Question 1

Financial intermediation can break down as a result of:

Accepted Answer

A)  the government's granting property rights. 
B)  free adjustments of interest rates in the loanable funds market. 
C)  bank panics. 
D)  a high saving rate. 
A)  the government's granting property rights. 
B)  free adjustments of interest rates in the loanable funds market. 
C)  bank panics. 
D)  a high saving rate.

Question 2

An insolvent firm has assets that exceed liabilities.

Accepted Answer

A) True 
 B)False

Question 3

Saving occurs when a person's income exceeds her spending on consumption goods.

Accepted Answer

A) True 
 B)False

Question 4

Financial intermediation can break down as a result of:

Accepted Answer

A)  low inflation. 
B)  stable inflation. 
C)  government controls on interest rates. 
D)  private ownership of banks. 
A)  low inflation. 
B)  stable inflation. 
C)  government controls on interest rates. 
D)  private ownership of banks.

Question 5

The buying and selling of equally risky assets to ensure equal returns is called:

Accepted Answer

A)  risk exchange. 
B)  default swap. 
C)  arbitrage. 
D)  crowding out. 
A)  risk exchange. 
B)  default swap. 
C)  arbitrage. 
D)  crowding out.

Question 6

What is a service that banks specialize in providing?

Accepted Answer

A)  providing the highest return available in the market 
B)  seeking to pass all of the returns on investment to the savers 
C)  evaluating the quality of investment opportunities 
D)  making sure all funds are distributed in the most equitable fashion 
A)  providing the highest return available in the market 
B)  seeking to pass all of the returns on investment to the savers 
C)  evaluating the quality of investment opportunities 
D)  making sure all funds are distributed in the most equitable fashion

Question 7

A binding interest rate ceiling will lead to a(n):

Accepted Answer

A)  higher return on saving. 
B)  increase in saving. 
C)  shortage of saving. 
D)  crowding out of saving. 
A)  higher return on saving. 
B)  increase in saving. 
C)  shortage of saving. 
D)  crowding out of saving.

Question 8

Some U.S.Treasury bonds have terms of 30 years.

Accepted Answer

A) True 
 B)False

Question 9

Buying stock in a company is:

Accepted Answer

A)  investment. 
B)  divestment. 
C)  a transfer of ownership rights. 
D)  leverage. 
A)  investment. 
B)  divestment. 
C)  a transfer of ownership rights. 
D)  leverage.

Question 10

If the supply of loanable funds decreases and the demand for loanable funds decreases at the same time,interest rates will:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  increase,decrease,or remain the same. 
A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  increase,decrease,or remain the same.

Question 11

The main reason people save during their working years is:

Accepted Answer

A)  a preference toward a smooth consumption path over time. 
B)  a high time preference for the present. 
C)  an expectation that they will die early. 
D)  a preference toward matching income with spending over time. 
A)  a preference toward a smooth consumption path over time. 
B)  a high time preference for the present. 
C)  an expectation that they will die early. 
D)  a preference toward matching income with spending over time.

Question 12

When a bond comes due,the possibility that the borrower will not be able to pay is called nonpayment risk.

Accepted Answer

A) True 
 B)False

Question 13

For savers,the role of financial intermediaries is to:

Accepted Answer

A)  earn more returns on their investments. 
B)  ensure that all borrowers can fund their investments. 
C)  reduce the default risk on money they save and lend. 
D)  avoid taxes from income earned on investments. 
A)  earn more returns on their investments. 
B)  ensure that all borrowers can fund their investments. 
C)  reduce the default risk on money they save and lend. 
D)  avoid taxes from income earned on investments.

Question 14

At the beginning of the American Great Depression,what percent of banks failed in the United States?

Accepted Answer

A)  less than 10% 
B)  about 25% 
C)  around 50% 
D)  over 80% 
A)  less than 10% 
B)  about 25% 
C)  around 50% 
D)  over 80%

Question 15

If the supply of loanable funds decreases,ceteris paribus,the quantity of loanable funds exchanged will:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  change indeterminately. 
A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  change indeterminately.

Question 16

An increase in the interest rate leads to a decrease in the quantity demanded to borrow.

Accepted Answer

A) True 
 B)False

Question 17

An IPO represents the second time a stock is sold after being released by the government.

Accepted Answer

A) True 
 B)False

Question 18

If bond prices fall,what happens to interest rates?

Accepted Answer

A)  They will fall. 
B)  They remain stable. 
C)  They initially fall,and then return to their initial level. 
D)  They will rise. 
A)  They will fall. 
B)  They remain stable. 
C)  They initially fall,and then return to their initial level. 
D)  They will rise.

Question 19

According to Ben Bernanke,bank failures during the onset of the Great Depression:

Accepted Answer

A)  are urban legends. 
B)  made it harder for households,farmers,and small firms to get credit,worsening the recession. 
C)  increased the rate of investment,which ultimately got the United States out of depression. 
D)  were not as harmful as the stock market crash. 
A)  are urban legends. 
B)  made it harder for households,farmers,and small firms to get credit,worsening the recession. 
C)  increased the rate of investment,which ultimately got the United States out of depression. 
D)  were not as harmful as the stock market crash.

Question 20

The demand to borrow function shows the relationship between borrowing money and:

Accepted Answer

A)  consumption. 
B)  income. 
C)  age. 
D)  the interest rate. 
A)  consumption. 
B)  income. 
C)  age. 
D)  the interest rate.

Exam 9: Saving,investment,and the Financial System

Financial intermediation can break down as a result of:

An insolvent firm has assets that exceed liabilities.

Saving occurs when a person's income exceeds her spending on consumption goods.

Financial intermediation can break down as a result of:

The buying and selling of equally risky assets to ensure equal returns is called:

What is a service that banks specialize in providing?

A binding interest rate ceiling will lead to a(n):

Some U.S.Treasury bonds have terms of 30 years.

Buying stock in a company is:

If the supply of loanable funds decreases and the demand for loanable funds decreases at the same time,interest rates will:

The main reason people save during their working years is:

When a bond comes due,the possibility that the borrower will not be able to pay is called nonpayment risk.

For savers,the role of financial intermediaries is to:

At the beginning of the American Great Depression,what percent of banks failed in the United States?

If the supply of loanable funds decreases,ceteris paribus,the quantity of loanable funds exchanged will:

An increase in the interest rate leads to a decrease in the quantity demanded to borrow.

An IPO represents the second time a stock is sold after being released by the government.

If bond prices fall,what happens to interest rates?

According to Ben Bernanke,bank failures during the onset of the Great Depression:

The demand to borrow function shows the relationship between borrowing money and:

The Big Ideas

The Power of Trade

Supply and Demand

Equilibrium- How Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth,capital Accumulation

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations

Transmission and Amplification Mechanisms

The Federal Reserve System

Monetary Policy

The Federal Budget- Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

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