ECON 3110 Final Exam Review
The Bank of England has two primary responsibilities, which are _______ and _______. A. monetary stability; financial stability B. employment stability; monetary stability C. economic growth; employment stability D. economic growth; financial stability
A. monetary stability; financial stability
If the European Central Bank is pursuing a contractionary monetary policy, it will A. raise the minimum reserve requirement B. lower the interest rate paid by its deposit facility C. use quantitative easing D. lower the minimum reserve requirement
A. raise the minimum reserve requirement
Which of the following is true of issuers with a lower bond rating? A. the bonds will have a higher interest rate B. there will typically be repayment guarantees C. the bonds will have a lower interest rate D. they will offer purchase incentives
A. the bonds will have a higher interest rate
Three things fully describe the aspects of a bond. They are A. the face value, the coupon rate, and the term to maturity B. the face value, the term to maturity, and the bond price C. the coupon rate, the term of maturity, and the issuer of the bond D. the face value, the coupon rate, and the bond price
A. the face value, the coupon rate, and the term to maturity
Tori has a home mortgage where the lender is providing 100% of the purchase price of the house. What is this type of loan called, and what is the risk from the perspective of the bank? A. this is a zero-down mortgage, and it has a significantly higher risk of default B. this is a zero-down mortgage, and it will take longer to recoup the investment C. this is a negative amortization mortgage, and there is no significant risk to the bank D. this is no documentation mortgage, and it has a significantly higher risk of default
A. this is a zero-down mortgage, and it has a significantly higher risk of default
T/F For a social justice class, you take a field trip to a prison, where you notice prisoners exchanging cigarettes for other items. In this circumstances, cigarettes could be considered money.
True
A flight to quality is most likely to have which of these effects? A. it will be more difficult for individual borrowers to borrow, but ease borrowing for businesses B. it will be easier for both individuals and businesses that want to sell high-risk bonds C. it will decrease the default risk premium that higher risk borrowers have to pay and may bring about economic growth D. it will increase the default risk premium that higher risk borrowers will pay and may cause some businesses to cut costs
D. it will increase the default risk premium that higher risk borrowers will pay and may cause some businesses to cut costs
A yield curve illustrates the relationship between the A. default risk associated with bonds of a given maturity and the interest rate they pay, at a particular point of time B. rate of inflation and the real rate of return on bonds C. marginal tax rate and the after-tax interest rate of return on taxable bonds D. term to maturity of bonds and the interest rate they pay, at a particular point of time
D. term to maturity of bonds and the interest rate they pay, at a particular point of time
The position of chair of the Federal Reserve is filled in what way? A. the chair of the Fed is elected by a vote of the members of congress B. the chair of the Fed is elected by a congressional committee of economic experts C. the chair of the Fed is appointed by the president of the US and confirmed by the House of Representatives and the Senate D. the chair of the Fed is appointed by the president of the United States and confirmed by the US Senate
D. the chair of the Fed is appointed by the president of the United States and confirmed by the US Senate
What is the face value of a bond, also known as the bond principal? A. the rate of interest to be paid to the holder of the bond B. the original amount of money borrowed by the bondholder plus the first year's interest C. the final amount of money collected by the bondholder D. the original amount of money borrowed by the bond issuer
D. the original amount of money borrowed by the bond issuer
Travis buys a 20-year, $10,000 US Treasury Bond with a coupon rate of 5%. After three years, he has some unexpected expenses and decides to sell the bond. In which market will Travis sell his bond? A. the primary bond market B. the Treasury bond market C. the T-bond market D. the secondary market
D. the secondary market
When the Federal Reserve was created in 1913, what were its two primary purposes? A. to regulate the financial sector of the US economy and maintain the gold standard B. to print money (real bills) and lend only to banks committed to investment in "real" economic activity C. to regulate the financial sector and be a "lender of last resort" to commercial banks D. to maintain the gold standard and be a "lender of last resort" to commercial banks
D. to maintain the gold standard and be a "lender of last resort" to commercial banks
In which of the following situations did the three-part aggregate supply model not perform well? A. explaining the Great Depression B. managing the economy during World War II C. understanding the post-World War II economic boom D. understanding the stagflation of the late 1960s and early 1970s
D. understanding stagflation of the late 1960s and early 1970s
You own a local US company. in the past year, you successfully expanded your sales market into Europe, and you now have profits and cash denominated in euros. You want to convert the euros to dollars to repatriate the profits and pay taxes. Which of the following is true? A. you are not required to convert the euros to the home currency to pay taxes B. you are a demander of the euro in the foreign exchange market C. you are a supplier of your home country's currency in the foreign exchange market D. you are a demander of dollars in the foreign exchange market
D. you are a demander of dollars in the foreign exchange market
T/F A 6%, $20,000. 30-year bond will produce for the owner a series of 60 semi-annual payments of $600 from the issuer of the bond and a one-time payment of $19,400.
False
T/F A corporate bond offering an interest rate of 5% is as good a deal as a municipal bond offering the same interest rate
False
T/F An increase in the price of bonds will cause a decrease in the demand for bonds
False
T/F For an asset to function as commodity money, it must be easily divisible, easily standardized, easy to carry around, physically attractive, and broadly demanded
False
T/F If the market interest rate exceeds the coupon rate on a bond, the selling price of the bond will be greater than the bond's face value.
False
T/F If there is more change in consumption than a change in disposable income, MPC will decrease
False
T/F In the early 1980s, Paul Volcher used an easy monetary policy to bring inflation under control
False
T/F Lenders benefit from inflation in the short run
False
T/F The Federal Reserve is a part of the US Department of the Interior
False
Today, the typical amount of cash needed for a down payment for a conventional home mortgage is what percentage of the purchase price? A. 10% B. 15% C. 20% D. 25%
C. 20%
T/F The higher a person's rate of time preference, the lower the interest rate needed to get them to defer their consumption to the future
False
Assets accepted for repayment of debt to the government as well as private transactions are known as A. dollarization B. legal tender C. money aggregate D. fiat money
B. legal tender
Sherry says that she requires a 3% rate of interest in order to lend you some money. This implies that for Sherry the present value of $100 to be received one year from today is A. $97.09 B. $97 C. $100.03 D. $103
A. $97.09
Following World War II, inflation became so bad that Germans stopped using Reichsmarks for transactions, and instead used cigarettes for small transactions and cognac for large transactions. Which of the following best describes this situation? A. Cigarettes and cognac functioned as money in Germany in this period following World War II B. Reichsmarks were plentiful and valuable, but Germans preferred to barter C. Germans wanted to disassociate themselves from the Third Reitch D. Cigarettes and cognac were more plentiful than Reichsmarks, so Germans found them more convenient to use for transactions than Reichsmarks
A. Cigarettes and cognac functioned as money in Germany in this period following World War II
If the public's confidence in the banking system is shaken, it may cause A. a run on banks B. moral hazard C. adverse selection D. an increase in banking regulation
A. a run on banks
Which of these was a lesson that economists learned from the battle with stagflation in the late 1970s and early 1980s? A. the money supply matters and has a very real impact on economic activity B. unemployment rates and inflation rates move in opposite directions C. high inflation rates are more devasting to a society than high unemployment rates D. interest rates are more important than the money supply at a national level
A. the money supply matters and has a very real impact on economic activity
Originally, Keynes conceived of the aggregate supply curve as consisting of two distinct segments. In this conception, below the full-employment level of output the aggregate supply curve is __________, and once the economy reaches the full-employment level of output it becomes __________. A. upward sloping; vertical B. horizontal; vertical C. upward sloping; horizontal D. downward sloping; vertical
B. horizontal; vertical
One emergency lending procedure put into place in 2008 was the creation of the Term Securities Lending Facility. This entity was set up to A. lend up to $50 billion of Treasury securities to primary securities dealers for a fee B. lend up to $200 billion of Treasury securities to primary securities dealers for a fee C. lend funding to the Money Market Investor Funding Facility D. lend funding to any commercial bank that needed it
B. lend up to $200 billion of Treasury securities to primary securities dealer for a fee
Sarah is considering the purchase of a 15-year, $20,000 bond being issued by Disreputable, Inc. The bond offers an interest rate of 6.5%. The rate on a similar US Treasury bond is 2.5%. All else equal, what will Sarah's default premium be if she purchases the Disreputable, Inc, bond? A. 3.0% B. 2.5% C. 4.0% D. 5.5%
C 4.0%
Eight times a year, the Bank of Canada announces the key policy rates for the nation. These key rates refer to what? A. rate of inflation B. rate of growth of the money supply C. overnight interest rate D. rate of economic growth
C. overnight interest rate
A financially healthy bank borrowing overnight from the Federal Reserve is known as A. seasonal credit B. secondary credit C. primary credit D. discount window borrowing
C. primary credit
In the country of Trivia, it is widely believed that the marginal propensity to consume is 0.75. This means that a onetime increase in spending of $50 billion will result in an increase in GDP equal to A. $50 billion B. $66.67 billion C. $100 billion D. $200 billion
D. $200 billion
Your good friend Megan is starting a new business and you decide to invest with $40,000. If you get back $5,000, what is your rate of return? A. 50% B. 10% C. 20% D. 8%
D. 8%
The term monetary aggregate refers to things like A. the consumer price index B. interest rates C. the price of money D. M1 and M2
D. M1 and M2
Which of the following statements most accurately describes the measurements of the money supply known as M1 and M2? A. M1 was a measure of the money supply that worked until about the 1990s; then M2 became a more accurate measure and is still in use today B. M1 was a measure of the money supply that worked well until the Great Depression, M2was used until the 1990s, and M3 is considered accurate today C. Neither M1 nor M2 worked very well after the 1970s D. M1 was a measure of the money supply that worked well until the mid-1970s; then M2 became a more accurate measure until the 1990s
D. M1 was a measure of the money supply that worked well until the mid-1970s; then M2 became a more accurate measure until the 1990s
T/F Liquidity is a term that refers to the ease with which one asset can be converted into another
True
When a newly issued bond sells above its face value, it is said to sell A. below par value B. at par value C. at a discount D. at a premium
D. at a premium
Which of these is currently true for the chair of the Federal Reserve? A. the chair position is a term of just two years and is nonrenewable B. the chair position requires a background in economics or finance; the four-year term in renewable C. the chair position requires a background in banking or finance; the two-year term is nonrenewable D. the chair position has no formal qualifications; the four-year term is renewable
D. the chair position has no form qualifications; the four-year term is renewable
T/F One of the Federal Reserve's most used tools of monetary policy is the buying and selling of US government securities in the secondary market.
True
T/F A significant fault of the bond rating system is the free-rider problem
True
T/F Financial assets include intangibles that can change in value, such as stocks and bonds
True
T/F Real Business Cycle models, or RBCs, assume there is one perfectly rational household that represents all households, and one firm that represents all firms. Thus, these models are also referred to as representative agent models
True
T/F The Consumer Financial Protection Bureau (CFPB), launched in 2011, is housed under the Federal Reserve
True
T/F The expansion of the "junk bond" market in the 1980s was one factor that allowed for the rapid increase in the number of leveraged buyouts
True
T/F The market for bonds is a subset of the market for loanable funds
True
T/F Times of financial uncertainty tend to cause an increase in the overall demand of money
True
T/F When resource markets are efficient, recessionary gaps close by themselves without any government intervention.
True
T/F When the actual level of output is less than the potential level of output, there is an output gap, sometimes called a recessionary gap
True
What is the best description of the relationship between the price of bonds and the quality of bonds supplied, all else equal? A. Direct B. Inverse C. Negative D. Exponential
A. Direct
Rosa goes to the grocery store to buy groceries, and at the checkout counter she pays cash. This is an example of money being used as A. a medium of exchange B. barter C. a store of value D. a unit of account
A. a medium of exchange
Which of the following statements is not true of cryptocurrency? A. cryptocurrency is only centralized by two banks worldwide B. cryptocurrency uses codes to keep information secret C. cryptocurrencies are decentralized, without any government oversight D. cryptocurrencies are a medium of exchange, just as other forms of money
A. cryptocurrency is only centralized by two banks worldwide
An example of asymmetric information in financial markets is that, in equity markets, directors _______ than shareholders A. have a better sense of future profitability B. have a different rate of time preference C. are less optimistic about the future D. are less certain about the future
A. have a better sense of future profitability
Often as part of a mortgage payment, banks will allow borrowers to "escrow" funds to pay for A. homeowners' insurance and property taxes B. home maintenance and homeowners' insurance C. electricity and heating expenses D. home repairs and property taxes
A. homeowners' insurance and property taxes
When there is too much money chasing too few goods, the likely impact is A. inflation B. stagflation C. unemployment D. deflation
A. inflation
According to Keynes, when the price level rises, it causes the interest rate to do what? It causes the level of business spending to do what? A. it causes an increase in the interest rate, due to a greater consumer demand for money to spend; business spending decreases B. it causes an increase in the interest rate, due to greater consumer demand for money to spend; business spending goes up as well C. it causes a decrease in the interest rate, as people adjust to higher prices and purchase less; business spending decreases as well D. it causes a decrease in the interest rate, as people adjust to higher prices and purchase less; business spending goes up
A. it causes an increase in the interest rate, due to a greater consumer depend for money to spend; business spending decreases
In the period following World War II, the US Treasury was in charge of monetary policy and instructed the Federal Reserve to A. keep interest rates low in order to keep spending high B. keep interest rates high in order to keep saving high C. keep the money supply stable to keep prices stable D. let the money supply grow in order to stimulate employment for returning veterans
A. keep interest rates low in order to keep spending high
An inverted yield curve occurs when A. long-term interest rates are higher than short-term interest rates B. long-term interest rates are the same as short-term interest rates C. long-term interest rates are lower than short-term interest rates D. short-term interest rates are lower than mid-term interest rates, which are higher than long-term interest rates
A. long-term interest rates are higher than short-term interest rates
Which of these most accurately defines possible effects of fluctuating interest rates in the financial markets? A. inflation B. prices and level of employment C. the rate of saving D. risk levels
B. prices and level of employment
If gold and silver became the primary types of commodity money in circulation, what would most likely be expected if there was a sudden and great amount of hoarding of these two items? A. people would start to print and use various forms of currency B. bartering would simply replace gold and silver C. there would likely not be enough money, and the economy could slide into an economic recession D. there would be too much money of other types, and the economy could endure rapid inflation
C. there would likely not be enough money, and the economy could slide into an economic recession
Three rounds of extraordinary expansionary monetary policy (QE1, QE2, and QE3) were undertaken by the Fed beginning in November 2008 and ending when? A. November 2009 B. 2011 C. 2014 D. 2017
B. 2011
If GDP is $20 trillion and the money supply is $4 trillion, what is the velocity of money? A. 2 B. 5 C. 16 D. 80
B. 5
A corporate bond has an 8% interest rate. The saver faces a marginal tax rate of 28%. What is the equivalent tax-free rate? A. 4.97% B. 5.76% C. 6.50% D. 7.07%
B. 5.76%
Edward would be equally happy with receiving $95 today or $100 one year from today. Edward's friend Bella would be just as happy receiving $90 today or $100 one year from today. Based on this information, which of the following best describes the difference between Edward and Bella? A. Edward has a higher rate of time preference than Bella B. Bella has a higher rate of time preference than Edward C. Edward is in more urgent need for money today D. Bella is more easygoing about her finances
B. Bella has a higher rate of time preference than Edward
Following the Great Depression, the power of the Fed shifted to the A. New York Federal Reserve Bank B. Federal Open Market Committee C. board of governors of the Federal Reserve D. secretary of the treasury
B. Federal Open Market Committee
Which of the following events brought an end to the gold standard? A. Industrial Revolution, as the value of gold in Europe has decreased as there was more hold than currency B. World War I, as borrowing needs of European governments increased greatly and there was not enough gold to fully back up all of the currency governments created C. 1926 general strike, as the value of gold in Europe has decreased as there was more gold than currency D. World War II, as borrowing needs of European governments increased greatly and there was not enough gold to fully back up all of the currency governments created
B. World War I, as borrowing needs of European governments increased greatly and there was not enough gold to fully back up all of the currency governments created
The Chairman of the Federal Reserve, Paul Volcker, decided that dealing with stagflation would require A. a dramatic increase in the money supply B. a shift in focus by the Federal Reserve from targeting interest rates to targeting the rate of growth of the money supply C. an expansionary monetary policy that would lower unemployment rates D. the Federal Reserve to continue to focus on interest rates and conduct monetary policy to bring interest rates down
B. a shift in focus by the Federal Reserve from targeting interest rates to targeting the rate of growth of the money supply
Which of these would cause a decrease in aggregate demand? A. a decrease in imports B. an increase in imports C. an increase in net exports D. an increase in exports
B. an increase in imports
Stagflation in the US economy was worsened by A. the resignation of President Nixon in 1974 B. an oil embargo instituted by the Organization of Petroleum Exporting Countries (OPEC) in 1973 C. the unilateral cancellation of the convertibility of the US dollar to gold by President Nixon in 1971 D. the US pullout from Vietnam in 1973
B. an oil embargo instituted by the OPEC in 1973
Which of these describes an example of asymmetric information in the bond market? A. bond issuers have longer-term goals than bond buyers B. bond issuers have better insight about their future profitability than bond buyers C. bond issuers and bond buyers have different experiences in the bond market D. bond issuers are most conservative about the future than bond buyer
B. bond issuers have better insight about their future profitability than bond buyer
In a barter economy, the number of prices necessary will A. depend on the number of people in the economy B. depend on the number of goods exchanged in the economy C. be too many to be counted D. be fewer than the number of prices in an economy with money
B. depend on the number of goods exchanged in the economy
Low nominal interest rates can indicate A. an economy suffering from deflation B. either a sufficient money supply or an economy suffering from deflation C. a sign of sufficient liquidity in the financial system D. an economy in hard times but poised to move into better times
B. either a sufficient money supply or an economy suffering from deflation
A big advantage to the borrower of a 15-year mortgage loan compared to a 30-year mortgage loan is that A. the monthly payments will be less over the life of the loan B. far less interest will be paid over the life of the loan C. it ay be obtained with a smaller down payment D. the borrower will be eligible for an ARM
B. far less interest will be paid over the life of the loan
The entity responsible for making the monetary policy decisions in the European Central Bank is the A. president of the ECB B. governing council C. general council D. executive board
B. governing council
ABC Manufacturing Corporation has an AA bond rating according to Standard & Poor. This means that ABC's bonds are rated A. spectacular B. high quality C. low quality D. medium quality
B. high quality
Stagflation is the term used for an economy experiencing a combination of A. high unemployment and no inflation or deflation B. high unemployment and rising rates of inflation C. low unemployment but rising rates of inflation D. neither inflation nor deflation
B. high unemployment and rising rates of inflation
The anchor currency in the Bretton Woods System was the US dollar. What did this mean? A. the dollar was convertible into any other currency at varying rates, but within a fixed range B. the dollar was fully convertible into gold at a fixed price, while other currencies in the system had a stable exchange rate with the dollar C. the dollar was fully convertible into gold at a fixed price, but other currencies in the system had variable exchange rates with the dollar D. the dollar was convertible into gold but at varying rates, depending on the state of the US economy
B. the dollar was fully convertible into gold fixed price, while other currencies in the system had a stable exchange rate with the dollar
A major advantage that municipal bonds have over corporate bonds for investors is that A. municipal bonds have a lower default risk B. the income earned on municipal bonds is not subject to federal income tax C. corporate bonds are not as readily available as municipal bonds D. municipal bonds have a shorter term to maturity
B. the income earned on municipal bonds is not subject to federal income tax
The board of governors of the Federal Reserve has three primary responsibilities, which are A. oversight of the printing of money, commercial bank regulations, and the operations of the Fed B. the operations of the Fed, commercial bank regulations, and monetary policy C. monetary policy, fiscal policy, and the operations of the Fed D. maintenance of the gold standard, the operations of the Fed, and monetary policy
B. the operations of the Fed, commercial bank regulations, and monetary policy
The three theories that economists have developed to explain the shape of the yield curve are A. the term premium theory, the pure expectations theory, and the default premium theory B. the pure expectations theory, the term premium theory, and the segmented market theory C. the segmented market theory, the default premium theory, and the inflationary expectations theory D. the pure expectations theory, the inflationary expectation theory, and the term premium theory
B. the pure expectations theory, the term premium theory, and the segmented market theory
When not responding to global financial meltdowns, the main goal of the monetary policy of the Bank of Japan is A. to ensure employment stability B. to pursue price stability C. to pursue economic growth D. to eliminate debt to other nations
B. to pursue price stability
How did John Keynes explain the Great Depression, and what did he suggest? A. Keynes explained that a market-clearing equilibrium would happen eventually; he suggested providing financial help to those who needed it and then waiting for the market to self-correct B. Keynes came up with a theory stressing many supply and demand curves within the economy C. Keynes explained that a market-clearing equilibrium only happens on its own in the long-run; additional action was needed to get the economy out of the Depression D. Keynes explained the Depression as a loss of faith or optimism among businessmen; he suggested economic encouragement for businessmen to end the Great Depression
C. Keynes explained that a market-clearing equilibrium only happens on its own in the long-run; additional action was needed to get the economy out of the Depression
Which of these open market operations in the European Central Bank is most central to overall monetary policy and carried out weekly? A. Longer-term refinancing B. Structural liquidity-reducing C. Main refinancing D. Structural liquidity-providing
C. Main refinancing
Jordan recently purchased a 20-year bond from the US Treasury with a face value of $10,000. Jordan has purchased a A. Treasury note B. municipal bond C. Treasury bond D. government agency bond
C. Treasury bond
In 1968, Congress passed a key piece of legislation to protect consumers called the ________ Act A. Fair Credit Reporting B. Fair Credit Billing C. Truth in Lending D. Trust in Savings
C. Truth in Lending
The Federal Reserve notices an increase in the public's desire to hold cash and fears that it may cause an increase in interest rates. To keep interest rates steady, the Federal Reserve would likely execute which of these plans? A. a repurchase agreement to provide a short-term reduction in the money supply B. a reverse repurchase agreement to provide a short-term reduction in the money supply C. a repurchase agreement to provide a short-term boost to the money supply D. a matched-sale purchase agreement to provide a short-term boost to the money supply
C. a repurchase agreement to provide a short-term boost to the money supply
The rational expectations approach postulates what two aggregate supply curves? A. an upward-sloping short-run aggregate supply curve and a horizontal long-run supply curve at the maximum price level B. an upward-sloping short-run aggregate supply curve and a vertical long-run supply curve at zero unemployment rate level of GDP C. an upward-sloping short-run aggregate supply curve and a vertical long-run supply curve at the full-employment level of GDP D. a vertical short-run aggregate supply curve at the full-employment level of GDP and an upward-sloping long-run supply curve
C. an upward-sloping short-run aggregate supply curve and a vertical long-run supply curve at the full-employment level of GDP
Which of the following qualifies as a liability to a bank? A. a business loan B. a mortgage C. demand deposit D. a Treasury bond
C. demand deposit
Which of the following qualifies as a liability to a bank? A. a business loan B. a mortgage C. demand deposits D. a Treasury bond
C. demand deposits
An inverted yield curve likely means the A. economy is expanding rapidly B. economy is experiencing increasing inflationary pressure C. economy is headed for recession D. Federal Reserve is conducting expansionary policy
C. economy is headed for recession
In the early 20th century, the business scene in America was transformed by the formation of trusts. Business trusts are ________ integrated ownership structures. A. vertically B. diagonally C. horizontally D. backwards
C. horizontal
Which of these groups of people is most hurt by inflation? A. borrowers and the wealthy B. the very wealthy C. lenders and working class people D. working class people
C. lenders and working class people
The principal of a school hires Daniel to teach 8th grade students. One goal the principal has is to prepare the students to do well on standardized tests, as he will be judged based on the results of those tests. Daniel prefers to teach in a more creative way, so the students learn a lot, but perform poorly on their standardized tests. This is an example of what problem? A. adverse selection B. free riding C. moral hazard D. adverse hazard
C. moral hazard
Which of these is the most often used and the most flexible monetary tool used by the Federal Reserve? A. discount window lending B. dynamic transactions C. open market operations D. quantitative easing
C. open market operations
The Keynesian aggregate supply model does not take into account what aspect of human behavior that is factored into later assumptions? A. people adapt to what happens after it happens B. people sometimes make irrational choices C. people anticipate the future and plan for it D. people are largely unpredictable in their preference for saving versus spending
C. people anticipate the future and plan for it
Imagine that Roland goes to his bank and deposits $10,000 in cash into his savings account. The bank, wanting to use those funds to generate revenue for itself, will look to make a loan with this cash. An important determinant of how much of that $10,000 the bank can lend is the A. interest rate the bank is paying Roland on this deposit balance B. bank's net worth C. required reserve ratio D. interest rate the bank will charge on the loan that it makes
C. required reserve ratio
You read a review written by a well-respected financial analyst who says that the steep yield curve we currently see suggests that borrowers require a relatively higher premium to hold longer-term bonds now, compared to short-term bonds. This analyst is most likely a proponent of which theory of interest rates? A. segmented market B. pure expectations C. term premium D. default risk
C. term premium
The three reasons that the economy-wide price level and the level of real GDP move in opposite directions are A. the Pigou effect, the foreign trade effect, and the real savings effect B. the foreign trade effect, Keynes's interest rate effect, and the price effect C. the Pigou effect, Keynes's interest rate effect, and the foreign trade effect D. the foreign trade effect, the government intervention effect, and the real savings effect
C. the Pigou effect, Keynes's interest rate effect, and the foreign trade effect
What problem may occur if an economy has too few banks or none at all? A. the economy will support nearly the same standard of living as banks B. the economy will be subject to periods of high unemployment alternating with periods of high employment but very high inflation C. the economy will be underdeveloped, with a possible increase in unemployment and business failures D. the economy may "overhear" and inflation may become a problem
C. the economy will be underdeveloped, with a possible increase in unemployment and business failures
The concept of purchasing power parity refers to A. the decrease in the market value of a currency relative to another currency B. consumers' preferences for imports over exports or goods produced at home C. the exchange rate between currencies that equalizes the purchasing power of each currency by eliminating the differences in price levels in each economy D. the exchange rate between currencies that equalizes the purchasing power of each currency by increasing the differences in price level in each economy
C. the exchange rate between currencies that equalizes the purchasing power of each currency by eliminating the differences in price levels in each economy
The quantity of loanable funds supplied is directly related to interest rates because as interest rates increase A. in the US, savers in the rest of the world will be more inclined to save in their domestic market, thereby bringing less of their saving to the US pool of loanable funds B. the opportunity cost to firms of funding projects with cash increases, causing firms to being less of their cash to the pool of loanable funds C. the opportunity cost of household consumption increases, causing households to being more of their after-tax income to the pool of loanable funds D. the opportunity cost of government borrowing increases, causing government to run budget surpluses instead of deficits and therefore bring more cash to the pool of loanable funds
C. the opportunity cost of household consumption increases, causing households to bring more of their after-tax income to the pool of loanable funds
What do we refer to when we talk about Becca's time preference? A. the amount of time that Becca spends on financial transactions B. the value of her time C. the rate at which Becca prefers to consumer today as opposed to consuming in the future D. the rate of interest she is willing to pay for a loan
C. the rate at which Becca prefers to consume todya as opposed to consuming in the future
Which of these is the best description of a no documentation home mortgage? A. a loan made without verifying a borrower's character references or credit rating B. a loan made without documentation of a borrower's citizenship status or employment C. a loan made without documentation of a borrower's employment D. a loan made without verifying the income or assets of the borrower
D. a loan made without verifying the income or assets of the borrowers
A one-time deposit in a bank will result in A. no expansion in the money supply B. an expansion in the money supply that is smaller than the size of the one-time deposit C. an expansion in the money supply that is equal in size to the one-time deposit D. an expansion in the money supply that is larger than the size of the one-time deposit
D. an expansion in the money supply that is larger than the size of the one-time deposit
Which of these best describes how bond-rating agencies affect the interest rate that bonds must provide to attract borrowers? A. bond rating agencies in the past provided an initial evaluation of bonds; today, evaluations are daily and more reliable B. bond rating agencies today provide significant warning for any changes in risk related to bond-issuing companies C. bond rating agencies historically provide initial evaluation only of bonds; subsequent changes in performance must be noted by borrowers D. bond rating agencies historically provide initial and ongoing evaluations of bonds to alert borrowers to their risk level
D. bond rating agencies historically provide initial and ongoing evaluations of bonds to alert borrowers to their risk level
Unlike older bonds, which were printed on paper with mail-in coupons used to trigger interest payments, bonds today are mostly recorded in a different way. Which statement best describes how bond details are recorded for most bonds today? A. bonds are recorded electronically, but coupons are still used to collect interest B. bonds are recorded electronically and on paper C. bonds are recorded on paper, which both parties keep, and electronically D. bonds are recorded electronically
D. bonds are recorded electronically
Which of these is an example of asymmetric information in banking? A. borrowers and lenders have different expectations about financial markets B. lenders know more about the capacity of borrowers to repay loans than borrowers C. borrowers' goals are short-term while lenders' goals are long-term D. borrowers know more about their capacity to repay loans than lenders
D. borrowers know more about their capacity to repay loans than lenders
When an economy sees higher real, risk-adjusted interest rates, it will most likely experience a(n) ________ in demand for its currency in the foreign exchange market, and the value of its currency will ________ A. decrease; depreciate B. decrease; appreciate C. increase; depreciate D. increase; appreciate
D. increase; appreciate
The advantage of municipal bonds over corporate bonds increases as the federal marginal tax rate A. is eliminated B. remains unchanged C. decreases D. increases
D. increases
The disadvantage to the borrower of an adjustable-rate mortgage is that A. a much larger down payment is usually required B. the borrower is only partly in control of how much the monthly payments might change C. the borrower is expected to pay discount points at the closing D. interest rates and monthly payments can rise, sometimes by a great deal
D. interest rates and monthly payments can rise, sometimes by a great deal
What is the best description of the relationship between the price of bonds and the quantity of bonds demanded, all else equal? A. linear B. positive C. direct D. inverse
D. inverse