ECO 315 Midterm # 1 - MC + answer - Chapter 1

Financial markets promote economic efficiency by

Financial markets promote greater economic efficiency by channeling funds from ________ to

Well-function financial markets promote

A key factor in producing high economic growth is

Markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds are called

Poorly performing financial markets can be the cause of

The bond markets are important because they are

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

Compared to interest rates on long-term U.S. government bonds, interest rates on three-month Treasury bills fluctuate ________ and are ________ on average.

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

Everything else held constant, a decline in interest rates will cause spending on housing to

High interest rates might ________ purchasing a house or car but at the same time high interest rates might ________ saving.

An increase in interest rates might ________ saving because more can be earned in interest income.

Everything else held constant, an increase in interest rates on student loans

High interest rates might cause a corporation to ________ building a new plant that would provide more jobs.

The stock market is important because it is

Stock prices are

A rising stock market index due to higher share prices

20) When stock prices fall

Changes in stock prices

An increase in stock prices ________ the size of peopleʹs wealth and may ________ their willingness to spend, everything else held constant.

Low stock market prices might ________ consumers willingness to spend and might ________ businesses willingness to undertake investment projects.

Fear of a major recession causes stock prices to fall, everything else held constant, which in turn causes consumer spending to

A share of common stock is a claim on a corporationʹs

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.

27) The decline in stock prices from 2000 through 2002

28) The Dow reached a peak of over 11,000 before the collapse of the ________ bubble in 2000.

What is a stock? How do stocks affect the economy? 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.

Why is it important to understand the bond market? 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.

Channeling funds from individuals with surplus funds to those desiring funds when the saver does not purchase the borrowerʹs security is known as

A financial crisis is