Economics of Money, Banking, and Financial Markets, The, Canadian Edition, 8th edition by Frederic S
Economics of Money, Banking, and Fin. Markets, 8Ce (Mishkin)
Chapter 1 Why Study Money, Banking, and Financial Markets?
1.1 Why Study Financial Markets?
1) Financial markets promote economic efficiency by ________.
A) channelling funds from investors to savers
B) generating inflationary pressures
C) channelling funds to those who have a productive use for them
D) reducing investment spending
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
2) Well-functioning financial markets are the source of ________.
A) inflation
B) deflation
C) unemployment
D) economic growth
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
3) A key factor in promoting strong economic growth is ________.
A) to reduce foreign trade
B) well-functioning financial markets
C) high interest rates
D) stock market volatility
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
4) Markets in which funds are transferred from those who do not have a productive use for them to those who do are called ________.
A) commodity markets
B) fund-available markets
C) derivative exchange markets
D) financial markets
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
5) ________ markets transfer funds from people who do not have a productive use for them to people who do.
A) Commodity
B) Fund-available
C) Financial
D) Derivative exchange
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
6) Poorly performing financial markets can lead to ________.
A) increased wealth
B) more poverty
C) financial stability
D) economic growth
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
7) The bond markets are important because they are ________.
A) easily the most widely followed of the financial markets in Canada
B) the markets where foreign exchange rates are determined
C) where corporations and governments can borrow to finance their activities
D) the markets where all borrowers obtain funds
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
8) A security is also known as ________.
A) a financial instrument
B) a contingent claim
C) the interest rate
D) a liability
Answer: A
Diff: 1 Type: MC
Skill: Applied
Objective: 1.1 Recognize the importance of financial markets in the economy
9) A bond ________.
A) is not as good an investment as stocks
B) pays interest sporadically
C) never pays interest
D) makes periodic payments for a specified period
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
10) The fluctuation of interest rates ________.
A) never occurs because the central bank is responsible for setting the rate
B) is due to changes in stock prices
C) cannot occur because there is only one interest rate
D) impacts all Canadians
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
11) The cost of borrowing funds is commonly referred to as the ________.
A) inflation rate
B) exchange rate
C) interest rate
D) aggregate price level
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
12) Compared to interest rates on long-term bonds, interest rates on three-month Treasury bills fluctuate ________ and are ________ on average.
A) more; lower
B) less; lower
C) more; higher
D) less; higher
Answer: A
Diff: 1 Type: MC
Skill: Applied
Objective: 1.1 Recognize the importance of financial markets in the economy
13) The interest rate on long-term corporate bonds is ________, on average, than other interest rates. The spread between it and other rates ________ over time.
A) lower; remains constant
B) lower; fluctuates
C) higher; remains constant
D) higher; fluctuates
Answer: D
Diff: 1 Type: MC
Skill: Applied
Objective: 1.1 Recognize the importance of financial markets in the economy
14) Everything else held constant, a rise in interest rates will lead to ________ house sales.
A) increased
B) unchanged
C) either increases, declines, or unchanged
D) decreased
Answer: D
Diff: 2 Type: MC
Skill: Applied
Objective: 1.1 Recognize the importance of financial markets in the economy
15) High interest rates might ________ purchasing a house or car but at the same time high interest rates might ________ saving.
A) discourage; encourage
B) discourage; discourage
C) encourage; encourage
D) encourage; discourage
Answer: A
Diff: 2 Type: MC
Skill: Applied
Objective: 1.1 Recognize the importance of financial markets in the economy
16) An increase in interest rates might ________ people to save because more can be earned in interest income.
A) encourage
B) discourage
C) disallow
D) invalidate
Answer: A
Diff: 2 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
17) Everything else held constant, an increase in interest rates on student loans ________.
A) may increase the cost of education
B) may reduce the cost of education
C) has no effect on the cost of education
D) increases the cost of education for students with no loans
Answer: A
Diff: 2 Type: MC
Skill: Applied
Objective: 1.1 Recognize the importance of financial markets in the economy
18) A common stock ________.
A) cannot be purchased by individuals
B) is also known as a debt security
C) is a share of ownership in a corporation
D) pays interest when the company makes profits.
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
19) A share of common stock is a claim on a corporation's ________.
A) debt
B) liabilities
C) expenses
D) earnings and assets
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
20) Lower interest rates might create an incentive for a company to ________ building a new plant thus generating more jobs.
A) complete
B) postpone
C) consider
D) start
Answer: C
Diff: 1 Type: MC
Skill: Applied
Objective: 1.1 Recognize the importance of financial markets in the economy
21) Bonds of different maturities ________.
A) have no common features
B) have interest rates that tend to move together
C) have interest rates that can differ substantially
D) B and C only
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
22) The stock market is important because it is ________.
A) where interest rates are determined
B) the most widely followed of the financial markets in the Canada
C) where foreign exchange rates are determined
D) the market where most borrowers obtain funds
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
23) Stock prices, as measured by the S&P/TSX Composite Index, ________.
A) have not changed much over time
B) have risen smoothly over time
C) have been extremely volatile over time
D) have declined substantially since they peaked in the mid 1980s
Answer: C
Diff: 1 Type: MC
Skill: Applied
Objective: 1.1 Recognize the importance of financial markets in the economy
24) Stock prices are ________.
A) relatively stable and have trended upward at a steady pace over time
B) relatively stable and have trended downward at a moderate rate over time
C) extremely volatile over time
D) unstable and have trended downward at a moderate rate over time
Answer: C
Diff: 2 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
25) Changes in stock prices ________.
A) do not affect people's wealth and their willingness to spend
B) affect firms' decisions to sell stock to finance investment spending
C) are predictable
D) are unimportant to decision makers
Answer: B
Diff: 2 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
26) A ________ is an example of a security, which is a claim on a company's future income or ________.
A) bond; interest rate
B) bond; debt
C) stock; assets
D) stock; debt
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
27) On ________, October 19, 1987, the market experienced its worst one-day drop in its entire history with the S&P/TSX Composite index falling by 11 percent.
A) "Terrible Tuesday"
B) "Woeful Wednesday"
C) "Freaky Friday"
D) "Black Monday"
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
28) Fluctuations in stock prices ________.
A) have become less volatile since year 2000
B) since year 2000 are about the same as they were before year 2000
C) have become more volatile since year 2000
D) have been almost eliminated since year 2000
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
29) The S&P/TSX Composite reached a peak of over 14000 in 2008 and then fell by ________.
A) 10%
B) 30%
C) 50%
D) 70%
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
30) 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.
A) bond; stock
B) stock; bond
C) stock; debt security
D) bond; debt security
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
31) By 2020, the S&P/TSX Composite reached a new high of over ________.
A) 8000
B) 11000
C) 14000
D) 17000
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
32) Why is it important to understand the bond market?
Answer: The bond market supports economic activity by enabling the government and corporations to borrow to undertake their projects and it is the market where interest rates are determined.
Diff: 2 Type: ES
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
33) What is a stock? How do stocks affect the economy?
Answer: A stock represents a share of ownership of a corporation, or a claim on a firm's earnings/assets. Stocks are part of wealth, and changes in their value affect people's willingness to spend. Changes in stock prices affect a firm's ability to raise funds, and thus their investment.
Diff: 2 Type: ES
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
1.2 Why Study Financial Institutions and Banking?
1) Channelling funds from individuals with surplus funds to those needing funds when the saver does not directly purchase the borrower's security is known as ________.
A) barter
B) redistribution
C) financial intermediation
D) taxation
Answer: C
Diff: 2 Type: MC
Skill: Applied
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
2) 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
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
3) Banks are important to the study of money and the economy because they ________.
A) channel funds from investors to savers
B) have been a source of rapid financial innovation
C) are the only important financial institution in the Canadian economy
D) create inflation
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
4) Financial crises are characterized by ________.
A) surging employment
B) hyperinflation
C) a decline in asset prices
D) high profits in the financial sector
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
5) Chartered banks, trust and mortgage loan companies, and credit unions and caisses populaires ________.
A) no longer provide financial intermediation services
B) since deregulation, now provide services only to small depositors
C) accept deposits and make loans
D) are the source of fluctuations in the stock market
Answer: C
Diff: 2 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
6) Banks ________.
A) are the smallest of the financial intermediaries in Canada
B) are the largest of the financial intermediaries in Canada
C) are barred from providing financial intermediation services
D) are limited to providing financial intermediation services to corporations only
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
7) Financial institutions that accept deposits and make loans include ________.
A) stock exchanges
B) banks
C) investment banks
D) finance companies
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
8) Which of the following are the largest financial intermediaries in the Canadian economy?
A) Insurance companies
B) Finance companies
C) Banks
D) Mutual funds
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
9) The term "bank" generally includes all the following institutions except ________.
A) chartered banks
B) credit unions
C) trust and mortgage loan companies
D) finance companies
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
10) The delivery of financial services electronically is called ________.
A) e-business
B) e-commerce
C) e-finance
D) e-possible
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
11) Financial innovation can lead to ________ and ________.
A) phishing; financial gain
B) higher interest rates; higher inflation
C) higher profits; financial disasters
D) lower interest rates; lower inflation
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
12) What crucial role do financial intermediaries perform in an economy?
Answer: Financial intermediaries borrow funds from people who have saved and make loans to other individuals and businesses and thus improve the efficiency of the economy.
Diff: 1 Type: ES
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
13) Why is the study of financial innovation important?
Answer: Financial innovation shows how creative thinking on the part of financial institutions can lead to higher profits.
Diff: 2 Type: ES
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
1.3 Why Study Money and Monetary Policy?
1) Money is defined as ________.
A) bills of exchange
B) anything that is generally accepted in payment for goods and services or in the repayment of debt
C) a repository of spending power
D) the unrecognized liability of governments
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
2) The cyclical upward and downward movement of aggregate output in the economy is referred to as the ________.
A) roller coaster
B) see saw
C) business cycle
D) shock wave
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
3) Sustained downward movements in the business cycle are referred to as ________.
A) inflation
B) recessions
C) economic recoveries
D) expansions
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
4) 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
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
5) Prior to all recessions, there has been a drop in ________.
A) inflation
B) the stock of money
C) the rate of money growth
D) interest rates
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
6) Evidence from business cycle fluctuations in Canada indicates that ________.
A) a negative relationship between money growth and general economic activity
B) recessions have been preceded by declines in share prices on the stock market
C) recessions have been preceded by a depreciation of the Canadian dollar
D) recessions have been preceded by a decline in the growth rate of money
Answer: D
Diff: 2 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
7) ________ 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
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
8) 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
Answer: C
Diff: 2 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
9) Inflation ________.
A) can be explained by changes in the price level and money supply
B) cannot be explained historically
C) is unrelated to monetary variables
D) changes in government policy
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
10) The average price level of goods and services in the economy is called ________
A) the aggregate price level
B) inflation
C) interest rates
D) deflation
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
11) 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
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
12) Which of the following is a true statement?
A) Money or the money supply is defined as Bank of Canada notes.
B) The average price of goods and services in an economy is called the aggregate price level.
C) The inflation rate is measured as the rate of change in the federal government budget deficit.
D) The aggregate price level is measured as the rate of change in the inflation rate.
Answer: B
Diff: 2 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
13) If ten years ago the prices of the items bought last month by the average consumer would have been much lower, then one can likely conclude that ________.
A) the aggregate price level has declined during this ten-year period
B) the average inflation rate for this ten-year period has been positive
C) the average rate of money growth for this ten-year period has been positive
D) the aggregate price level has risen during this ten-year period
Answer: D
Diff: 2 Type: MC
Skill: Applied
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
14) From 1970-2020 the price level in Canada increased more than ________.
A) threefold
B) sixfold
C) sevenfold
D) ninefold
Answer: C
Diff: 2 Type: MC
Skill: Applied
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
15) Complete Milton Friedman's famous statement, "Inflation is always and everywhere a ________ phenomenon."
A) recessionary
B) discretionary
C) repressionary
D) monetary
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
16) There is a ________ relationship between inflation and the growth rate of money ________.
A) positive; demand
B) positive; supply
C) negative; demand
D) negative; supply
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
17) Evidence from Canada and other foreign countries indicates that ________.
A) there is a strong positive association between inflation and growth rate of money supply over long periods of time
B) there is little support for the assertion that "inflation is always and everywhere a monetary phenomenon"
C) countries with low monetary growth rates tend to experience higher rates of inflation, all else being constant
D) money growth is clearly unrelated to inflation
Answer: A
Diff: 2 Type: MC
Skill: Applied
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
18) The Covid-19 recession ________.
A) had little effect on the unemployment rate
B) led to a sharp rise in the unemployment rate
C) led to a small rise in the unemployment rate
D) led to a drop in the unemployment rate
Answer: B
Diff: 2 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
19) Countries that experience very high rates of inflation may also have ________.
A) balanced budgets
B) rapidly growing money supplies
C) falling money supplies
D) constant money supplies
Answer: B
Diff: 2 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
20) In the late 1970s, interest rates trended upward in Canada. During this same period, ________.
A) the rate of money growth declined
B) the rate of money growth increased
C) the government budget deficit (expressed as a percentage of GDP) trended downward
D) inflation fell
Answer: B
Diff: 2 Type: MC
Skill: Applied
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
21) The management of money and interest rates is called ________ policy and is conducted by a nation's ________ bank.
A) monetary; superior
B) fiscal; superior
C) fiscal; central
D) monetary; central
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
22) What organization is responsible for the conduct of monetary policy in Canada?
A) Royal Canadian Mint
B) The Department of Finance
C) The Bank of Canada
D) The Superintendent of Financial Institutions
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
23) ________ policy involves decisions about government spending and taxation.
A) Monetary
B) Fiscal
C) Risk Management
D) Systemic
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
24) When tax revenues are greater than government expenditures, the government has a budget ________.
A) crisis
B) deficit
C) surplus
D) revision
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
25) A budget ________ occurs when government expenditures exceed tax revenues for a particular period.
A) deficit
B) surplus
C) surge
D) surfeit
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
26) Budget deficits can be a concern because they might ________.
A) ultimately lead to higher inflation
B) lead to lower interest rates
C) lead to a slower rate of money growth
D) lead to higher bond prices
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
27) What happens to economic growth and unemployment during a business cycle recession? What is the relationship between the money growth rate and a business cycle recession?
Answer: During a recession, output declines and unemployment increases. Prior to every recession in Canada the money growth rate has declined, however, not every decline is followed by a recession.
Diff: 2 Type: ES
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
28) Describe the relationship between the aggregate price level and the growth rate in the money supply. Can this relationship explain inflation?
Answer: The price level and the money supply generally move closely together. There is a positive relationship between inflation and the growth rate of the money supply. Friedman says that "inflation is always and everywhere a monetary phenomenon."
Diff: 2 Type: ES
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
1.4 Why Study International Finance?
1) Canadian companies can borrow funds ________.
A) only in Canadian financial markets
B) only in foreign financial markets
C) in both Canadian and foreign financial markets
D) only from the Canadian government
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.4 Explain the importance of exchange rates in a global economy
2) The price of one country's currency in terms of another country's currency is called the ________.
A) foreign exchange rate
B) interest rate
C) TSE index
D) inflation rate
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.4 Explain the importance of exchange rates in a global economy
3) The foreign exchange rate is ________.
A) determined by the banks
B) not important to most Canadians
C) the relative price of two currencies
D) the ratio of the foreign aggregate price level to the domestic aggregate price level
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.4 Explain the importance of exchange rates in a global economy
4) The market where one currency is converted into another currency is called the ________ market.
A) security
B) bond
C) derivatives
D) foreign exchange
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.4 Explain the importance of exchange rates in a global economy
5) Everything else constant, a stronger Canadian dollar will mean that ________.
A) vacationing in England becomes more expensive
B) vacationing in England becomes less expensive
C) French cheese becomes more expensive in the eyes of Canadians
D) Japanese cars become more expensive in the eyes of Canadians
Answer: B
Diff: 2 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
6) Which of the following is most likely to result from a stronger Canadian dollar?
A) Canadian goods exported aboard will cost less in foreign countries, and so foreigners will buy more of them.
B) Canadian goods exported aboard will cost more in foreign countries and so foreigners will buy more of them.
C) Canadian goods exported abroad will cost more in foreign countries, and so foreigners will buy fewer of them.
D) Canadians will purchase fewer foreign goods.
Answer: C
Diff: 2 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
7) Everything else held constant, a weaker Canadian dollar will likely hurt ________.
A) textile exporters in Quebec
B) wheat farmers in Saskatchewan that sell domestically
C) automobile manufacturers in Ontario that use domestically produced inputs
D) furniture importers in British Columbia
Answer: D
Diff: 2 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
8) Everything else held constant, Canadians who love French wine benefit most from ________.
A) a decrease in the dollar price of euros
B) an increase in the dollar price of euros
C) a constant dollar price for euros
D) a ban on imports from Europe
Answer: A
Diff: 2 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
9) Everything else held constant, a stronger Canadian dollar benefits ________ and hurts ________.
A) Canadian businesses; Canadian consumers
B) Canadian businesses; foreign businesses
C) Canadian consumers; Canadian businesses
D) foreign businesses; Canadian consumers
Answer: C
Diff: 2 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
10) From 2002 to 2008, the Canadian dollar ________ in value.
A) appreciated by approximately 25% against the US dollar
B) appreciated by approximately 50% against the US dollar
C) depreciated by approximately 50% against the US dollar
D) depreciated by approximately 25% against the US dollar
Answer: B
Diff: 1 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
11) When in 1985 a British pound cost approximately C$1.30, a Shetland sweater that cost 100 British pounds would have cost C$130. With a weaker Canadian dollar, the same Shetland sweater would have cost ________.
A) less than $130
B) more than $130
C) $130, since the exchange rate does not affect the prices that Canadian consumers pay for foreign goods
D) $130, since the demand for Shetland sweaters will decrease to prevent an increase in price due to the stronger dollar
Answer: B
Diff: 2 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
12) Everything else held constant, a decrease in the value of the Canadian dollar relative to all foreign currencies means that the price of foreign goods purchased by Canadians ________.
A) increases
B) decreases
C) remains unchanged
D) increases initially but then decreases
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.4 Explain the importance of exchange rates in a global economy
13) Canadian farmers who sell beef to Europe benefit most from ________.
A) a decrease in the Canadian dollar price of euros
B) an increase in the Canadian dollar price of euros
C) a constant Canadian dollar price for euros
D) a European ban on imports of Canadian beef
Answer: B
Diff: 2 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
14) If the Canadian dollar price of a euro increases from $1.00 to $1.10, then, everything else held constant, ________.
A) a European vacation becomes less expensive
B) a European vacation becomes more expensive
C) the cost of a European vacation is not affected
D) foreign travel becomes impossible
Answer: B
Diff: 2 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
15) From 2002—2011, the dollar strengthened in value against other currencies. Who was helped and who was hurt by this strong dollar?
Answer: Canadian consumers benefitted because imports were cheaper, and consumers could purchase more goods from abroad. Canadian businesses and workers were hurt as domestic and foreign sales of Canadian products fell.
Diff: 2 Type: ES
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
1.5 Money, Banking, and Financial Markets and Your Career
1) Students studying money, banking, and financial markets will learn ________.
A) critical thinking skills that will be useful in all careers
B) how to time the market
C) stock market tips
D) nothing of practical value
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.5 Explain how the study of money, banking, and financial markets may advance your career
1.6 How We Will Study Money, Banking, and Financial Markets
1) The basic concepts used in the analytic framework of this text include all of the following EXCEPT ________.
A) the not-for-profit nature of most financial institutions
B) a basic supply and demand analysis to explain the behavior of financial markets
C) an approach to financial structure based on transaction costs and asymmetric information
D) the concept of equilibrium
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.6 Describe how the text approaches the teaching of money, banking, and financial markets
2) Using a unified analytic framework to present the information in the text keeps the knowledge ________.
A) focused on theories that have little to do with actual behaviour
B) theoretical and uninteresting
C) abstract and not applicable to real life
D) from becoming obsolete
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.6 Describe how the text approaches the teaching of money, banking, and financial markets
Chapter 1 Why Study Money, Banking, and Financial Markets?
1.1 Why Study Financial Markets?
1) Financial markets promote economic efficiency by ________.
A) channelling funds from investors to savers
B) generating inflationary pressures
C) channelling funds to those who have a productive use for them
D) reducing investment spending
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
2) Well-functioning financial markets are the source of ________.
A) inflation
B) deflation
C) unemployment
D) economic growth
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
3) A key factor in promoting strong economic growth is ________.
A) to reduce foreign trade
B) well-functioning financial markets
C) high interest rates
D) stock market volatility
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
4) Markets in which funds are transferred from those who do not have a productive use for them to those who do are called ________.
A) commodity markets
B) fund-available markets
C) derivative exchange markets
D) financial markets
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
5) ________ markets transfer funds from people who do not have a productive use for them to people who do.
A) Commodity
B) Fund-available
C) Financial
D) Derivative exchange
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
6) Poorly performing financial markets can lead to ________.
A) increased wealth
B) more poverty
C) financial stability
D) economic growth
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
7) The bond markets are important because they are ________.
A) easily the most widely followed of the financial markets in Canada
B) the markets where foreign exchange rates are determined
C) where corporations and governments can borrow to finance their activities
D) the markets where all borrowers obtain funds
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
8) A security is also known as ________.
A) a financial instrument
B) a contingent claim
C) the interest rate
D) a liability
Answer: A
Diff: 1 Type: MC
Skill: Applied
Objective: 1.1 Recognize the importance of financial markets in the economy
9) A bond ________.
A) is not as good an investment as stocks
B) pays interest sporadically
C) never pays interest
D) makes periodic payments for a specified period
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
10) The fluctuation of interest rates ________.
A) never occurs because the central bank is responsible for setting the rate
B) is due to changes in stock prices
C) cannot occur because there is only one interest rate
D) impacts all Canadians
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
11) The cost of borrowing funds is commonly referred to as the ________.
A) inflation rate
B) exchange rate
C) interest rate
D) aggregate price level
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
12) Compared to interest rates on long-term bonds, interest rates on three-month Treasury bills fluctuate ________ and are ________ on average.
A) more; lower
B) less; lower
C) more; higher
D) less; higher
Answer: A
Diff: 1 Type: MC
Skill: Applied
Objective: 1.1 Recognize the importance of financial markets in the economy
13) The interest rate on long-term corporate bonds is ________, on average, than other interest rates. The spread between it and other rates ________ over time.
A) lower; remains constant
B) lower; fluctuates
C) higher; remains constant
D) higher; fluctuates
Answer: D
Diff: 1 Type: MC
Skill: Applied
Objective: 1.1 Recognize the importance of financial markets in the economy
14) Everything else held constant, a rise in interest rates will lead to ________ house sales.
A) increased
B) unchanged
C) either increases, declines, or unchanged
D) decreased
Answer: D
Diff: 2 Type: MC
Skill: Applied
Objective: 1.1 Recognize the importance of financial markets in the economy
15) High interest rates might ________ purchasing a house or car but at the same time high interest rates might ________ saving.
A) discourage; encourage
B) discourage; discourage
C) encourage; encourage
D) encourage; discourage
Answer: A
Diff: 2 Type: MC
Skill: Applied
Objective: 1.1 Recognize the importance of financial markets in the economy
16) An increase in interest rates might ________ people to save because more can be earned in interest income.
A) encourage
B) discourage
C) disallow
D) invalidate
Answer: A
Diff: 2 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
17) Everything else held constant, an increase in interest rates on student loans ________.
A) may increase the cost of education
B) may reduce the cost of education
C) has no effect on the cost of education
D) increases the cost of education for students with no loans
Answer: A
Diff: 2 Type: MC
Skill: Applied
Objective: 1.1 Recognize the importance of financial markets in the economy
18) A common stock ________.
A) cannot be purchased by individuals
B) is also known as a debt security
C) is a share of ownership in a corporation
D) pays interest when the company makes profits.
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
19) A share of common stock is a claim on a corporation's ________.
A) debt
B) liabilities
C) expenses
D) earnings and assets
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
20) Lower interest rates might create an incentive for a company to ________ building a new plant thus generating more jobs.
A) complete
B) postpone
C) consider
D) start
Answer: C
Diff: 1 Type: MC
Skill: Applied
Objective: 1.1 Recognize the importance of financial markets in the economy
21) Bonds of different maturities ________.
A) have no common features
B) have interest rates that tend to move together
C) have interest rates that can differ substantially
D) B and C only
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
22) The stock market is important because it is ________.
A) where interest rates are determined
B) the most widely followed of the financial markets in the Canada
C) where foreign exchange rates are determined
D) the market where most borrowers obtain funds
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
23) Stock prices, as measured by the S&P/TSX Composite Index, ________.
A) have not changed much over time
B) have risen smoothly over time
C) have been extremely volatile over time
D) have declined substantially since they peaked in the mid 1980s
Answer: C
Diff: 1 Type: MC
Skill: Applied
Objective: 1.1 Recognize the importance of financial markets in the economy
24) Stock prices are ________.
A) relatively stable and have trended upward at a steady pace over time
B) relatively stable and have trended downward at a moderate rate over time
C) extremely volatile over time
D) unstable and have trended downward at a moderate rate over time
Answer: C
Diff: 2 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
25) Changes in stock prices ________.
A) do not affect people's wealth and their willingness to spend
B) affect firms' decisions to sell stock to finance investment spending
C) are predictable
D) are unimportant to decision makers
Answer: B
Diff: 2 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
26) A ________ is an example of a security, which is a claim on a company's future income or ________.
A) bond; interest rate
B) bond; debt
C) stock; assets
D) stock; debt
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
27) On ________, October 19, 1987, the market experienced its worst one-day drop in its entire history with the S&P/TSX Composite index falling by 11 percent.
A) "Terrible Tuesday"
B) "Woeful Wednesday"
C) "Freaky Friday"
D) "Black Monday"
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
28) Fluctuations in stock prices ________.
A) have become less volatile since year 2000
B) since year 2000 are about the same as they were before year 2000
C) have become more volatile since year 2000
D) have been almost eliminated since year 2000
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
29) The S&P/TSX Composite reached a peak of over 14000 in 2008 and then fell by ________.
A) 10%
B) 30%
C) 50%
D) 70%
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
30) 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.
A) bond; stock
B) stock; bond
C) stock; debt security
D) bond; debt security
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
31) By 2020, the S&P/TSX Composite reached a new high of over ________.
A) 8000
B) 11000
C) 14000
D) 17000
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
32) Why is it important to understand the bond market?
Answer: The bond market supports economic activity by enabling the government and corporations to borrow to undertake their projects and it is the market where interest rates are determined.
Diff: 2 Type: ES
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
33) What is a stock? How do stocks affect the economy?
Answer: A stock represents a share of ownership of a corporation, or a claim on a firm's earnings/assets. Stocks are part of wealth, and changes in their value affect people's willingness to spend. Changes in stock prices affect a firm's ability to raise funds, and thus their investment.
Diff: 2 Type: ES
Skill: Recall
Objective: 1.1 Recognize the importance of financial markets in the economy
1.2 Why Study Financial Institutions and Banking?
1) Channelling funds from individuals with surplus funds to those needing funds when the saver does not directly purchase the borrower's security is known as ________.
A) barter
B) redistribution
C) financial intermediation
D) taxation
Answer: C
Diff: 2 Type: MC
Skill: Applied
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
2) 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
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
3) Banks are important to the study of money and the economy because they ________.
A) channel funds from investors to savers
B) have been a source of rapid financial innovation
C) are the only important financial institution in the Canadian economy
D) create inflation
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
4) Financial crises are characterized by ________.
A) surging employment
B) hyperinflation
C) a decline in asset prices
D) high profits in the financial sector
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
5) Chartered banks, trust and mortgage loan companies, and credit unions and caisses populaires ________.
A) no longer provide financial intermediation services
B) since deregulation, now provide services only to small depositors
C) accept deposits and make loans
D) are the source of fluctuations in the stock market
Answer: C
Diff: 2 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
6) Banks ________.
A) are the smallest of the financial intermediaries in Canada
B) are the largest of the financial intermediaries in Canada
C) are barred from providing financial intermediation services
D) are limited to providing financial intermediation services to corporations only
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
7) Financial institutions that accept deposits and make loans include ________.
A) stock exchanges
B) banks
C) investment banks
D) finance companies
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
8) Which of the following are the largest financial intermediaries in the Canadian economy?
A) Insurance companies
B) Finance companies
C) Banks
D) Mutual funds
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
9) The term "bank" generally includes all the following institutions except ________.
A) chartered banks
B) credit unions
C) trust and mortgage loan companies
D) finance companies
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
10) The delivery of financial services electronically is called ________.
A) e-business
B) e-commerce
C) e-finance
D) e-possible
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
11) Financial innovation can lead to ________ and ________.
A) phishing; financial gain
B) higher interest rates; higher inflation
C) higher profits; financial disasters
D) lower interest rates; lower inflation
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
12) What crucial role do financial intermediaries perform in an economy?
Answer: Financial intermediaries borrow funds from people who have saved and make loans to other individuals and businesses and thus improve the efficiency of the economy.
Diff: 1 Type: ES
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
13) Why is the study of financial innovation important?
Answer: Financial innovation shows how creative thinking on the part of financial institutions can lead to higher profits.
Diff: 2 Type: ES
Skill: Recall
Objective: 1.2 Describe how financial intermediation and financial innovation affect banking and the economy
1.3 Why Study Money and Monetary Policy?
1) Money is defined as ________.
A) bills of exchange
B) anything that is generally accepted in payment for goods and services or in the repayment of debt
C) a repository of spending power
D) the unrecognized liability of governments
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
2) The cyclical upward and downward movement of aggregate output in the economy is referred to as the ________.
A) roller coaster
B) see saw
C) business cycle
D) shock wave
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
3) Sustained downward movements in the business cycle are referred to as ________.
A) inflation
B) recessions
C) economic recoveries
D) expansions
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
4) 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
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
5) Prior to all recessions, there has been a drop in ________.
A) inflation
B) the stock of money
C) the rate of money growth
D) interest rates
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
6) Evidence from business cycle fluctuations in Canada indicates that ________.
A) a negative relationship between money growth and general economic activity
B) recessions have been preceded by declines in share prices on the stock market
C) recessions have been preceded by a depreciation of the Canadian dollar
D) recessions have been preceded by a decline in the growth rate of money
Answer: D
Diff: 2 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
7) ________ 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
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
8) 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
Answer: C
Diff: 2 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
9) Inflation ________.
A) can be explained by changes in the price level and money supply
B) cannot be explained historically
C) is unrelated to monetary variables
D) changes in government policy
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
10) The average price level of goods and services in the economy is called ________
A) the aggregate price level
B) inflation
C) interest rates
D) deflation
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
11) 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
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
12) Which of the following is a true statement?
A) Money or the money supply is defined as Bank of Canada notes.
B) The average price of goods and services in an economy is called the aggregate price level.
C) The inflation rate is measured as the rate of change in the federal government budget deficit.
D) The aggregate price level is measured as the rate of change in the inflation rate.
Answer: B
Diff: 2 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
13) If ten years ago the prices of the items bought last month by the average consumer would have been much lower, then one can likely conclude that ________.
A) the aggregate price level has declined during this ten-year period
B) the average inflation rate for this ten-year period has been positive
C) the average rate of money growth for this ten-year period has been positive
D) the aggregate price level has risen during this ten-year period
Answer: D
Diff: 2 Type: MC
Skill: Applied
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
14) From 1970-2020 the price level in Canada increased more than ________.
A) threefold
B) sixfold
C) sevenfold
D) ninefold
Answer: C
Diff: 2 Type: MC
Skill: Applied
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
15) Complete Milton Friedman's famous statement, "Inflation is always and everywhere a ________ phenomenon."
A) recessionary
B) discretionary
C) repressionary
D) monetary
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
16) There is a ________ relationship between inflation and the growth rate of money ________.
A) positive; demand
B) positive; supply
C) negative; demand
D) negative; supply
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
17) Evidence from Canada and other foreign countries indicates that ________.
A) there is a strong positive association between inflation and growth rate of money supply over long periods of time
B) there is little support for the assertion that "inflation is always and everywhere a monetary phenomenon"
C) countries with low monetary growth rates tend to experience higher rates of inflation, all else being constant
D) money growth is clearly unrelated to inflation
Answer: A
Diff: 2 Type: MC
Skill: Applied
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
18) The Covid-19 recession ________.
A) had little effect on the unemployment rate
B) led to a sharp rise in the unemployment rate
C) led to a small rise in the unemployment rate
D) led to a drop in the unemployment rate
Answer: B
Diff: 2 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
19) Countries that experience very high rates of inflation may also have ________.
A) balanced budgets
B) rapidly growing money supplies
C) falling money supplies
D) constant money supplies
Answer: B
Diff: 2 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
20) In the late 1970s, interest rates trended upward in Canada. During this same period, ________.
A) the rate of money growth declined
B) the rate of money growth increased
C) the government budget deficit (expressed as a percentage of GDP) trended downward
D) inflation fell
Answer: B
Diff: 2 Type: MC
Skill: Applied
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
21) The management of money and interest rates is called ________ policy and is conducted by a nation's ________ bank.
A) monetary; superior
B) fiscal; superior
C) fiscal; central
D) monetary; central
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
22) What organization is responsible for the conduct of monetary policy in Canada?
A) Royal Canadian Mint
B) The Department of Finance
C) The Bank of Canada
D) The Superintendent of Financial Institutions
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
23) ________ policy involves decisions about government spending and taxation.
A) Monetary
B) Fiscal
C) Risk Management
D) Systemic
Answer: B
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
24) When tax revenues are greater than government expenditures, the government has a budget ________.
A) crisis
B) deficit
C) surplus
D) revision
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
25) A budget ________ occurs when government expenditures exceed tax revenues for a particular period.
A) deficit
B) surplus
C) surge
D) surfeit
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
26) Budget deficits can be a concern because they might ________.
A) ultimately lead to higher inflation
B) lead to lower interest rates
C) lead to a slower rate of money growth
D) lead to higher bond prices
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
27) What happens to economic growth and unemployment during a business cycle recession? What is the relationship between the money growth rate and a business cycle recession?
Answer: During a recession, output declines and unemployment increases. Prior to every recession in Canada the money growth rate has declined, however, not every decline is followed by a recession.
Diff: 2 Type: ES
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
28) Describe the relationship between the aggregate price level and the growth rate in the money supply. Can this relationship explain inflation?
Answer: The price level and the money supply generally move closely together. There is a positive relationship between inflation and the growth rate of the money supply. Friedman says that "inflation is always and everywhere a monetary phenomenon."
Diff: 2 Type: ES
Skill: Recall
Objective: 1.3 Identify the basic links between monetary policy, the business cycle, and economic variables
1.4 Why Study International Finance?
1) Canadian companies can borrow funds ________.
A) only in Canadian financial markets
B) only in foreign financial markets
C) in both Canadian and foreign financial markets
D) only from the Canadian government
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.4 Explain the importance of exchange rates in a global economy
2) The price of one country's currency in terms of another country's currency is called the ________.
A) foreign exchange rate
B) interest rate
C) TSE index
D) inflation rate
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.4 Explain the importance of exchange rates in a global economy
3) The foreign exchange rate is ________.
A) determined by the banks
B) not important to most Canadians
C) the relative price of two currencies
D) the ratio of the foreign aggregate price level to the domestic aggregate price level
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 1.4 Explain the importance of exchange rates in a global economy
4) The market where one currency is converted into another currency is called the ________ market.
A) security
B) bond
C) derivatives
D) foreign exchange
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.4 Explain the importance of exchange rates in a global economy
5) Everything else constant, a stronger Canadian dollar will mean that ________.
A) vacationing in England becomes more expensive
B) vacationing in England becomes less expensive
C) French cheese becomes more expensive in the eyes of Canadians
D) Japanese cars become more expensive in the eyes of Canadians
Answer: B
Diff: 2 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
6) Which of the following is most likely to result from a stronger Canadian dollar?
A) Canadian goods exported aboard will cost less in foreign countries, and so foreigners will buy more of them.
B) Canadian goods exported aboard will cost more in foreign countries and so foreigners will buy more of them.
C) Canadian goods exported abroad will cost more in foreign countries, and so foreigners will buy fewer of them.
D) Canadians will purchase fewer foreign goods.
Answer: C
Diff: 2 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
7) Everything else held constant, a weaker Canadian dollar will likely hurt ________.
A) textile exporters in Quebec
B) wheat farmers in Saskatchewan that sell domestically
C) automobile manufacturers in Ontario that use domestically produced inputs
D) furniture importers in British Columbia
Answer: D
Diff: 2 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
8) Everything else held constant, Canadians who love French wine benefit most from ________.
A) a decrease in the dollar price of euros
B) an increase in the dollar price of euros
C) a constant dollar price for euros
D) a ban on imports from Europe
Answer: A
Diff: 2 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
9) Everything else held constant, a stronger Canadian dollar benefits ________ and hurts ________.
A) Canadian businesses; Canadian consumers
B) Canadian businesses; foreign businesses
C) Canadian consumers; Canadian businesses
D) foreign businesses; Canadian consumers
Answer: C
Diff: 2 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
10) From 2002 to 2008, the Canadian dollar ________ in value.
A) appreciated by approximately 25% against the US dollar
B) appreciated by approximately 50% against the US dollar
C) depreciated by approximately 50% against the US dollar
D) depreciated by approximately 25% against the US dollar
Answer: B
Diff: 1 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
11) When in 1985 a British pound cost approximately C$1.30, a Shetland sweater that cost 100 British pounds would have cost C$130. With a weaker Canadian dollar, the same Shetland sweater would have cost ________.
A) less than $130
B) more than $130
C) $130, since the exchange rate does not affect the prices that Canadian consumers pay for foreign goods
D) $130, since the demand for Shetland sweaters will decrease to prevent an increase in price due to the stronger dollar
Answer: B
Diff: 2 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
12) Everything else held constant, a decrease in the value of the Canadian dollar relative to all foreign currencies means that the price of foreign goods purchased by Canadians ________.
A) increases
B) decreases
C) remains unchanged
D) increases initially but then decreases
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.4 Explain the importance of exchange rates in a global economy
13) Canadian farmers who sell beef to Europe benefit most from ________.
A) a decrease in the Canadian dollar price of euros
B) an increase in the Canadian dollar price of euros
C) a constant Canadian dollar price for euros
D) a European ban on imports of Canadian beef
Answer: B
Diff: 2 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
14) If the Canadian dollar price of a euro increases from $1.00 to $1.10, then, everything else held constant, ________.
A) a European vacation becomes less expensive
B) a European vacation becomes more expensive
C) the cost of a European vacation is not affected
D) foreign travel becomes impossible
Answer: B
Diff: 2 Type: MC
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
15) From 2002—2011, the dollar strengthened in value against other currencies. Who was helped and who was hurt by this strong dollar?
Answer: Canadian consumers benefitted because imports were cheaper, and consumers could purchase more goods from abroad. Canadian businesses and workers were hurt as domestic and foreign sales of Canadian products fell.
Diff: 2 Type: ES
Skill: Applied
Objective: 1.4 Explain the importance of exchange rates in a global economy
1.5 Money, Banking, and Financial Markets and Your Career
1) Students studying money, banking, and financial markets will learn ________.
A) critical thinking skills that will be useful in all careers
B) how to time the market
C) stock market tips
D) nothing of practical value
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.5 Explain how the study of money, banking, and financial markets may advance your career
1.6 How We Will Study Money, Banking, and Financial Markets
1) The basic concepts used in the analytic framework of this text include all of the following EXCEPT ________.
A) the not-for-profit nature of most financial institutions
B) a basic supply and demand analysis to explain the behavior of financial markets
C) an approach to financial structure based on transaction costs and asymmetric information
D) the concept of equilibrium
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 1.6 Describe how the text approaches the teaching of money, banking, and financial markets
2) Using a unified analytic framework to present the information in the text keeps the knowledge ________.
A) focused on theories that have little to do with actual behaviour
B) theoretical and uninteresting
C) abstract and not applicable to real life
D) from becoming obsolete
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 1.6 Describe how the text approaches the teaching of money, banking, and financial markets