ECON 3303 Exam 1 Quiz Questions UTA

Which of the following assets is the most liquid?

a. computer

b. demand deposit

c. US treasury bond

d. washing machine

b) demand deposit

A share of common stock is a claim on a corporation's

a. expenses

b. debit

c. earnings and assets

d. liabilities

c) earnings and assets

The stock market is important because it is

a. where foreign exchange rates are determined.

b. the market where most borrowers get their funds.

c. the most widely followed financial market in the United States.

d. where interest rates are determined.

c) the most widely followed financial market in the United States

If a bank grants you a mortgage, the mortgage is

a) an asset to you as well as an asset to the bank.

b) an asset to you, but a liability to the bank.

c) a liability to you, but an asset to the bank.

d) a liability to you as well as a liability to the bank.

c) a liability to you, but an asset to the bank

Economists define liquidity as

a) the ease with which an asset can be exchanged for money.

b) the fraction the asset makes up of an investor's portfolio.

c) the difference between the return on the asset and the return on a long-term U.S. Treasury bond.

d) the difference between the total demand for an asset and the total supply of the asset.

a) the ease with which an asset can be exchanged for money.

An example of a nominal variable is ________.

a) the chain weighted measure of GDP

b) income measured at current market prices

c) none of the above

d) all of the above

e) expenditures in terms of the quantities of actual goods

b) income measured at current market prices

Examples of deflators are the ________ and ________ deflator

a. personal consumption expenditure; gross domestic product

b. private disposable income; gross national product

c. private disposable income; personal consumption expenditure

d. gross domestic product; rental income

e. real; nominal

a. personal consumption expenditure; gross domestic product

Most borrower-spenders in the financial system are

a. businesses and governments.

b. banks and thrift institutions.

c. governments and financial institutions.

d. households and foreigners.

a. businesses and governments.

Well-functioning financial markets promote

a. deflation.

b. inflation.

c. growth.

d. unemployment.

c. growth

American companies can borrow funds

a. only in U.S. financial markets.

b. in both U.S. and foreign financial markets.

c. only from the U.S. government.

d. only in foreign financial markets.

b. in both U.S. and foreign financial markets.

The price of one country's currency in terms of another country's currency is called the

a. interest rate.

b. prime rate.

c. Dow Jones industrial average.

d. exchange rate.

d. exchange rate

American farmers who sell beef to Europe benefit most from

a. an increase in the dollar price of euros.

b. a European ban on imports of American beef.

c. a decrease in the dollar price of euros.

d. a constant dollar price for euros.

a. an increase in the dollar price of euros.

Money is defined as

a. the unrecognized liability of governments.

b. anything that is generally accepted in payment for goods and services or in the repayment of debt.

c. bills of exchange.

d. a risk-free repository of spending power.

b. anything that is generally accepted in payment for goods and services or in the repayment of debt.

A rising stock market index due to higher share prices

a. decreases the amount of funds that business firms can raise by selling newly-issued stock.

b. increases people's wealth and as a result may increase their willingness to spend.

c. increases people's wealth, but is unlikely to increase their willingness to spend.

d. decreases people's wealth, but is unlikely to increase their willingness to spend.

b. increases people's wealth and as a result may increase their willingness to spend.

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

a. postpone

b. complete

c. consider

d. contemplate

a. postpone

A market in which stock prices are rising is called a

a. bull market.

b. primary market.

c. pig market.

d. bear market.

a. bull market.

Without financial markets, most financial transactions (like loans and asset sales) would not take place. According to the thought experiment in the course Introduction what is the primary reason for this?

a. there are way too many borrowers and too few lenders.

b. transactions costs are prohibitively high.

c. such transactions are unnecessary.

d. the law won't allow private transactions.

b. transactions costs are prohibitively high.

Consumer finance companies specialize in

a. residential mortgages.

b. financial disintermediation.

c. corporate stock.

d. consumer loans

d. consumer loans

Liquidity

a. is the ease with which an asset can be exchanged for money.

b. is the best available measure of the riskiness of an asset.

c. was declining for many financial assets during the 1990s.

d. is a characteristic of money, and of no other asset.

a. is the ease with which an asset can be exchanged for money.

Which of the following can be described as involving indirect finance?

a. A corporation buys a share of common stock issued by another corporation in the primary market.

b. You make a deposit at a bank.

c. You buy a U.S. Treasury bill from the U.S. Treasury.

d. You make a loan to your neighbor.

b. You make a deposit at a bank.

The process where financial intermediaries create and sell low-risk assets and use the proceeds to purchase riskier assets is known as

a. risk sharing.

b. risk aversion.

c. risk selling.

d. risk neutrality.

a. risk sharing.

Which of the following is a contractual savings institution?

a. A savings and loan association

b. A credit union

c. A mutual fund

d. A life insurance company

d. A life insurance company

Collateral is ________ the lender receives if the borrower does not pay back the loan.

a. a liability

b. an asset

c. an offering

d. a present

b. an asset

Which of the following benefit directly from any increase in the corporation's profitability?

a. a T-bill holder

b. a shareholder

c. a bond holder

d. a commercial paper holder

b. a shareholder

Which of the following can be described as involving direct finance?

a. People buy shares in a mutual fund.

b. A corporation issues new shares of stock.

c. A pension fund manager buys a short-term corporate security in the secondary market.

d. An insurance company buys shares of common stock in the over-the-counter markets.

b. A corporation issues new shares of stock.

The higher a security's price in the secondary market the ________ funds a firm can raise by selling securities in the ________ market.

a. less; primary

b. more; primary

c. less; secondary

d. more; secondary

b. more; primary

Economies of scale enable financial institutions to

a. reduce moral hazard.

b. reduce transactions costs.

c. avoid adverse selection problems.

d. avoid the asymmetric information problem.

b. reduce transactions costs.

Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which it is sold are known as

a. country bonds.

b. foreign bonds.

c. equity bonds.

d. Eurobonds.

d. Eurobonds.

Savings and loan associations are regulated by the

a. Office of the Comptroller of the Currency.

b. Federal Reserve System.

c. Office of Thrift Supervision.

d. Securities and Exchange Commission.

c. Office of Thrift Supervision.

Increasing transactions costs of selling an asset make the asset

a. more valuable.

b. more moneylike.

c. less liquid.

d. more liquid.

c. less liquid.

Introduction of checks into the payments system reduced the costs of exchanging goods and services. Another advantage of checks is that

a. they are more widely accepted than currency.

b. the funds from a deposited check are available for use immediately.

c. they provide convenient receipts for purchases.

d. they can never be stolen.

c. they provide convenient receipts for purchases.

What is the most important factor for Federal Reserve currency to be accepted as money?

a. the willingness of the federal government to accept it in exchange for an equivalent amount of gold or silver coins

b. its acceptance by businesses and households in the United States in exchange for goods and services

c. its designation as legal tender by the federal government

d. the willingness of foreign businesses and banks to accept it in exchange for goods and services

b. its acceptance by businesses and households in the United States in exchange for goods and service

If an individual uses money from a demand deposit account to purchase a U.S. savings bond,

Correct!

a. M1 decreases and M2 decreases.

b. M1 stays the same and M2 increases.

c. M1 stays the same and M2 stays the same.

d. M1 decreases and M2 stays the same.

a. M1 decreases and M2 decreases.

The evolution of the payments system from barter to precious metals, then to fiat money, then to checks can best be understood as a consequence of the fact that

a. precious metals were not generally acceptable.

b. paper money is less accepted than checks.

c. precious metals were difficult to carry and transport.

d. paper is more costly to produce than precious metals.

c. precious metals were difficult to carry and transport.

Of the following assets, the least liquid is

a. checking deposits.

b. stocks.

c. traveler's checks.

d. a house.

d. a house.

Which function of money enhances the ability of households to accumulate wealth?

a. store of value

b. valuable relative to its weight

b. medium of exchange

d. does not become worn out too quickly

a. store of value

If you buy a bond issued by Intel, the bond is a(n)

a. liability to you and an asset to Intel.

b. liability to Intel and an asset to you.

c. asset to both you and Intel.

d. liability to both you and Intel.

b. liability to Intel and an asset to you.

An electronic payments system has not completely replaced the paper payments system because of all of the following reasons except

a. security concerns.

b. transportation costs.

c. expensive equipment is necessary to set up the system.

d. privacy concerns.

b. transportation costs.

Why do individuals hold money when it does NOT provide the services that, say, a house does?

a. Money is the only form in which wealth may be held.

b. Money increases in value faster than other assets.

c. Money provides liquidity services (i.e. transactions can be conducted on the spot).

d. Money is useful in avoiding taxes on certain transactions.

c. Money provides liquidity services (i.e. transactions can be conducted on the spot).