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Chapter 1 Why 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. Answer: Question tatus: !revious "dition )% &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. Answer: Question tatus: !revious "dition

#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. Answer: Question tatus: !revious "dition

).

/hanneling funds from individuals with surplus funds to those desiring funds when the saver does not purchase the borrower0s security is known as ()t barter. ()u redistribution. ()v theft. ()w ta+ation. ()+ financial intermediation. Answer: Question tatus: tudy 1uide

)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. Answer: Question tatus: 4ew

)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. Answer: Question tatus: 4ew

/hapter 16hy tudy &oney' 8anking' and Financial &arkets9%

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;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. Answer: Question tatus: !revious "dition

)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. Answer: Question tatus: !revious "dition

)11

;he price paid for the rental of borrowed funds (usually e+pressed as a percentage of the rental of =1<< per year) is commonly referred to as the ()++ inflation rate. ()yy e+change rate. ()33interest rate. ()aaa aggregate price level. Answer: Question tatus: !revious "dition

)1#

/ompared to interest rates on long-term (. . government bonds' interest rates on >>>>> fluctuate more and are lower on average. ()bbb medium-,uality corporate bonds ()ccc low-,uality corporate bonds ()ddd high-,uality corporate bonds ()eee three-month ;reasury bills ()fff none of the above Answer: Question tatus: !revious "dition

)1%

/ompared to interest rates on long-term (. . government bonds' interest rates on three-month ;reasury bills fluctuate >>>>> and are >>>>> on average. ()ggg more? lower ()hhh less? lower ()iii more? higher ()$$$ less? higher Answer: Question tatus: !revious "dition

*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 1:5<s. ()kkk lower? smaller ()lll lower? larger ()mmm higher? smaller ()nnn higher? larger Answer: Question tatus: !revious "dition

)1.

A decline in interest rates will cause spending on housing to ()ooo fall. ()ppp remain unchanged. (),,, cannot be determined. ()rrr rise. ()sss none of the above. Answer: Question tatus: tudy 1uide

)12

An increase in interest rates on student loans ()ttt increases the cost of a college education. ()uuu reduces the cost of a college education. ()vvv has no effect on educational costs. ()www increases costs for students with no loans. ()+++ none of the above. Answer: Question tatus: 4ew

)15

@nterest rates affect ()yyy individuals. ()333 businesses. ()aaaa the overall economy. ()bbbb all of the above. ()cccc only (b) and (c) of the above. Answer: Question tatus: 4ew

)17

tock prices boomed in the 1:7<s until A8lack &ondayB in >>>>> ' when the CD@A fell by more than .<< points' a ## percent decline. ()dddd 1:7. ()eeee 1:72 ()ffff 1:75 ()gggg 1:77 Answer: Question tatus: !revious "dition

/hapter 16hy 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. Answer: Question tatus: !revious "dition

)#<

tock prices since the 1:.<s have been ()llll relatively stable trending upward at a steady pace. ()mmmm relatively stable trending downward at a moderate rate. ()nnnn e+tremely volatile. ()oooo unstable trending downward at a moderate rate. Answer: Question tatus: !revious "dition

)#1

A rising stock market inde+ due to higher share prices ()pppp increases people0s wealth' but is unlikely to increase their willingness to spend. (),,,, increases people0s wealth and as a result may increase their willingness to spend. ()rrrr increases the amount of funds that business firms can raise by selling newly-issued stock. ()ssss both (b) and (c) of the above. Answer: Question tatus: !revious "dition

)##

A rising stock market inde+ due to higher share prices ()tttt increases people0s wealth and as a result may increase their willingness to spend. ()uuuu increases the amount of funds that business firms can raise by selling newly-issued stock. ()vvvv decreases the amount of funds that business firms can raise by selling newly-issued stock. ()wwww both (a) and (b) of the above. Answer: Question tatus: !revious "dition

)#%

A rising stock market inde+ due to higher share prices ()++++ increases people0s wealth' but is unlikely to increase their willingness to spend. ()yyyy increases people0s wealth and as a result may increase their willingness to spend. ()3333 decreases the amount of funds that business firms can raise by selling newly-issued stock. ()aaaaa both (a) and (c) of the above. ()bbbbb both (b) and (c) of the above. Answer: Question tatus: !revious "dition

2Frederic . &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. ()ddddd increases 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. ()ggggg both (b) and (c) of the above. Answer: Question tatus: !revious "dition

)#.

A declining stock market inde+ due to lower share prices ()hhhhh reduces 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. ()kkkkk both (a) and (c) of the above. ()lllll both (b) and (c) of the above. Answer: Question tatus: !revious "dition

)#2

/hanges in stock prices ()mmmmm affect people0s wealth and their willingness to spend ()nnnnn affect firms0 decisions to sell stock to finance investment spending. ()ooooo are characteri3ed by considerable fluctuations. ()ppppp all of the above. (),,,,, only (a) and (b) of the above. Answer: Question tatus: !revious "dition

)#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. ()uuuuu cannot be determined. ()vvvvv none of the above. Answer: Question tatus: tudy 1uide

)#7

A common stock is a claim on a corporation0s ()wwwww debt. ()+++++ liabilities. ()yyyyy e+penses. ()33333 employees. ()aaaaaa earnings and assets. Answer: Question tatus: 4ew

/hapter 16hy tudy &oney' 8anking' and Financial &arkets95

)#:

;he decline in stock prices from #<<< through #<<# ()bbbbbb increased individuals0 willingness to spend. ()cccccc had no effect on individual spending. ()dddddd reduced individual0s willingness to spend. ()eeeeee increased individual wealth. ()ffffff both (a) and (d) are correct. Answer: Question tatus: 4ew

)%<

;he price of one country0s currency in terms of another0s is called ()gggggg the e+change rate. ()hhhhhh the interest rate. ()iiiiii the Cow Dones industrial average. ()$$$$$$ none of the above. Answer: Question tatus: !revious "dition

)%1

"verything else constant' a stronger dollar will mean that ()kkkkkk vacationing in "ngland becomes more e+pensive. ()llllll vacationing in "ngland becomes less e+pensive. ()mmmmmm French cheese becomes more e+pensive. ()nnnnnn Dapanese cars become more e+pensive. Answer: Question tatus: !revious "dition

)%#

All else constant' as the dollar becomes stronger' ()oooooo Americans will purchase fewer foreign goods. ()pppppp (. . goods e+ported abroad will cost less in foreign countries' and so foreigners will buy more of them. (),,,,,, the (. . is un,uestionably made better off. ()rrrrrr none of the above. Answer: Question tatus: !revious "dition

)%%

6hich of the following is most likely to result from a stronger dollar9 ()ssssss (. . goods e+ported aboard will cost less in foreign countries' and so foreigners will buy more of them. ()tttttt (. . goods e+ported aboard will cost more in foreign countries and so foreigners will buy more of them. ()uuuuuu (. . goods e+ported abroad will cost more in foreign countries' and so foreigners will buy fewer of them. ()vvvvvv Americans will purchase fewer foreign goods. Answer: Question tatus: !revious "dition

7Frederic . &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. Answer: Question tatus: !revious "dition

)%.

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. Answer: Question tatus: !revious "dition

)%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. Answer: Question tatus: !revious "dition

)%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 Answer: Question tatus: !revious "dition

)%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 Answer: Question tatus: !revious "dition

/hapter 16hy tudy &oney' 8anking' and Financial &arkets9:

)%:

From 1:7< to early 1:7. 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 Answer: Question tatus: !revious "dition

)*<

From 1:7< to early 1:7. the dollar >>>>> in value' thereby benefiting American >>>>>. ()+++++++ appreciated? consumers ()yyyyyyy appreciated' businesses ()3333333 depreciated? consumers ()aaaaaaaa depreciated' businesses Answer: Question tatus: !revious "dition

)*1

From 1:7< to 1:7. the dollar appreciated relative to the 8ritish pound. Eolding everything else constant' one would e+pect that' when compared to 1:7<' ()bbbbbbbb more Americans traveled to "ngland in 1:7.. ()cccccccc Americans imported more hetland sweaters from "ngland in 1:7.. ()dddddddd 8ritons imported more wine from /alifornia in 1:7.. ()eeeeeeee all of the above. ()ffffffff only (a) and (b) of the above. Answer: Question tatus: !revious "dition

)*#

From 1:7< to 1:7. the dollar appreciated relative to the 8ritish pound. Eolding everything else constant' one would e+pect that' when compared to 1:7<' ()gggggggg more 8ritons traveled to the (nited tates in 1:7.. ()hhhhhhhh 8ritons imported more wine from /alifornia in 1:7.. ()iiiiiiii Americans imported more hetland sweaters from "ngland in 1:7.. ()$$$$$$$$ only (a) and (b) of the above. Answer: Question tatus: !revious "dition

)*%

From 1:7< to 1:7. the dollar appreciated relative to the 8ritish pound. Eolding everything else constant' one would e+pect that' when compared to 1:7<' ()kkkkkkkk more 8ritons traveled to the (nited tates in 1:7.. ()llllllll 8ritons imported more wine from /alifornia in 1:7.. ()mmmmmmmm Americans e+ported more wheat to "ngland in 1:7.. ()nnnnnnnn all of the above. ()oooooooo none of the above. Answer: Question tatus: !revious "dition

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

)**

From 1:7< to 1:7. the dollar appreciated relative to the 8ritish pound. Eolding everything else constant' one would e+pect that' when compared to 1:7<' ()pppppppp fewer 8ritons traveled to the (nited tates in 1:7.. (),,,,,,,, 8ritons imported more wine from /alifornia in 1:7.. ()rrrrrrrr Americans e+ported more wheat to "ngland in 1:7.. ()ssssssss more 8ritons traveled to the (nited tates in 1:7.. Answer: Question tatus: !revious "dition

)*.

6hen in 1:7< a 8ritish pound cost appro+imately =#.*<' a hetland sweater that cost .< 8ritish pounds would have cost =1#<. 6ith a stronger dollar' the same hetland sweater would have cost ()tttttttt less than =1#<. ()uuuuuuuu more than =1#<. ()vvvvvvvv =1#<' since the e+change rate does not affect the prices that American consumers pay for foreign goods. ()wwwwwwww =1#<' since the demand for hetland sweaters will decrease to prevent an increase in price due to the stronger dollar. Answer: Question tatus: !revious "dition

)*2

6hen in 1:7. a 8ritish pound cost appro+imately =1.%<' a hetland sweater that cost 1<< 8ritish pounds would have cost =1%<. 6ith a weaker dollar' the same hetland sweater would have cost ()++++++++ less than =1%<. ()yyyyyyyy more than =1%<. ()33333333 =1%<' since the e+change rate does not affect the prices that American consumers pay for foreign goods. ()aaaaaaaaa =1%<' since the demand for hetland sweaters will decrease to prevent an increase in price due to the stronger dollar. Answer: Question tatus: !revious "dition

)*5

@n 1:7< a hetland sweater would have cost =1#<. 6ith a stronger dollar' the same hetland sweater would have cost ()bbbbbbbbb less than =1#<. ()ccccccccc more than =1#<. ()ddddddddd =1#<' since the e+change rate does not affect the prices that American consumers pay for foreign goods. ()eeeeeeeee =1#<' since the demand for hetland sweaters will decrease to prevent an increase in price due to the stronger dollar. Answer: Question tatus: !revious "dition

/hapter 16hy tudy &oney' 8anking' and Financial &arkets911

)*7

@n 1:7. a hetland sweater would have cost =1%<. 6ith a weaker dollar' the same hetland sweater would have cost ()fffffffff less than =1%<. ()ggggggggg more than =1%<. ()hhhhhhhhh =1%<' since the e+change rate does not affect the prices that American consumers pay for foreign goods. ()iiiiiiiii =1%<' since the demand for hetland sweaters will decrease to prevent an increase in price due to the stronger dollar. Answer: Question tatus: !revious "dition

)*:

A decrease in the value of the dollar relative to all foreign currencies means that the price of foreign goods purchased by Americans ()$$$$$$$$$ increases. ()kkkkkkkkk decreases. ()lllllllll remains unchanged. ()mmmmmmmmm unable to determine. ()nnnnnnnnn none of the above. Answer: Question tatus: tudy 1uide

).<

@f the price of a euro (the "uropean currency) increases from =1.<< to =1.1<' then ()ooooooooo a "uropean vacation becomes less e+pensive. ()ppppppppp a "uropean vacation becomes more e+pensive. (),,,,,,,,, the cost of a "uropean vacation is not affected. ()rrrrrrrrr foreign travel becomes impossible. ()sssssssss none of the above. Answer: Question tatus: 4ew

).1

Americans who love French wine benefit most from ()ttttttttt a decrease in the dollar price of euros. ()uuuuuuuuu an increase in the dollar price of euros. ()vvvvvvvvv a constant dollar price for euros. ()wwwwwwwww a ban on imports from "urope. ()+++++++++ none of the above. Answer: Question tatus: 4ew

).#

American farmers who sell beef to "urope benefit most from ()yyyyyyyyy a decrease in the dollar price of euros. ()333333333 an increase in the dollar price of euros. ()aaaaaaaaaa a constant dollar price for euros. ()bbbbbbbbbb a "uropean ban on imports of American beef. ()cccccccccc none of the above. Answer: Question tatus: 4ew

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 to invest. ()eeeeeeeeee have been a source of rapid financial innovation that is e+panding the alternatives available 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: Fevised

).*

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 alternatives available 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. Answer: Question tatus: Fevised

)..

"conomists group commercial banks' savings and loan associations' credit unions' mutual funds' mutual savings banks' insurance companies' pension funds' and finance companies together under the heading financial intermediaries. Financial intermediaries ()nnnnnnnnnn act as middlemen' borrowing funds from those who have saved and lending these funds 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. Answer: Question tatus: !revious "dition

).2

"conomists group commercial banks' savings and loan associations' credit unions' mutual funds' mutual savings banks' insurance companies' pension funds' and finance companies together under the heading financial intermediaries. Financial intermediaries ()ssssssssss act as middlemen' borrowing funds from those who have saved and lending these funds 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. Answer: Question tatus: Fevised

/hapter 16hy tudy &oney' 8anking' and Financial &arkets91%

).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 regulatory environment. ()aaaaaaaaaaa all of the above. ()bbbbbbbbbbb only (a) and (c) of the above. Answer: Question tatus: Fevised

).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 regulatory environment. ()fffffffffff all of the above. ()ggggggggggg only (a) and (c) of the above. Answer: Question tatus: !revious "dition

).:

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. Answer: Question tatus: 4ew

)2<

&oney is defined as ()mmmmmmmmmmm bills of e+change. ()nnnnnnnnnnn anything that is generally accepted in payment for goods and services or in the repayment of debt. ()ooooooooooo a risk-free repository of spending power. ()ppppppppppp the unrecogni3ed liability of governments. Answer: Question tatus: !revious "dition

)21

&oney is defined as (),,,,,,,,,,, anything that is generally accepted in payment for goods and services or in the repayment 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. Answer: Question tatus: !revious "dition

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. Answer: Question tatus: !revious "dition

)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. Answer: Question tatus: tudy 1uide

)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). Answer: Question tatus: 4ew

)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 money over long periods of time. ()llllllllllllthere is little support for the assertion that Ainflation is always and everywhere a monetary phenomenon.B ()mmmmmmmmmmmm countries with low monetary growth rates tend to e+perience higher rates of inflation' all else being constant. ()nnnnnnnnnnnn money growth is clearly unrelated to inflation. Answer: Question tatus: !revious "dition

)22

ustained downward movements in the business cycle are referred to as ()oooooooooooo inflation. ()pppppppppppp recessions. (),,,,,,,,,,,, economic recoveries. ()rrrrrrrrrrrr e+pansions. Answer: Question tatus: !revious "dition

/hapter 16hy tudy &oney' 8anking' and Financial &arkets91.

)25

!rior to all recessions since 1:<<' there has been a drop in ()ssssssssssss inflation. ()ttttttttttttthe money stock. ()uuuuuuuuuuuu the growth rate of the money stock. ()vvvvvvvvvvvv interest rates. Answer: Question tatus: Fevised

)27

!rior to recessions since 1:<<' there has been a drop in ()wwwwwwwwwwww the stock market. ()++++++++++++ the money stock. ()yyyyyyyyyyyy the growth rate of the money stock. ()333333333333 both (a) and (b) of the above. ()aaaaaaaaaaaaa both (a) and (c) of the above. Answer: Question tatus: Fevised

)2:

"very recession in the (nited tates since 1:<< has been preceded by a decline in ()bbbbbbbbbbbbb the hemline of women0s fashions. ()ccccccccccccc the rate of money growth. ()ddddddddddddd the level of sunspot activity. ()eeeeeeeeeeeee the money stock. Answer: Question tatus: Fevised

)5<

"very recession in the (nited tates since 1:<< has been preceded by a decline in ()fffffffffffff the average price level. ()ggggggggggggg the e+change rate. ()hhhhhhhhhhhhh the rate of money growth. ()iiiiiiiiiiiii the money stock. Answer: Question tatus: Fevised

)51

"vidence from business cycle fluctuations in the (nited tates indicates that changes in money might be a driving force behind these fluctuations. pecifically' the evidence suggests that ()$$$$$$$$$$$$$ a negative relationship between money growth and general economic activity e+ists. ()kkkkkkkkkkkkk recessions have been preceded by a decline in the growth rate of money. ()lllllllllllll recessions have been preceded by a increase in the growth rate of money. ()mmmmmmmmmmmmm recessions have been preceded by an increase in the growth rate of money and followed by a substantial decrease in money growth. Answer: Question tatus: !revious "dition

12Frederic . &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 activity e+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. Answer: Question tatus: !revious "dition

)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. Answer: Question tatus: tudy 1uide

)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. Answer: Question tatus: tudy 1uide

)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. Answer: Question tatus: tudy 1uide

)52

A rapid rate of growth of money results in ()gggggggggggggg inflation. ()hhhhhhhhhhhhhh constant prices. ()iiiiiiiiiiiiii deflation. ()$$$$$$$$$$$$$$ recession. ()kkkkkkkkkkkkkk depression. Answer: Question tatus: 4ew

/hapter 16hy tudy &oney' 8anking' and Financial &arkets915

)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 Feserve ystem. ()oooooooooooooo 8ureau of &onetary Affairs. Answer: Question tatus: !revious "dition

)57

6hich of the following are true statements9 ()pppppppppppppp &oney or the money supply is defined as anything that is generally accepted 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. Answer: Question tatus: !revious "dition

)5:

6hich of the following are true statements9 ()uuuuuuuuuuuuuu &oney or the money supply is defined as Federal Feserve notes. ()vvvvvvvvvvvvvv ;he average price of goods and services in an economy is called the aggregate price level. ()wwwwwwwwwwwwww ;he inflation rate is measured as the rate of change in the federal government budget deficit. ()++++++++++++++ All of the above are true statements. ()yyyyyyyyyyyyyy Gnly (a) and (b) of the above are true statements. Answer: Question tatus: !revious "dition

)7<

6hich of the following are true statements9 ()33333333333333 &oney or the money supply is defined as anything that is generally accepted in payment 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. Answer: Question tatus: !revious "dition

17Frederic . &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 in payment for goods and services or in the repayment of debts. ()fffffffffffffff ;he average price of goods and services in an economy is called the aggregate price 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. Answer: Question tatus: !revious "dition

)7#

6hich of the following are true statements9 ()$$$$$$$$$$$$$$$ &oney or the money supply is defined as anything that is generally accepted in payment for goods and services or in the repayment of debts. ()kkkkkkkkkkkkkkk ;he average price of goods and services in an economy is called the inflation 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. Answer: Question tatus: !revious "dition

)7%

6hich of the following are true statements9 ()ooooooooooooooo ;hose countries with the highest inflation rates are also the ones with the highest money growth rates. ()ppppppppppppppp ;he average price of goods and services in an economy is called the aggregate price level. (),,,,,,,,,,,,,,, ;he inflation rate is measured as the rate of change in the aggregate price level. ()rrrrrrrrrrrrrrr All of the above are true statements. ()sssssssssssssss Gnly (a) and (b) of the above are true statements. Answer: Question tatus: !revious "dition

)7*

6hich of the following are true statements9 ()ttttttttttttttt ;hose countries with the highest inflation rates are also the ones with the highest money growth rates. ()uuuuuuuuuuuuuuu ;he average price of goods and services in an economy is called the inflation 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. Answer: Question tatus: !revious "dition

/hapter 16hy tudy &oney' 8anking' and Financial &arkets91:

)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 been positive. ()bbbbbbbbbbbbbbbb all of the above. Answer: Question tatus: !revious "dition

)72

@f 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 ()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 been positive. ()ffffffffffffffff all of the above. Answer: Question tatus: !revious "dition

)75

Gne likely e+planation for the relatively high rates of inflation e+perienced in many Hatin American countries 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. Answer: Question tatus: !revious "dition

)77

/omplete &ilton Friedman0s famous statement' A@nflation is always and everywhere a >>>>> phenomenon.B ()kkkkkkkkkkkkkkkk recessionary ()llllllllllllllll discretionary ()mmmmmmmmmmmmmmmm repressionary ()nnnnnnnnnnnnnnnn monetary Answer: Question tatus: !revious "dition

)7:

&ilton Friedman0s restatement of the notion that Asustained inflation can come only from a continuous increase in the money supplyB is as follows: ()oooooooooooooooo A@nflation is always and everywhere a monetary phenomenon.B ()pppppppppppppppp A@nflation' simply stated' is never anything other than a monetary phenomenon.B (),,,,,,,,,,,,,,,, A@nflation is ultimately and singularly a monetary phenomenon.B ()rrrrrrrrrrrrrrrr A;he over-issue of paper money is the initial and singular cause of inflation.B Answer: Question tatus: !revious "dition

#<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. Answer: Question tatus: 4ew

):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. Answer: Question tatus: !revious "dition

):#

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. Answer: Question tatus: !revious "dition

):%

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 the monetary authorities to e+pand the ,uantity of money to keep interest rates from rising. ()iiiiiiiiiiiiiiiii budget deficits may put pressure on Federal Feserve to increase the growth rate of the money supply. ()$$$$$$$$$$$$$$$$$ of all of the above. Answer: Question tatus: !revious "dition

):*

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. Answer: Question tatus: tudy 1uide

/hapter 16hy 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. Answer: Question tatus: 4ew

):2

8etween 1:.< and 1:7< 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 of 14!) trended downward. ()+++++++++++++++++ the aggregate price level declined ,uite dramatically. Answer: Question tatus: !revious "dition

):5

@n the (. . between 1:.< and 1:7<' interest rates trended upward. Curing this same time period' ()yyyyyyyyyyyyyyyyy the rate of money growth increased. ()33333333333333333 the government budget deficit (e+pressed as a percentage of 14!) trended upward. ()aaaaaaaaaaaaaaaaaa the aggregate price level continued to increase. ()bbbbbbbbbbbbbbbbbb all of the above. ()cccccccccccccccccc only (a) and (b) of the above. Answer: Question tatus: !revious "dition

):7

@n the (. . between 1:.< and 1:7<' interest rates trended upward. Curing this same time period' ()dddddddddddddddddd the rate of money growth decreased. ()eeeeeeeeeeeeeeeeee the government budget deficit (e+pressed as a percentage of 14!) trended upward. ()ffffffffffffffffff the aggregate price level continued to decrease. ()gggggggggggggggggg all of the above. ()hhhhhhhhhhhhhhhhhh only (a) and (b) of the above. Answer: Question tatus: !revious "dition

)::

@n the (. . between 1:.< and 1:7<' interest rates trended upward. Curing this same time period' ()iiiiiiiiiiiiiiiiii the rate of money growth increased. ()$$$$$$$$$$$$$$$$$$ the government budget deficit (e+pressed as a percentage of 14!) trended upward. ()kkkkkkkkkkkkkkkkkk the aggregate price level continued to decrease. ()llllllllllllllllll all of the above. ()mmmmmmmmmmmmmmmmmm only (a) and (b) of the above. Answer: Question tatus: !revious "dition

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

Appendix to Chapter 1
)1<< ;he most comprehensive measure of aggregate output is ()nnnnnnnnnnnnnnnnnn gross domestic product. ()oooooooooooooooooo net national product. ()pppppppppppppppppp the stock value of the industrial .<<. (),,,,,,,,,,,,,,,,,, national income. Answer: Question tatus: !revious "dition )1<1 6hen the total value of final goods and services is calculated using current prices' the resulting measure is referred to as ()rrrrrrrrrrrrrrrrrr real 1C!. ()ssssssssssssssssss the 1C! deflator. ()tttttttttttttttttt nominal 1C!. ()uuuuuuuuuuuuuuuuuu the inde+ of leading indicators. Answer: Question tatus: !revious "dition )1<# 1C! measured with constant prices is referred to as ()vvvvvvvvvvvvvvvvvv real 1C!. ()wwwwwwwwwwwwwwwwww nominal 1C!. ()++++++++++++++++++ the 1C! deflator. ()yyyyyyyyyyyyyyyyyy industrial production. Answer: Question tatus: !revious "dition )1<% @f the aggregate price level at time t is denoted by !t' the inflation rate from time t 1 to t is defined as ()333333333333333333 pt = (!t !t 1)/!t 1. ()aaaaaaaaaaaaaaaaaaa pt = (!t + 1 !t 1)/!t 1. ()bbbbbbbbbbbbbbbbbbb pt = (!t + 1 !t)/!t. ()ccccccccccccccccccc pt = (!t !t 1)/!t. Answer: Question tatus: !revious "dition )1<* 1ross domestic product includes ()ddddddddddddddddddd purchases of stocks and bonds. ()eeeeeeeeeeeeeeeeeee purchases of used cars and houses. ()fffffffffffffffffff purchases of Fembrandt paintings. ()ggggggggggggggggggg purchases of newly produced goods and services. ()hhhhhhhhhhhhhhhhhhh all of the above. Answer: Question tatus: 4ew

/hapter 16hy tudy &oney' 8anking' and Financial &arkets9#%

)1<. ;he 1ross Comestic !roduct is the ()iiiiiiiiiiiiiiiiiii the value of all wealth in an economy. ()$$$$$$$$$$$$$$$$$$$ the value of all stocks and bonds sold in an economy in a year. ()kkkkkkkkkkkkkkkkkkk the market value of all final goods and services produced in an economy in a year. ()lllllllllllllllllll the market value of all intermediate goods and services produced in an economy in a year. ()mmmmmmmmmmmmmmmmmmm the value of all goods and services sold to other nations in a year. Answer: Question tatus: 4ew )1<2 @f an economy has aggregate output of =#< trillion' then aggregate income is ()nnnnnnnnnnnnnnnnnnn =1< trillion. ()ooooooooooooooooooo =#< trillion. ()ppppppppppppppppppp =%< trillion. (),,,,,,,,,,,,,,,,,,, =*< trillion. ()rrrrrrrrrrrrrrrrrrr cannot be determined. Answer: Question tatus: 4ew )1<5 @f your nominal income in 1::2 was =.<'<<<' and prices doubled between 1::2 and #<<#' to have the same real income' your nominal income in #<<# must be ()sssssssssssssssssss =.<'<<<. ()ttttttttttttttttttt =5.'<<<. ()uuuuuuuuuuuuuuuuuuu =:<'<<<. ()vvvvvvvvvvvvvvvvvvv =1<<'<<<. ()wwwwwwwwwwwwwwwwwww =#<<'<<<. Answer: Question tatus: 4ew )1<7 @f your nominal income in 1::< is =.<'<<<' and prices increase by .<I between 1::< and #<<<' then to have the same real income' your nominal income in #<<< must be ()+++++++++++++++++++ =.<'<<<. ()yyyyyyyyyyyyyyyyyyy =5.'<<<. ()3333333333333333333 =1<<'<<<. ()aaaaaaaaaaaaaaaaaaaa =1.<'<<<. ()bbbbbbbbbbbbbbbbbbbb =#<<'<<<. Answer: Question tatus: 4ew

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

)1<: @f nominal 1C! in #<<1 is =: trillion' and #<<1 real 1C! in 1::2 prices is =2 trillion' the 1C! deflator price inde+ is ()cccccccccccccccccccc 25. ()dddddddddddddddddddd 1<<. ()eeeeeeeeeeeeeeeeeeee 1.<. ()ffffffffffffffffffff #<<. ()gggggggggggggggggggg cannot be determined. Answer: Question tatus: 4ew )11< @f the price level increases from #<< in year 1 to ##< in year #' the rate of inflation from year 1 to year # is ()hhhhhhhhhhhhhhhhhhhh #<I. ()iiiiiiiiiiiiiiiiiiii 1<I. ()$$$$$$$$$$$$$$$$$$$$ 11I. ()kkkkkkkkkkkkkkkkkkkk 1#<I. ()llllllllllllllllllll ##<I. Answer: Question tatus: tudy 1uide )111 @f real 1C! grows from =1< trillion in #<<# to =1<.. trillion in #<<%' the growth rate for real 1C! is ()mmmmmmmmmmmmmmmmmmmm .I. ()nnnnnnnnnnnnnnnnnnnn 1<I. ()oooooooooooooooooooo .<I. ()pppppppppppppppppppp <..I. (),,,,,,,,,,,,,,,,,,,, cannot be determined. Answer: Question tatus: 4ew )11# @f real 1C! in #<<# is =1< trillion' and in #<<% real 1C! is =:.. trillion' then real 1C! growth from #<<# to #<<% is ()rrrrrrrrrrrrrrrrrrrr .<.I. ()ssssssssssssssssssss .I. ()tttttttttttttttttttt <I. ()uuuuuuuuuuuuuuuuuuuu .I. ()vvvvvvvvvvvvvvvvvvvv 1<I. Answer: Question tatus: 4ew )11% @f the /!@ is 1#< in 1::2 and 17< in #<<#' then between 1::2 and #<<#' prices have increased by ()wwwwwwwwwwwwwwwwwwww 17<I. ()++++++++++++++++++++ 7<I. ()yyyyyyyyyyyyyyyyyyyy 2<I. ()33333333333333333333 .<I. ()aaaaaaaaaaaaaaaaaaaaa #<I. Answer: Question tatus: 4ew

/hapter 16hy tudy &oney' 8anking' and Financial &arkets9#.

)11* @f the /!@ in #<<* is #<<' and in #<<. the /!@ is 17<' the rate of inflation from #<<* to #<<. is ()bbbbbbbbbbbbbbbbbbbbb #<I. ()ccccccccccccccccccccc 1<I. ()ddddddddddddddddddddd <I. ()eeeeeeeeeeeeeeeeeeeee 1<I. ()fffffffffffffffffffff #<I. Answer: Question tatus: 4ew

Essay Questions
6hat is a stock9 Eow do stocks affect the economy9 )1 Hist three economic magnitudes affected by the money stock and state how money affects each of them. )# hortly after his election' !resident 1eorge 6. 8ush proposed legislation that resulted in a cut in income ta+es. "+plain how this ta+ cut affected the federal budget deficit. 6hat are the possible economic conse,uences of this change in the budget deficit9