FIN 301 QUIZ 1
Class: D ____  Name:___________________  Student I.D.:________________________ 
A Multiple Choice (60%)
(  ) 1. The gross domestic product is
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.
(  ) 2. Which of the following items are not counted in U.S. GDP ?
A) your purchase of a new Ford Mustang
B) your purchase of new tires for your old car
C) GM's purchase of tires for new cars
D) a foreign consumer's purchase of a new Ford Mustang
(  ) 3. The measure of the aggregate price level that is most frequently reported in the media is 
A) GDP deflator
B) producer price index
C) consumer price index
D) personal consumption expenditure deflator
(  ) 4. Financial markets have the basic function of
A) getting people with funds to lend together with people who want to borrow funds.
thriftB) 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.
(  ) 5. The primary liabilities of a commercial bank are
A) bonds.
B) mortgages.
C) deposits.
D) commercial paper.
(  ) 6. Increasing the amount of information available to investors helps to reduce the problems of the financial markets.
A) adverse selection; moral hazard
B) adverse selection; risk sharing
C) moral hazard; transactions costs
D) adverse selection; economies of scale
(  ) 7. The purpose of the disclosure requirements of the Securities and Exchange Commission is
A) increase the information available to investors.
B) prevent bank panics.
C) improve monetary control.
D) protect investors against financial losses.
(  ) 8. The regulatory agency that sets reserve requirements for all banks is
A) the Federal Reserve System.
B) the Federal Deposit Insurance Corporation.
C) the Office of Thrift Supervision.
D) the Securities and Exchange Commission.
(  ) 9. 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.
(  ) 10. When we say that money is a stock variable, we mean that
A) the quantity of money is measured at a given point in time.
B) we must attach a time period to the measure.
C) it is sold in the equity market.
D) money never loses purchasing power.
(  ) 11. If an individual moves money from currency to a demand deposit account,
A) M1 decreases and M2 stays the same.
B) M1 stays the same and M2 increases.
C) M1 stays the same and M2 stays the same.
D) M1 increases and M2 stays the same.
(  ) 12. Which of the following are true of fixed payment loans?
A) The borrower repays both the principal and interest at the maturity date.
B) Installment loans and mortgages are frequently of the fixed payment type.
C) The borrower pays interest periodically and the principal at the maturity date.
D) Commercial loans to businesses are often of this type.
(  ) 13. The interest rate that equates the present value of payments received from a debt instrument with its value today is the
A) simple interest rate.
B) current yield.
C) yield to maturity.
D) real interest rate.
(  ) 14. In which of the following situations would you prefer to be the lender?
A) The interest rate is 9 percent and the expected inflation rate is 7 percent.
B) The interest rate is 4 percent and the expected inflation rate is 1 percent.
C) The interest rate is 13 percent and the expected inflation rate is 15 percent.
D) The interest rate is 25 percent and the expected inflation rate is 50 percent.
(  ) 15. If the interest rates on all bonds rise from 5 to 6 percent over the course of the year, which bond would you prefer to have been holding?
A) A bond with one year to maturity
B) A bond with five years to maturity
C) A bond with ten years to maturity
D) A bond with twenty years to maturity
(  ) 16. An equal increase in all bond interest rates
A) increases the return to all bond maturities by an equal amount.

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