Economics Multiple Choice Questions

1. (TCO 1) An SSU's (Points : 3)
income and expenditures for the period are equal.
income for the period exceeds expenditures.
expenditures for the period exceed receipts.
spending is entirely financed by credit cards.

2. (TCO 1) When the financial system has achieved a high degree of efficiency
borrowers are able to finance at the highest possible cost.
surplus spending units are able to receive the lowest return on their savings.
transaction and intermediation costs are low.
lenders will have a limited choice of financial investments.

3. (TCO 1) Which of the following are economic units? (Points : 3)
Households
Businesses
Governments
All of the above

4. (TCO 1) Most financial intermediaries (Points : 3)
issue direct claims and purchase direct financial assets.
issue indirect claims and purchase indirect financial assets.
purchase large amounts of real, tangible assets.
purchase direct financial claims and issue indirect securities.

5. (TCO 1) All of the following are terms for or examples of financial claims except
bonds.
mortgage.
loans.
commodities.

6. (TCO 1) Intermediation, or ____ financing, involves ___ financial claim(s) linking SSU and DSU. (Points : 3)
indirect; two
direct; two
indirect; one
direct; one

7. (TCO 1) ______ merely execute buy or sell orders for their clients; _______ make markets. (Points : 3)
Dealers; brokers
Brokers; investment bankers
Dealers; financial institutions
Brokers; dealers

8. (TCO 1) The financial institution that is the largest issuer of commercial paper is
commercial banks.
finance companies.
property-casualty insurance companies.
pension funds.

9. (TCO 1) Federal agencies issue high quality securities and invest primarily in claims issued by (Points : 3)
businesses that are too big to fail.
the U.S. Treasury to finance government deficits.
agricultural or housing-related sectors which have limited access to private credit.
foreign governments.

10. (TCO 1) The best synonym for financial intermediation is (Points : 3)
direct finance.
investment banking.
market making.
transformation of claims.

11. (TCO 1) Corporations list their securities on exchanges in order to (Points : 2)
pay an annual listing fee and disclose important information.
enhance the liquidity of their securities for investors.
sell more securities.
increase the size of the firm.

12. (TCO 1) Which of the following statements about the money market is true? (Points : 2)
The money market is a dealer market linked by efficient communications systems.
Money market transactions are seldom over $1 million.
Market transactions include more primary than secondary market trades.
Most money market transactions are conducted by mail.

13. (TCO 1) The money market security represented by the largest dollar amount outstanding is (Points : 2)
commercial paper.
treasury bills.
negotiable CDs.
None of the above
14. (TCO 1) An S & L taking short-term deposits and financing local land development is engaging in (Points : 2)
speculation.
maturity intermediation.
denomination intermediation.
currency transformation.

15. (TCO 1) Potential effects of yield fluctuations on security prices and reinvestment income represent (Points : 2)
credit risk.
liquidity risk.
foreign exchange risk.
interest rate risk.
1. If productivity and wages both rise by 3 percent, then the price level will increase by 3%. (Points : 5)
True
False
2. A fall in the value of the dollar relative to other currencies will: (Points : 5)
increase demand for U.S. goods, shifting the U.S. aggregate demand curve to the right.
increase demand for U.S. goods, shifting the U.S. aggregate demand curve to the left.
decrease demand for U.S. goods, shifting the U.S. aggregate demand curve to the right.
decrease demand for U.S. goods, shifting the U.S. aggregate demand curve to the left.
3. Refer to the graph. The equilibrium level of real income is:
(Points : 5)
$200.
$600.
$800.
$1,000.
4. A fall in the price level: (Points : 5)
reduces the value of money in peoples' pockets so amount of goods people buy falls.
reduces the value of money in peoples' pockets so amount of goods people buy rises.
increases the value of money in peoples' pockets so amount of goods people buy falls.
increases the value of money in peoples' pockets so amount of goods people buy rises.
5. The multiplier process works because when expenditures don't equal production: (Points : 5)
businesses adjust prices.
businesses adjust production.
potential output adjusts.
the government steps in to adjust production.

6. Refer to the graph. An economy is in short-run equilibrium at point(s):
A only.
B.
C only.
Both A and C.
7. If consumption changes because of a change in a factor other than the price level, then: (Points : 5)
the economy moves from one point on an AD curve to another point on the same curve.
the AD curve shifts.
the economy moves from one point on a short-run aggregate supply (SAS) curve to another point on the same curve.
the SAS curve shifts.
8. If autonomous expenditures are $1,000, income is $5,000, and the marginal propensity to expend is 0.6, then total expenditures according to the expenditure function would be: (Points : 5)
$3,000.
$4,000.
$5,000.
$13,500.
9. In the equation AE = $2,000 + 0.8Y, autonomous expenditures are equal to 80 percent of income. (Points : 5)
True.
False.
10. Which of the following factors will not shift the long-run aggregate supply curve? (Points : 5)
An increase in capital accumulation
An increase in available resources
An increase in the price level
An improvement in production technology