ECO 360 HW 1 Notes Essay

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ECO 360 HW1
DUE: 2/12/14 at the beginning of class

Directions: There are 50 multiple choice questions, each worth 2 points (100 points total). PLEASE RECORD ALL ANSWERS ON THE ANSWER SHEET (LAST PAGE). Failure to record answers on the answer page will result in the deduction of 5 points.

1) Well-functioning financial markets promote
A) inflation.
B) deflation.
C) unemployment.
D) growth.

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) Markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds are called
A) commodity markets.
B) fund-available markets.
C) derivative exchange markets.
D) financial markets.

4) Poorly performing financial markets can be the cause of
A) wealth.
B) poverty.
C) financial stability.
D) financial expansion.

5) The bond markets are important because they are
A) easily the most widely followed financial markets in the United States.
B) the markets where foreign exchange rates are determined.
C) the markets where interest rates are determined.
D) the markets where all borrowers get their funds.

6) 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.

7) Financial markets have the basic function of
A) getting people with funds to lend together with people who want to borrow funds.
B) assuring that the swings in the business cycle are less pronounced.
C) assuring that governments need never resort to printing money.
D) providing a risk-free repository of spending power.

8) Well-functioning financial markets
A) cause inflation.
B) eliminate the need for indirect finance.
C) cause financial crises.
D) produce an efficient allocation of capital.

9) Assume that you borrow $2000 at 10% annual interest to finance a new business project. For this loan to be profitable, the minimum amount this project must generate in annual earnings is
A) $400.
B) $201.
C) $200.
D) $199.

10) You can borrow $5000 to finance a new business venture. This new venture will generate annual earnings of $251. The maximum interest rate that you would pay on the borrowed funds and still increase your income is
A) 25%.
B) 12.5%.
C) 10%.
D) 5%.

11) Which of the following can be described as involving direct finance?
A) A corporation issues new shares of stock.
B) People buy shares in a mutual fund.
C) A pension fund manager buys a short-term corporate security in the secondary market.
D) An insurance company buys shares of common stock in the over-the-counter markets.

12) Which of the following can be described as involving direct finance?
A) A corporation takes out loans from a bank.
B) People buy shares in a mutual fund.
C) A corporation buys a short-term corporate security in a secondary market.
D) People buy shares of common stock in the primary markets.

13) Which of the following can be described as involving indirect finance?
A) You make a loan to your neighbor.
B) A corporation buys a share of common stock issued by another corporation in the primary market.
C) You buy a U.S. Treasury bill from the U.S. Treasury.
D) You make a deposit at a bank.

14) Securities are ________ for the person who buys them, but are ________ for the individual or firm that issues them.
A) assets; liabilities
B) liabilities; assets
C) negotiable; nonnegotiable
D) nonnegotiable; negotiable

15) Of money's three functions, the one that distinguishes money from other assets is its function as a
A) store of value.
B) unit of account.
C) standard of deferred payment.
D) medium of exchange.

16) If peanuts serve as a medium