggggggg relatively slow growth in the money supply in these countries.

()hhhhhhhhhhhhhhhh relatively rapid growth in the money supply in these countries.

()iiiiiiiiiiiiiiii decline in the prices of basic commodities in these countries.

()$$$$$$$$$$$$$$$$ none of the above.


)77 /omplete &ilton Friedman0s famous statement' @nflation is always and everywhere a >>>>>phenomenon.B

()kkkkkkkkkkkkkkkk recessionary

()llllllllllllllll discretionary

()mmmmmmmmmmmmmmmm repressionary

()nnnnnnnnnnnnnnnn monetary


)7 &ilton Friedman0s restatement of the notion that sustained inflation can come only from acontinuous increase in the money supplyB is as follows:

()oooooooooooooooo @nflation is always and everywhere a monetary phenomenon.B

()pppppppppppppppp @nflation' simply stated' is never anything other than a monetaryphenomenon.B

(),,,,,,,,,,,,,,,, @nflation is ultimately and singularly a monetary phenomenon.B

()rrrrrrrrrrrrrrrr ;he over-issue of paper money is the initial and singular cause of inflation.B



20/25

#< Frederic . &ishkin Economics of Money, Banking, and Financial Markets,eventh "dition)< /ountries that e+perience very high rates of inflation have

()ssssssssssssssss balanced budgets.

()tttttttttttttttt budget surpluses.

()uuuuuuuuuuuuuuuu falling money supplies.

()vvvvvvvvvvvvvvvv constant money supplies.

()wwwwwwwwwwwwwwww rapidly growing money supplies.


)1 8udgets deficits can be a concern because they might

()++++++++++++++++ ultimately lead to higher inflation.

()yyyyyyyyyyyyyyyy lead to a higher rate of money growth.

()3333333333333333 lead to higher interest rates.

()aaaaaaaaaaaaaaaaa cause all of the above to occur.


)# 8udgets deficits can be a concern because they might

()bbbbbbbbbbbbbbbbb ultimately lead to higher inflation.

()ccccccccccccccccc lead to higher interest rates.

()ddddddddddddddddd lead to a slower rate of money growth.

()eeeeeeeeeeeeeeeee cause all of the above to occur.

()fffffffffffffffff cause both (a) and (b) of the above to occur.


)% 8udget deficits are important to monetary authorities because

()ggggggggggggggggg the financing of government budget deficits may affect the conduct of

monetary policy.

()hhhhhhhhhhhhhhhhh budget deficits may increase interest rates' putting pressure on themonetary authorities to e+pand the ,uantity of money to keep interest rates from rising.

()iiiiiiiiiiiiiiiii budget deficits may put pressure on Federal eserve to increase the growth rate ofthe money supply.

()$$$$$$$$$$$$$$$$$ of all of the above.


)* 8udget deficits are important because

()kkkkkkkkkkkkkkkkk deficits cause bank failures.

()lllllllllllllllll banks would not e+ist without deficits.()mmmmmmmmmmmmmmmmm deficits can result in higher rates of monetary growth.

()nnnnnnnnnnnnnnnnn deficits always cause prices to fall.

()ooooooooooooooooo deficits always cause interest rates to fall.



21/25

/hapter 1 6hy tudy &oney' 8anking' and Financial &arkets9 #1) 8udget deficits can result in

()ppppppppppppppppp financial crises.

(),,,,,,,,,,,,,,,,, low interest rates.

()rrrrrrrrrrrrrrrrr higher bond prices.

()sssssssssssssssssall of the above.

()ttttttttttttttttt none of the above.


)2 8etween 1< and 17< in the ..' interest rates trended upward. Curing this same time period'

()uuuuuuuuuuuuuuuuu the rate of money growth declined.

()vvvvvvvvvvvvvvvvv the rate of money growth increased.

()wwwwwwwwwwwwwwwww the government budget deficit (e+pressed as a percentage of4!) trended downward.

()+++++++++++++++++ the aggregate price level declined ,uite dramatically.


)5 @n the .. between 1< and 17


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## Frederic . &ishkin Economics of Money, Banking, and Financial Markets,eventh "ditionAppendix to Chapter 1

)1


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/hapter 1 6hy tudy &oney' 8anking' and Financial &arkets9 #%)1


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#* Frederic . &ishkin Economics of Money, Banking, and Financial Markets,eventh "dition)1


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/hapter 1 6hy tudy &oney' 8anking' and Financial &arkets9 #)11* @f the /!@ in #

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