chapter 1 hw questions

Who benefits and who is hurt when interest rates​ rise?

Corporations with immediate capital construction needs are worse off. Households with little​ debt, saving a significant fraction of annual income for​ retirement, are better off. The federal government running persistent budget deficits is worse off. ​Black-market entrepreneurs operating on a​ 'cash-only' basis are worse off.

Which of the following is true if the dollar becomes weaker on the foreign exchange marketlong dash—that ​is, the value of the dollar falls relative to the value of foreign​ currency?

Ford will export more cars to Mexico.

How does a fall in the value of the pound sterling affect British​ consumers?

Foreign goods are now relatively more​ expensive; British consumers are hurt. A fall in the value of the pound will cause American businesses to be worse off .

Which of the following explains why the​ 2007-2009 financial crisis in the United States moved to​ Europe?

Highly interconnected financial markets led to a decline in the value of​ mortgage-backed securities that had originated in the United States but were held in Europe.

What effect might a fall in stock prices have on business​ investment?

A fall in stock prices might cause businesses to decrease investment. A rise in stock prices will generally lead to more consumer spending.

Which of the following is an example of financial​ intermediation?

A saver makes a deposit in a credit​ union, and the credit union makes a loan to a member for a new car.

All of these statements are true about money and money supply except

A. that money is important to the health of the economy. B. that a recession always follows a reduction in the growth rate of the money supply. Your answer is correct. C. that money can be anything that is generally accepted in repayment of debts. D. that money is linked to changes in economic variables that affect all of us.

When there is an increase in the value of the European Union's euroEuropean Union's euro​, all else​ equal:

American businesses will see an increase in demand for their goods in the United States and in foreign countries.

A strong dollar implies that

American consumers can afford more foreign goods.

Much of the U.S. government debt is held as Treasury bonds and bills by foreign investors. How do fluctuations in the dollar exchange rate affect the value of that debt held by​ foreigners?

As the dollar becomes stronger relative to a foreign​ currency, for a given face value of bond​ holdings, it will yield more home currency to​ foreigners, so the asset will be worth more to foreign investors.

Why do managers of financial institutions care so much about the activities of the Federal Reserve​ System?

Because the Federal Reserve affects interest​ rates, inflation, and business​ cycles, all of which have an important impact on the profitability of financial institutions.

Using the figure​ above, we find that high growth rates in the money supply are most likely associated with ​a:

a high rate of inflation and high long term bond rates

Monetary policy is the management​ of:

the money supply and interest rates.

The foreign exchange market​ is:

where the currency of one country is converted into the currency of another country

Are US companies that manufacture​ semi-conductors happier when the dollar is strong or when it is​ weak?

​Semi-conductor manufacturers are happier when the dollar is weaker .

How can changes in foreign exchange rates affect the profitability of financial​ institutions? ​(Check all that​ apply.) Changes in foreign exchange​ rates:

change the value of assets held by financial institutions. affect the profits made by traders in foreign exchange who work for financial institutions.

​Banks, savings and loan​ associations, mutual savings​ banks, and credit​ unions:

have been adept at innovating in response to changes in the regulatory environment.

Which of the following is not an important financial intermediary in the​ economy?

the fed/central bank

When a​ company's profits have been​ declining, the company is able to sell ___ Stock at a higher price.

LESS

What was the main cause of the recession that began in​ 2007?

Defaults in subprime residential mortgages.

How does the size of the U.S. budget deficit in 2010 compare to the time period since​ 1950?

It has expanded dramatically since 2007. In​ 2010, the​ deficit-to-GDP ratio was 10​ percent, well above the historical average of around 2 percent since 1950.

When there is a decrease in the value of the American dollar relative to the Japanese yen​, all else​ equal

Japanese goods will become more expensive relative to American goods.

A ____ is a security that is a claim on the earnings and assets of a company.

STOCK

What about an American company that is in the business of importing electronic consumer goods into the United​ States?

STRONGER

When interest rates​ decrease, how might businesses and consumers change their economic​ behavior?

There will be more consumption spending on​ interest-sensitive items and more investment by businesses.

Economists group commercial​ banks, savings and loan​ associations, credit​ unions, mutual​ funds, mutual savings​ banks, insurance​ companies, pension​ funds, and finance companies together under the heading financial intermediaries. What function do financial intermediaries​ perform?

They provide a channel for linking those who want to save with those who want to invest.

What is the typical relationship between interest rates on​ 6-month Treasury​ bills, 10-year Treasury​ notes, and Baa corporate​ bonds?

They tend to move together over time with the corporate bond having the highest rate of interest

When the dollar is worth less in relation to currencies of other​ countries, are you more likely to buy​ American-made or​ foreign-made electronics?

You are more likely to purchase American-made products .

Which of the following are the largest financial intermediaries in the U.S.​ economy?

banks

Stock​ prices, as measured by the Dow Jones Industrial​ Average, have:

been extremely volatile over time.

Fiscal policy involves decisions​ about:

government spending and taxation.

Which of the following is likely to occur if the stock market has been rising

consumers spending more on g/s

The term bank generally includes all of the following institutions except​:

finance companies

Monetary policy is the management of __ and __

money and interest rates

A decrease in the value of the dollar relative to foreign currency implies that

more foreigners will want to purchase U.S. goods

A strong U.S. dollar means that U.S. goods exported abroad will​ cost:

more in foreign countries and foreign goods imported will cost less in the United States.

If there is a​ recession, graduates will find it more difficult to find a job because

more workers are unemployed.

Evidence from business cycle fluctuations in the United States indicates​ that:

recessions have been preceded by a decline in the growth rate of money.

Using the figure​ above, if inflation is lower in Canada than in the United​ States, it is likely​ tha

the Canadian money supply is growing slower than the US money supply

The national debt of the United States is best defined​ as:

the accumulated federal budget deficits and surpluses since the​ nation's beginning.

Evidence from the United States and other foreign countries indicates​ that:

there is a strong positive association between inflation and the growth rate of money over long periods of time.

Banks exist​ because:

they are able to mitigate information problems.

The currency of the United States is said to be _____ when the exchange rate for the U.S. dollar falls and it costs more dollars to purchase another​ country's currency.

weaker