Download Week One Quiz

Week One Quiz
1) The financial system is primarily a means by which
A) borrowers can use savers' funds until the savers themselves need the funds.
B) money is put into circulation.
C) the government puts into operation its plans for the economy.
D) business firms distribute their goods.
Answer: A
2) Which of the following forms the largest share of household holdings of financial assets?
A) corporate equities
B) bank deposits
C) pension funds reserves
D) life insurance
Answer: C
3) Economists define risk as
A) the difference between the interest rate borrowers pay and the interest rate lenders
receive.
B) the chance that the value of financial assets will change from what you expect.
C) the ease with which an asset can be exchanged for other assets or for goods and
services.
D) the difference between the return on common stock and the return on corporate bonds.
Answer: C
4) By providing and communicating information, the financial system
A) reduces the difference between the return on three-month U.S. Treasury bills and the
return on thirty-year U.S. Treasury bonds.
B) relieves individual savers from the necessity of searching out individual borrowers.
C) eliminates the risk in investing in the stock market.
D) guarantees investors a reasonable return on their money.
Answer: B
5) Financial intermediaries
A) include banks and other depository institutions.
B) include the New York and American Stock exchanges.
C) directly issue claims on individual borrowers to savers.
D) are owned and operated by the federal government.
Answer: A
6) An important reason why economies at an early stage of development tend to operate
inefficiently is
A) they tend to be dominated by the agricultural sector, where productivity is usually low.
B) they tend to have authoritarian governments that stifle innovation.
C) they tend to be plagued by superstitious beliefs that stifle innovation.
D) the high transactions costs associated with barter.
Answer: D
7) Suppose $100 buys less in the year 2011 than in 2000. Then we can say that
A) money's store of value has decreased.
B) money's store of value has increased.
C) the economy must have been growing rapidly between 2000 and 2011.
D) the economy must have been growing slowly between 2000 and 2011.
Answer: A
8) Which of the following is NOT included in M2?
A) currency
B) savings bonds
C) money market deposit accounts
D) overnight repurchase agreements
Answer: B
9) The narrowest money measure is
A) currency plus non-interest bearing checking accounts.
B) currency plus all checking accounts.
C) currency plus all deposits at financial institutions.
D) definitive money.
Answer: B
10) A hyperinflation occurs when
A) inflation persists for more than two years.
B) inflation persists for more than five years.
C) the inflation rate exceeds 10% per year.
D) the inflation rate exceeds 100% per year
Answer: D
11) The velocity of money can best be described as
A) how quickly prices are increasing.
B) how quickly output is increasing.
C) the number of times each dollar in the money supply us used to buy goods and services
included in GDP.
D) the growth rate of the money supply.
Answer: C
12) Suppose nominal GDP is $14 trillion and the money supply is $2 trillion. What is the
velocity of money?
A) 0.143
B) 7
C) 12
D) 28
Answer: B
13) According to the quantity theory of money, if the long-run economic growth rate is 2.5%,
by how much should the Fed increase the money supply if it wants inflation to be 2%?
A) 0.5%
B) 1.25%
C) 4.5%
D) 5%
Answer: C