Description

Economics of Money Banking and Financial Markets 9th Edition by Mishkin Test Bank

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

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
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2) Financial markets promote greater economic efficiency by channeling funds from ________ to
________.
A) investors; savers
B) borrowers; savers
C) savers; borrowers
D) savers; lenders
Answer: C
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3) Well-functioning financial markets promote
A) inflation.
B) deflation.
C) unemployment.
D) growth.
Answer: D
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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
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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, 9th 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
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7) Poorly performing financial markets can be the cause of
A) wealth.
B) poverty.
C) financial stability.
D) financial expansion.
Answer: B
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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
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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
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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
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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
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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
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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
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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
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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
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4 Mishkin · The Economics of Money, Banking, and Financial Markets, 9th 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
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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
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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
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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
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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
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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
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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
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25) A share of common stock is a claim on a corporationʹs
A) debt.
B) liabilities.
C) expenses.
D) earnings and assets.
Answer: D
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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
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6 Mishkin · The Economics of Money, Banking, and Financial Markets, 9th 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
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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
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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.
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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.
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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
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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
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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
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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
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6) Financial institutions search for ________ has resulted in many financial innovations.
A) higher profits
B) regulations
C) respect
D) higher risk
Answer: A
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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
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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
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8 Mishkin · The Economics of Money, Banking, and Financial Markets, 9th 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
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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
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11) The delivery of financial services electronically is called ________.
A) e-business
B) e-commerce
C) e-finance
D) e-possible
Answer: C
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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.
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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
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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
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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
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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
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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
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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
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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
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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