Money and Banking: book questions and quizzes: FINAL EXAM

A currency board can help to: A. Increase investor confidence by backing up its currency with another established currency B. Trick people into exchanging funds C. Decrease the amount international trade D. Make the value of foreign bonds increase

A

A target zone exchange rate regime A. Sets an upper and lower bound for the currency, like a snake in a tunnel B. Allows the currency to be itself and fluctuate as it pleases C. Set a height requirement for the currency, like a snake on a plane D. Allows the currency to be free-range

A

If a homeowner decides to save money each month to pay property taxes and insurance on their home, this is referred to as: A. escrow. B. amortization. C. discretionary savings. D.forward savings.

A

If savings is greater than investment, what is the implication for aggregate demand? A. Actual spending is less than potential spending as a result of leakages. B. Actual spending is greater than potential spending as a result of capital budgeting. C. Actual spending is less than potential spending as a result of inflation. D. Actual spending is greater than potential spending as a result of head mentality.

A

If the ECB is pursuing an expansionary monetary policy, it will do which of the following? A.Lower the minimum reserve requirements B. Lower the interest rate paid by its deposit facility C.Purchase assets from financial institutions through open market operations D. All of the above

A

In a managed float scenario A. A government intervenes in the foreign exchange market to help set the exchange rate B. It is defined exactly when the government will step in and how much they will intervene C. Both a government intervenes in the foreign exchange market to help set the exchange rate and it is defined exactly when the government will step in and how much they will intervene D. None of these

A

Interest only and negative amortized mortgages are also known as: a. Subprime mortgages b. Prime mortgages c. Lender-based mortgages d. Traditional mortgages

A

Monetization of public debt often leads to which economic problem? A.Inflation B.Unemployment C.Stock market asset bubbles D. Falling commodity prices

A

Savings & Loan Associations were established to lend money to households so that the households could: A. purchase houses. B. fund their children's education. C. afford to retire comfortably. D. purchase automobiles.

A

The first credit unions, or credit cooperatives, in North America were started where and when? A. Quebec, Ontario, Canada, in 1901 B. Boston, Massachusetts, in 1909 C.Chicago, Illinois, in 1910 D.Cleveland, Ohio, in 1912

A

The term leverage refers to: A. the amount of debt that is being used. B. the price of bonds that are being sold. C. the maximum interest rate banks can pay on deposits. D. the default risk of a bond.

A

What is the Federal Reserve trying to twist in its "Operation Twist"? A.The shape of the yield curve B.The size of the government's budget deficit C.The level of profits banks earn D. The interest rate spread between lending rates and rates paid on deposits

A

When a central bank seeks to offset the impact of its attempt to influence the exchange rate of its currency on the monetary base, this action is referred to as: A. sterilization. B. counter-setting policy. C. liberalization. D. decontamination.

A

Which of the following is not a condition for countries to be considered an optimal currency area? A. They speak the same language. B. They allow workers to move between countries. C. They allow capital to move between countries. D. They allow wages and prices to adjust.

A

Which of the following explain why Ronald Reagan and Paul Volcker agreed on economic policy? A. They were both from the same political party. B. They both wanted to focus on long-term outcomes, not short-term issues. C. They both believed that low interest rates would stimulate the economy. D. They both believed that inflation was a good thing.

B

A home mortgage where the monthly payment is not enough to pay the monthly principal payment is called a: A. teaser mortgage. B. NegAm mortgage. C. upside-down mortgage. D. default mortgage.

B

Deep economic contractions, such as the Great Depression of the 1930s, are depicted in the Keynesian framework as which part of the aggregate supply curve? A.Vertical B. Horizontal C. Upward sloping D. Downward sloping.

B

Fred is holding on to cash because he thinks interest rates will increase in the future and thus bond prices will decrease, making the future a good time to buy bonds. Keynes would say Fred is holding on to cash as part of which type of demand for money? A. Precautionary B.Speculative C.Transactional D. Velocity

B

If Swiss consumers buy more goods from Japanese firms while Swiss productivity increases faster than Japanese productivity what will to Swiss Franc in terms of the Japanese Yen and why, if the first is bigger than the second? Question options: a) The Swiss Franc will fall against the Yen since the decrease in supply of Franc will larger than the increase in demand for Francs. b) The Swiss Franc will fall against the Yen since the increase in supply of Francs will be larger than the increase in demand for Francs. c) The Swiss Franc will rise against the Yen since the increase in demand for Francs will be larger than the decrease in supply of Francs. d) The Swiss Franc will rise against the Yen since decrease in demand for France will be larger than increase in supply of Francs.

B

If US Treasury and administration officials decide they want to see the dollar rise in value against the euro, what will happen to the monetary base? A.It will increase as bank reserves decrease. B. It will decrease as bank reserves decrease. C. It will increase as bank reserves increase. D. It will decrease as bank reserves increase.

B

If the ex ante real interest rate is less than the ex post real interest rate, which of the following happened? A)Actual inflation rate is less than the expected inflation rate. B)Actual inflation rate is greater than the expected inflation rate. C)Actual inflation rate is equal to the expected inflation rate. D)The expected inflation rate was zero.

B

In a "pay off and liquidate" approach, what is being liquidated? A. The cash a bank holds B. The insolvent institution that is being closed C. All of the depositors' accounts at the institution in question D. The healthy bank that is purchasing the failing institution

B

In a collateralized debt obligation (CDO) such as a collateralized mortgage obligation (CMO), the senior tranche: A. comprises the oldest mortgages. B. has the lowest risk of all the tranches. C. pays the highest return of the all the tranches. D. is the only tranche that does not have government insurance.

B

In an "import substitutions" policy, what is being substituted for imports? A. Cash transfers B. Domestically made goods and services C. Interest payments received in the future D. Bonds that can be converted into equities

B

PMI is an acronym that means: a. Private money interest b. Private mortgage insurance c. Purchase money interest d. Purchase mortgage insurance

B

Scott suffers from what Simon Johnson calls "intellectual capture." What does that mean? A. Scott believes that only highly educated people should manage financial institutions. B. Anything that is beneficial to the financial sector Scott sees as benefiting society as a whole. C. Scott considers the compensation paid to financial institution executives as being excessive because these executives are not the most highly educated members of society. D.In Scott's view bank regulators are the most highly trained professionals in financial markets.

B

The Basel Accords attempted to address which of the following issues? A. Sufficient levels of bank capital B. Different levels of deposit insurance in different countries C. The lack of an international lender of last resort D. Illegal cash transfers between nations

B

The gold standard's limitations include A. It is too flexible B. Countries have to leave the gold standard in difficult times and have found it difficult to return C. Both it is too flexible and countries have to leave the gold standard in difficult times and have found it difficult to return D. None of these

B

When an economy is suffering from deflation, the nominal or market interest rates tend to: A Increase B Decrease C Become negative D Equal zero

B

Why did the IMF suffer from "mission creep"? A. As members left the IMF, it changed on whom it focused. B. The collapse of the Bretton Woods System led the IMF to become a lending institution. C. The rise of global financial markets resulted in the IMF no longer being necessary. D. Rising inflation rates caused market interest rates to increase.

B

wants to push down the value of its currency in the foreign exchange market, it ___________ its own currency, causing the monetary base in its country to ___________. A.buys; contract B. sells; expand C. sells; contract D. buys; expand

B

A currency board is A. A surf board B. An ironing board C. An exchange rate regime D. A group of bankers who decide currency policy

C

A nation's currency will appreciate if the nation exhibits which of the following? Question options: a) High rates of inflation and high productivity growth. b) High productivity growth and lower real risk adjusted interest rates. c) High productivity growth and higher real risk adjusted interest rates. d) Slower productivity growth and higher inflation.

C

Both credit reports and credit scores are a measure of A.How a consumer has handled credit when no one was watching B.How a consumer has handled credit in during college C.How a consumer has handled credit in the past DHow a consumer has handled credit while intoxicated

C

Finance companies main purpose is to: a. Just take deposits b. Lend money and sell ice cream c. Just lend money d. Lend money and take deposits

C

How does the World Bank get its funds? A. It creates its own currency. B. It borrows money from the world's central banks. C. It is funded by national governments and borrows in the global financial markets. D. It depends on contributions from private parties.

C

If a central bank wants to pursue an expansionary monetary policy, it should change policies to ensure what happens to the required reserves ratio? A. The required reserves ratio should be set equal to the currency ratio. B. The required reserves ratio should be made greater than 1. C. The required reserves ratio should be reduced. D. None of these.

C

If a three-year bond with a $1,000 face value has a coupon rate of 3.5%, and the current market interest rate is 2%, what is the market price of the bond? A $956.75 B $1,035.00 C $975.30 D $1,148.34

C

If the market price for bonds is higher than the equilibrium price, what is the result, and what will change to bring about equilibrium as price falls, ceteris paribus? A)Shortage; quantity demanded will increase and quantity supplied will decrease. B)Surplus; quantity demanded will increase and quantity supplied will decrease. C) Surplus; quantity demanded will decrease and quantity supplied will increase. D) Shortage; quantity demanded will decrease and quantity supplied will increase.

C

If the value of the Indian rupee decreases, which of the following will occur? A. The price of Swiss-made watches in India will decrease. B. The price of Indian-made computers will increase in Canada. C. The price of German-made cheese in India will increase. D. The price of Indian-made spices in India will decrease.

C

In a free float exchange rate scenario A. The market sets the exchange rate through the forces of supply and demand B. Nothing happens, because it is a textbook scenario that never occurs in real life C. Both that the market sets the exchange rate through the forces of supply and demand and nothing happens because it is a textbook scenario that never occurs in real life D. None of these

C

In subprime home mortgages the term subprime refers to: A. the fact that the interest rates on these mortgages were below the prime rate. B. the idea that these mortgages were offered to young borrowers who had their prime earning years ahead of them. C. the fact that the borrowers had a credit history that was not as good as a typical or prime borrower. D. the idea that these borrowers had a much higher savings rate than a typical borrower.

C

Rationing was used in the United States during World War II in part to: A. keep interest rates low. B. keep unemployment rate low. C. keep inflation rate low. D. keep the government budget deficit low.

C

Sunita is a loan officer at a bank. She is considering making a loan to a local business, but she is worried about the "conditions" variable of the five Cs of credit risk. What is Sunita worried about? A.The people who are borrowing the money may not have the legal capacity to borrow in the name of the firm. B.The firm may not have sufficient cash flow to make regular payments as required by the loan. C.The market in which the firm is selling may experience a downturn in the near future, making it difficult for the borrower to repay the loan. D.Laws might change and negatively affect the ability of the borrower to repay the loan.

C

The Panic of 1907 was primarily ended thanks to the actions of: A)the Federal Reserve. B) President Teddy Roosevelt. C) J. Pierpont Morgan. D) Salmon P. Chase.

C

What did the Riegle-Neil Act of 1994 allow US banks to do? A. For the first time offer deposits with FDIC insurance B. Offer checking accounts that paid interest C. Have branches in many different states D. Sell newly issued government securities

C

When a country compares its currency value to gold A. The currency exchange is very simple B. International trade occurs easily C. Both the currency exchange is very simple and international trade occurs easily D. None of these

C

A bank charter is: A. An application to make investments B. Just a glorified bank statement C.When the bank hires a bus for a staff retreat D. When the government issues the permission to operate a bank

D

During a credit crunch we can expect interest rates to: A. decrease rapidly because of a significant increase in savings. B. increase rapidly as the economy expands quickly. C. decrease rapidly because of increased liquidity in financial markets. D. increase rapidly because of fierce competition over the limited funds available to borrow.

D

During what time period was the Bretton Woods System in place? A. From 1812 until World War I B. Between World War I and World War II C From the Great Depression until the end of World War II D. From the end of World War II until the 1970s

D

If last month the real interest rate in Sweden increased relative to the German interest rate, we can expect: Question options: a) Germans will be more willing to buy Swedish government securities. b) The Swedish currency will appreciate against the Germany currency. c) German made goods will be more expensive in Sweden. d) Both a) and b).

D

If the cost of doing business for producers increases, which of the following occurs? A. The short-run aggregate supply curve becomes flat. B. The short-run aggregate supply curve shifts outward. C. The short-run aggregate supply curve becomes steep. D. The short-run aggregate supply curve shifts inward.

D

If the economy is currently "overheating," this means: A. actual GDP is higher than potential GDP. B. there is "too much" spending in the economy. C.inflation rates will probably increase in the future. D. All of the above.

D

Interest only mortgages are problematic because: a. Buyers are never actually paying them off b. Buyers are never actually earning equity c. The monthly payments are smaller and more attractive to less-qualified buyers d. All of the above

D

When market interest rates increased during the 1960s, thrifts found it difficult to attract deposits because of which Depression-era policy? A. FDIC deposit insurance B. SEC bond registration requirements C. The Federal Reserve's discount loan policy D.Regulation Q

D

Which of the following explain why exchange rates may "overshoot"? A. Incomes change more slowly than exchange rates. B. Exchange rates change more slowly than market prices of goods and services. C. Interest rates change more slowly than exchange rates. D. Market prices of goods and services change more slowly than exchange rates.

D

Which of the following is not a federal government agency designed to assist families getting a home mortgage? A. Federal Housing Administration (FHA) B. Federal National Mortgage Association (FNMA, or Fannie Mae) C. Federal Home Loan Bank D. Sallie Mae

D

You read in the business press that real, risk-adjusted interest rates in Switzerland have decreased relative to interest rates in the United Kingdom. What will happen in the foreign exchange market and thus in the goods market? A. The Swiss franc will appreciate relative to the pound and the British will have to pay more pounds to buy Swiss watches. B. The British pound will depreciate and thus British tourists will have to pay more pounds for their hotel stays in Switzerland. C. Both the Swiss franc will appreciate and the British pound will depreciate are correct. D. None of these.

D

A bond issued by the government represents: a.The government's promise to repay with interest. b.The amount of taxes the government will collect in the current year. c.The size of the government's budget deficit in the past. d.The size of the economy the government is overseeing.

a

A credit union's non-profit status has what effect? a. Some benefit in pricing to its members for deposits and loans b. No benefit to members because they don't get cute debit cards with pictures of endangered animals on them c. No benefit to members because they are not insured by the FDIC d. Some benefit to members because they each get a "Members Only" track suit

a

Federal Reserve Banks are very important. Which of the following do the 12 FRBs NOT do? Question options: a) Decide on monetary policy for their region. b) Examine the member banks in their region. c) Evaluate mergers of banks in their region. d) None of the above as they do all of these things.

a

If John Deere Financial provides loans to John Deere customers and is owned by Deere & Company, then John Deere Financial is known as what type of finance company? a. Captive sales finance company b.Internal sales finance company c. Customer sales finance company d. Consumer sales finance company

a

Jose is rather confused about the role of money. He sees no advantage to having a money as opposed to a barter system. What would you tell Jose? a) Explain to Jose that with a money the number of prices needed drops dramatically. b) Explain to Jose that with a money the rate of inflation is always lower than in a barter system. c) Demonstrate to Jose that search costs are much higher if you have money and thus those who search profit greatly from having a money. d) Show Jose that with a money double coincidence of wants increase significantly resulting in higher rates of inflation which reduces debt burdents.

a

Mickey is rather clueless in how financial markets function. He argues "we can have a booming economy again if we just unleashed pent up demand like we did in the 1940s." Why is Mickey wrong Question options: a) Pent up demand was savings that American built up during World War II, while today Americans save very little. b) Pent up demand was the government's increase in spending on the military, but today the US already spends a great deal on defense. c) Pent up demand refers to the spending taking place due to the increase in the size of the US population, but today our population growth cmoes mostly from new immigrants who do not spend. d) Pent up demand refers to the increase spending by newly freed wealthy Europeans. Today, the US fights wars that frees up only poor people who do not buy US made goods.

a

Robert is rather uniformed. He thinks the money supply increases when the government prints up new dollar bills. How would you help Robert to better understand economics? Question options: a) Explain to him banks create money when they write new loans. b) Explain to him our money is debased by a secretive central bank. c) Tell him that our money supply increases only when the government prints money to fund their budget deficits. d) Demonstrate to him that money is created when profit maximizing firm do everything they can to maximize shareholder value.

a

Stocks or equity of a corporation represent: a.Part ownership of the corporation b.The debt or promise to repay of the corporation c.The taxes owed by the corporation d.The value to society of the corporation

a

Tonya is a bit confused as to why the financial markets in the Unted States function the way they do. Which of the following would help her to understand why there was pent up demand after World War II? Question options: a) American households saved during the war due to full employment and rationing. b) Demand increased after the war due to increased government spending. c) Business spending increased after the war due to a significant increase in government contracts. d) High interest rates after the war encouraged American households to save. e) Both b) and c)

a

What economic concept did Karl Marx argue would lead to collapse of capitalism? Question options: a) Unemployment b) Hyper-inflation c) Excessive government budget deficits d) Excessive immigration

a

Why did the US economy do so well after World War I? Question options: a) The US had an overvalued currency compared to Europe. b) The US was able to import goods from Europe at very low prices. c) The United States was able to take away German land at the end of the war including the Hawaiian Islands. d) The United States was able increase the value of the dollar compared to European currencies.

a

Why were so many Savings & Loan institutions "Zombie Institutions" in the 1980s? Question options: a) Their liabilities were much greater than their assets. b) Their assets were much greate than their liabilities. c) They had far too large of an interest rate spread. d) The had excessive amounts of bank capital.

a

You read that the yield on "junk bonds" have fallen recently. What does this mean? a) Corporations with high default risk can now borrow money more cheaply. b) Bond market participants are concerned that inflation will increase in the near future. c) Local and state governments can now borrow money more cheaply. d) Young start up companies are now expected to have higher profits and thus payout a higher level of dividends.

a

At a given point in time, the interest rate offered on a new fixed rate mortgage is typically _______ the initial interest rate offered on a new adjustable rate mortgage. Question options: a) below due to the time value of money b) above due to the shifting of interest rate risk c) equal to due to the same default risk d) below due to reduced default risk

b

If the Pakistani rupee depreciates, which of the following will happen? a) Pakistani exports will be more expensive in Japan. b) Swiss imports in Pakistan will be more expensive. c) American imports in Pakistan will be cheaper. d) Both a) and b)

b

It is often argued that deflation is often times a bigger problem than inflation. Why is this the case? a) With deflation nominal wages increase so rapidly resulting is such high costs that many firms shut down almost instantly. b) The fear of deflation can result in significant drops in the amount of borrowing, and thus spending, as fear of an increasing real burden of debt grips the economy. c) Under deflation the level of government borrowing can skyrocket as corrupt governments now find it much easier to borrow. d) Deflation often leads to a debasement of the currency and as a result the currency can cease to be money.

b

Nobel laureate Milton Friedman famously stated "inflation is always and everywhere a monetary phenomena." What did he mean by that? a) Increasing government budget deficits trigger inflation. b) Continuous increases in the price level are brought about when the money supply increases too rapidly. c) Debasement of the currency occurs when it is controlled by unelected central banks. d) When wages increase rapidly market prices of goods and services increase due to an increase in the cost of doing business.

b

Sales finance companies are different from consumer finance companies in that: a. Sales finance companies just take deposits while consumer finance companies take deposits and pay interest b. Sales finance companies help to finance the purchase of a particular product while consumer finance companies fund any type of purchase c. Sales finance companies take deposits and pay interest while consumer finance companies just take deposits d. Sales finance companies pay interest while consumer finance companies just take deposits

b

What was the goal of interest rate policy in the US during the 1950s through the 1970s? Question options: a) Keep interest rates high to encourage savings and thus capital accumulation. b) Keep interest rates low to encourage private borrowing and spending. c) Keep interest rates high so that savings would flow in from the rest of the world. d) Keep interest rates low so that during economic slowndows contractionary policies could be used to stop inflation.

b

You have been told by your supervisor to go find data on most broad definition of the money supply. According to assigned readings, what data should you go and get for your supervior? a) M1 b) M3 c) M2 d) The money supply multiplier

b

A 10 year bond was issued in 2014. Which of the following things have changed in regards to the bond since 2014? a) The coupon rate. b) The bond issuer. c) The bond price. d) The face value of the bond.

c

According to the PBS documentary "Money, Power and Wall Street" what was the main objective of people like Senator Dorgan and then Chair of the Commodity Futures Trading Commission Brooksley Born in 1999 in calling for increased regulation of financial derivatives? Question options: a) It was part of a more general move by the Clinton Administration to have a government takeover of the financial industry. b) It was part of a push to decrease the amount of regulation of the banking industry by trying to increase regulation in other financial markets. c) It was an attempt to limit the increasing amount of risk especially in opaque financial transactions. d) It was part of an attempt to strip power away from the Federal Reserve and especially then Chair Alan Greenspan.

c

An institution that originates and holds a fixed rate mortgage is adversely affected by ______ interest rates; the borrower who was provided the mortgage is adversely affected by ______ interest rates. a. stable; decreasing b. increasing; stable c. increasing; decreasing d. decreasing; increasing

c

Compared to other lending financial institutions, finance companies tend to have a _______ loan delinquency rate, and the average rate charged on loans is ______ on average. Question options: a) lower; lower b) lower; higher c) higher; higher d) higher; lower

c

During the early days of the country the United States experienced very different development of financial markets in what way? Question options: a) The stock market developed in the north while the south saw the development of bond markets. b) The western states had national banks while the east had state-level banks. c) The agricultural south had excess supply of funds while the industrial north had shortage of funds. d) The northeast experienced short term lending while the south and west offered only long term loans.

c

From the 18th to the early part of the 20th Century the United States was on the gold standard. As a result, the US economy often suffered from economic depressions. Why was this the case? a) As gold flooded into the United States the money supply increased rapidly triggering economic depressions. b) As more gold was discovered the value of money would plumment thus increasing the real burden of debt pushing the economy into prolonged contractions. c) As gold was taken out of the US economy the money supply would contract. A lack of money resulted in the price level falling rapidly, leading to rapid declines in total spending thus triggering economic depressions. d) Since gold was owned only by the very wealthy massive income inequality resulting. This triggered a reduction in spending by the non-wealthy pushing the economy into a series of economic depressions.

c

How did German reunification impact the development of the European Central Bank? Question options: a) It delayed the creation of the ECB as it triggered World War II. b) It weakened the structure of the ECB as a united Germany had more votes in the ECB than did a divided Germany. c) The contractionary monetary policy unification triggered increased concerns over German leadership of the ECB. d) Unification made the ECB more powerful as now the united Europe had the world's largest economy.

c

Marty is confused as to owns the Federal Reserve. What do you tell him? Question options: a) Explain that the Federal Reserve is part of the United States government and thus owned by the American taxpayers. b) Point out that the Federal Reserve is a private company and its shares are traded publically. Thus, these shareholders own the Fed. c) Show him that the Federal Reserve is owned by the commerical banks that belong to the Federal Reserve. d) Explain that the Federal Reserve is a private held commerical bank and is owned by many of the large international banks including Rothchilds.

c

When the Euro was created it was designed to mimic the behavior of which other European currency? Question options: a) The British pound b) The Swiss Franc c) The German Deutsche Mark d) The French Franc

c

Which government agency was created to close and liquidate the failed thrifts? a. FDIC b. SEC c. RTC d. DEA

c

Why does Richmond, Virginia have a Federal Reserve Bank? Question options: a) Richmond was the financial capital of the south at the beginning of the country. b) Richmond is the corporate headquarters for many large international lending institutions. c) Richmond was the home to very politically powerful people in 1913. d) Richmond geographicall lies half way down the eastern seaboard.

c

You read a news story about a country that is suffering from rapid, ongoing increases in the cost of living. Which characteristic of money is being directly negatively impacted in that economy? a. Unit of account b. Medium of exchange c. Store of value d. Double coincidence of want

c

You read a story in the New York Times of how the central bank in Argentina is contributing to a polticial business cycles in the run up to national elections. What is going on in Argentina? Question options: a) Contractionary monetary policies are leading to higher unemployment rates. b) Tax cuts are leading to bigger government budget deficits and thus higher inflation. c) Expansionary monetary policies are lowering the unemployment rate but will result in higher rates of inflation later. d) Higher interest rates are making savers feel more wealthy and thus more likely to vote in favor of the part in control.

c

You read in the WSJ that the FOMC has decided to pursue an expansionary OMO. What does that mean and how will it impact the loanable funds market? Question options: a) The Fed is going to buy T-bills and thus decrease the supply of loanable funds b) The Fed is going to sell T-bills and thus decrease the supply of loanable funds c) The Fed in going to buy T-bills and thus increase the supply of loanable funds d) The Fed is going to sell T-bills and thus increase the supply of loanable funds

c

Bob is old. He went to college in the early 1970s. Bob tells you "Listen. All you have to do is watch M1 to figure out where thing are headed." Why Bob wrong? a) M1 worked well until there was a globalization of financial markets. With increased trade with place such as China, M1 is no longer a reliable statisitic. b) M1 was an effective measurement of inflation when most American consumers lived in urban areas. Today with the growth of suburbs M1 has lost its effectiveness. c) M1 helped to determine the rate of inflation when people primarily used cash to purchase goods and services. But now with the use of debt people don't carry around that much cash and thus M1 is no longer relevent. d) M1 was a useful monetary aggregate until there were significant financial market innovations that resulted a wide variety of money substitutes.

d

Credit Unions are different from traditional commercial banks in that credit unions are non-profit organizations. This means that credit union tend to: Question options: a) Fail at a higher rate than do commercial banks since credit unions do not have a profit motive. b) Be more inefficient than commercial banks because they are not subject to market discipline. c) Be seen as a growing tide of socialism that is taking over the American free entreprise system. d) Have a lower interest rate spread between loan rates and savings rates.

d

Credit unions are different from regular banks in that: a. They are not insured by the FDIC b. Anyone can start one in their garage c. They are for-profit companies d. They are member-owned

d

During the interwar period John R. Commons and other institutional economists argued that financial markets would collapse and economies would suffer economic slowdowns because during boom times markets suffered from what concept developed by Thorstein Veblen? Question options: a) Animal spirits b) Mal-investment c) Consumer surplus d) Conspicuous consumption

d

If the Fed fears inflation pressures are growing what chages will occur in the Fed Funds Market? Question options: a) Expansionary monetary policy will lead to a lower Fed Funds Rate b) Contractionary monetary policy will result in lower Fed Funds Rate. c) Expansionary monetary policy will result in higher Fed Funds Rate. d) Contractionary monetary policy will result in a higher Fed Funds Rate

d

In the early days of the state of Ohio how were major projects, such as the canal system, financed? Question options: a) Savings from the Northeast money centers flowed into Ohio. b) Wealthy land speculators from the Carribean and Latin America financed the building of the canals. c) Savings from the south flowed northward into Ohio as Southern investors looked to diversify their portfolios. d) Developers from Ohio had to borrow money in Europe since the US financial markets were underdeveloped.

d

Why is it so difficult to finance start ups with debt financing? a) Start ups offen suffer from disintermediation. b) Start ups often suffer from inverted yield curves. c) Starts up often suffer from having excessive amounts of fiat money. d) Start up often suffer from a high burn rate of capital.

d

You read a story in the business press that the Canadian Central Bank is going to raise interest rates. What will that do to investment spending in terms of the present value calculation? a) Investment spending will increase as people buy more bonds since the present value of bond dividend payments will increase as interest rates rise. b) Investment spending will increase as the present value of future equity dividends payments will decrease as interest rate rise. c) Investment spending will fall as the present value of cash holdings in the future increases as market interest rates rise. d) Investment spending will fall as the discounted future cash flows from projects firms undertake will decline as market interest rates rise.

d