EXAM I - 1.1
Low stock market prices might ______ consumers willingness to spend and might _____ businesses willingness to undertake investment projects. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase
Answer: C Decrease; Decrease
Stock prices are A) relatively stable trending upward at a steady pace. B) relatively stable trending downward at a moderate rate. C) extremely volatile. D) unstable trending downward at a moderate rate.
Answer: C Extremely Volatile
_____ Markets transfer funds from people who have an excess of available funds to people who have a shortage. A) Commodity B) Fund- available C) Financial D) Derivative exchange
Answer: C Financial
The Dow reached a peak of over 11,000 before the collapse of the ______ bubble in 2000. A) housing B) manufacturing C) high-tech D) banking
Answer: C High-Tech
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 A) inflation rate. B) exchange rate. C) interest rate. D) aggregate price level
Answer: C Interest Rate
High interest rates might cause a corporation to _______ building a new plant that would provide more jobs. A) complete B) consider C) postpone D) contemplate
Answer: C Postpone
The decline in stock prices from 2000 through 2002 A) increased individuals' willingness to spend. B) had no effect on individual spending. C) reduced individuals' willingness to spend. D) increased individual wealth.
Answer: C Reduced individuals' willingness to spend.
Financial markets promote greater economic efficiency by channeling funds from ______ to ______. A) investors; savers B) borrowers; savers C) savers; borrowers D) savers; lenders
Answer: C Savers; Borrowers
The bond markets are important because they are A) easily the most widely followed financial markets in the United States. B) the markets where foreign exchange rates are determined. C) the markets where interest rates are determined. D) the markets where all borrowers get their funds
Answer: C The markets where interest rates are determined.
Financial markets promote economic efficiency by A) channeling funds from investors to savers. B) creating inflation C) channeling funds from savers to investors D) reducing invesment
Answer: C C) channeling funds from savers to investors
When stock prices fall A) an individual's wealth is not affected nor is their willingness to spend. B) a business firm will be more likely to sell stock to finance investment spending. C) an individual's wealth may decrease but their willingness to spend is not affected. D) an individual's wealth may decrease and their willingness to spend may decrease.
Answer: D An individual's wealth may decrease and their willingness to spend may decrease.
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. A) "Terrible Tuesday" B) "Woeful Wednesday" C) "Freaky Friday" D) "Black Monday"
Answer: D Black Tuesday
A share of common stock is a claim on a corporation's A) debt. B) liabilities. C) expenses. D) earnings and assets.
Answer: D Earnings and Assets
Markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds are called A) commodity markets. B) fund- available markets. C) derivative exchange markets. D) financial markets.
Answer: D Financial Markets
Well-functioning financial markets promote A) inflation. B) deflation. C) unemployment. D) growth.
Answer: D Growth
The interest rate on Baa (medium quality) corporate bonds is ______, on average, than interest rates, and the spread between it and other rates became ______ in the 1970's. A) lower; smaller B) lower; larger C) higher; smaller D) higher; larger
Answer: D Higher; Larger
Everything else held constant, a decline in interest rates will cause spending on housing to A) fall. B) remain unchanged. C) either rise, fall, or remain the same. D) rise
Answer: D Rise
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.
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 firm's earnings/assets. Stocks are part of wealth, and changes in their value affect people's willingness to spend. Changes in stock prices affect a firm's ability to raise funds, and thus their investment.
High interest rates might ______ purchasing a house or car but at the same time high interest rates might ______ saving. A) discourage; encourage B) discourage; discourage C) encourage; encourage D) encourage; discourage
Answer: A Discourage; Encourage
An increase in interest rates might ______ saving because more can be earned in interest income A) encourage B) discourage C) disallow D) invalidate
Answer: A Encourage
An increase in stock prices _______ the size of people's wealth and may ________ their willingness to spend, everything else held constant. A) increases; increase B) increases; decrease C) decreases; increase D) decreases; decrease
Answer: A Increase; Increase
Everything else held constant, an increase in interest rates on student loans A) increases the cost of a college education. B) reduces the cost of a college education. C) has no effect on educational costs. D) increases costs for students with no loans.
Answer: A Increases the cost of a college education.
Compared to interest rates on long-term U.S. government bonds, interest rates on three-month Treasury bills fluctuate ______ and are ______ on average. A) more; lower B) less; lower C) more; higher D) less; higher
Answer: A More; Lower
Changes in stock prices A) do not affect people's wealth and their willingness to spend. B) affect firms' decisions to sell stock to finance investment spending. C) occur in regular patterns. D) are unimportant to decision makers.
Answer: B Affect firms' decisions to sell stock to finance investment spending.
A rising stock market index due to higher share prices A) increases 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. C) decreases the amount of funds that business firms can raise by selling newly- issued stock. D) decreases people's wealth, but is unlikely to increase their willingness to spend.
Answer: B Increases people's wealth and as a result may increase their willingness to spend.
Poorly performing financial markets can be the cause of A) wealth. B) poverty. C) financial stability. D) financial expansion.
Answer: B Poverty
The stock market is important because it is A) where interest rates are determined. B) the most widely followed financial market in the United States. C) where foreign exchange rates are determined. D) the market where most borrowers get their funds.
Answer: B The most widely followed financial market in the United States.
A key factor in producing high economic growth is A) eliminating foreign trade. B) well-functioning financial markets. C) high interest rates. D) stock market volatility.
Answer: B Well-functioning financial markets.
Fear of a major recession causes stock prices to fall, everything else held constant, which in turn causes consumer spending to A) increase. B) remain unchanged. C) decrease. D) cannot be determined.
Answer: C Decrease