ECON Final Exam
Stagflation in the US economy was worsened by
an oil embargo instituted by the Organization of Petroleum Exporting Countries (OPEC) in 1973.
When a newly issued bond sells above its face value, it is said to sell
at a premium
Sherry says that she requires a 3% interest rate in order to lend you some money. This implies that for Sherry the present value of $100 to be received from today is
$97.09
Three rounds of extraordinary expansionary monetary policy (QE1, QE2, and QE3) were undertaken by the Fed beginning in November 2008 and ending when?
2011
Sarah is considering the purchase of a 15-year, $20,000 bond being issued by Disreptutable, 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 bond?
4.0%
Your friend Meghan is starting a new business and use item best with $40,000. If you get back $5000, what is your rate of return?
8%
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 medium of exchange
The Federal Reserve notices an increase in the publics desire to hold cash and fears that it may cause an increase in interest rates. The keep interest rates steady, the Federal Reserve would likely execute which of these plans?
A repurchase agreement to provide a short-term boost to the money supply.
Fluctuating interest rates
A rise in interest rates could be because of a rise in inflation driven by an increase in spending and prices.
If the price level turns out to be lower than expected, it would result in a movement from
A to B
Which of the following would cause a shift in the aggregate demand curve from AD1 to AD2?
An increase in federal government spending on drones
Edward would be equally happy receiving $95 today and $100 one year from today. Edward's friend Bella would be just as happy receiving $90 today and $100 one year from today. Based in this information, which of the following best describes the difference between Edward and Bella?
Bella has a higher rate of time preference than Edward.
Which of these describes an example of asymmetric information in the bond market?
Bond issuers have better insight about their future profitability than bond buyers.
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 described how bond details are recorded for most bonds today?
Bonds are recorded electronically
Which of these is an example of asymmetric information in banking?
Borrowers know more about their capacity to repay loans than lenders.
Following World War II inflation became so bad that German stopped using Reichsmarks for transactions instead used cigarettes for small transactions and cognac for large transactions. Which of the following best describes this situation?
Cigarettes and cognac function as money in Germany in this. Following World War II.
Three parts of a bond
Coupon rate, maturity rate, face value (par)
Which of the following statements is not true of cryptocurrency?
Cryptocurrency is only centralized by two banks worldwide
Which of the following qualifies as a liability to a bank?
Demand deposits
What is the best description of the relationship between the price of bonds and the quantity of bonds demanded, all else equal?
Direct
What is the best description of the relationship between the price of bonds and the quantity of bonds supplied, all else equal?
Direct
An inverted yield curve likely means that
Economy is headed for a recession
Low normal interest rates can indicate
Either is sufficient money supply or an economic suffering from deflation
An increase in the price of bonds will cause a decrease in the demand for bonds
False
For an asset to function as a commodity of money, it must be easily divisible, easily standardized, easy to carry around, physically attractive, and broadly demanded.
False
If the market interest rate exceeds the coupon rate, the selling price of the bond will be greater than the bond's face value.
False
Lenders benefit from inflation in the short run
False
The federal reserve is part of the US Department of the Interior
False
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
lAt 6%, $20,000, 30-year bond wil 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
Following the great depression, the power of the Fed shifted to the
Federal Open Market Committee
Stagflation is the term used for an economy experiencing a combination of
High unemployment and rising rates of inflation
Originally, Keynes conceived of the aggregate supply curve as consisting of two distinct segments. In his 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 _________.
Horizontal, vertical
Which of these would cause a decrease in aggregate demand?
Increase in imports
Which of the following will cause a shift in aggregate demand from AD2 to AD1?
Increase in interest rates
In the period following World War II the US treasury was in charge of monetary policy instruction the federal reserves to
Keep interest rates low in order to keep spending high
How did John Maynard Keynes explain the Great Depression, and what did he suggest?
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 groups of people is most hurt by inflation?
Lenders and working class people
The term monetary aggregates refers to things like
M1 and M2
Which one of the following statements most accurately describes the measurements of the money supply known as M1 and M2?
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.
An increase in quality supplies is best illustrated by a movement
On the line
Which of these is the most often and the most flexible monetary tool used by the Federal Reserve?
Open market operations
The quality of loanable funds supplied is directly related to rates because as interest rate increase
Opportunity cost of household consumption increases causing households to bring more of their after-tax income to the pool of loanable funds.
Eight times a year, the Bank of Canada announces the key policy rates for the nation. These key rates refer to what?
Overnight interest rate
The Keynesian aggregate supply model does not take into account what aspect of human behavior that is factored into later assumptions?
People anticipate the future and plan for it.
If gold and silver became the primary types of commodity in circulation, what would most likely be expected if there was a sudden ad great amount of hoarding of these two items?
There would likely not be enough money, and the economy would slide into an economic recession.
When the federal reserve was created in 1913, what were its two primary purposes?
To maintain the gold standard and be a "lender of last resort" to commercial banks.
For a social justice class, you take a field trip to a prison where you notice prisoners exchanging cigarettes for other items, such as a candy bar, a magazine, a soft drink, and so on. In this circumstance cigarettes could be considered money.
True
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
The market for bonds is a subset of the market for loanable funds
True
When resource markets are efficient, recessionary gaps close themselves without any government tinervention.
True
An inverted yield curve means
a pending recession
The chairman of the federal reserve, paul volcker, decided that dealing with stagflation would require
a shift in focus by the federal reserve from targeting interest rates to targeting the rate of growth of the money supply.
Low nominal interest rates means
a sufficient money supply or inflation
In a barter economy, the number of prices necessary will
depend on the number of goods exchanged in the economy.
A corporate bond offering an interest rate of 5% is a good deal as a municipal bond offering the same interest rate
false
If there is more change in consumption than a change in disposable income, MPC will decrease
false
In the early 1980s, Paul Volcker used an easy monetary policy to bring inflation under control
false
The CFPB is housed in the
federal reserve
The entity responsible for making the monetary policy decisions in the European Central Bank is the
governing council
In the early 20th century the business in America was transformed by the formation of trusts. Business trusts are _______ integrated ownership structures
horizontally
When there is too much money chasing too few goods, the likely impact is
inflation
Interest rates and price have an _________ relationship
inverse
Assets accepted for repayment of debt to the government as well as private transactions are known as
legal tender
One emergency lending procedure put into place in 2008 was the creation of the Term Securities Lending Facility. The entity was set up to
lend up to $200. billion of Treasury securities to primary securities dealers for a fee.
A yield curve is the relationships between
maturity and interest rates
The Bank of England has two primary responsibilities, which are ______ and _______.
monetary stability; financial stability
The principal of a school hires daniel to teach eighth-grade students...
moral hazard
A change in supply or demand is a change
of the line
A change in price is a change
on the line
A change in quantity supplied or demanded is a change
on the line
A financially healthy bank borrowing overnight from the Federal Reserve is known as
primary credit
If the European Central Bank is pursuing a contractionary monetary policy, it will
raise the minimum reserve requirement
The three things fully describe the aspects of a bond. They are
the face value, coupon rate, and term to maturity.
A major advantage that municipal bonds have over corporate bonds for investors is that
the income earned on municipal bonds is not subject to federal income tax.
The default risk premium is represented by the difference between
the two dots on the y axis
When not responding to global financial meltdowns, the main goal of the monetary policy of the bank of japan is
to pursue price stability
A significant fault of the bond rating system is the free-rider problem
true
Financial assets include intangibles that can change in value, such as stocks and bonds
true
Liquidity is a term that refers to the ease with which one asset can be converted into another
true
One of the federal reserves most used tools of monetary policy is the buying and selling of US government securities in the secondary market.
true
Real Business Cycle models, or RBCs, assume there is one perfect 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
The consumer financial protection bureau (CFPB), launched in 2011, is housed under the federal reserve
true
Times of financial uncertainty tend to cause an increase in the overall demand for money
true
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
Your friend Jacob is looking at a steep your curves and makes an attempt to understand the implications using segmented market theory. He says more information will be needed to make economic predictions, as this type of yield curve could be either good or bad news. Are his comments about this yield curve, using segmented market theory true or false?
true
What is the face value of a bond, also known as the bond principal?
The original amount of money borrowed by the bond issuer.
What do we refer to when we talk about Becca's time preference?
The rate at which Becca prefers to consume as opposed to consuming in the future.
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?
The secondary market
Are used curve illustrates the relationship between
The term to maturity of pounds and the interest rate they pay out of particular point in time
Which of these statements best explains the Great Depression according to Karl Marx?
The use of machines to do work was replacing human labor...
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
$200 billion
You read a review read by a well respected financial analyst that the steep yield curve we currently see suggests that borrowers require a relatively high 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?
Term premium
What problem may occur if an economy has too few banks or none at all?
The economy will be underdeveloped, with a possible increase in unemployment and business failures
Which of these was a lesson that economists learned from the battle with stagflation in the lat 1970s and early 1980s?
The money supply matters and has a very real impact on economic activity.
Which of these most accurately difference possible effects of fluctuating straight in the financial markets?
Prices and levels of employment
Real interest rate equation
Real interest rates= inflation + nominal interest rates
In 1968, Congress passed a key piece of legislation to protect consumers called the _____
Truth in lending act