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Exam Chapter 1 Essay

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Chapter 1
Why Study Money, Banking, and Financial Markets?
1.1 Why Study Financial Markets?
1) 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 investment.
Answer: C
Ques Status: Previous Edition
2) 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
Ques Status: Previous Edition
3) Well-functioning financial markets promote
A) inflation.
B) deflation.
C) unemployment.
D) growth.
Answer: D
Ques Status: Previous Edition
4) A key factor in producing high
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A) complete
B) consider
C) postpone
D) contemplate
Answer: C
Ques Status: Previous Edition
17) 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
Ques Status: Previous Edition
18) 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
Ques Status: Revised
19) A rising stock market index due to higher share prices
A) increases peopleʹs wealth, but is unlikely to increase their willingness to spend.
B) increases peopleʹs 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 peopleʹs wealth, but is unlikely to increase their willingness to spend.
Answer: B
Ques Status: Previous Edition
20) When stock prices fall
A) an individualʹs 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 individualʹs wealth may decrease but their willingness to spend is not affected.
D) an individualʹs wealth may decrease and their willingness
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