econ317 test 1

Which of the following will cause the money demand curve to shift to the right?

c. an increase in the price level

If the annual interest rate is 9%, what would you expect to pay for a bond paying a lump sum of $10,000 in two years?

$8,417

Which of the following is NOT a key financial service provided by the financial system?

. profitability

What is the price of a coupon bond that has annual coupon payments of $75, a par value of $1,000, a yield to maturity of 5%, and a maturity of two years?

1,046.49

Suppose First National Bank makes a one-year simple loan of $1,000 at 7% interest to Harry's Restaurant. At the end of one year Harry's Restaurant will pay First National

1,070

If you deposit $10,000 in a savings account at an annual interest rate of 6%, how much will you have in the account at the end of three years?

11,910

If the real interest rate is 2% and expected inflation is 2%, the nominal interest rate is

4%.

According to the quantity theory of money, if the long-run economic growth rate is 2.5%, by how much should the Fed increase the money supply if it wants inflation to be 2%?

4.5%

A one-year discount bond with a par value of $1,000 sold today, at issuance, for $943 has a yield to maturity of

6.04%.

Suppose nominal GDP is $14 trillion and the money supply is $2 trillion. What is the velocity of money?

7

Suppose Matt's New Cars issues a bond in which they'll need to pay $10,000 in one year, which includes 4% interest. How much will they receive for the bond?

9,615

Which of the following is included in M1, but not in M2?

Everything in M1 is in M2.

Which of the following is NOT a financial asset?

Wells Fargo Bank

The supply curve for bonds would be shifted to the left by

a decrease in government borrowing.

A one-year discount bond with a face value of $1,000 has an interest rate of 4%. What is its price?

a. $961.54

What is the rate of return on a bond with a coupon of $55 that was purchased for $900 and sold one year later for $950?

a. 11.67%

When nominal interest rates on financial assets are high, the opportunity cost of holding money is ________, so the quantity of money demanded by households and firms will be ________.

a. high; low

Barter is

an exchange of goods and services directly for goods and services

As wealth increases in the economy, we would expect to observe

b. bond prices rise and interest rates fall.

Higher expected inflation ________ the supply of bonds and ________ the demand for bonds.

b. increases; reduces

An increase in the corporate profits tax is likely to cause

b. the equilibrium interest rate to fall and the equilibrium price of bonds to rise.

If there is an excess supply of bonds at a given price of bonds, then

b. the interest rate will rise.

In the bond market, the buyer is considered to be

b. the lender.

Suppose there's an 80% chance of a stock rising by 20% and a 20% chance of it falling by 40%. What is the expected rate of return on the stock?

c. 8%

Suppose Matt's New Cars issues and sells a one-year discount bond for $9,259 and repays $10,000 at maturity. The interest rate on this bond would be

c. 8%.

Which of the following statements about the rate of return is NOT correct?

c. The total rate of return may never be negative.

The supply curve for bonds would decline due to

c. an increase in expected inflation.

If the Fed increases the money supply and as a result, households and firms buy more short-term financial assets, the prices of those short-term financial assets will ________ and the interest rates on those assets will ________.

c. rise; fall

Suppose there's an 80% chance of a stock rising by 20% and a 20% chance of it falling by 40%. Which type of investor would prefer an investment with a guaranteed return of 5%?

c. risk averse investor

As a result of higher expected inflation

c. the demand curve for bonds shifts to the left, the supply curve for bonds shifts to the right, and the equilibrium interest rate usually rises.

During a period of economic expansion, when expected profitability is high

c. the supply curve of bonds shifts to the right.

The role of the financial system is to

channel funds from households and other savers to businesses.

Suppose a coupon bond with a par value of $1,000 is currently priced at $950 and has a coupon of $40. Which of the following is TRUE?

current yield > coupon rate

Which best describes the relationship between the cost of acquiring information and return?

d. A high return must compensate for a high cost of acquiring information.

If expected inflation declines by 2%, what should happen to nominal interest rates according to the Fisher effect?

d. fall by 2%

Though Treasury bonds may have little default risk, what type of risk exists when current interest rates are low?

d. interest-rate risk

A rise in expected inflation will result in all of the following EXCEPT

d. lower nominal interest rates.

When expected inflation increases, investors ________ their demand for bonds because, for each nominal interest rate, the higher the inflation rate, the ________ the real interest rate investors will receive.

d. reduce; lower

Risk that is common to all assets of a certain type is referred to as

d. systematic risk.

Liquidity

is the ease with which an asset can be exchanged for money.

If you buy a bond issued by Intel, the bond is a(n)

liability to Intel and an asset to you.

Money is a medium of exchange in that

money is generally accepted for buying and selling goods and services.

According to the equation of exchange, the money supply times the velocity of money equals the

nominal GDP.

Money market deposit accounts are included in

only M2.

Which of the following is NOT included in M1?

savings account deposits

Financial securities that represent partial ownership of a corporation are known as

stocks.

Which function of money enhances the ability of households to accumulate wealth?

store of value

borrower and a lender agree on a mortgage interest rate. If inflation turns out to be less than expected

the actual real interest rate will exceed the expected real interest rat

Economists define risk as

the chance that the value of financial assets will change from what you expect