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ECO 315 Midterm # 1 - MC

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

Question 1 of 31

1

Financial markets promote economic efficiency by

Select one of the following:

  • channeling funds from investors to savers

  • creating inflation

  • channeling funds from savers to investors

  • reducing investment

Explanation

Question 2 of 31

1

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

Select one of the following:

  • investors; savers

  • borrowers; savers

  • savers; borrowers

  • savers; lenders

Explanation

Question 3 of 31

1

Well-function financial markets promote

Select one of the following:

  • inflation

  • deflation

  • unemployment

  • growth

Explanation

Question 4 of 31

1

A key factor in producing high economic growth is

Select one of the following:

  • eliminating foreign trade

  • well-functioning financial markets

  • high interest rates

  • stock market volatility

Explanation

Question 5 of 31

1

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

Select one of the following:

  • commodity markets

  • fund-available markets

  • derivative exchange markets

  • financial markets

Explanation

Question 6 of 31

1

Poorly performing financial markets can be the cause of

Select one of the following:

  • wealth

  • poverty

  • financial stability

  • financial expansion

Explanation

Question 7 of 31

1

The bond markets are important because they are

Select one of the following:

  • easily the most widely followed financial markets in the US

  • the markets where foreign exchange rates are determined

  • the markets where interest rates are determined

  • the markets where all borrowers get their funds

Explanation

Question 8 of 31

1

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

Select one of the following:

  • inflation rate

  • exchange rate

  • interest rate

  • aggregate price level

Explanation

Question 9 of 31

1

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

Select one of the following:

  • more; lower

  • less; lower

  • more; higher

  • less; higher

Explanation

Question 10 of 31

1

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

Select one of the following:

  • lower; smaller

  • lower; larger

  • higher; smaller

  • higher; larger

Explanation

Question 11 of 31

1

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

Select one of the following:

  • fall

  • remain unchanged

  • either rise, fall, or remain the same

  • rise

Explanation

Question 12 of 31

1

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

Select one of the following:

  • discourage; encourage

  • discourage; discourage

  • encourage; encourage

  • encourage; discourage

Explanation

Question 13 of 31

1

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

Select one of the following:

  • encourage

  • discourage

  • disallow

  • invalidate

Explanation

Question 14 of 31

1

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

Select one of the following:

  • increases the cost of a college education

  • reduces the cost of a college education

  • has no effect on educational costs

  • increases costs for students with no loans

Explanation

Question 15 of 31

1

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

Select one of the following:

  • complete

  • consider

  • postpone

  • contemplate

Explanation

Question 16 of 31

1

The stock market is important because it is

Select one of the following:

  • where interest rates are determined

  • the most widely followed financial market in the United States

  • Where foreign exchange rates are determined

  • the market where most borrowers get their funds

Explanation

Question 17 of 31

1

Stock prices are

Select one of the following:

  • relatively stable trending upward at a steady pace

  • relatively stable trending downward at a moderate rate

  • extremely volative

  • unstable trending downward at a moderate rate

Explanation

Question 18 of 31

1

A rising stock market index due to higher share prices

Select one of the following:

  • increases peopleʹs wealth, but is unlikely to increase their willingness to spend.

  • increases peopleʹs 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.

  • decreases peopleʹs wealth, but is unlikely to increase their willingness to spend.

Explanation

Question 19 of 31

1

20) When stock prices fall

Select one of the following:

  • an individualʹs wealth is not affected nor is their willingness to spend.

  • a business firm will be more likely to sell stock to finance investment spending.

  • an individualʹs wealth may decrease but their willingness to spend is not affected.

  • an individualʹs wealth may decrease and their willingness to spend may decrease.

Explanation

Question 20 of 31

1

Changes in stock prices

Select one of the following:

  • do not affect peopleʹs wealth and their willingness to spend.

  • affect firmsʹ decisions to sell stock to finance investment spending.

  • occur in regular patterns.

  • are unimportant to decision makers.

Explanation

Question 21 of 31

1

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

Select one of the following:

  • increases; increase

  • increases; decrease

  • decreases; increase

  • decreases; decrease

Explanation

Question 22 of 31

1

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

Select one of the following:

  • increase; increase

  • increase; decrease

  • decrease; decrease

  • decrease; increase

Explanation

Question 23 of 31

1

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

Select one of the following:

  • increase

  • remain unchanged

  • decrease

  • cannot be determined

Explanation

Question 24 of 31

1

A share of common stock is a claim on a corporationʹs

Select one of the following:

  • debt

  • liabilities

  • expenses

  • earnings and assets

Explanation

Question 25 of 31

1

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.

Select one of the following:

  • ʺTerrible Tuesdayʺ

  • ʺWoeful Wednesdayʺ

  • ʺFreaky Fridayʺ

  • ʺBlack Mondayʺ

Explanation

Question 26 of 31

1

27) The decline in stock prices from 2000 through 2002

Select one of the following:

  • increased individualsʹ willingness to spend.

  • had no effect on individual spending.

  • reduced individualsʹ willingness to spend.

  • increased individual wealth.

Explanation

Question 27 of 31

1

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

Select one of the following:

  • housing

  • manufacturing

  • high-tech

  • banking

Explanation

Question 28 of 31

1

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.

Select one of the following:

  • True
  • False

Explanation

Question 29 of 31

1

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.

Select one of the following:

  • True
  • False

Explanation

Question 30 of 31

1

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

Select one of the following:

  • barter

  • redistribution

  • financial intermediation

  • taxation

Explanation

Question 31 of 31

1

A financial crisis is

Select one of the following:

  • not possible in the modern financial environment.

  • B) a major disruption in the financial markets.

  • a feature of developing economies only.

  • typically followed by an economic boom.

Explanation

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