1) Financial markets promote economic efficiency by
channeling funds from savers to investors.
Stock prices are
extremely volatile.
When I purchase a corporate ________, I am lending the corporation funds for a specific time. When I purchase a corporation's ________, I become an owner in the corporation.
bond; stock
A financial crisis is
a major disruption in the financial markets.
Financial intermediaries
provide a channel for linking those who want to save with those who want to invest.
Money is defined as
anything that is generally accepted in payment for goods and services or in the repayment of debt.
Evidence from business cycle fluctuations in the United States indicates that
recessions are usually preceded by a decline in the growth rate of money.
There is a ________ association between inflation and the growth rate of money ________.
positive; supply
Countries that experience very high rates of inflation may also have
rapidly growing money supplies.
________ policy involves decisions about government spending and taxation.
Fiscal
A budget ________ occurs when government expenditures exceed tax revenues for a particular 11) time period.
deficit
Which of the following is most likely to result from a stronger dollar?
U.S. goods exported abroad will cost more in foreign countries, and so foreigners will buy fewer of them.
Which of the following can be described as involving direct finance?
A corporation issues new shares of stock.
Which of the following can be described as involving indirect finance?
You make a deposit at a bank.
Securities are ________ for the person who buys them, but are ________ for the individual or firm 15) that issues them.
assets; liabilities
Equity holders are a corporation's ________. That means the corporation must pay all of its debt 16) holders before it pays its equity holders.
residual claimants
A corporation acquires new funds only when its securities are sold in the
primary market by an investment bank.
A liquid asset is
an asset that can easily and quickly be sold to raise cash.
Secondary markets make financial instruments more
liquid.
A financial market in which only short-term debt instruments are traded is called the ________ market.
money
U.S. Treasury bills pay no interest but are sold at a ________. That is, you will pay a lower purchase price than the amount you receive at maturity.
discount
U.S. Treasury bills are considered the safest of all money market instruments because there is almost no risk of
default.
Bonds that are sold in a foreign country and are denominated in the country's currency in which they are sold are known as
foreign bonds.
If Microsoft sells a bond in London and it is denominated in dollars, the bond is a
Eurobond.
An example of economies of scale in the provision of financial services is
spreading the cost of writing a standardized contract over many borrowers.
The process of asset transformation refers to the conversion of
risky assets into safer assets.
Typically, borrowers have superior information relative to lenders about the potential returns and risks associated with an investment project. The difference in information is called
asymmetric information.
Adverse selection is a problem associated with equity and debt contracts arising from
the lender's relative lack of information about the borrower's potential returns and risks of his investment activities.
An example of the problem of ________ is when a corporation uses the funds raised from selling bonds to fund corporate expansion to pay for Caribbean cruises for all of its employees and their families.
moral hazard
Increasing the amount of information available to investors helps to reduce the problems of ________ and ________ in the financial markets.
adverse selection; moral hazard
Of money's three functions, the one that distinguishes money from other assets is its function as a
medium of exchange.
For a commodity to function effectively as money it must be
easily standardized, making it easy to ascertain its value.
________ is the relative ease and speed with which an asset can be converted into a medium of exchange.
Liquidity
Of the following assets, the least liquid is
A) stocks.
B) traveler's checks.
C) checking deposits.
D) a house<----correct
Paper currency that has been declared legal tender but is not convertible into coins or precious metals is called ________ money.
fiat
Monetary aggregates are
measures of the money supply reported by the Federal Reserve.
Which of the following is not included in the measure of M1?
A) NOW accounts
B) Demand deposits
C) Currency
D) Savings deposits <---correct
Which of the following is not included in the M1 measure of money but is included in the M2 measure of money?
A) Currency
B) Traveler's checks
C) Demand deposits
D) Small-denomination time deposits <---correct
If an individual moves money from a small-denomination time deposit to a demand deposit account,
M1 increases and M2 stays the same.
Which of the following statements accurately describes the two measures of the money supply?
The two measures do not move together, so they cannot be used interchangeably by policymakers.
1) Financial markets promote economic efficiency by
channeling funds from savers to investors.
Stock prices are
extremely volatile.
When I purchase a corporate ________, I am lending the corporation funds for a specific time. When I purchase a corporation's ________, I become an owner in the corporation.
bond; stock
A financial crisis is
a major disruption in the financial markets.
Financial intermediaries
provide a channel for linking those who want to save with those who want to invest.
Money is defined as
anything that is generally accepted in payment for goods and services or in the repayment of debt.
Evidence from business cycle fluctuations in the United States indicates that
recessions are usually preceded by a decline in the growth rate of money.
There is a ________ association between inflation and the growth rate of money ________.
positive; supply
Countries that experience very high rates of inflation may also have
rapidly growing money supplies.
________ policy involves decisions about government spending and taxation.
Fiscal
A budget ________ occurs when government expenditures exceed tax revenues for a particular 11) time period.
deficit
Which of the following is most likely to result from a stronger dollar?
U.S. goods exported abroad will cost more in foreign countries, and so foreigners will buy fewer of them.
Which of the following can be described as involving direct finance?
A corporation issues new shares of stock.
Which of the following can be described as involving indirect finance?
You make a deposit at a bank.
Securities are ________ for the person who buys them, but are ________ for the individual or firm 15) that issues them.
assets; liabilities
Equity holders are a corporation's ________. That means the corporation must pay all of its debt 16) holders before it pays its equity holders.
residual claimants
A corporation acquires new funds only when its securities are sold in the
primary market by an investment bank.
A liquid asset is
an asset that can easily and quickly be sold to raise cash.
Secondary markets make financial instruments more
liquid.
A financial market in which only short-term debt instruments are traded is called the ________ market.
money
U.S. Treasury bills pay no interest but are sold at a ________. That is, you will pay a lower purchase price than the amount you receive at maturity.
discount
U.S. Treasury bills are considered the safest of all money market instruments because there is almost no risk of
default.
Bonds that are sold in a foreign country and are denominated in the country's currency in which they are sold are known as
foreign bonds.
If Microsoft sells a bond in London and it is denominated in dollars, the bond is a
Eurobond.
An example of economies of scale in the provision of financial services is
spreading the cost of writing a standardized contract over many borrowers.
The process of asset transformation refers to the conversion of
risky assets into safer assets.
Typically, borrowers have superior information relative to lenders about the potential returns and risks associated with an investment project. The difference in information is called
asymmetric information.
Adverse selection is a problem associated with equity and debt contracts arising from
the lender's relative lack of information about the borrower's potential returns and risks of his investment activities.
An example of the problem of ________ is when a corporation uses the funds raised from selling bonds to fund corporate expansion to pay for Caribbean cruises for all of its employees and their families.
moral hazard
Increasing the amount of information available to investors helps to reduce the problems of ________ and ________ in the financial markets.
adverse selection; moral hazard
Of money's three functions, the one that distinguishes money from other assets is its function as a
medium of exchange.
For a commodity to function effectively as money it must be
easily standardized, making it easy to ascertain its value.
________ is the relative ease and speed with which an asset can be converted into a medium of exchange.
Liquidity
Of the following assets, the least liquid is
A) stocks.
B) traveler's checks.
C) checking deposits.
D) a house<----correct
Paper currency that has been declared legal tender but is not convertible into coins or precious metals is called ________ money.
fiat
Monetary aggregates are
measures of the money supply reported by the Federal Reserve.
Which of the following is not included in the measure of M1?
A) NOW accounts
B) Demand deposits
C) Currency
D) Savings deposits <---correct
Which of the following is not included in the M1 measure of money but is included in the M2 measure of money?
A) Currency
B) Traveler's checks
C) Demand deposits
D) Small-denomination time deposits <---correct
If an individual moves money from a small-denomination time deposit to a demand deposit account,
M1 increases and M2 stays the same.
Which of the following statements accurately describes the two measures of the money supply?
The two measures do not move together, so they cannot be used interchangeably by policymakers.