Chapter 1 [SHEET 1] Money and Banking

Dr. Taghreed Hassouba Dr. Mina Sami Ayad

T.A. Marina Adel

Question One: Choose the correct answer

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.

2) 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.

3) Poorly performing financial markets can be the cause of

A) wealth.
B) unemployment.
C) financial i n stability.
D) financial expansion.

4) 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.

5) The stock market is important because it is

A) where interest rates are determined.
B) the most widely followed financial market in business investment decisions.
C) where foreign exchange rates are determined.
D) the market where most borrowers get their funds.

6) A share of common stock is a claim on a corporations

A) debt.
B) liabilities.
C) expenses.
D) earnings and assets.

7) Channeling funds from individuals with surplus funds to those desiring funds when the
saver does not purchase the borrowers security is known as
A) barter.
B) redistribution.
C) financial intermediation.
D) taxation.

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8) A financial crisis is
A) not possible in the modern financial environment.
B) a major disruption in the financial markets.
C) a feature of developing economies only.
D) typically followed by an economic boom.

9) Financial institutions that accept deposits and make loans are called .
A) exchanges
B) banks
C) over-the-counter markets
D) finance companies

10) Which of the following is not a financial institution?

A) a life insurance company
B) a pension fund
C) a credit union
D) an export-import company

11) The delivery of financial services electronically is called .

A) e-business
B) e-commerce
C) e-finance
D) e-marketing

12) Theupward and downward movement of aggregate output produced in the economy is
referred to as the ____________ .
A) inflation
B) GDP growth
C) business cycle
D) financial crisis

13) Sustained downward movements in the business cycle are referred to as

A) inflation.
B) recessions.
C) economic recoveries.
D) expansions

14) During a recession, output declines resulting in

A) lower unemployment in the economy.
B) higher unemployment in the economy.
C) no impact on the unemployment in the economy.
D) higher wages for the workers.

15) _____theory relates changes in the quantity of money to changes in aggregate economic
activity and the price level.
A) Monetary
B) Fiscal
C) Financial
D) Systemic

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 Chapter 1 [SHEET 1] Money and Banking

16) A sharp increase in the growth of the money supply is likely followed by
A) a recession.
B) a depression.
C) an increase in the inflation rate.
D) no change in the economy.

17) It is true that inflation is a

A) continuous increase in the money supply.
B) continuous fall in prices.
C) decline in interest rates.
D) continually rising price level.

18) There is a ____ association between inflation and the growth rate of money ____.
A) positive; demand
B) positive; supply
C) negative; demand
D) negative; supply

19) The management of money and interest rates is called ____ policy and is conducted by a
nations ____bank.
A) monetary; superior
B) fiscal; superior
C) fiscal; central
D) monetary; central

20) _______ policy involves decisions about government spending and taxation.
A) Monetary
B) Fiscal
C) Financial
D) Systemic

21) A budget ______occurs when government expenditures exceed tax revenues for a particular
time period.
A) deficit
B) surplus
C) surge
D) surfeit

22) The most comprehensive measure of aggregate output is

A) gross domestic product.
B) net national product.
C) the stock value of the industrial 500.
D) national income.

23) The gross domestic product is the

A) the value of all wealth in an economy.
B) the value of all goods and services sold to other nations in a year.
C) the market value of all final goods and services produced in an economy in a year.
D) the market value of all intermediate goods and services produced in an economy
in a year.

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 Chapter 1 [SHEET 1] Money and Banking

24) When the total value of final goods and services is calculated using current prices, the
resulting measure is referred to as
A) real GDP.
B) the GDP deflator.
C) nominal GDP.
D) the index of leading indicators.

25) GDP measured with constant prices is referred to as

A) real GDP.
B) nominal GDP.
C) the GDP deflator.
D) industrial production.

26) To calculate the growth rate of a variable, you will

A) calculate the percentage change from one time period to the next.
B) calculate the difference between the two variables.
C) add the ending value to the beginning value.
D) divide the increase by the number of time periods.

27) If
real GDP in 2002 is $10 trillion, and in 2003 real GDP is $9.5 trillion, then real GDP
growth from 2002 to 2003 is
A) 0.5%.
B) 5%.
C) 0%.
D) -5%.
28) If
the price level increases from 200 in year 1 to 220 in year 2, the rate of inflation from
year 1 to year 2 is
A) 20%.
B) 10%.
C) 11%.
D) 120%.

Question TWO: Write (TRUE) or (FALSE) in front of each statement

AND CORRECT THE FALSE ONES
1) The average price of goods and services in an economy is called inflation.

2) If ten years ago the prices of the items bought by the average consumer would have
been much higher, then one can likely conclude that the aggregate price level has
declined during this ten-year period.

3) When tax revenues are greater than government expenditures, the government has a
budget deficit

4) During a recession, output declines and unemployment increases.

5) If the aggregate price level at time t is denoted by Pt, the inflation rate from
time t - 1 to t is defined as t = (Pt - Pt - 1)/Pt .

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6) Bonds are considered a claim on a corporation's assets, while stocks

are debt securities.

7) Financial crises are exactly the same as economic crises.

Question THREE: Write short essay on each of the following questions

1) What is a stock? How do stocks affect the economy?

2) What crucial role do financial intermediaries perform in an economy?

3) Explain the role of financial markets and the difference between its types.

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