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1TheEconomicsofMoney,Banking,andFinancialMarkets,9e(Mishkin)Chapter1WhyStudyMoney,Banking,andFinancialMarkets?1.1WhyStudyFinancialMarkets?1)FinancialmarketspromoteeconomicefficiencybyA)channelingfundsfrominvestorstosavers.B)creatinginflation.C)channelingfundsfromsaverstoinvestors.D)reducinginvestment.Answer:CQuesStatus:PreviousEdition2)Financialmarketspromotegreatereconomicefficiencybychannelingfundsfrom________to________.A)investors;saversB)borrowers;saversC)savers;borrowersD)savers;lendersAnswer:CQuesStatus:PreviousEdition3)Well-functioningfinancialmarketspromoteA)inflation.B)deflation.C)unemployment.D)growth.Answer:DQuesStatus:PreviousEdition4)AkeyfactorinproducinghigheconomicgrowthisA)eliminatingforeigntrade.B)well-functioningfinancialmarkets.C)highinterestrates.D)stockmarketvolatility.Answer:BQuesStatus:New5)MarketsinwhichfundsaretransferredfromthosewhohaveexcessfundsavailabletothosewhohaveashortageofavailablefundsarecalledA)commoditymarkets.B)fund-availablemarkets.C)derivativeexchangemarkets.D)financialmarkets.Answer:DQuesStatus:PreviousEdition26)________marketstransferfundsfrompeoplewhohaveanexcessofavailablefundstopeoplewhohaveashortage.A)CommodityB)Fund-availableC)FinancialD)DerivativeexchangeAnswer:CQuesStatus:PreviousEdition7)PoorlyperformingfinancialmarketscanbethecauseofA)wealth.B)poverty.C)financialstability.D)financialexpansion.Answer:BQuesStatus:PreviousEdition8)ThebondmarketsareimportantbecausetheyareA)easilythemostwidelyfollowedfinancialmarketsintheUnitedStates.B)themarketswhereforeignexchangeratesaredetermined.C)themarketswhereinterestratesaredetermined.D)themarketswhereallborrowersgettheirfunds.Answer:CQuesStatus:PreviousEdition9)Thepricepaidfortherentalofborrowedfunds(usuallyexpressedasapercentageoftherentalof$100peryear)iscommonlyreferredtoastheA)inflationrate.B)exchangerate.C)interestrate.D)aggregatepricelevel.Answer:CQuesStatus:PreviousEdition10)Comparedtointerestratesonlong-termU.S.governmentbonds,interestratesonthree-monthTreasurybillsfluctuate________andare________onaverage.A)more;lowerB)less;lowerC)more;higherD)less;higherAnswer:AQuesStatus:PreviousEdition311)TheinterestrateonBaa(mediumquality)corporatebondsis________,onaverage,thanotherinterestrates,andthespreadbetweenitandotherratesbecame________inthe1970s.A)lower;smallerB)lower;largerC)higher;smallerD)higher;largerAnswer:DQuesStatus:PreviousEdition12)Everythingelseheldconstant,adeclineininterestrateswillcausespendingonhousingtoA)fall.B)remainunchanged.C)eitherrise,fall,orremainthesame.D)rise.Answer:DQuesStatus:PreviousEdition13)Highinterestratesmight________purchasingahouseorcarbutatthesametimehighinterestratesmight________saving.A)discourage;encourageB)discourage;discourageC)encourage;encourageD)encourage;discourageAnswer:AQuesStatus:New14)Anincreaseininterestratesmight________savingbecausemorecanbeearnedininterestincome.A)encourageB)discourageC)disallowD)invalidateAnswer:AQuesStatus:PreviousEdition15)Everythingelseheldconstant,anincreaseininterestratesonstudentloansA)increasesthecostofacollegeeducation.B)reducesthecostofacollegeeducation.C)hasnoeffectoneducationalcosts.D)increasescostsforstudentswithnoloans.Answer:AQuesStatus:PreviousEdition416)Highinterestratesmightcauseacorporationto________buildinganewplantthatwouldprovidemorejobs.A)completeB)considerC)postponeD)contemplateAnswer:CQuesStatus:PreviousEdition17)ThestockmarketisimportantbecauseitisA)whereinterestratesaredetermined.B)themostwidelyfollowedfinancialmarketintheUnitedStates.C)whereforeignexchangeratesaredetermined.D)themarketwheremostborrowersgettheirfunds.Answer:BQuesStatus:PreviousEdition18)StockpricesareA)relativelystabletrendingupwardatasteadypace.B)relativelystabletrendingdownwardatamoderaterate.C)extremelyvolatile.D)unstabletrendingdownwardatamoderaterate.Answer:CQuesStatus:Revised19)ArisingstockmarketindexduetohighersharepricesA)increasespeople'swealth,butisunlikelytoincreasetheirwillingnesstospend.B)increasespeople'swealthandasaresultmayincreasetheirwillingnesstospend.C)decreasestheamountoffundsthatbusinessfirmscanraisebysellingnewly-issuedstock.D)decreasespeople'swealth,butisunlikelytoincreasetheirwillingnesstospend.Answer:BQuesStatus:PreviousEdition20)WhenstockpricesfallA)anindividual'swealthisnotaffectednoristheirwillingnesstospend.B)abusinessfirmwillbemorelikelytosellstocktofinanceinvestmentspending.C)anindividual'swealthmaydecreasebuttheirwillingnesstospendisnotaffected.D)anindividual'swealthmaydecreaseandtheirwillingnesstospendmaydecrease.Answer:DQuesStatus:PreviousEdition521)ChangesinstockpricesA)donotaffectpeople'swealthandtheirwillingnesstospend.B)affectfirms'decisionstosellstocktofinanceinvestmentspending.C)occurinregularpatterns.D)areunimportanttodecisionmakers.Answer:BQuesStatus:PreviousEdition22)Anincreaseinstockprices________thesizeofpeople'swealthandmay________theirwillingnesstospend,everythingelseheldconstant.A)increases;increaseB)increases;decreaseC)decreases;increaseD)decreases;decreaseAnswer:AQuesStatus:PreviousEdition23)Lowstockmarketp