ECON 2035 EXAM 1 TRIPATHI

How many prices would there be in a barter economy with 100 goods? A) 100 B) 1,000 C) 4,950 D) 10,000

4950

Which president said, "Prosperity is just around the corner"? A) Herbert Hoover near the start of the Great Depression B) Franklin Delano Roosevelt near the start of the Great Depression C) George W. Bush near the start of the Great Recession D) Barack Obama near the start of the Great Recession

Herbert Hoover near the start of the Great Depression

Which of the following does NOT describe the relationship between banks and small business during the 2000s (prior to the financial crisis)? A) Banks typically applied fixed guidelines for granting loans, leaving little room for personal judgment. B) Fewer small businesses received loans as banks shifted their focus to mortgages. C) Many small businesses were receiving loans from regional and national banks. D) More banks became convinced that it would be profitable to loosen their loan guidelines to make more borrowers eligible to receive credit.

fewer small businesses received loans as banks shifted their focus to mortgages.

Ordinary (non-securitized) loans cannot be resold after they have been granted by a bank or another lender. Therefore, these loans are A) financial assets but not financial securities. B) financial securities but not financial assets. C) both financial assets and financial securities. D) neither financial assets nor financial securities.

financial assets but not financial securities.

In a barter system individuals A) find it impossible to specialize. B) must be entirely self-sufficient. C) find it difficult to specialize, but may be able to do so. D) will almost invariably specialize.

find it difficult to specialize, but may be able to do so.

The difference between money and income is that whereas income is an individual's A) flow of earnings over a period of time, money is an individual's stock of currency and currency substitutes. B) stock of all assets, money is an individual's stock of currency and currency substitutes. C) flow of earnings over a period of time, money is an individual's stock of all assets. D) stock of currency and currency substitutes, money is an individual's stock of all assets.

flow of earnings over a period of time, money is an individual's stock of currency and currency substitutes

By the end of 2009, loan losses were ________ at the end of 2007. A) equal to those B) two times less than C) four times greater than D) twenty-five times greater than

four times greater than

The financial system is primarily a means by which A) funds are transferred from savers to borrowers. B) money is put into circulation. C) the government puts into operation its plans for the economy. D) business firms distribute their goods.

funds are transferred from savers to borrowers

The funds for loans from peer-to-peer lenders come from three key sources. Which of the following is NOT one of those key sources? A) individuals B) government C) financial firms D) other businesses

government

The interest rate on loans made by peer-to-peer lenders tends to be A) lower than the interest rate on bonds and lower than the interest rate on credit cards. B) higher than the interest rate on bonds and higher than the interest rate on credit cards. C) lower than the interest rate on bonds and higher than the interest rate on credit cards. D) higher than the interest rate on bonds and lower than the interest rate on credit cards.

higher than the interest rate on bonds and lower than the interest rate on credit cards.

At the beginning of the financial crisis, banks were hurt by all of the following EXCEPT A) declines in the value of mortgage-backed securities. B) defaults on mortgages by those with subprime mortgages. C) holding too many Treasury bonds. D) not being repaid on loans to real estate developers.

holding too many treasury bonds

Which of the following assets is the least liquid? A) money market mutual fund B) stock C) treasury bond D) house

house

A "primary market" is a market A) for government securities. B) in which newly issued claims are sold to buyers by borrowers. C) in which newly issued claims are sold by savers to borrowers. D) for debt by large or "primary" corporations.

in which newly issued claims are sold to buyers by borrowers.

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.

include banks and other depository institutions.

The financial system performs the role of communicating information by A) constantly increasing the liquidity of most assets. B) constantly reducing the riskiness of most assets. C) incorporating all available information into the prices of financial assets. D) providing to investors for a nominal charge all government reports available about a particular company.

incorporating all available information into the prices of financial assets

The distinguishing feature of a well-functioning financial market is the A) continual increase in the liquidity of most assets. B) continual reduction in the riskiness of most assets. C) increased ease of converting common stocks into bonds. D) incorporation of available information into asset prices.

incorporation of available information into asset prices.

The Fed and Treasury took action to restore the flow of funds from savers to borrowers in order to encourage all of the following EXCEPT A) increase the return to savers. B) enable households to purchase durable goods. C) increase the likelihood of purchases of houses. D) allow firms to finance purchases of structures and equipment.

increase the return to savers

Funds flow from lenders to borrowers A) indirectly through financial markets. B) directly through financial intermediaries. C) indirectly through financial intermediaries. D) primarily through government agencies

indirectly through financial intermediaries.

By "specialization" economists mean a situation where A) individuals produce the goods or services for which they have relatively the best ability. B) goods are traded directly for goods and money is not used. C) individuals who produce goods do not also produce services and individuals who produce services do not also produce goods. D) individuals are assigned to occupations on the basis of tests that gauge their relative abilities.

individuals produce the goods or services for which they have relatively the best ability

The Federal Reserve System A) is in charge of managing the New York Stock Exchange. B) is headed by the Secretary of the Treasury. C) is the central bank of the United States. D) is responsible for conducting fiscal policy for the United States

is the central bank of the United States.

Liquidity A) is the best available measure of the riskiness of an asset. B) is a characteristic of money, and of no other asset. C) is the ease with which an asset can be exchanged for money. D) was declining for many financial assets during the 1990s.

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

What made the recession of 2007-2009 different than any other recession since the Great Depression? A) The government did not implement a fiscal stimulus. B) The Fed failed to reduce interest rates. C) It was accompanied by a financial crisis. D) The impact was primarily limited to the financial sector.

it was accompanied by a financial crisis

The most important economic benefit from specialization is that it A) makes it possible for an economy to begin using money. B) leads to an increase in the standard of living in an economy. C) makes barter possible. D) eliminates the need for financial markets.

leads to an increase in the standard of living in an economy.

Until very recently, investment banks rarely engaged in which of the following? A) proprietary trading B) securitization C) lending to households D) underwriting

lending to households

If you buy a bond issued by Intel, the bond is a(n) A) liability to Intel and an asset to you. B) liability to you and an asset to Intel. C) liability to both you and Intel. D) asset to both you and Intel.

liability to Intel and an asset to you

Monetary policy refers to the government's A) decisions on how much money to spend. B) decisions on how much money to collect in taxes. C) plans for retiring the national debt. D) management of the money supply and interest rates to achieve macroeconomic objectives.

management of the money supply and interest rates to achieve macroeconomic objectives.

Which of the following is the most efficient means of trade? A) barter B) money C) government rationing D) the combination of barter with some government rationing

money

When economists refer to the role of money as a store of value, they mean that A) money never loses its value, unlike other assets. B) money allows value to be stored easily. C) the value of money falls only when the quantity of money in circulation falls. D) the value of money falls only when the quantity of money in circulation rises.

money allows value to be stored easily

When economists refer to the role of money as a unit of account, they mean that A) most accounting systems reflect that goods are purchased with currency. B) most accounting systems reflect that goods are purchased with checks. C) money gives traders a way of measuring value in the economy. D) money makes it possible for specialization to take place.

money gives traders a way of measuring value in the economy.

Money is a medium of exchange in that A) money is generally accepted for buying and selling goods and services. B) currency may be exchanged for gold at any national bank. C) other assets may be better or worse in facilitating exchange than money. D) it must maintain most of its value over time.

money is generally accepted for buying and selling goods and services

Why do individuals hold money when it does NOT provide the services that, say, a house does? A) Money is the most liquid asset. B) Money is the only form in which wealth may be held. C) Money increases in value faster than other assets. D) Money is useful in avoiding taxes on certain transactions.

money is the most liquid asset

Which of the following assets is the most liquid? A) money market mutual fund B) computer C) washing machine D) U.S. Treasury bond

money market mutual fund

When economists refer to the role of money as a standard of deferred payment, they mean that A) payments by checks are usually deferred until the checks clear the bank. B) money earns interest while loan payments are deferred. C) money provides a standard for payments that will occur in the future. D) money today is worth less than money tomorrow.

money provides a standard for payments that will occur in the future.

If prices increase rapidly A) money's usefulness as a store of value is diminished. B) money increases in value. C) deflation is likely. D) prices will decline to their normal level.

money's usefulness as a store of value is diminished

All of the following are examples of risky mortgages that became more common in the 2000s EXCEPT A) alt-A mortgages. B) adjustable-rate mortgages with low rates for a few years and then higher rates in later years. C) mortgages requiring down payments of at least 20%. D) subprime mortgages.

mortgages requiring down payments of at least 20%.

Which of the following forms the largest share of household holdings of financial assets? A) corporate stocks B) bonds C) pension fund reserves D) equity in unincorporated businesses

pension fund reserves

Money eliminates the need for A) any government role in the economy. B) specialization. C) people to have a double coincidence of wants. D) the market system.

people to have a double coincidence of wants.

Which of the following is NOT a key financial service provided by the financial system? A) risk sharing B) profitability C) liquidity D) information

profitability

Which of the following is NOT a significant cost that a barter system imposes on an economy? A) Many prices must be maintained for each good. B) Only agricultural goods may be traded. C) Specialization of labor is hindered. D) The costs arising from the problem of finding two people who each want what the other produces.

Only agricultural goods may be traded.

The purpose of diversification is to A) increase the liquidity of a financial portfolio. B) reduce the brokerage fees involved in managing a financial portfolio. C) reduce risk. D) reduce tax liability

reduce risk

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.

relieves individual savers from the necessity of searching out individual borrowers

The financial system provides risk sharing by allowing A) borrowers to obtain funds either directly or indirectly. B) savers to earn interest tax-free. C) borrowers to convert liabilities D) savers to hold many assets.

savers to hold many assets.

Fannie Mae and Freddie Mac both A) sell bonds to investors and use the funds to purchase mortgages. B) help regulate the banking system. C) directly lend funds to people seeking mortgages. D) reduce access to funds for mortgages by purchasing existing mortgages

sell bonds to investors and use the funds to purchase mortgages

The attribute that distinguishes money from other assets is that only money A) retains its value during times of inflation. B) is counted in determining the size of an individual's wealth. C) serves as a medium of exchange. D) may be used as collateral for a bank loan.

serves as a medium of exchange

A decline in bank lending has the most significant effect on A) small businesses. B) large businesses. C) state governments. D) the federal government.

small businesses

Diversification refers to the A) splitting of wealth into many assets. B) difference between the liquidity of an asset and its risk. C) difficulty of converting investments in common stocks into investments in bonds. D) difficulty of selling common stocks in a weak market.

splitting of wealth into many assets

Which of the following is NOT a financial intermediary? A) mutual fund B) bank C) stock exchange D) insurance company

stock exchange

Financial securities that represent partial ownership of a corporation are known as A) bonds. B) stocks. C) coupons. D) dividends.

stocks

In the United States, the lender of last resort is A) Fannie Mae. B) the Federal Reserve. C) the Federal Deposit Insurance Corporation. D) the Securities and Exchange Commission.

the Federal Reserve

In the United States, monetary policy is carried out by A) the Federal Reserve System. B) Congress. C) the President. D) Congress and the President acting together.

the Federal Reserve system

The Troubled Asset Relief Program (TARP) allowed A) the Treasury to inject funds into commercial banks in return for stock in the banks. B) the Fed to provide funds to commercial banks in return for stock. C) the Treasury to insure bank deposits at major U.S. banks. D) the Fed to make loans to banks as the lender of last resort.

the Treasury to inject funds into commercial banks in return for stock in the banks.

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.

the chance that the value of financial assets will change from what you expect.

Which of the following is NOT a problem with barter? A) Each good has multiple prices. B) high transactions costs C) the commodity money having value for other uses besides money D) lack of standardization of products exchanged

the commodity money having value for other uses besides money

Andy can't make a deal with Danny. Andy has an Alex Rodriguez baseball card and would like to trade it to Danny for Danny's Albert Pujols card, but Danny doesn't want an Alex Rodriguez card. Andy's problem illustrates the drawback to a barter system known as A) the specialization problem. B) the double coincidence of wants problem. C) the many prices problem. D) the transactions problem.

the double coincidence of wants problem

Economists define liquidity as A) the difference between the return on the asset and the return on a long-term U.S. Treasury bond. B) the fraction the asset makes up of an investor's portfolio. C) the ease with which an asset can be exchanged for money. D) the difference between the total demand for an asset and the total supply of the asset.

the ease with which an asset can be exchanged for money

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.

the high transactions costs associated with barter.

Which type of borrowers were least likely to default in their mortgage at the beginning of the financial crisis? A) those with fixed-rate mortgages who made large down payments B) those with alt-A loans C) subprime borrowers D) those with adjustable-rate mortgages

those with fixed-rate mortgages who made large down payments

A system of barter has substantial transactions costs because A) taxes under such a system are generally a large fraction of the value of output. B) traders must spend considerable time searching for trading partners. C) the uncertainties of trade result in high legal fees being incurred to draw up binding contracts. D) the uncertainties of trade result in high insurance premiums.

traders must spend considerable time searching for trading partners.

The process by which investment banks guarantee a certain price to a firm issuing stocks or bonds is known as A) underwriting. B) securitization. C) proprietary trading. D) peer-to-peer lending.

underwriting

ll of the following took place during the economic crisis that began in 2007 EXCEPT A) the financial system was disrupted. B) large portions of the U.S. economy were cut off from the funds they needed to thrive. C) there was a devastating decline in the production of goods and services throughout the economy. D) unlike households, most businesses still had easy access to funds.

unlike households, most businesses still had easy access to funds

2) Which of the following is NOT a financial asset? A) a bond issued by Google B) Wells Fargo Bank C) a home mortgage loan D) a certificate of deposit

Wells Fargo Bank

The introduction of money to an economy results in A) higher incomes. B) higher productivity. C) increased specialization. D) all of the above.

all of the above

Borrowers who stated but did not document their incomes are referred to as A) subprime. B) alt-A. C) adjustable. D) securitized.

alt-A

If you purchase a Treasury bond, the Treasury bond is A) an asset to you as well as an asset to the U.S. government. B) an asset to you, but a liability to the U.S. government. C) a liability to you, but an asset to the U.S. government. D) a liability to you as well as a liability to the U.S. government.

an asset to you, but a liability to the U.S. government.

Barter is A) another name for money. B) an exchange of goods and services directly for goods and services. C) the basis for economic specialization. D) the main system of exchange in the United States today.

an exchange of goods and services directly for goods and services

Which of the following best describes a "bubble"? A) when the price of an asset reaches a new high B) an unsustainable increase in the price of a class of assets C) rapid increases in inflation D) when bond prices rise more quickly than stock prices

an unsustainable increase in the price of a class of assets

Money can BEST be described as A) anything that is generally accepted as payment for goods and services or in the settlement of debts. B) paper that can be used to purchase goods and services. C) commodities that have intrinsic value. D) any form of wealth possessed by consumers.

anything that is generally accepted as payment for goods and services or in the settlement of debts

Money as a medium of exchange refers only to A) currency. B) gold coins. C) anything that is generally accepted as payment for goods and services. D) checks at commercial banks.

anything that is generally accepted as payment for goods and services.

Economists define money as A) cash in circulation. B) deposits in commercial banks. C) anything that people are willing to accept in payment for goods and services or to pay off debts. D) bonds issued by large corporations.

anything that people are willing to accept in payment for goods

The main role of financial intermediaries is to A) provide funds to the federal government to cover the budget deficit. B) borrow funds from savers and lend them to borrowers. C) provide advice to consumers on how they should handle their finances. D) help ensure that there is enough money in circulation.

borrow funds from savers and lend them to borrowers.

All of the following were significant changes in the mortgage market in the 2000s EXCEPT A) investment banks became significant participants in the secondary mortgage market. B) lenders loosened lending standards. C) mortgage-backed securities became more popular with investors. D) borrowers tended to increase the amount of their down payments.

borrowers tended to increase the amount of their down payments.

Because securitized loans are loans that have been bundled with other loans and sold to investors, they are A) financial assets but not financial securities. B) financial securities but not financial assets. C) both financial assets and financial securities. D) neither financial assets nor financial securities.

both financial assets and financial securities

A bank lending depositors' money to a local business and a pension fund investing contributions in shares of a company are similar financial activities in that A) both involve the use of financial markets. B) both involve funds being channeled from savers to borrowers through financial intermediaries. C) both involve a reduction in the overall level of liquidity in the financial system. D) both involve in an increase in the overall level of risk in the financial system.

both involve funds being channeled from savers to borrowers through financial intermediaries

In comparing money to shares of Apple stock, we can say that A) money is a store of value, but shares of Apple stock are not. B) shares of Apple stock are a store of value, but money is not. C) both money and shares of Apple stock are stores of value. D) neither money nor shares of Apple stock are stores of value.

both money and shares of Apple stock are stores of value

Increased liquidity in recent decades has reduced interest rates on which of the following assets (holding constant all other things that affect interest rates)? A) U.S. government bonds B) bonds issued by large corporations C) business loans D) bonds issued by state governments

business loans

Financial markets A) channel funds indirectly between borrowers and lenders. B) channel funds directly from lenders to borrowers. C) act as go-betweens by holding a portfolio of assets and issuing claims based on that portfolio to savers. D) generally provide lenders with lower returns than do financial intermediaries.

channel funds directly from lenders to borrowers

The role of the financial system is to A) channel funds from households and other savers to businesses. B) protect commercial banks from government regulation. C) ensure that investment banks remain profitable. D) provide loans from the Federal Reserve to households and businesses.

channel funds from households and other savers to businesses.

Securitization is the process of A) issuing stocks to finance capital spending. B) issuing bonds to finance purchases of equipment and structures. C) reducing risk by decreasing corporate debt loads. D) converting loans into securities.

converting loans into securities

From 1978 to 2016, the percentage of wealth held by households decreased for all of the following categories of assets EXCEPT A) corporate stocks. B) bonds. C) deposits. D) equity in unincorporated businesses.

corporate stocks

The financial crisis of 2007-2009 worsened after the failure of which firm? A) General Motors B) Lehman Brothers C) Bear Stearns D) American International Group (AIG)

Lehman Brothers

Which firm did the Treasury allow to fail during the financial crisis? A) J.P. Morgan B) Bear Stearns C) Lehman Brothers D) American International Group (AIG)

Lehman Brothers

All of the following represent returns to savers EXCEPT A) dividends on stocks. B) fees on loans. C) interest on deposits. D) coupon payments on bonds.

fees on loans

All of the following are true regarding securitized loans EXCEPT A) they provide risk sharing. B) they provide information. C) they provide liquidity. D) they cannot be resold.

they cannot be resold

Which of the following is an example of a barter transaction? A) An individual pays her electric bill with a check. B) An individual pays her electric bill with currency. C) An individual provides three light bulbs to her neighbor in exchange for two gallons of milk. D) An individual deposits three twenty-dollar bills in her checking account.

An individual provides three light bulbs to her neighbor in exchange for two gallons of milk.

In Moscow in 1989, what were taxi drivers using as a medium of exchange? A) Russian rubles B) Marlboro cigarettes C) gold coins D) caviar

Marlboro cigarettes

Which of the following is NOT a financial intermediary? A) NASDAQ B) Allstate Insurance Company C) Bank of America D) Vanguard Total Stock Market Index Fund

NASDAQ

The leading federal regulatory body for financial markets in the United States is the A) Federal Bureau of Investigation. B) Securities and Exchange Commission. C) Federal Financial Market Bureau. D) Investors Protection Agency.

Securities and Exchange Commission

FORMULA: how many prices needed in barter economy with N goods

[N(N-1)]/2

Commodity money can best be described as A) money used to purchase agricultural products. B) a good used as money that also has value independent of its use as money. C) standardized goods like gold that trade in a financial market. D) the form of money used in a barter system.

a good used as money that also has value independent of its use as money.

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.

a liability to you, but an asset to the bank

An asset is A) the same thing as a liability. B) a thing of value that can be owned. C) money, as opposed to stock or bonds. D) anything that never declines in value.

a thing of value that can be owned

Other assets are inferior to money in the sense that A) they increase in value more slowly than does money. B) they have a lower overall return than money. C) they are more vulnerable to losing their real value as inflation increases. D) they generate transactions costs when they are exchanged for money.

they generate transactions costs when they are exchanged for money

Fundamentally, to reap the benefits of specialization, an economy must A) be heavily industrial. B) be heavily agricultural. C) have an extensive system of higher education. D) develop ways for individuals to trade goods with one another.

develop ways for individuals to trade goods with one another.

Alt-A borrowers were those who A) used mortgages to purchase apartments. B) chose adjustable-rate mortgages instead of fixed-rate mortgages. C) borrowed using "interest-only" mortgages. D) did not provide documentation of their income when applying for a mortgage.

did not provide documentation of their income when applying for a mortgage.

Under a barter system A) each good has many prices. B) each good has a single price. C) no prices for goods exist. D) prices for goods are very stable.

each good has many prices

When an economy relies on specialization A) the economy will generally produce only one product. B) the economy will usually be heavily agricultural. C) each individual in the economy produces the goods or services for which he or she has relatively the best ability. D) each individual will be assigned by the government to produce that good or service the government believes the economy should specialize in.

each individual in the economy produces the goods or services for which he or she has relatively the best ability.

Under a system of barter A) each individual trades output directly with another. B) only agricultural goods may be traded. C) goods may be traded for money, but money may not be traded for goods. D) currency is accepted for purchases, but personal checks are not.

each individual trades output directly with another.

The problem of a double coincidence of wants refers to A) the insatiability of wants in a free market economy. B) poorly-managed companies producing what consumers want only by coincidence. C) the necessity in a barter system of each trading partner wanting what the other has to trade. D) the likelihood that needs will not be the same as wants.

the necessity in a barter system of each trading partner wanting what the other has to trade.

Using a good as a medium of exchange confers the benefit that A) the need to quote so many prices in trade is reduced. B) the need for a double coincidence of wants is greatly increased. C) the need for specialization is reduced. D) transactions costs are increased, but they now may be paid in money terms.

the need to quote so many prices in trade is reduced

Wealth is A) the sum of the value of assets. B) equal to income. C) a flow variable. D) the sum of the value of assets minus the sum of the value of liabilities.

the sum of the value of assets minus the sum of the value of liabilities.