ECO 316 Week 1 Chapter 1 Introducing Money and the Financial System

This work of ECO 316 Week 1 Chapter 1 Introducing Money and the Financial System consists of:

1.1 Multiple Choices

1) All of the following were events in the financial world in the early 2000s EXCEPT

2) The financial system is primarily a means by which

3) Which of the following is NOT a financial instrument?

4) If you buy a bond issued by Intel, the bond is a(n):

5) Why would a saver with $10,000 be more likely to put it into a bank account than to lend it directly to a borrower?

6) Formerly in Eastern Europe and the Soviet Union, funds were transferred between savers and borrowers primarily through the

7) The experiences of Eastern Europe and the former Soviet Union have demonstrated that

8) Which of the following is NOT a key financial service provided by the financial system?

9) Economists define risk as

10) Economists define liquidity as

11) Which of the following assets is the most liquid?

12) By providing and communicating information, the financial system

13) Which of the following statements is correct?

14) The financial system accounts for about what percentage of the U.S. economy’s value added (GDP)?

15) The average pay for jobs is highest in which of the following sectors?

16) The “international capital market” refers to

17) During the past twenty years

18) The bond market is important because

19) Which of the following is NOT a financial intermediary?

20) The main role of financial intermediaries is to

21) 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

22) Which of the following is a trend towards globalization that has taken place since the 1980s?

23) Which of the following was an important consequence of the regulatory reforms that followed the deposit insurance crisis of the 1980s and early 1990s?

24) Which of the following rankings of sources of funds for businesses from the least important to the most important is correct?

25) Economists define money as

26) The Federal Reserve System

27) Monetary policy refers to the government’s

28) Changes in the money supply are associated with all of the following EXCEPT changes in

29) Which of the following is the primary way that businesses raise funds externally?

30) In the United States, monetary policy is carried out by

31) Economic analysis is useful in

32) The best way to determine if the assumptions of an economic model are appropriate is to

33) To be useful, an economic theory should

1.2 Essays

1) If you had been advising one of the governments in Eastern Europe following the fall of Communism, would you have stressed the importance for economic growth of establishing strong financial markets or the importance of establishing a strong system of financial intermediaries? Explain.

2) When a saver deposits funds in a bank, she may earn about 5% on the deposit. When the bank lends these funds out, it may charge the borrower 9% on the loan. Why don’t the saver and the borrower get together directly and avoid the bank? In that situation wouldn’t the saver be able to earn more on her funds and the borrower have to pay less to borrow these funds?

3) Why are stories about movements in the money supply prominent in the news media?

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