1. The financial system

a) involves bank accounts, mortgages, stock prices, and many other items.

b) involves decisions and actions undertaken by people at a point in time that affect their lives in the future.

c) coordinates the economy’s saving and investment.

d) All of the above are correct.

2. The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

a) credit risk

b) interest risk

c) term risk

d) private risk

3. When a large, well-known corporation wishes to borrow directly from the public, it can

a) sell bonds

b) sell shares of stock

c) go to a bank for a loan

d) All of the above are correct

4. Which of the following bonds has the highest interest rate?

a) a high credit risk and a short term

b) a low credit risk and a short term

c) a long term and a high credit risk

d) a long term and a low credit risk

5. The natural rate of unemployment

a) varies less than the measured unemployment rate

b) cannot be changed by government policy

c) is closely associated with the ups and downs in economic activity

d) is set by the Federal Reserve