Chapter 5, 14,15,16 (Mid-Term), Money and Banking CH 5, Econ Chapter 5 part 2, econ206 chapter 5, Econ 2035 Ch5.1, 2035 Chapter 5, Money and Banking Ch 5, Chapter 3 FINC 3700, Chapter 4, Econ 2035 Ch4.3, Money & Banking HW #2, Econ 3229 quiz 4, Money...

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You decide to purchase a new home and need a $80 comma 000 mortgage. You take out a loan from the bank that has an interest rate of 5%. What is the yearly payment to the bank to pay off the loan in 10 years? FP =

$10,360.37

Small-denomination time deposits refer to certificates of deposit with a denomination of less than

$100,000.

If the interest rate is 15%, what is the present value of a security that pays you $1,125 next year, $1,210 the year after, and $1,350 the year after that

$2,780.84 PV= 1125/(1.15) + 1210/(1.15)^2 + 1350/(1.15)^3

If the amount payable in two years is $2420 for a simple loan at 10 percent interest, the loan amount is

$2000

Find the price of a 7.50% coupon bond with a face value of $4000, a 12.00% yield to maturity, and 5 years to maturity. PV = Price of the bond =

$3,351.14

A consol paying $20 annually when the interest rate is 5 percent has a price of

$400

________ in the money supply creates excess ________ money, causing interest rates to ________, everything else held constant.

*A) A decrease; demand for; rise* B) An increase; demand for; fall C) An increase; supply of; rise D) A decrease; supply of; fall

In the liquidity preference framework, a one-time increase in the money supply results in a price level effect. The maximum impact of the price level effect on interest rates occurs

*A) at the moment the price level hits its peak (stops rising) because both the price level and expected inflation effects are at work.* B) immediately after the price level begins to rise, because both the price level and expected inflation effects are at work. C) at the moment the expected inflation rate hits its peak. D) at the moment the inflation rate hits it peak.

A lower level of income causes the demand for money to ________ and the interest rate to ________, everything else held constant.

*A) decrease; decrease* B) decrease; increase C) increase; decrease D) increase; increase

In the market for money, an interest rate below equilibrium results in an excess ________ money and the interest rate will ________.

*A) demand for; rise* B) demand for; fall C) supply of; fall D) supply of; rise

When the price level falls, the ________ curve for nominal money ________, and interest rates ________, everything else held constant

*A) demand; decreases; fall* B) demand; increases; rise C) supply; increases; rise D) supply; decreases; fall

When the price level falls, the ________ curve for nominal money ________, and interest rates ________, everything else held constant.

*A) demand; decreases; fall* B) demand; increases; rise C) supply; increases; rise D) supply; decreases; fall

When stock prices become more volatile, the ________ curve for gold shifts right and gold prices ________, everything else held constant.

*A) demand; increase* B) demand; decrease C) supply; increase D) supply; decrease

Holding many risky assets and thus reducing the overall risk an investor faces is called

*A) diversification.* B) foolishness. C) risk acceptance. D) capitalization

A return to the gold standard, that is, using gold for money will ________ the ________ for gold, ________ its price, everything else held constant.

*A) increase; demand; increasing* B) decrease; demand; decreasing C) increase; supply; increasing D) decrease; supply; increasing

An increase in the expected inflation rate will ________ the ________ for gold, ________ its price, everything else held constant.

*A) increase; demand; increasing* B) decrease; demand; decreasing C) increase; supply; increasing D) decrease; supply; increasing

A business cycle expansion increases income, causing money demand to ________ and interest rates to ________, everything else held constant.

*A) increase; increase* B) increase; decrease C) decrease; decrease D) decrease; increase

The ________ the returns on two securities move together, the ________ benefit there is from diversification.

*A) less; more* B) less; less C) more; more D) more; greater

32) The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that the

*A) Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation.* B) liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to changes in expected inflation. C) liquidity effect is dominated by the Fisher effect and interest rates adjust quickly to changes in expected inflation. D) Fisher effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.

The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that the

29) In the figure above, illustrates the effect of an increased rate of money supply growth at time period 0. From the figure, one can conclude that the

*A) liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.* B) liquidity effect is larger than the expected inflation effect and interest rates adjust quickly to changes in expected inflation. C) liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation. D) liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.

Of the four effects on interest rates from an increase in the money supply, the one that works in the opposite direction of the other three is the

*A) liquidity effect.* B) income effect. C) price level effect. D) expected inflation effect.

Milton Friedman called the response of lower interest rates resulting from an increase in the money supply the ________ effect.

*A) liquidity* B) price level C) expected-inflation D) income

The price of gold should be ________ to the expected inflation rate.

*A) positively related* B) negatively related C) inversely related D) unrelated

If there is an excess demand for money, individuals ________ bonds, causing interest rates to ________.

*A) sell; rise* B) sell; fall C) buy; rise D) buy; fall

The risk of a well-diversified portfolio depends only on the ________ risk of the assets in the portfolio.

*A) systematic* B) nonsystematic C) portfolio D) investment

When the growth rate of the money supply increases, interest rates end up being permanently lower if

*A) the liquidity effect is larger than the other effects.* B) there is fast adjustment of expected inflation. C) there is slow adjustment of expected inflation. D) the expected inflation effect is larger than the liquidity effect.

33) The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that the

A) liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation. B) liquidity effect is larger than the expected inflation effect and interest rates adjust quickly to changes in expected inflation. C) liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation. *D) liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.*

Increasing transactions costs of selling an asset make the asset

A) more valuable. B) more liquid. C) less liquid. D) more money-like.

In contrast to the CAPM, the APT assumes that there can be several sources of ________ that cannot be eliminated through diversification.

A) nonsystematic risk *B) systematic risk* C) credit risk D) arbitrary risk

11) The concept of ________ is based on the notion that a dollar paid to you in the future is less valuable to you than a dollar today. A) present value B) future value C) interest D) deflation

A) present value

In the loanable funds framework, the ________ is measured on the vertical axis.

A) price of bonds *B) interest rate* C) quantity of bonds D) quantity of loanable funds

In Keynes's liquidity preference framework, individuals are assumed to hold their wealth in two forms:

A) real assets and financial assets. B) stocks and bonds. *C) money and bonds.* D) money and gold.

When the Fed decreases the money stock, the money supply curve shifts to the ________ and the interest rate ________, everything else held constant.

A) right; rises B) right; falls C) left; falls *D) left; rises*

In the Keynesian liquidity preference framework, an increase in the interest rate causes the demand curve for money to ________, everything else held constant

A) shift right B) shift left *C) stay where it is* D) invert

4) A credit market instrument that pays the owner the face value of the security at the maturity date and nothing prior to then is called a A) simple loan. B) fixed-payment loan. C) coupon bond. D) discount bond.

A) simple loan.

When gold prices become more volatile, the ________ curve for gold shifts to the ________; ________ the price of gold.

A) supply; right; increasing B) supply; left; increasing C) demand; right; decreasing *D) demand; left; decreasing*

The riskiness of an asset that is unique to the particular asset is

A) systematic risk. B) portfolio risk. C) investment risk. *D) nonsystematic risk.*

In Keynes's liquidity preference framework,

A) the demand for bonds must equal the supply of money. B) the demand for money must equal the supply of bonds. C) an excess demand of bonds implies an excess demand for money. *D) an excess supply of bonds implies an excess demand for money.*

39) The yield to maturity for a one-year discount bond equals A) the increase in price over the year, divided by the initial price. B) the increase in price over the year, divided by the face value. C) the increase in price over the year, divided by the interest rate. D) none of the above.

A) the increase in price over the year, divided by the initial price.

The opportunity cost of holding money is

A) the level of income. B) the price level. *C) the interest rate.* D) the discount rate.

The riskiness of an asset is measured by

A) the magnitude of its return. B) the absolute value of any change in the asset's price. *C) the standard deviation of its return.* D) risk is impossible to measure.

If the Fed wants to permanently lower interest rates, then it should raise the rate of money growth if

A) there is fast adjustment of expected inflation. B) there is slow adjustment of expected inflation. C) the liquidity effect is smaller than the expected inflation effect. *D) the liquidity effect is larger than the other effects.*

Store of Value

An asset that keeps its value overtime

Open Question Your favorite uncle advises you to purchase long-term bonds because their interest rate is 10%. Should you follow his advice?

Answer: It depends on where you think interest rates are headed in the future. If you think interest rates will be going up, you should not follow your uncles advice because you would then have to discount your bond if you needed to sell it before the maturity date. Long-term bonds have a greater interest-rate risk.

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

Answer: A

Interest-rate risk is the riskiness of an assets returns due to A) interest-rate changes. B) changes in the coupon rate. C) default of the borrower. D) changes in the assets maturity.

Answer: A

The sum of the current yield and the rate of capital gain is called the A) rate of return. B) discount yield. C) pertuity yield. D) par value.

Answer: A

There is ________ for any bond whose time to maturity matches the holding period. A) no interest-rate risk B) a large interest-rate risk C) rate-of-return risk D) yield-to-maturity risk

Answer: A

Which of the following are generally true of bonds? A) The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period. B) A rise in interest rates is associated with a fall in bond prices, resulting in capital gains on bonds whose terms to maturity are longer than the holding periods. C) The longer a bonds maturity, the smaller is the size of the price change associated with an interest rate change. D) Prices and returns for short-term bonds are more volatile than those for longer-term bonds.

Answer: A

Which of the following are true concerning the distinction between interest rates and returns? A) The rate of return on a bond will not necessarily equal the interest rate on that bond. B) The return can be expressed as the difference between the current yield and the rate of capital gains. C) The rate of return will be greater than the interest rate when the price of the bond falls between time t and time t + 1. D) The return can be expressed as the sum of the discount yield and the rate of capital gains.

Answer: A

What is a coupon bond? Describe its basic properties.

Answer: A coupon bonds pays the owner a fixed interest payment every year until the maturity date when a specified amount called the face value is repaid. A coupon bond is identified by three pieces of information: a. the corporation or government agency that issues the bond, b. the maturity date of the bond, and c. the bond's coupon rate, the dollar amount of the yearly coupon payment expressed as a percentage of the face value of the bond.

An equal decrease in all bond interest rates A) increases the price of a five-year bond more than the price of a ten-year bond. B) increases the price of a ten-year bond more than the price of a five-year bond. C) decreases the price of a five-year bond more than the price of a ten-year bond. D) decreases the price of a ten-year bond more than the price of a five-year bond.

Answer: B

Prices and returns for ________ bonds are more volatile than those for ________ bonds, everything else held constant. A) long-term; long-term B) long-term; short-term C) short-term; long-term D) short-term; short-term

Answer: B

Which of the following are generally true of all bonds? A) The longer a bonds maturity, the greater is the rate of return that occurs as a result of the increase in the interest rate. B) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. C) Prices and returns for short-term bonds are more volatile than those for longer term bonds. D) A fall in interest rates results in capital losses for bonds whose terms to maturity are longer than the holding period.

Answer: B

Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year, what is the yearly return on the bond you are holding? A) 5 percent B) 10 percent C) 15 percent D) 20 percent

Answer: C

The ________ is defined as the payments to the owner plus the change in a securitys value expressed as a fraction of the securitys purchase price. A) yield to maturity B) current yield C) rate of return D) yield rate

Answer: C

The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $950 next year is A) -10 percent. B) -5 percent. C) 0 percent. D) 5 percent.

Answer: C

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 next year? A) 5 percent B) 10 percent C) -5 percent D) -10 percent

Answer: C

An equal increase in all bond interest rates A) increases the return to all bond maturities by an equal amount. B) decreases the return to all bond maturities by an equal amount. C) has no effect on the returns to bonds. D) decreases long-term bond returns more than short-term bond returns.

Answer: D

The riskiness of an assets returns due to changes in interest rates is A) exchange-rate risk. B) price risk. C) asset risk. D) interest-rate risk.

Answer: D

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year? A) 5 percent B) 10 percent C) -5 percent D) 25 percent

Answer: D

Would it make sense to buy a house when mortgage rates are 14 percent and expected inflation is 15 percent? Explain your answer.

Answer: Even though the nominal rate for the mortgage appears high, the real cost of borrowing the funds is -1 percent. Yes, under this circumstance it would be reasonable to make this purchase.

10) Interest-rate risk is the uncertainty that an investor faces because the interest rate at which a bond's future coupon payments can be invested is unknown.

Answer: FALSE

14) Bonds with a maturity that is longer than the holding period have no interest-rate risk.

Answer: FALSE

15) A bond with a 5% coupon has a yield to maturity of 5%.

Answer: FALSE

16) The real interest rate is actually the ex ante real interest rate because it is adjusted for actual changes in the price level.

Answer: FALSE

2) Discounting the future is the procedure used to find the future value of a dollar received today.

Answer: FALSE

3) The current yield is the best measure of an investor's return from holding a bond.

Answer: FALSE

4) Unless a bond defaults, an investor cannot lose money investing in bonds.

Answer: FALSE

7) A long-term bond's price is less affected by interest rate movements than a short-term bond's price.

Answer: FALSE

9) All else being equal, the greater the interest rate the greater the duration is.

Answer: FALSE

Your favourite uncle advises you to purchase long-term bonds because their interest rate is 10 percent. Should you follow his advice?

Answer: It depends on where you think interest rates are headed in the future. If you think interest rates will be going up, you should not follow your uncle's advice because you would then have to discount your bond if you needed to sell it before the maturity date. Long-term bonds have a greater interest-rate risk.

1) A bond's current market value is equal to the present value of the coupon payments plus the present value of the face amount.

Answer: TRUE

11) The real interest rate is equal to the nominal rate minus inflation.

Answer: TRUE

12) The current yield goes up as the price of a bond falls.

Answer: TRUE

13) Changes in interest rates make investments in long-term bonds risky.

Answer: TRUE

17) When the real interest rate is low, there are greater incentives to borrow and fewer incentives to lend.

Answer: TRUE

19) An indexed bond is a bond whose interest and/or principal payments are adjusted for changes in the price level.

Answer: TRUE

5) The current yield is the yearly coupon payment divided by the current market price.

Answer: TRUE

6) Prices for long-term bonds are more volatile than for shorter-term bonds.

Answer: TRUE

8) Increasing duration implies that interest-rate risk has increased.

Answer: TRUE

Explain the Fisher equation. Construct a numerical example demonstrating that, depending on the expected rate of inflation, a lower nominal rate may still reflect a higher real cost of borrowing. Explain your example thoroughly.

Answer: The answer should list the equation that the nominal rate equals the real rate plus the expected rate of inflation, or an equivalent variant. The terms should be clearly defined. The example should have a higher real rate for the lower nominal rate due to relatively lower expected inflation. The example and the resultant impact on real borrowing costs should be thoroughly explained.

How is current yield defined? How can it be used to determine yield to maturity for long-term bonds?

Answer: The current yield is the is the yield to maturity of a perpetuity or consol. It is given by the formula: ic = , where C is the yearly payment and P is the price of the perpetuity. When a coupon bond has a long term to maturity, it is very much like a perpetuity. The current yield will be very close to the yield to maturity for a long term bond and is used as an approximation to describe interest rates on long term bonds.

A friend tells you that he can purchase a 10 percent coupon bond at face value. Your friend states that 10 percent is a "high" rate of interest. You know that the current rate of inflation is 8 percent, and you expect inflation to increase. What advice should you give to your friend about this bond?

Answer: The high nominal rate is reduced to a much lower real rate due to inflation. Interest-rate risk should be a concern. An increase in expected inflation will increase nominal rates due to the Fisher effect. This will result in a capital loss, and the higher nominal rate reduces the real value of the 10 percent coupon rate.

Explain why the current bond prices and interest rates are negatively related.

Answer: There are two ways to show why current bond prices and interest rates are negatively related: a. From the bond price formula: we can see that as the interest rate (yield to maturity) rises, all denominators in the bond price formula must necessarily rise. Hence, a rise in the interest rates as measured by the yield to maturity means that the price of the bond must fall. b. An increase in the interest rate means that all the future coupon payments and final payment will be worth less when discounted to the present, thus, the price of the bond must fall.

Which of the following are generally true of bonds?

A bond's return equals the yield to maturity when the time to maturity is the same as the holding period.

) Financing government spending with taxes 26) A) causes reserves to rise, but the monetary base to decline. B) has no net effect on the monetary base. C) causes both reserves and the monetary base to rise. D) causes both reserves and the monetary base to decline.

10) Which of the following are true for discount bonds? A) A discount bond is bought at par. B) The purchaser receives the face value of the bond at the maturity date. C) U.S. Treasury bonds and notes are examples of discount bonds. D) The purchaser receives the par value at maturity plus any capital gains.

11) For a commodity to function effectively as money it must be A) hard to carry around. B) easily standardized, making it easy to ascertain its value. C) deteriorate quickly so that its supply does not become too large. D) difficult to make change.

12) Assuming the same coupon rate and maturity length, when the interest rate on a Treasury Inflation Protected Security is 3 percent, and the yield on a nonindexed Treasury bond is 8 percent, the expected rate of inflation is A) 3 percent. B) 5 percent. C) 8 percent. D) 11 percent.

13) If a security pays $110 next year and $121 the year after that, what is its yield to maturity if it sells for $200? A) 9 percent B) 10 percent C) 11 percent D) 12 percent

15) If brokerage commissions on bond sales decrease, then, other things equal, the demand for bonds will ________ and the demand for real estate will ________. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

16) Paper currency that has been declared legal tender but is not convertible into coins or precious metals is called ________ money. A) electronic B) fiat C) commodity D) funny

16) In the figure above, the decrease in the interest rate from i1 to i2 can be explained by A) a decrease in money growth. B) a decline in the expected price level. C) an increase in income. D) an increase in the expected price level.

16) The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value. A) greater; coupon; above B) greater; coupon; below C) greater; perpetuity; above D) less; perpetuity; below

18) In the figure above, the decrease in the interest rate from i1 to i2 can be explained by A) a decrease in money growth. B) an increase in money growth. C) a decline in the expected price level. D) an increase in income.

2) Comparing a discount bond and a coupon bond with the same maturity, A) the coupon bond has the greater effective maturity. B) the discount bond has the greater effective maturity. C) the effective maturity cannot be calculated for a coupon bond. D) the effective maturity cannot be calculated for a discount bond.

21) The demand for gold increases, other things equal, when A) the market for silver becomes more liquid. B) interest rates are expected to rise. C) interest rates are expected to fall. D) real estate prices are expected to increase.

23) Holding everything else constant A) if asset A's risk rises relative to that of alternative assets, the demand will increase for asset A. B) the more liquid is asset A, relative to alternative assets, the greater will be the demand for asset A. C) the lower the expected return to asset A relative to alternative assets, the greater will be the demand for asset A. D) if wealth increases, demand for asset A increases and demand for alternative assets decreases.

26) Everything else held constant, during a business cycle expansion, the supply of bonds shifts to the ________ as businesses perceive more profitable investment opportunities, while the demand for bonds shifts to the ________ as a result of the increase in wealth generated by the economic expansion. A) right; left B) right; right C) left; left D) left; right

33) When the government has a surplus, as occurred in the late 1990s, the ________ curve of bonds shifts to the ________, everything else held constant. A) supply; right B) supply; left C) demand; right D) demand; left

34) A decrease in the brokerage commissions in the housing market from 6% to 5% of the sales price will shift the ________ curve for bonds to the ________, everything else held constant. A) demand; right B) demand; left C) supply; right D) supply; left

36) If people expect real estate prices to increase significantly, the ________ curve for bonds will shift to the ________, everything else held constant. A) demand; right B) demand; left C) supply; left D) supply; right

46) In the figure above, a factor that could cause the demand for bonds to decrease (shift to the left) is A) an increase in the expected return on bonds relative to other assets. B) a decrease in the expected return on bonds relative to other assets. C) an increase in wealth. D) a reduction in the riskiness of bonds relative to other assets.

5) All else equal, the ________ the coupon rate on a bond, the ________ the bondʹs duration. A) higher; longer B) higher; shorter C) lower; shorter D) greater; longer

50) In the figure above, the price of bonds would fall from P2 to P1 if A) there is a business cycle recession. B) there is a business cycle expansion. C) inflation is expected to increase in the future. D) inflation is expected to decrease in the future.

6) An equal decrease in all bond interest rates A) increases the price of a five-year bond more than the price of a ten-year bond. B) increases the price of a ten-year bond more than the price of a five-year bond. C) decreases the price of a five-year bond more than the price of a ten-year bond. D) decreases the price of a ten-year bond more than the price of a five-year bond.

6) 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.

7) All of the following are examples of coupon bonds except A) Corporate bonds B) U.S. Treasury bills C) U.S. Treasury notes D) U.S. Treasury bonds

7) An assetʹs interest rate risk ________ as the duration of the asset ________. A) increases; decreases B) decreases; decreases C) decreases; increases D) remains constant; increases

8) A discount bond A) pays the bondholder a fixed amount every period and the face value at maturity. B) pays the bondholder the face value at maturity. C) pays all interest and the face value at maturity. D) pays the face value at maturity plus any capital gain.

8) If housing prices are expected to increase, then, other things equal, the demand for houses will ________ and that of Treasury bills will ________. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

8) ________ are the time and resources spent trying to exchange goods and services. A) Bargaining costs B) Transaction costs C) Barter costs D contracitng costs

9) When compared to exchange systems that rely on money, disadvantages of the barter system include A) encouraging specialization and the division of labor. B) the requirement of a double coincidence of wants. C) lowering the cost of exchange to those who would specialize. D) lowering the cost of exchanging goods over time

9) When the interest rate on a bond is above the equilibrium interest rate, in the bond market there is excess ________ and the interest rate will ________. A) demand; rise B) demand; fall C) supply; fall D) supply; rise

9) Which of the following are generally true of all bonds? A) The longer a bondʹs maturity, the greater is the rate of return that occurs as a result of the increase in the interest rate. B) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. C) Prices and returns for short-term bonds are more volatile than those for longer term bonds. D) A fall in interest rates results in capital losses for bonds whose terms to maturity are longer than the holding period.

A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a A) simple loan. B) fixed-payment loan. C) coupon bond. D) discount bond.

A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a A. simple loan. B. fixed − payment loan. C. coupon bond. D. discount bond.

A decline in the expected inflation rate causes the demand for money to _______ and the demand curve to shift to the ________, everything else held constant. A) decrease; right B) decrease; left C) increase; right D) increase; left

A decline in the expected inflation rate causes the demand for money to ________ and the demand curve to shift to the ________, everything else held constant. A) decrease; right B) decrease; left C) increase; right D) increase; left

A decrease in the brokerage commissions in the housing market from 6% to 5% of the sales price will shift the ________ curve for bonds to the ________, everything else held constant. A) demand; right B) demand; left C) supply; right D) supply; left

A decrease in the brokerage commissions 佣金 in the housing market from 6 percent to 5 percent of the sales price will shift the ___ _____ curve for bonds to the __ _____, everything else held constant. A) demand; right B) demand; left C) supply; right D) supply; left

A discount bond A) pays the bondholder a fixed amount every period and the face value at maturity. B) pays the bondholder the face value at maturity. C) pays all interest and the face value at maturity. D) pays the face value at maturity plus any capital gain.

A discount bond ________. A) pays the bondholder a fixed amount every period and the face value at maturity B) pays the bondholder the face value at maturity C) pays all interest and the face value at maturity D) pays the face value at maturity plus any capital gain

A fully amortized loan is another name for A) a simple loan. B) a fixed-payment loan. C) a commercial loan. D) an unsecured loan.

A higher ________ means that an asset's return is more sensitive to changes in the value of the market portfolio. A) alpha B) beta C) CAPM D) APT

A problem with barter exchange when there are many goods is that in a barter system A) transactions costs are minimized. B) there exists a multiple number of prices for each good. C) there is only one store of value. D) exchange of services is impossible.

All else equal, the ________ the coupon rate on a bond, the ________ the bond's duration. A) higher; longer B) higher; shorter C) lower; shorter D) greater; longer

All of the following are examples of coupon bonds except A) Corporate bonds B) U.S. Treasury bills C) U.S. Treasury notes D) U.S. Treasury bonds

All of the following are examples of coupon bonds except ________. A) Corporate bonds B) Treasury bills C) Zero coupon bonds D) Government bonds

An asset's interest rate risk ________ as the duration of the asset ________. A) increases; decreases B) decreases; decreases C) decreases; increases D) remains constant; increases

An equal decrease in all bond interest rates ________. A) increases the price of a five-year bond more than the price of a ten-year bond B) increases the price of a ten-year bond more than the price of a five-year bond C) decreases the price of a five-year bond more than the price of a ten-year bond D) decreases the price of a ten-year bond more than the price of a five-year bond

An equal increase in all bond interest rates A. has no effect on the returns to bonds. B. decreases long − term bond returns more than short − term bond returns. C. decreases the return to all bond maturities by an equal amount. D. increases the return to all bond maturities by an equal amount.

An important characteristic of the modern payments system has been the rapidly increasing use of A) checks and decreasing use of currency. B) electronic fund transfers. C) commodity monies. D) fiat money.

An increase in the expected inflation rate causes the supply of bonds to ________ and the supply curve to shift to the ________, everything else held constant. A) increase; left B) increase; right C) decrease; left D) decrease; right

An increase in the expected rate of inflation will ________ the expected return on bonds relative to the that on ________ assets, everything else held constant. A) reduce; financial B) reduce; real C) raise; financial D) raise; reaL

An individual's annual salary is her A) money. B) income. C) wealth. D) liabilities.

Assuming the same coupon rate and maturity length, when the interest rate on a Real Return Bond is 3 percent, and the yield on a nonindexed Canada bond is 8 percent, the expected rate of inflation is ________. A) 3 percent B) 5 percent C) 8 percent D) 11 percent

Assuming the same coupon rate and maturity length, when the interest rate on a Treasury Inflation Indexed Security is 3 percent, and the yield on a nonindexed Treasury bond is 8 percent, the expected rate of inflation is A. 3 percent. B. 5 percent. C. 8 percent. D. 11 percent.

Assuming the same coupon rate and maturity length, when the interest rate on a Treasury Inflation Protected Security is 3 percent, and the yield on a nonindexed Treasury bond is 8 percent, the expected rate of inflation is A) 3 percent. B) 5 percent. C) 8 percent. D) 11 percent.

Because it is a unit of account, money A) increases transaction costs. B) reduces the number of prices that need to be calculated. C) does not earn interest. D) discourages specialization.

Compared to an electronic payments system, a payments system based on checks has the major drawback that A) checks are less costly to process. B) checks take longer to process, meaning that it may take several days before the depositor can get her cash. C) fraud may be more difficult to commit when paper receipts are eliminated. D) legal liability is more clearly defined.

Comparing a discount bond and a coupon bond with the same maturity, ________. A) the coupon bond has the greater effective maturity B) the discount bond has the greater effective maturity C) the effective maturity cannot be calculated for a coupon bond D) the effective maturity cannot be calculated for a discount bond

Dealers in T-bills make profits by selling T-bills at a ________ price than they pay for them, thus, the ________ discount yield should be lower than the ________ discount yield. A) higher; bid; asked B) higher; asked; bid C) lower; bid; asked D) lower; asked; bid

Defining money becomes ________ difficult as the pace of financial innovation ________. A) less; quickens B) more; quickens C) more; slows D) more; stops

Deflation causes the demand for bonds to ________, the supply of bonds to ________, and bond prices to ________, everything else held constant. A) increase; increase; increase B) increase; decrease; increase C) decrease; increase; increase D) decrease; decrease; increase

Dennis notices that jackets are on sale for $99. In this case money is functioning as a A) medium of exchange. B) unit of account. C) store of value. D) payments-system ruler.

During hyperinflations, A) the value of money rises rapidly. B) money no longer functions as a good store of value and people may resort to barter transactions on a much larger scale. C) middle-class savers benefit as prices rise. D) money's value remains fixed to the price level; that is, if prices double so does the value of money.

Even economists have no single, precise definition of money because A) money supply statistics are a state secret. B) the "moneyness" or liquidity of an asset is a matter of degree. C) economists find disagreement interesting and refuse to agree for ideological reasons. D) the Federal Reserve does not employ or report different measures of the money supply.

Everything else held constant, an increase in expected inflation, lowers the expected return on _______ compared to _______ assets. A) bonds; financial B) bonds; real C) physical; financial D) physical; real

Everything else held constant, during a business cycle expansion, the supply of bonds shifts to the ____ ___ as businesses perceive more profitable investment opportunities, while the demand for bonds shifts to the _____ as a result of the increase in wealth generated by the economic expansion. A) right; left B) right; right C) left; left D) left; right

If a consol has a price of $500 and an annual interest payment of $25, the interest rate is A) 2.5 percent. B) 5 percent. C) 7.5 percent. D) 10 percent.

If a perpetuity has a price of $500 and an annual interest payment of $25, the interest rate is ________. A) 2.5 percent B) 5 percent C) 7.5 percent D) 10 percent

If a security pays $110 next year and $121 the year after that, what is its yield to maturity if it sells for $200? A) 9 percent B) 10 percent C) 11 percent D) 12 percent

If a security pays $55 in one year and $133 in three years, its present value is $150 if the interest rate is A) 5 percent. B) 10 percent. C) 12.5 percent. D) 15 percent.

If an individual redeems a U.S. savings bond for currency A) M1 stays the same and M2 decreases. B) M1 increases and M2 increases. C) M1 increases and M2 stays the same. D) M1 stays the same and M2 stays the same.

If brokerage commissions on bond sales decrease, then, other things equal, the demand for bonds will ________ and the demand for real estate will ________. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

If brokerage commissions 佣金; 手续费on bond sales decrease, then, other things equal, the demand for bonds will ________ and the demand for real estate 房地产will ________. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

If housing prices are expected to increase, then, other things equal, the demand for houses will _______ and that of Treasury bills will ________. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

If merchants in the country Zed choose to close their doors, preferring to be stuck with rotting merchandise rather than worthless currency, then one can conclude that Zed is experiencing a A) superdeflation. B) hyperinflation. C) hyperdeflation. D) disinflation

If the deficit is financed by selling bonds to the ________, the money supply will ________, causing aggregate demand to ________. A) central bank; fall; decrease B) central bank; rise; increase C) public; rise; increase D) public; fall; decrease

If there are four goods in a barter economy, then one needs to know ________ prices in order to exchange one good for another. A) 8 B) 6 C) 5 D) 4

In Keynes's liquidity preference framework, as the expected return on bonds increases (holding everything else unchanged), the expected return on money _______, causing the demand for ________ to fall. A) falls; bonds B) falls; money C) rises; bonds D) rises; money

In Keynes's liquidity preference framework, as the expected return on bonds increases (holding everything else unchanged), the expected return on money ________, causing the demand for ________ to fall. A) falls; bonds B) falls; money C) rises; bonds D) rises; money

In the Keynesian liquidity preference framework, a rise in the price level causes the demand for money to ________ and the demand curve to shift to the ________, everything else held constant. A) increase; left B) increase; right C) decrease; left D) decrease; right

In the figure above, a factor that could cause the demand for bonds to decrease (shift to the left) is ________. A) an increase in the expected return on bonds relative to other assets B) a decrease in the expected return on bonds relative to other assets C) an increase in wealth D) a reduction in the riskiness of bonds relative to other assets

In the figure above, the decrease in the interest rate from i1 to i2 ( MONEY DEMAND SHIFTS DOWNWARD) can be explained by A) a decrease in money growth. B) a decline in the expected price level. C) an increase in income. D) an increase in the expected price level.

In the figure above, the decrease in the interest rate from i1 to i2 can be explained by ________. A) a decrease in money growth B) a decline in the expected price level C) an increase in income D) an increase in the expected price level

In the figure above, the decrease in the interest rate from i1 to i2 can be explained by ________. A) a decrease in money growth B) an increase in money growth C) a decline in the expected price level D) an increase in income

In the figure above, the price of bonds would fall from P2 to P1 if A) there is a business cycle recession. B) there is a business cycle expansion. C) inflation is expected to increase in the future. D) inflation is expected to decrease in the future

In the figure above, the price of bonds would fall from P2 to P1 if ________. A) there is a business cycle recession B) there is a business cycle expansion demand up supply up C) inflation is expected to increase in the future D) inflation is expected to decrease in the future

In the loanable funds framework, the ________ is measured on the vertical axis. A) price of bonds B) interest rate C) quantity of bonds D) quantity of loanable funds

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.

Keynes hypothesized that the speculative component of money demand was primarily determined by the level of A) income. B) interest rates. C) stock market prices. D) velocity.

Keynes's liquidity preference theory indicates that the demand for money is ________ related to ________. A) negatively; wealth B) negatively; interest rates C) positively; interest rates D) negatively; income

Of the four effects on interest rates from an increase in the money supply, the initial effect is, generally, the A) income effect. B) liquidity effect. C) price level effect. D) expected inflation effect.

Paper currency that has been declared legal tender but is not convertible into coins or precious metals is called ________ money. A) commodity B) fiat C) electronic D) funny

Prices and returns for ________ bonds are more volatile than those for ________ bonds. A) long-term; long-term B) long-term; short-term C) short-term; long-term D) short-term; short-term

Ranking assets from most liquid to least liquid, the correct order is A) savings bonds; house; currency. B) currency; savings bonds; house. C) currency; house; savings bonds. D) house; savings bonds; currency.

The Fisher equation states that ________. A) the real interest rate equals the nominal interest rate plus the expected rate of inflation B) the real interest rate equals the nominal interest rate less the expected rate of inflation C) the nominal interest rate equals the real interest rate less the expected rate of inflation D) the nominal interest rate equals the real interest rate plus the expected rate of inflation

The M1 measure of money includes A) small denomination time deposits. B) traveler's checks. C) money market deposit accounts. D) money market mutual fund shares.

The ________ interest rate more accurately reflects the true cost of borrowing. A) nominal B) real C) discount D) market

The ________ is calculated by multiplying the coupon rate times the par value of the bond. A. face value B. coupon payment C. present value D. maturity payment

The average number of times that a dollar is spent in buying the total amount of final goods and services produced during a given time period is known as 21) A) the money multiplier. B) velocity. C) the spending multiplier. D) gross national product.

The bond supply and demand framework is easier to use when analyzing the effects of changes in ____ ____, while the liquidity preference framework provides a simpler analysis of the effects from changes in income, the price level, and the supply of __ _____. A) expected inflation; bonds B) expected inflation; money C) government budget deficits; bonds D) government budget deficits; money

The bond supply and demand framework is easier to use when analyzing the effects of changes in ________, while the liquidity preference framework provides a simpler analysis of the effects from changes in income, the price level, and the supply of ________. A) expected inflation; bonds B) expected inflation; money C) government budget deficits; bonds D) government budget deficits; money

The demand for gold increases, other things equal, when ________. A) the market for silver becomes more liquid B) interest rates are expected to rise C) interest rates are expected to fall D) real estate prices are expected to increase

The difference between money and income is that A) money is a flow and income is a stock. B) money is a stock and income is a flow. C) there is no difference—money and income are both stocks. D) there is no difference—money and income are both flows.

The difference between money and income is that A) there is no differenceNmoney and income are both flows. B) money is a stock and income is a flow. C) money is a flow and income is a stock . D) there is no difference, money and income are both stocks.

The interest rate falls when either the demand for bonds ________ or the supply of bonds ________. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases

The yield on a discount basis of a 180-day $1,000 Treasury bill selling for $900 is A) 10 percent. B) 20 percent. C) 25 percent. D) 40 percent.

The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value. A) greater; coupon; above B) greater; coupon; below C) greater; perpetuity; above D) less; perpetuity; below

Whatever a society uses as money, the distinguishing characteristic is that it must A) be completely inflation proof. B) be generally acceptable as payment for goods and services or in the repayment of debt. C) contain gold. D) be produced by the government.

When money prices are used to facilitate comparisons of value, money is said to function as a A) payments-system ruler. B) unit of account. C) store of value. D) medium of exchange.

When real income _______, the demand curve for money shifts to the ________ and the interest rate _______, everything else held constant. A) falls; right; rises B) rises; right; rises C) falls; left; rises D) rises; left; rises

When real income ________, the demand curve for money shifts to the ________ and the interest rate ________, everything else held constant. A) falls; right; rises B) rises; right; rises C) falls; left; rises D) rises; left; rises

When the Fed ________ the money stock, the money supply curve shifts to the ________ and the interest rate ________, everything else held constant. A) decreases; right; rises B) increases; right; falls C) decreases; left; falls D) increases; left; rises

When the economy slips into a recession, normally the demand for bonds __ ____, the supply of bonds __ ___, and the interest rate ____falls____, everything else held constant. A) increases; increases; rises B) decreases; decreases; falls C) increases; decreases; falls D) decreases; increases; rises

When the government has a surplus, as occurred in the late 1990s, the ______ curve of bonds shifts to the ___ ____, everything else held constant. A) supply; right B) supply; left C) demand; right D) demand; left

When the growth rate of the money supply is increased, interest rates will fall immediately if the liquidity effect is ________ than the other money supply effects and there is ________ adjustment of expected inflation. A) larger; fast B) larger; slow C) smaller; slow D) smaller; fast

When the inflation rate is expected to increase, the ___ _____ for bonds falls, while the ______ curve shifts to the right, everything else held constant. A) demand; demand B) demand; supply C) supply; demand D) supply; supply

When the interest rate on a bond is ________ the equilibrium interest rate, in the bond market there is excess _______ and the interest rate will ________. A) above; demand; rise B) above; demand; fall C) below; supply; fall D) above; supply; rise

When the interest rate on a bond is above the equilibrium interest rate, in the bond market there is excess ________ and the interest rate will _______. A) demand; rise B) demand; fall C) supply; fall D) supply; rise

Which of the following are generally true of all bonds? A) The longer a bondʹs maturity, the greater is the rate of return that occurs as a result of the increase in the interest rate. B) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. C) Prices and returns for short-term bonds are more volatile than those for longer term bonds. D) A fall in interest rates results in capital losses for bonds whose terms to maturity are longer than the holding period.

Which of the following are true for discount bonds? A) A discount bond is bought at par. B) The purchaser receives the face value of the bond at the maturity date. C) U.S. Treasury bonds and notes are examples of discount bonds. D) The purchaser receives the par value at maturity plus any capital gains.

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.

Which of the following are true of the yield on a discount basis as a measure of the interest rate? A) It uses the percentage gain on the purchase price of the security, rather than the percentage gain on the face value of the security. B) It puts the yield on the annual basis of a 360-day year. C) It ignores the time to maturity. D) It overstates the yield to maturity.

Which of the following is NOT included in the M1 measure of money but is included in the M2 measure of money? A) traveler's checks B) small-denomination time deposits C) demand deposits D) currency

Which of the following is NOT included in the monetary aggregate M2? A) currency B) savings bonds C) traveler's checks D) checking deposits

Which of the following is generally true of all bonds? A) The longer a bond's maturity, the greater is the rate of return that occurs as a result of the increase in the interest rate. B) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. C) Prices and returns for short-term bonds are more volatile than those for longer term bonds. D) A fall in interest rates results in capital losses for bonds whose terms to maturity are longer than the holding period.

Which of the following is not a form of e-money? A) a debit card B) a credit card C) a stored-value card D) a smart card

Which of the following is not included in the monetary aggregate M2? A) Currency B) Savings bonds C) Traveler's checks D) Checking deposits

Which of the following is true for discount bonds? A) A discount bond is bought at par. B) The purchaser receives the face value of the bond at the maturity date. C) Canada bonds and notes are examples of discount bonds. D) The purchaser receives the par value at maturity plus any capital gains

________ are the time and resources spent trying to exchange goods and services. A) Bargaining costs. B) Transaction costs. C) Contracting costs. D) Barter costs.

________ in the money supply creates excess demand for ________, causing interest rates to ________, everything else held constant. A) An increase; money; rise B) An increase; bonds; fall C) A decrease; bonds; rise D) A decrease; money; fall

________ is the narrowest monetary aggregate that the Fed reports. A) M0 B) M1 C) M2 D) M3

________ is the relative ease and speed with which an asset can be converted into a medium of exchange. A) Efficiency B) Liquidity C) Deflation D) Specialization

n the loanable funds framework, the ________ curve of bonds is equivalent to the ________ curve of loanable funds. A) demand; demand B) demand; supply C) supply; supply D) supply; equilibrium

the quantity theory of money is a theory of how 20) A) the real value of aggregate income is determined . B) the nominal value of aggregate income is determined. C) the money supply is determined. t D) interest rates are determined.

15) With an interest rate of 10 percent, the present value of a security that pays $1,100 next year and $1,460 four years from now is approximately A) $1,000. B) $2,000. C) $2,560. D) $3,000.

B) $2,000.

8) (I) A discount bond requires the borrower to repay the principal at the maturity date plus an interest payment. (II) A coupon bond pays the lender a fixed interest payment every year until the maturity date, when a specified final amount (face or par value) is repaid. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false.

B) (I) is false, (II) true.

23) The yield to maturity of a one-year, simple loan of $500 that requires an interest payment of $40 is A) 5 percent. B) 8 percent. C) 12 percent. D) 12.5 percent.

B) 8 percent.

29) Which of the following $1,000 face value securities has the lowest yield to maturity? A) A 5 percent coupon bond selling for $1,000 B) A 7 percent coupon bond selling for $1,100 C) A 15 percent coupon bond selling for $1,000 D) A 15 percent coupon bond selling for $900

B) A 7 percent coupon bond selling for $1,100

65) The duration of a ten-year, 10 percent coupon bond when the interest rate is 10 percent is 6.76 years. What happens to the price of the bond if the interest rate falls to 8 percent? A) It rises 20 percent. B) It rises 12.3 percent. C) It falls 20 percent. D) It falls 12.3 percent.

B) It rises 12.3 percent. see page 60 and know formula

49) In which of the following situations would you prefer to be making a loan? 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.

B) The interest rate is 4 percent and the expected inflation rate is 1 percent.

63) Reinvestment risk is the risk that A) a bond's value may fall in the future. B) a bond's future coupon payments may have to be invested at a rate lower than the bond's yield to maturity. C) an investor's holding period will be short and equal in length to the maturity of the bonds he or she holds. D) a bond's issuer may fail to make the future coupon payments and the investor will have no cash to reinvest.

B) a bond's future coupon payments may have to be invested at a rate lower than the bond's yield to maturity.

2) A coupon bond pays the owner of the bond A) the same amount every month until the maturity date. B) a fixed interest payment every period, plus the face value of the bond at the maturity date. C) the face value of the bond plus an interest payment once the maturity date has been reached. D) the face value at the maturity date. E) none of the above.

B) a fixed interest payment every period, plus the face value of the bond at the maturity date.

36) A frequently used approximation for the yield to maturity on a long-term bond is the A) coupon rate. B) current yield. C) cash flow interest rate. D) real interest rate.

B) current yield.

13) The process of calculating what dollars received in the future are worth today is called A) calculating the yield to maturity. B) discounting the future. C) compounding the future. D) compounding the present.

B) discounting the future.

73) The real interest rate is actually the ex ante real interest rate because it is adjusted for ________ changes in the price level. A) actual B) expected C) nominal D) real

B) expected

1) A loan that requires the borrower to make the same payment every period until the maturity date is called a A) simple loan. B) fixed-payment loan. C) discount loan. D) same-payment loan. E) none of the above.

B) fixed-payment loan.

5) In the Keynesian liquidity preference framework, a rise in the price level causes the demand for money to ________ and the demand curve to shift to the ________, everything else held constant. A) increase; left B) increase; right C) decrease; left D) decrease; right

B) increase; right

67) A discount bond A) is also called a coupon bond. B) is also called a zero-coupon bond. C) is also called a fixed-payment bond. D) is also called a corporate bond.

B) is also called a zero-coupon bond.

12) Dollars received in the future are worth ________ than dollars received today. The process of calculating what dollars received in the future are worth today is called ________. A) more; discounting B) less; discounting C) more; inflating D) less; inflating

B) less; discounting

33) A consol bond is a bond that A) pays interest annually and its face value at maturity. B) pays interest in perpetuity and never matures. C) pays no interest but pays its face value at maturity. D) rises in value as its yield to maturity rises.

B) pays interest in perpetuity and never matures.

62) If an investor's holding period is longer than the term to maturity of a bond, he or she is exposed to A) interest-rate risk. B) reinvestment risk. C) bond-market risk. D) yield-to-maturity risk.

B) reinvestment risk.

71) Bonds whose term to maturity is shorter than the holding period are also subject to A) default. B) reinvestment risk. C) both of the above. D) none of the above.

B) reinvestment risk.

38) When a bond's price falls, its yield to maturity ________ and its current yield ________. A) falls; falls B) rises; rises C) falls; rises D) rises; falls

B) rises; rises

Holding everything else constant, A) if asset A's risk rises relative to that of alternative assets, the demand will increase for asset A. B) the more liquid is asset A, relative to alternative assets, the greater will be the demand for asset A. C) the lower the expected return to asset A relative to alternative assets, the greater will be the demand for asset A. D) if wealth increases, demand for asset A increases and demand for alternative assets decreases.

B) the more liquid is asset A, relative to alternative assets, the greater will be the demand for asset A.

19) The interest rate that financial economists consider to be the most accurate measure is the A) current yield. B) yield to maturity. C) yield on a discount basis. D) coupon rate.

B) yield to maturity.

1) Prices and returns for ________ bonds are more volatile than those for ________ bonds, everything else held constant. A) long-term; long-term B) short-term; long-term C) long-term; short-term D) short-term; short-term

1) Duration is A) an assetʹs term to maturity. B) the time until the next interest payment for a coupon bond. C) the average lifetime of a debt securityʹs stream of payments. D) the time between interest payments for a coupon bond.

1) In Keynes's liquidity preference framework, individuals are assumed to hold their wealth in two forms A) real assets and financial assets. B) stocks and bonds. C) money and bonds. D) money and gold.

11) Economists consider the ________ to be the most accurate measure of interest rates. A) simple interest rate. B) current yield. C) yield to maturity. D) real interest rate.

12) For simple loans, the simple interest rate is ________ the yield to maturity. A) greater than B) less than C) equal to D) not comparable to

14) If the price of gold becomes less volatile, then, other things equal, the demand for stocks will ________ and the demand for antiques will ________. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

14) The reduction of brokerage commissions for trading common stocks that occurred in 1975 caused the demand for bonds to ________ and the demand curve to shift to the ________. A) fall; right B) fall, left C) rise; right D) rise; left

15) In the figure above, one factor NOT responsible for the decline in the demand for money is A) a decline the price level. B) a decline in income. C) an increase in income. D) a decline in the expected inflation rate.

16) During a recession, the supply of bonds ________ and the supply curve shifts to the ________, everything else held constant. A) increases; left B) increases; right C) decreases; left D) decreases; right

17) In the figure above, the factor responsible for the decline in the interest rate is A) a decline the price level. B) a decline in income. C) an increase in the money supply. D) a decline in the expected inflation rate.

17) The demand for Picasso paintings rises (holding everything else equal) when A) stocks become easier to sell. B) people expect a boom in real estate prices. C) Treasury securities become riskier. D) people expect gold prices to rise.

18) Which of the following is included in both M1 and M2? A) savings deposits B) money market deposit accounts C) currency D) small-denomination time deposits

19) You would be less willing to purchase U.S. Treasury bonds, other things equal, if A) you inherit $1 million from your Uncle Harry. B) you expect interest rates to fall. C) gold becomes more liquid. D) stock prices are expected to fall.

23) In Irving Fisher's quantity theory of money, velocity was determined by A) real GDP. B) the price level. C) the institutions in an economy that affect individuals' transactions. D) interest rates

3) When the ________ interest rate is low, there are greater incentives to ________ and fewer incentives to ________. A) nominal; lend; borrow B) real; lend; borrow C) real; borrow; lend D) market; lend; borrow

37) Everything else held constant, when prices in the art market become more uncertain A) the demand curve for bonds shifts to the left and the interest rate rises. B) the demand curve for bonds shifts to the left and the interest rate falls. C) the demand curve for bonds shifts to the right and the interest rate falls. D) the supply curve for bonds shifts to the right and the interest rate falls.

4) Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year, what is the yearly return on the bond you are holding? A) 5 percent B) 10 percent C) 15 percent D) 20 percent

48) In the figure above, a factor that could cause the supply of bonds to increase (shift to the right) is A) a decrease in government budget deficits. B) a decrease in expected inflation. C) expectations of more profitable investment opportunities. D) a business cycle recession.

49) In the figure above, a factor that could cause the demand for bonds to shift to the right is A) an increase in the riskiness of bonds relative to other assets. B) an increase in the expected rate of inflation. C) expectations of lower interest rates in the future. D) a decrease in wealth.

6) If a financial institution has 50% of its portfolio in a bond with a five-year duration and 50% of its portfolio in a bond with a seven-year duration, what is the duration of the portfolio? A) 12 years B) 7 years C) 6 years D) 5 years

7) When the price of a bond is above the equilibrium price, there is an excess ________ bonds and price will ________. A) demand for; rise B) demand for; fall C) supply of; fall D) supply of; rise

9) If stock prices are expected to drop dramatically, then, other things equal, the demand for stocks will ________ and that of Treasury bills will ________. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

9) If you expect the inflation rate to be 4 percent next year and a one year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is A) -3 percent. B) -2 percent. C) 3 percent. D) 7 percent.

A ________ pays the owner a fixed coupon payment every year until the maturity date, when the ________ value is repaid. A) coupon bond; discount B) discount bond; discount C) coupon bond; face D) discount bond; face

A consol paying $20 annually when the interest rate is 5 percent has a price of A) $100. B) $200. C) $400. D) $800.

A consol paying $20 annually when the interest rate is 5 percent has a price of ________. A) $100 B) $200 C) $400 D) $800

A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called a A) simple loan. B) fixed-payment loan. C) coupon bond. D) discount bond.

A discount bond is also called a ________ because the owner does not receive periodic payments. A. consol B. municipal bond C. zero-coupon bond D. corporate bond

A fall in the level of prices A) does not affect the value of money. B) has an uncertain effect on the value of money. C) increases the value of money. D) reduces the value of money.

Because inflation in Germany after World War I sometimes exceeded 1,000 % per month, one can conclude that the German economy suffered from A) deflation. B) disinflation. C) hyperinflation. D) superdeflation.

Currency includes A) paper money, coins, checks, and savings deposits. B) paper money and checks. C) paper money and coins D) paper money, coins, and checks.

Duration is ________. A) an asset's term to maturity B) the time until the next interest payment for a coupon bond C) the average lifetime of a debt security's stream of payments D) the time between interest payments for a coupon bond

During a recession, the supply of bonds __ ______ and the supply curve shifts to the ___ ____, everything else held constant. A) increases; left B) increases; right C) decreases; left D) decreases; right

During business cycle expansions when income and wealth are rising, the demand for bonds _______ and the demand curve shifts to the _______, everything else held constant. A) falls; right B) falls; left C) rises; right D) rises; left

Economists consider the ________ to be the most accurate measure of interest rates. A) simple interest rate B) current yield C) yield to maturity D) real interest rate

Economists consider the ________ to be the most accurate measure of interest rates. A) simple interest rate. B) current yield. C) yield to maturity. D) real interest rate.

Even economists have no single, precise definition of money because A) money supply statistics are a state secret. B) the Federal Reserve does not employ or report different measures of the money supply. C) the "moneyness" or liquidity of an asset is a matter of degree. D) economists find disagreement interesting and refuse to agree for ideological reasons.

Everything else held constant, a decrease in wealth ________. A) increases the demand for stocks B) increases the demand for bonds C) reduces the demand for silver D) increases the demand for gold

For simple loans, the simple interest rate is ________ the yield to maturity. A) greater than B) less than C) equal to D) not comparable to

If a financial institution has 50 percent of its portfolio in a bond with a five-year duration and 50 percent of its portfolio in a bond with a seven-year duration, what is the duration of the portfolio? A) 12 years B) 7 years C) 6 years D) 5 years

If an individual moves money from a savings deposit account to a money market 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 decreases.

If an individual moves money from a savings deposit account to a money market 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 decreases.

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.

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.

If peanuts serve as a medium of exchange, a unit of account, and a store of value, then peanuts are A) bank deposits. B) reserves. C) money. D) loanable funds.

If the amount payable in two years is $2420 for a simple loan at 10 percent interest, the loan amount is A) $1000. B) $1210. C) $2000. D) $2200.

If the amount payable in two years is $2420 for a simple loan at 10 percent interest, the loan amount is ________. A) $1000 B) $1210 C) $2000 D) $2200

If the interest rate on a Real Return Bond is 2 percent and the interest rate on a Canada bond of similar maturity is 5 percent then the expected rate of inflation is equal to ________. A) -3 percent B) 7 percent C) 3 percent D) 2 percent

If the liquidity effect is smaller than the other effects, and the adjustment to expected inflation is slow, then the A) interest rate will fall. B) interest rate will rise. C) interest rate will initially fall but eventually climb above the initial level in response to an increase in money growth. D) interest rate will initially rise but eventually fall below the initial level in response to an increase in money growth.

If the money supply is $500 and nominal income is $3,000, the velocity of money is A) 1/60 . B) 1/6. C) 6. D) 60.

If the price of bonds is set ______ the equilibrium price, the quantity of bonds demanded exceeds the quantity of bonds supplied, a condition called excess ________. A) above; demand B) above; supply C) below; demand D) below; supply

If the price of bonds is set ________ the equilibrium price, the quantity of bonds demanded exceeds the quantity of bonds supplied, a condition called excess ________. A) above; demand B) above; supply C) below; demand D) below; supply

If there is an excess supply of money A) individuals sell bonds, causing the interest rate to rise. B) individuals sell bonds, causing the interest rate to fall. C) individuals buy bonds, causing interest rates to fall. D) individuals buy bonds, causing interest rates to rise.

If there is an excess supply of money ________. A) individuals sell bonds, causing the interest rate to rise B) individuals sell bonds, causing the interest rate to fall C) individuals buy bonds, causing interest rates to fall D) individuals buy bonds, causing interest rates to rise

If you expect the inflation rate to be 4 percent next year and a one year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is ________. A) -3 percent B) -2 percent C) 3 percent D) 7 percent

In Keynes's liquidity preference framework, if there is excess demand for money, there is A) an excess demand for bonds. B) equilibrium in the bond market. C) an excess supply of bonds. D) too much money.

In Keynes's liquidity preference framework, if there is excess demand for money, there is ________. A) excess demand for bonds B) equilibrium in the bond market C) excess supply of bonds D) too much money

In Keynes's liquidity preference framework, individuals are assumed to hold their wealth in two forms A) real assets and financial assets. B) stocks and bonds. C) money and bonds. D) money and gold

In Keynes's liquidity preference framework, individuals are assumed to hold their wealth in two forms: __ ______. A) real assets and financial assets B) stocks and bonds C) money and bonds Total wealth equals total amount of money and bonds D) money and gold

In explaining the evolution of money A) government regulation is the most important factor. B) commodity money, because it is valued more highly, tends to drive out paper money. C) new forms of money evolve to lower transaction costs. D) paper money is always backed by gold and therefore more desirable than checks.

In the Keynesian liquidity preference framework, an increase in the interest rate causes the demand curve for money to ________, everything else held constant. A) shift right B) shift left C) stay where it is D) invert

In the bond market, the market equilibrium shows the market-clearing ________ and market-clearing _______. A) price; deposit B) interest rate; deposit C) price; interest rate D) interest rate; premium

In the figure above, a factor that could cause the demand for bonds to shift to the right is A) an increase in the riskiness of bonds relative to other assets. B) an increase in the expected rate of inflation. C) expectations of lower interest rates in the future. D) a decrease in wealth.

In the figure above, a factor that could cause the demand for bonds to shift to the right is ________. A) an increase in the riskiness of bonds relative to other assets B) an increase in the expected rate of inflation C) expectations of lower interest rates in the future D) a decrease in wealth

In the figure above, a factor that could cause the supply of bonds to increase (shift to the right) is A) a decrease in government budget deficits. B) a decrease in expected inflation. C) expectations of more profitable investment opportunities. D) a business cycle recession.

In the figure above, a factor that could cause the supply of bonds to increase (shift to the right) is ________. A) a decrease in government budget deficits B) a decrease in expected inflation C) expectations of more profitable investment opportunities D) a business cycle recession

In the figure above, illustrates the effect of an increased rate of money supply growth at time period 0. From the figure, one can conclude that the ________. A) Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation B) liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to changes in expected inflation C) liquidity effect is dominated by the Fisher effect 最初and interest rates adjust quickly to changes in expected inflation D) Fisher effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation

In the figure above, one factor NOT responsible for the decline in the demand for money is A) a decline the price level. B) a decline in income. C) an increase in income. D) a decline in the expected inflation rate.

In the figure above, one factor not responsible for the decline in the demand for money is ________. A) a decline the price level B) a decline in income C) an increase in income demand increase D) a decline in the expected inflation rate

In the figure above, the factor responsible for the decline in the interest rate is ________. A) a decline the price level B) a decline in income C) an increase in the money supply D) a decline in the expected inflation rate

Increasing transactions costs of selling an asset make the asset A) more valuable. B) more liquid. C) less liquid. D) more moneylike.

It is possible that when the money supply rises, interest rates may ________ if the ________ effect is more than offset by changes in income, the price level, and expected inflation. A) fall; liquidity B) fall; risk C) rise; liquidity D) rise; risk

Keynes assumed that money has __ ______ rate of return. A) a positive B) a negative C) a zero D) an increasing

Keynes assumed that money has ________ rate of return. A) a positive B) a negative C) a zero D) an increasing

Patrick places his pocket change into his savings bank on his desk each evening. By his actions, Patrick indicates that he believes that money is a A) medium of exchange. B) unit of account. C) store of value. D) unit of specialization.

Small-denomination time deposits refer to certificates of deposit with a denomination of less than A) $1,000. B) $10,000. C) $100,000. D) $1,000,000.

The ________ is defined as the payments to the owner plus the change in a security's value expressed as a fraction of the security's purchase price. A) yield to maturity B) current yield C) rate of return D) yield rate

The ________ is defined as the payments to the owner plus the change in a securityʹs value expressed as a fraction of the securityʹs purchase price. A) yield to maturity B) current yield C) rate of return D) yield rate

The ________ is the final amount that will be paid to the holder of a coupon bond. A) discount value B) coupon value C) face value D) present value

The components of the U.S. M1 money supply are demand and checkable deposits plus A) currency. B) currency plus savings deposits. C) currency plus travelers checks. D) currency plus travelers checks plus money market deposits.

The conversion of a barter economy to one that uses money A) increases efficiency by reducing the need to exchange goods and services. B) increases efficiency by reducing the need to specialize. C) increases efficiency by reducing transactions costs. D) does not increase economic efficiency.

The currency component includes paper money and coins held in A) bank vaults. B) ATMs. C) the hands of the nonbank public. D) the central bank.

The demand for money as a cushion against unexpected contingencies is called the ) A) transactions motive. B) speculative motive. C)precautionary motive. D) insurance motive.

The evolution of the payments system from barter to precious metals, then to fiat money, then to checks can best be understood as a consequence of A) government regulations designed to improve the efficiency of the payments system. B) government regulations designed to promote the safety of the payments system. C) innovations that reduced the costs of exchanging goods and services. D) competition among firms to make it easier for customers to purchase their products.

The evolution of the payments system from barter to precious metals, then to fiat money, then to checks can best be understood as a consequence of the fact that A) paper is more costly to produce than precious metals. B) precious metals were not generally acceptable. C) precious metals were difficult to carry and transport. D) paper money is less accepted than checks.

The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that the ________. A) liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation B) liquidity effect is larger than the expected inflation effect and interest rates adjust quickly to changes in expected inflation C) liquidity effect is larger than the expected inflation effect 最终and interest rates adjust slowly to changes in expected inflation D) liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation

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.

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

The nominal interest rate minus the expected rate of inflation ________. A) defines the real rate of inflation B) is a worse measure of the incentives to borrow and lend than is the nominal interest rate C) is a more accurate indicator of the tightness of credit market conditions than is the nominal interest rate D) defines the bank rate

The opportunity cost of holding money is A) the level of income. B) the price level. C) the interest rate. D) the discount rate.

The opportunity cost of holding money is ________. A) the level of income B) the price level C) the interest rate D) the discount rate

The other checkable deposits component of the M1 measure reported by the Federal Reserve includes A) negotiable time deposits. B) money market mutual fund shares. C) automatic transfer from savings accounts. D) money market deposit accounts.

The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $950 next year is A) -10 percent. B) -5 percent. C) 0 percent. D) 5 percent.

The return on a 5 percent coupon bond that initially sells for $1000 and sells for $950 next year is ________. A) -10 percent B) -5 percent C) 0 percent D) 5 percent

The riskiness of an asset is measured by A) the magnitude of its return. B) the absolute value of any change in the asset's price. C) the standard deviation of its return. D) risk is impossible to measure.

The yield to maturity on a $10,000 Treasury bill selling for $9,800 with 73 days to maturity is approximately A) 2 percent. B) 5 percent. C) 10 percent. D) 20 percent.

To an economist, ________ is anything that is generally accepted in payment for goods and services or in the repayment of debt. A) wealth B) income C) money D) credit

To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of A. par value. B. face value. C. discounting the future. D. deflation.

To say that a yield increased by twenty basis points means the interest rate increased by A) 20 percent. B) 2 percent. C) 0.2 percent. D) 0.02 percent.

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 next year? A) 5 percent B) 10 percent C) -5 percent D) -10 percent

What is the return on a 5 percent coupon bond that initially sells for $1000 and sells for $900 next year? A) 5 percent B) 10 percent C) -5 percent D) -10 percent

When economists say that money promotes ________, they mean that money encourages specialization and the division of labor. A) bargaining B) contracting C) efficiency D) greed

When paper currency is decreed by governments as legal tender, legally it must be A) paper currency backed by gold. B) a precious metal such as gold or silver. C) accepted as payment for debts. D) convertible into an electronic payment.

When the ________ interest rate is low, there are greater incentives to ________ and fewer incentives to ________. A) nominal; lend; borrow B) real; lend; borrow C) real; borrow; lend D) market; lend; borrow

When the expected inflation rate increases, the real cost of borrowing ________ and bond supply ________, everything else held constant. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

When the interest rate is above the equilibrium interest rate, there is an excess ____ of money and the interest rate will ______. A) demand for; rise B) demand for; fall C) supply of; fall D) supply of; rise

When the interest rate is above the equilibrium interest rate, there is an excess ________ money and the interest rate will ________. A) demand for; rise B) demand for; fall C) supply of; fall D) supply of; rise

When the price of a bond decreases, all else equal, the bond demand curve A) shifts right. B) shifts left. C) does not shift. D) inverts.

When the price of a bond decreases, all else equal, the bond demand curve ________. A) shifts right B) shifts left C) does not shift D) inverts

When the price of a bond is above the equilibrium price, there is an excess ________ bonds and price will _______. A) demand for; rise B) demand for; fall C) supply of; fall D) supply of; rise

When the price of a bond is above the equilibrium price, there is an excess ________ bonds and price will ________. A) demand for; rise B) demand for; fall C) supply of; fall D) supply of; rise

Which of the following $1,000 face-value securities has the highest yield to maturity? A) A 5 percent coupon bond selling for $1,000 B) A 10 percent coupon bond selling for $1,000 C) A 12 percent coupon bond selling for $1,000 D) A 12 percent coupon bond selling for $1,100

Which of the following $1000 face-value securities has the highest yield to maturity? A) A 5 percent coupon bond selling for $1000 B) A 10 percent coupon bond selling for $1000 C) A 12 percent coupon bond selling for $1000 D) A 12 percent coupon bond selling for $1100

Which of the following is a TRUE statement? A) Money and income are flow variables. B) Money is a flow variable. C) Income is a flow variable. D) Money and income are stock variables.

Which of the following is a true statement? A) Money and income are flow variables. B) Money is a flow variable. C) Income is a flow variable. D) Money and income are stock variables.

Which of the following statements best explains how the use of money in an economy increases economic efficiency? A) Money increases economic efficiency because it is costless to produce. B) Money increases economic efficiency because it discourages specialization. C) Money increases economic efficiency because it decreases transactions costs. D) Money cannot have an effect on economic efficiency.

Which of the following statements uses the economists' definition of money? A) I plan to earn a lot of money over the summer. B) Betsy is rich—she has a lot of money. C) I hope that I have enough money to buy my lunch today. D) The job with New Company gave me the opportunity to earn more money.

With an interest rate of 6 percent, the present value of $100 next year is approximately A) $106. B) $100. C) $94. D) $92.

You would be less willing to purchase bonds, other things equal, if ________. A) you inherit $1 million from your Uncle Harry B) you expect interest rates to fall C) gold becomes more liquid D) stock prices are expected to fall

the Keynesian theory of money demand emphasizes the importance of 28 ) A) irrational behavior on the part of some economic agents. B) a constant velocity. C) interest rates on the demand for money. D) expectations.

17) With an interest rate of 6 percent, the present value of $100 received one year from now is approximately A) $106. B) $100. C) $94. D) $92.

C) $94.

14) With an interest rate of 5 percent, the present value of $100 received one year from now is approximately A) $100. B) $105. C) $95. D) $90.

C) $95.

52) What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 one year later? A) 5 percent B) 10 percent C) -5 percent D) -10 percent E) None of the above

C) -5 percent

54) The return on a 10 percent coupon bond that initially sells for $1,000 and sells for $900 one year later is A) -10 percent. B) -5 percent. C) 0 percent. D) 5 percent.

C) 0 percent.

41) If a $10,000 face value discount bond maturing in one year is selling for $9,000, then its yield to maturity is approximately A) 9 percent. B) 10 percent. C) 11 percent. D) 12 percent.

C) 11 percent.

58) Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year, what is the yearly return on the bond you are holding? A) 5 percent B) 10 percent C) 15 percent D) 20 percent

C) 15 percent

46) If you expect the inflation rate to be 5 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is A) -12 percent. B) -2 percent. C) 2 percent. D) 12 percent.

C) 2 percent.

35) The yield to maturity on a consol bond that pays $200 yearly and sells for $1000 is A) 5 percent. B) 10 percent. C) 20 percent. D) 25 percent.

C) 20 percent.

40) If a $10,000 face value discount bond maturing in one year is selling for $8,000, then its yield to maturity is A) 10 percent. B) 20 percent. C) 25 percent. D) 40 percent.

C) 25 percent.

27) Which of the following $1,000 face value securities has the highest yield to maturity? A) A 5 percent coupon bond selling for $1,000 B) A 10 percent coupon bond selling for $1,000 C) A 12 percent coupon bond selling for $1,000 D) A 12 percent coupon bond selling for $1,100

C) A 12 percent coupon bond selling for $1,000

5) (I) A simple loan requires the borrower to repay the principal at the maturity date along with an interest payment. (II) A discount bond is bought at a price below its face value, and the face value is repaid at the maturity date. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false.

C) Both are true.

64) (I) The average lifetime of a debt security's stream of payments is called duration. (II) The duration of a portfolio is the weighted average of the durations of the individual securities, with the weights reflecting the proportion of the portfolio invested in each. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false.

C) Both are true.

22) For simple loans, the simple interest rate is ________ the yield to maturity. A) greater than B) less than C) equal to D) not comparable to

C) equal to

72) A ________ is a type of loan that has the same cash flow payment every year throughout the life of the loan. A) discount loan B) simple loan C) fixed-payment loan D) interest-free loan

C) fixed-payment loan

26) A $10,000, 8 percent coupon bond that sells for $10,100 has a yield to maturity ________. A) equal to 8 percent B) greater than 8 percent C) less than 8 percent D) that cannot be calculated

C) less than 8 percent

66) When the lender provides the borrower with an amount of funds that must be repaid to the lender at the maturity date, along with an additional payment for the interest, it is called a ________. A) fixed-payment loan B) discount loan C) simple loan D) none of the above

C) simple loan

70) The return on a bond is equal to the yield to maturity when A) the holding period is longer than the maturity of the bond. B) the maturity of the bond is longer than the holding period. C) the holding period and the maturity of the bond are identical. D) none of the above.

C) the holding period and the maturity of the bond are identical.

20) Financial economists consider the ________ to be the most accurate measure of interest rates. A) simple interest rate B) discount rate C) yield to maturity D) real interest rate

C) yield to maturity

18) The interest rate that equates the present value of the cash flow received from a debt instrument with its market price today is the A) simple interest rate. B) discount rate. C) yield to maturity. D) real interest rate.

C) yield to maturity.

The interest rate on a consol equals the

Coupon payment divided by the price

Which of the following is included in both M1 and M2?

Currency

Examples of M1

Currency, checking account deposits, travelers' checks

) In which of the following situations would you prefer to be the borrower? 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.

) The theory of portfolio choice indicates that factors affecting the demand for money include A) income. B) liquidity of other assets. C) nominal interest rate. D) all the above

10) The riskiness of an assetʹs returns due to changes in interest rates is A) exchange-rate risk. B) price risk. C) asset risk. D) interest-rate risk.

11) Assuming the same coupon rate and maturity length, the difference between the yield on a Treasury Inflation Protected Security and the yield on a nonindexed Treasury security provides insight into A) the nominal interest rate. B) the real interest rate. C) the nominal exchange rate. D) the expected inflation rate.

13) Everything else held constant, when bonds become less widely traded, and as a consequence the market becomes less liquid, the demand curve for bonds shifts to the ________ and the interest rate ________. A) right; rises B) right; falls C) left; falls D) left; rises

15) Factors that decrease the demand for bonds include A) an increase in the volatility of stock prices. B) a decrease in the expected returns on stocks. C) a decrease in the inflation rate. D) a decrease in the riskiness of stocks.

15) The price of a coupon bond and the yield to maturity are ________ related; that is, as the yield to maturity ________, the price of the bond ________. A) positively; rises; rises B) negatively; falls; falls C) positively; rises; falls D) negatively; rises; falls

16) If gold becomes acceptable as a medium of exchange, the demand for gold will ________ and the demand for bonds will ________, everything else held constant. A) decrease; decrease B) decrease; increase C) increase; increase D) increase; decrease

18) Which of the following $5,000 face-value securities has the highest to maturity? A) A 6 percent coupon bond selling for $5,000 B) A 6 percent coupon bond selling for $5,500 C) A 10 percent coupon bond selling for $5,000 D) A 12 percent coupon bond selling for $4,500

2) In Keynes's liquidity preference framework A) the demand for bonds must equal the supply of money. B) the demand for money must equal the supply of bonds. C) an excess demand of bonds implies an excess demand for money. D) an excess supply of bonds implies an excess demand for money.

2) The demand curve for bonds has the usual downward slope, indicating that at ________ prices of the bond, everything else equal, the ________ is higher. A) higher; demand B) higher; quantity demanded C) lower; demand D) lower; quantity demanded

22) The demand for houses decreases, all else equal, when A) wealth increases. B) real estate prices are expected to increase. C) stock prices become more volatile. D) gold prices are expected to increase.

22) The price of a consol equals the coupon payment A) times the interest rate. B) plus the interest rate. C) minus the interest rate. D) divided by the interest rate.

23) When the expected inflation rate increases, the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant. A) increases; increases; rises B) decreases; decreases; falls C) increases; decreases; falls D) decreases; increases; rises

24) Everything else held constant, when the inflation rate is expected to rise, interest rates will ________; this result has been termed the ________. A) fall; Keynes effect B) fall; Fisher effect C) rise; Keynes effect D) rise; Fisher effect

26) In Japan in 1998 and in the U.S. in 2008, interest rates were negative for a short period of time because investors found it convenient to hold six-month bills as a store of value because A) of the high inflation rate. B) these bills sold at a discount from face value. C) the bills were denominated in small amounts and could be stored electronically. D) the bills were denominated in large amounts and could be stored electronically.

4) The supply curve for bonds has the usual upward slope, indicating that as the price ________, ceteris paribus, the ________ increases. A) falls; supply B) falls; quantity supplied C) rises; supply D) rises; quantity supplied

45) In the figure above, a factor that could cause the supply of bonds to shift to the right is A) a decrease in government budget deficits. B) a decrease in expected inflation. C) a recession. D) a business cycle expansion.

5) If the nominal rate of interest is 2 percent, and the expected inflation rate is -10 percent, the real rate of interest is A) 2 percent. B) 8 percent. C) 10 percent. D) 12 percent.

7) An equal increase in all bond interest rates A) increases the return to all bond maturities by an equal amount. B) decreases the return to all bond maturities by an equal amount. C) has no effect on the returns to bonds. D) decreases long-term bond returns more than short-term bond returns.

7) If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is A) 7 percent. B) 22 percent. C) -15 percent. D) -8 percent.

7) Of money's three functions, the one that distinguishes money from other assets is its function as a A) standard of deferred payment . B) store of value. C) unit of account. D) medium of exchange.

A ________ is bought at a price below its face value, and the ________ value is repaid at the maturity date. A) coupon bond; discount B) discount bond; discount C) coupon bond; face D) discount bond; face

A bond that is bought at a price below its face value and the face value is repaid at a maturity date is called a A) simple loan. B) fixed-payment loan. C) coupon bond. D) discount bond.

A bond that is bought at a price below its face value and the face value is repaid at a maturity date is called a ________. A) simple loan B) fixed-payment loan C) coupon bond D) discount bond

A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity of A) 3 percent. B) 20 percent. C) 25 percent. D) 33.3 percent.

A discount bond selling for $15000 with a face value of $20000 in one year has a yield to maturity of ________. A) 3 percent B) 20 percent C) 25 percent D) 33.3 percent

A person's house is part of her A) money. B) income. C) liabilities. D) wealth.

A rise in the price level causes the demand for money to ________ and the interest rate to ________, everything else held constant. A) decrease; decrease B) decrease; increase C) increase; decrease D) increase; increase

Although ________ currency is lighter than coins made of metals, a disadvantage arising from modern technology is the ease of ________. A) paper; transport B) commodity; counterfeiting C) fiat; transport D) paper; counterfeiting

An electronic payments system has not completely replaced the paper payments system because of all of the following reasons except A) expensive equipment is necessary to set up the system. B) security concerns. C) privacy concerns. D) transportation costs.

An equal increase in all bond interest rates ________. A) increases the return to all bond maturities by an equal amount B) decreases the return to all bond maturities by an equal amount C) has no effect on the returns to bonds D) decreases long-term bond returns more than short-term bond returns

An increase in the interest rate A) increases the demand for money. B) increases the quantity of money demanded. C) decreases the demand for money. D) decreases the quantity of money demanded

An increase in the interest rate ________. A) increases the demand for money B) increases the quantity of money demanded C) decreases the demand for money D) decreases the quantity of money demanded

As a store of value, money A) does not earn interest. B) cannot be a durable asset. C) must be currency. D) is a way of saving for future purchases.

Assuming the same coupon rate and maturity length, the difference between the yield on a Real Return Bond and the yield on a Canada bond provides insight into ________. A) the nominal interest rate B) the real interest rate C) the nominal exchange rate D) the expected inflation rate

Assuming the same coupon rate and maturity length, the difference between the yield on a Treasury Inflation Protected Security and the yield on a nonindexed Treasury security provides insight into A) the nominal interest rate. B) the real interest rate. C) the nominal exchange rate. D) the expected inflation rate.

Because it is a unit of account, money A) discourages specialization. B) does not earn interest. C) increases transaction costs. D) reduces the number of prices that need to be calculated.

Dealers in U.S. Treasury securities always refer to prices by quoting the A) yield to maturity. B) coupon rate. C) current yield D) yield on a discount basis.

Discovery of new gold in Alaska will ________ the ________ of gold, ________ its price, everything else held constant. A) increase; demand; increasing B) decrease; demand; decreasing C) decrease; supply; increasing D) increase; supply; decreasing

Everything else held constant, an increase in the riskiness of bonds relative to alternative assets causes the demand for bonds to ______ and the demand curve to shift to the ________. A) rise; right B) rise; left C) fall; right D) fall; left

Everything else held constant, an increase in the riskiness of bonds relative to alternative assets causes the demand for bonds to ________ and the demand curve to shift to the ________. A) rise; right B) rise; left C) fall; right D) fall; left

Everything else held constant, if the expected return on government bonds falls from 8 to 7 percent and the expected return on corporate bonds falls from 10 to 8 percent, then the expected return of corporate bonds ________ relative to government bonds and the demand for corporate bonds ________. A) rises; rises B) rises; falls C) falls; rises D) falls; falls

Everything else held constant, when bonds become less widely traded, and as a consequence the market becomes less liquid, the demand curve for bonds shifts to the ________ and the interest rate _______. A) right; rises B) right; falls C) left; falls D) left; rises

Everything else held constant, when households save less, wealth and the demand for bonds ________ and the bond demand curve shifts _______. A) increase; right B) increase; left C) decrease; right D) decrease; left

Everything else held constant, when stock prices become less volatile, the demand curve for bonds shifts to the ______ and the interest rate ________. A) right; rises B) right; falls C) left; falls D) left; rises

Everything else held constant, when the inflation rate is expected to rise, interest rates will ________; this result has been termed the ________. A) fall; Keynes effect B) fall; Fisher effect C) rise; Keynes effect D) rise; Fisher effect

Factors that decrease the demand for bonds include A) an increase in the volatility of stock prices. B) a decrease in the expected returns on stocks. C) a decrease in the inflation rate. D) a decrease in the riskiness of stocks.

For a 3-year simple loan of $10,000 at 10 percent, the amount to be repaid is A) $10,030. B) $10,300. C) $13,000. D) $13,310.

For a 3-year simple loan of $10000 at 10 percent, the amount to be repaid is ________. A) $10030 B) $10300 C) $13000 D) $13310

For simple loans, the simple interest rate is ________ the yield to maturity. A. greater than B. less than C. not comparable to D. equal to

If a $10,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to maturity is A) 5 percent. B) 10 percent. C) 50 percent. D) 100 percent.

If a $10000 face-value discount bond maturing in one year is selling for $5000, then its yield to maturity is ________. A) 5 percent B) 10 percent C) 50 percent D) 100 percent

If an individual uses money from a demand deposit account to purchase a U.S. savings bond 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 decreases and M2 decreases.

If an individual uses money from a demand deposit account to purchase a U.S. savings bond, 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 decreases and M2 decreases.

If gold becomes acceptable as a medium of exchange, the demand for gold will _______ and the demand for bonds will ________, everything else held constant. A) decrease; decrease B) decrease; increase C) increase; increase D) increase; decrease

If gold becomes acceptable as a medium of exchange, the demand for gold will ________ and the demand for bonds will ________, everything else held constant. A) decrease; decrease B) decrease; increase C) increase; increase D) increase; decrease

If stock prices are expected to drop dramatically, then, other things equal, the demand for stocks will ________ and that of Treasury bills will ________. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

If the government finances its spending by issuing debt to the public, the monetary base will ________ and the money supply will ________. ) A) increase; decrease B) increase; increase C) decrease; increase D) not change; not change

If the interest rate on a bond is below the equilibrium interest rate, there is an excess ________ of bonds and the bond price will ________. A) demand; rise B) demand; fall C) supply; rise D) supply; fall

If the liquidity effect is smaller than the other effects, and the adjustment to expected inflation is immediate, then the A) interest rate will fall. B) interest rate will rise. C) interest rate will fall immediately below the initial level when the money supply grows. D) interest rate will rise immediately above the initial level when the money supply grows.

If the liquidity effect is smaller than the other effects, and the adjustment to expected inflation is immediate, then the ________. A) interest rate will fall B) interest rate will rise C) interest rate will fall immediately below the initial level when the money supply grows D) interest rate will rise immediately above the initial level when the money supply grows

If the nominal rate of interest is 2 percent, and the expected inflation rate is -10 percent, the real rate of interest is A) 2 percent. B) 8 percent. C) 10 percent. D) 12 percent.

If the nominal rate of interest is 2 percent, and the expected inflation rate is -10 percent, the real rate of interest is ________. A) 2 percent B) 8 percent C) 10 percent D) 12 percent

If the price level doubles, the value of money A) doubles. B) more than doubles, due to scale economies. C) rises but does not double, due to diminishing returns. D) falls by 50 percent.

If the price of gold becomes less volatile, then, other things equal, the demand for stocks will _______ and the demand for gold will ________. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

If the yield on Treasury bills falls from 5.27 percent to 5.22 percent, then the yield has A) increased by 5 basis points. B) increased by 0.5 basis point. C) decreased by 0.5 basis point. D) decreased by 5 basis points.

If the yield on Treasury bills increases from 6.34 percent to 6.44 percent, the yield has A) increased by 0.01 basis point. B) increased by 0.1 basis point. C) increased by 1 basis point. D) increased by 10 basis points.

If there are five goods in a barter economy, one needs to know ten prices in order to exchange one good for another. If, however, there are ten goods in a barter economy, then one needs to know ________ prices in order to exchange one good for another. A) 20 B) 25 C) 30 D) 45

If you expect the inflation rate to be 15 percent next year and a one -year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is A) 7 percent. B) 22 percent. C) -15 percent. D) -8 percent.

If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is ________. A) 7 percent B) 22 percent C) -15 percent D) -8 percent

In Japan in 1998 and in the U.S. in 2008, interest rates were negative for a short period of time because investors found it convenient to hold six-month bills as a store of value because ________. A) of the high inflation rate B) these bills sold at a discount from face value C) the bills were denominated in small amounts and could be stored electronically D) the bills were denominated in large amounts and could be stored electronically

In Japan in 1998, interest rates were negative for a short period of time because investors found it convenient to hold six-month bills as a store of value because A) of the high inflation rate. B) these bills sold at a discount from face value. C) the bills were denominated in small amounts and could be stored electronically. D) the bills were denominated in large amounts and could be stored electronically.

In Keynes's liquidity preference framework A) the demand for bonds must equal the supply of money. B) the demand for money must equal the supply of bonds. C) an excess demand of bonds implies an excess demand for money. D) an excess supply of bonds implies an excess demand for money.

In Keynes's liquidity preference framework, ________. A) the demand for bonds must equal the supply of money B) the demand for money must equal the supply of bonds C) an excess demand of bonds implies an excess demand for money D) an excess supply of bonds implies an excess demand for money 平衡

In a country where prices never change, the nominal interest rate is equal to the ________. A) real exchange rate B) inflation rate C) expected inflation rate D) real interest rate

In the 1990s Japan had the lowest interest rates in the world due to a combination of A) inflation and recession. B) deflation and expansion. C) inflation and expansion. D) deflation and recession.

In the 1990s Japan had the lowest interest rates in the world due to a combination of ________. A) inflation and recession B) deflation and expansion C) inflation and expansion D) deflation and recession

In the figure above, a factor that could cause the supply of bonds to shift to the right is A) a decrease in government budget deficits. B) a decrease in expected inflation. C) a recession. D) a business cycle expansion.

In the figure above, a factor that could cause the supply of bonds to shift to the right is ________. A) a decrease in government budget deficits B) a decrease in expected inflation C) a recession D) a business cycle expansion

In which of the following situations would you prefer to be borrowing? 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.

Interest rates increased continuously during the 1970s. The most likely explanation is A) banking failures that reduced the money supply. B) a rise in the level of income. C) the repeated bouts of recession and expansion. D) increasing expected rates of inflation.

Interest rates increased continuously during the 1970s. The most likely explanation is ________. A) banking failures that reduced the money supply B) a rise in the level of income C) the repeated bouts of recession and expansion D) increasing expected rates of inflation

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.

Of the following assets, the least liquid is A) stocks. B) traveler's checks. C) checking deposits. D) a house.

Of the following, the largest is A) money market deposit accounts. B) demand deposits. C) M1. D) M2.

Recent financial innovation makes the Federal Reserve's job of conducting monetary policy A) easier, since the Fed now knows what to consider money. B) more difficult, since the Fed now knows what to consider money. C) easier, since the Fed no longer knows what to consider money. D) more difficult, since the Fed no longer knows what to consider money.

The Keynesian demand for real balances can be expressed as 31) A) Md = f(i,Y). B) Md/P = f(Y). C) Md/P = f(i). D) Md/P = f(i,Y).

The bond supply curve is ________ sloping, indicating a(n) ________ relationship between the price and quantity supplied of bonds, everything else equal. A) downward; inverse B) downward; direct C) upward; inverse D) upward; direct

The concept of ________ is based on the common − sense notion that a dollar paid to you in the future is less valuable to you than a dollar today. A. interest B. future value C. deflation D. present value

The decade during which the growth rates of monetary aggregates diverged the most is A) the 1960s. B) the 1970s. C) the 1980s. D) the 1990s.

The demand curve for bonds has the usual downward slope, indicating that at ________ prices of the bond, everything else equal, the __ quantity demanded ______ is higher. A) higher; demand B) higher; quantity demanded C) lower; demand D) lower; quantity demanded

The demand curve for bonds has the usual downward slope, indicating that at ________ prices of the bond, everything else equal, the ________ is higher. A) higher; demand B) higher; quantity demanded C) lower; demand D) lower; quantity demanded

The demand for houses decreases, all else equal, when A) wealth increases. B) real estate prices are expected to increase. C) stock prices become more volatile. D) gold prices are expected to increase.

In his Liquidity Preference Framework, Keynes assumed that money has a zero rate of return; thus,

*A) when interest rates rise, the expected return on money falls relative to the expected return on bonds, causing the demand for money to fall.* B) when interest rates rise, the expected return on money falls relative to the expected return on bonds, causing the demand for money to rise. C) when interest rates fall, the expected return on money falls relative to the expected return on bonds, causing the demand for money to fall. D) when interest rates fall, the expected return on money falls relative to the expected return on bonds, causing the demand for money to rise.

Both the CAPM and APT suggest that an asset should be priced so that it has a higher expected return

*A) when it has a greater systematic risk.* B) when it has a greater risk in isolation. C) when it has a lower systematic risk. D) when it has a lower systematic risk and a lower risk in isolation.

If you expect the inflation rate to be 12 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is

-5%

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 next year?

-5%

If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is

-8%

The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $950 next year is

0 percent

Medium of exchange MUST:

1. Be easily standardized (reconizable) 2. Widely accepted 3. Be divisible 4. Be easy to carry 5. not deteriorate easily

Functions of Money

1. Medium of Exchange 2. Unit of Account 3. Store of Value

If a security pays $55 in one year and $133 in three years, its present value is $150 if the interest rate is

10 Percent

Small-denomination time deposits refer to certificates of deposit with a denomination of less than ________.

100,000

If the nominal rate of interest is 2 percent, and the expected inflation rate is minus10 percent, the real rate of interest is

12 percent

If the nominal rate of interest is 2 percent, and the expected inflation rate is -10 percent, the real rate of interest is

12%

Rank the following assets from most liquid (1) to least liquid (6): Rank the following assets from most liquid (1) to least liquid (6): LOADING... Asset Rank a. Checking account deposits b. Houses c. Currency d. Automobile e. Savings deposits f. Common stock

2 6 1 5 3 4

What is the yield to maturity on a 2-year, $1 comma 000 discount bond with a current price of $947? Yield to maturity =

2.8%

If you expect the inflation rate to be 4 percent next year and a one year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is

3 percent

If you expect the inflation rate to be 4 percent next year and a one year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is

Calculate the yield to maturity (YTM) for a one-year coupon bond with a purchase price of $800, a face value of $1,000, and a current yield of 5%. The yield to maturity on the bond given above is_____________ the YTM of a similar $1,000 20-year bond with a current yield of 10% selling for $800.

30% Greater than

12) Everything else held constant, an increase in the liquidity of bonds results in a ________ in demand for bonds and the demand curve shifts to the ________. A) rise; right B) rise; left C) fall; right D) fall; left

14) Which of the following are true for a coupon bond? A) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. B) The price of a coupon bond and the yield to maturity are positively related. C) The yield to maturity is greater than the coupon rate when the bond price is above the par value. D) The yield is less than the coupon rate when the bond price is below the par value.

17) A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of A) 8 percent. B) 10 percent. C) 12 percent. D) 14 percent.

17) In a business cycle expansion, the ________ of bonds increases and the ________ curve shifts to the ________ as business investments are expected to be more profitable. A) supply; supply; right B) supply; supply; left C) demand; demand; right D) demand; demand; left

18) The demand for silver decreases, other things equal, when A) the gold market is expected to boom. B) the market for silver becomes more liquid. C) wealth grows rapidly. D) interest rates are expected to rise.

19) Which of the following $1,000 face-value securities has the highest yield to maturity? A) A 5 percent coupon bond with a price of $600 B) A 5 percent coupon bond with a price of $800 C) A 5 percent coupon bond with a price of $1,000 D) A 5 percent coupon bond with a price of $1,200

20) Which of the following bonds would you prefer to be buying? A) A $10,000 face-value security with a 10 percent coupon selling for $9,000 B) A $10,000 face-value security with a 7 percent coupon selling for $10,000 C) A $10,000 face-value security with a 9 percent coupon selling for $10,000 D) A $10,000 face-value security with a 10 percent coupon selling for $10,000

20) You would be more willing to buy AT&T bonds (holding everything else constant) if A) the brokerage commissions on bond sales become cheaper. B) interest rates are expected to rise. C) your wealth has decreased. D) you expect diamonds to appreciate in value.

21) A coupon bond that has no maturity date and no repayment of principal is called a A) consol. B) cabinet. C) Treasury bill. D) Treasury note.

23) The yield to maturity for a perpetuity is a useful approximation for the yield to maturity on long-term coupon bonds. It is called the ________ when approximating the yield for a coupon bond. A) current yield B) discount yield C) future yield D) star yield

24) Holding all other factors constant, the quantity demanded of an asset is A) positively related to wealth. B) negatively related to its expected return relative to alternative assets. C) positively related to the risk of its returns relative to alternative assets. D) negatively related to its liquidity relative to alternative assets.

24) The classical economists believed that if the quantity of money doubled ) A) prices would double. B) prices would remain constant. C) prices would fall. D) output would double

24) The yield to maturity for a one-year discount bond equals the increase in price over the year, divided by the A) initial price. B) face value. C) interest rate. D) coupon rate.

25) If the price of diamonds is expected to decrease, all else equal, then the demand for diamonds ________ and the demand for platinum ________. A) decreases; increases B) decreases; decreases C) increases; increases D) increases; decreases

25) The economist Irving Fisher, after whom the Fisher effect is named, explained why interest rates ________ as the expected rate of inflation ________, everything else held constant. A) rise; increases B) rise; stabilizes C) fall; stabilizes D) fall; increases

25) The yield to maturity for a discount bond is ________ related to the current bond price. A) negatively B) positively C) not D) directly

26) If prices in the diamond market become less volatile, all else equal, then the demand for diamonds ________ and the demand for gold ________. A) increases; decreases B) increases; increases C) decreases; decreases D) decreases; increases

3) The bond demand curve is ________ sloping, indicating a(n) ________ relationship between the price and quantity demanded of bonds, everything else equal. A) downward; inverse B) downward; direct C) upward; inverse D) upward; direct

3) The duration of a coupon bond increases A) the longer is the bondʹs term to maturity. B) when interest rates increase. C) the higher the coupon rate on the bond. D) the higher the bond price.

4) All else equal, when interest rates ________, the duration of a coupon bond ________. A) rise; falls B) rise; increases C) falls; falls D) falls; does not change

4) The interest rate that describes how well a lender has done in real terms after the fact is called the A) ex post real interest rate. B) ex ante real interest rate. C) ex post nominal interest rate. D) ex ante nominal interest rate.

43) If the expected return on bonds increases, all else equal, the demand for bonds increases, the price of bonds ________, and the interest rate ________. A) increases; decreases B) increases; increases C) decreases; decreases D) decreases; increases

47) In the figure above, the price of bonds would fall from P1 to P2 when A) inflation is expected to increase in the future. B) interest rates are expected to fall in the future. C) the expected return on bonds relative to other assets is expected to increase in the future. D) the riskiness of bonds falls relative to other assets.

5) 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

7) Everything else held constant, if the expected return on U.S. Treasury bonds falls from 10 to 5 percent and the expected return on GE stock rises from 7 to 8 percent, then the expected return of holding GE stock ________ relative to U.S. Treasury bonds and the demand for GE stock ________. A) rises; rises B) rises; falls C) falls; rises D) falls; falls

8) If you expect the inflation rate to be 12 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is A) -5 percent. B) -2 percent. C) 2 percent. D) 12 percent.

8) Which of the following are generally true of bonds? A) The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period. B) A rise in interest rates is associated with a fall in bond prices, resulting in capital gains on bonds whose terms to maturity are longer than the holding periods. C) The longer a bondʹs maturity, the smaller is the size of the price change associated with an interest rate change. D) Prices and returns for short-term bonds are more volatile than those for longer-term bonds.

9) Examples of discount bonds include A) U.S. Treasury bills. B) corporate bonds. C) U.S. Treasury notes. D) municipal bonds.

A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of A) 8 percent. B) 10 percent. C) 12 percent. D) 14 percent.

A $10000 8 percent coupon bond that sells for $10000 has a yield to maturity of ________. A) 8 percent B) 10 percent C) 12 percent D) 14 percent

A business cycle expansion increases income, causing money demand to _______ and interest rates to ________, everything else held constant. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

A business cycle expansion increases income, causing money demand to ________ and interest rates to ________, everything else held constant. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

A coupon bond that has no maturity date and no repayment of principal is called a ________. A) consol B) cabinet C) Treasury bill D) Government note

A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a A) simple loan. B) fixed-payment loan. C) coupon bond. D) discount bond.

A disadvantage of ________made from precious metals is that it is very heavy and hard to transport from one place to another. A) commodity money B) fiat money C) electronic money D) paper money

A hyperinflation is A) a period of extreme inflation generally greater than 50% per month. B) a period of anxiety caused by rising prices. C) an increase in output caused by higher prices. D) impossible today because of tighter regulations.

A lower level of income causes the demand for money to ________ and the interest rate to _______, everything else held constant. A) decrease; decrease B) decrease; increase C) increase; decrease D) increase; increase

A lower level of income causes the demand for money to ________ and the interest rate to ________, everything else held constant. A) decrease; decrease B) decrease; increase C) increase; decrease D) increase; increase

A movement along the bond demand or supply curve occurs when _______ changes. A) bond price B) income C) wealth D) expected return

A problem with the yield on discount basis is that it ________ the yield to maturity, and this ________ increases, the ________ the maturity of the discount bond. A) understates; understatement; longer B) understates; understatement; shorter C) overstates; overstatement; longer D) overstates; overstatement; shorter

A return to the gold standard, that is, using gold for money will ________ the ________ for gold, ________ its price, everything else held constant. A) increase; demand; increasing B) decrease; demand; decreasing C) increase; supply; increasing D) decrease; supply; increasing

A smart card is the equivalent of A) cash. B) savings bonds. C) savings deposits. D) certificates of deposit.

All but the most primitive societies use money as a medium of exchange, implying that A) the use of money is economically efficient. B) barter exchange is economically efficient. C) barter exchange cannot work outside the family. D) inflation is not a concern.

All else equal, when interest rates ________, the duration of a coupon bond ________. A) rise; falls B) rise; increases C) falls; falls D) falls; does not change

All of the following are necessary criteria for a commodity to function as money EXCEPT A) it must deteriorate quickly. B) it must be divisible. C) it must be easy to carry. D) it must be widely accepted.

All of the following are necessary criteria for a commodity to function as money except A) it must deteriorate quickly. B) it must be divisible. C) it must be easy to carry. D) it must be widely accepted.

An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of A) 5 percent. B) 8 percent. C) 10 percent. D) 40 percent.

An $8000 coupon bond with a $400 coupon payment every year has a coupon rate of ________. A) 5 percent B) 8 percent C) 10 percent D) 40 percent

An increase in the expected inflation rate will ________ the ________ for gold, ________ its price, everything else held constant. A) increase; demand; increasing B) decrease; demand; decreasing C) increase; supply; increasing D) decrease; supply; increasing

An increase in the time to the promised future payment ________ the present value of the payment. A) decreases B) increases C) has no effect on D) is irrelevant to

As the payments system evolves from barter to a monetary system, A) commodity money is likely to precede the use of paper currency. B) transaction costs increase. C) the number of prices that need to be calculated increase rather dramatically. D) specialization decreases.

Bonds whose term-to-maturity is longer than the holding period are subject to ________. A) interest rate risk B) exchange-rate risk C) inflation D) deflation

By subtracting from the interest rate of a Canada coupon bond the interest rate of a similar maturity's real return bond, provides us with an insight about ________. A) the expected inflation B) the real interest rate C) the current yield D) the discounted yield

Compared to an economy that uses a medium of exchange, in a barter economy A) transaction costs are higher. B) transaction costs are lower. C) liquidity costs are higher. D) liquidity costs are lower.

Compared to checks, paper currency and coins have the major drawbacks that they A) are easily stolen. B) are hard to counterfeit. C) are not the most liquid assets. D) must be backed by gold.

Currency includes A) paper money and coins. B) paper money, coins, and checks. C) paper money and checks. D) paper money, coins, checks, and savings deposits.

Everything else held constant, if the expected return on bonds falls from 10 to 5 percent and the expected return on GE stock rises from 7 to 8 percent, then the expected return of holding GE stock ________ relative to bonds and the demand for GE stock ________. A) rises; rises B) rises; falls C) falls; rises D) falls; falls

Examples of discount bonds include A) U.S. Treasury bills. B) corporate bonds. C) U.S. Treasury notes. D) municipal bonds.

Examples of discount bonds include ________. A) Treasury bills B) corporate bonds C) coupon bonds D) municipal bonds

Factors that can cause the supply curve for bonds to shift to the right include A) an expansion in overall economic activity. B) a decrease in expected inflation. C) a decrease in government deficits. D) a business cycle recession.

For a commodity to function effectively as money it must be A) easily standardized, making it easy to ascertain its value. B) difficult to make change. C) deteriorate quickly so that its supply does not become too large. D) hard to carry around.

Holding all other factors constant, the quantity demanded of an asset is A) positively related to wealth. B) negatively related to its expected return relative to alternative assets. C) positively related to the risk of its returns relative to alternative assets. D) negatively related to its liquidity relative to alternative assets.

Holding all other factors constant, the quantity demanded of an asset is ________. A) positively related to wealth B) negatively related to its expected return relative to alternative assets C) positively related to the risk of its returns relative to alternative assets D) negatively related to its liquidity relative to alternative assets

Holding many risky assets and thus reducing the overall risk an investor faces is called A) diversification. B) foolishness. C) risk acceptance. D) capitalization.

Holding the expected return on bonds constant, an increase in the expected return on common stocks would ________ the demand for bonds, shifting the demand curve to the ________. A) decrease; left B) decrease; right C) increase; left D) increase; right

If $22,050 is the amount payable in two years for a $20,000 simple loan made today, the interest rate is A) 5 percent. B) 10 percent. C) 22 percent. D) 25 percent.

If $22050 is the amount payable in two years for a $20000 simple loan made today, the interest rate is ________. A) 5 percent B) 10 percent C) 22 percent D) 25 percent

If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is A) $650. B) $1,300. C) $130. D) $13.

If a $5,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to maturity is A) 0 percent. B) 5 percent. C) 10 percent. D) 20 percent.

If a $5000 face-value discount bond maturing in one year is selling for $5000, then its yield to maturity is ________. A) 0 percent B) 5 percent C) 10 percent D) 20 percent

If an individual moves money from a demand deposit account to a money market 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 decreases.

If an individual moves money from a demand deposit account to a money market 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 decreases.

If an individual moves money from a money market deposit account to currency A) M1 increases 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 decreases.

If an individual moves money from a money market deposit account to currency, A) M1 increases 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 decreases.

If an individual moves money from a small-denomination time deposit to a demand deposit account 19) A) M1 increases and M2 stays the same. B) M1 increases and M2 decreases. C) M1 stays the same and M2 increases. D) M1 stays the same and M2 stays the same.

If an individual moves money from a small-denomination time deposit to a demand deposit account A) M1 increases 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 decreases.

If an individual moves money from a small-denomination time deposit to a demand deposit account, A) M1 increases 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 decreases.

If prices in the bond market become more volatile, everything else held constant, the demand curve for bonds shifts ________ and interest rates ________. A) left; rise B) left; fall C) right; rise D) right; fall

If the interest rate on a Real Return Bond is 2 percent and the interest rate on a Canada bond of similar maturity is 5 percent then ________ is equal to 3 percent. A) the expected rate of inflation B) the yield to maturity C) current yield D) expected interest rate

If the interest rate on a Real Return Bond is 5 percent and the interest rate on a Canada bond of similar maturity is 2 percent then the expected rate of inflation is equal to ________. A) -3 percent B) 7 percent C) 3 percent D) 2 percent

If there is an excess demand for money, individuals ________ bonds, causing interest rates to ________. A) sell; rise B) sell; fall C) buy; rise D) buy; fall

If you expect the inflation rate to be 12 percent next year and a one -year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is A) -5 percent. B) -2 percent. C) 2 percent. D) 12 percent.

If you expect the inflation rate to be 12 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is ________. A) -5 percent B) -2 percent C) 2 percent D) 12 percent

In a barter economy the number of prices in an economy with N goods is A) [N(N - 1)]/2. B) N(N/2). C) 2N. D) N(N/2) - 1.

In a business cycle expansion, the ________ of bonds increases and the ________ curve shifts to the ________ as business investments are expected to be more profitable. A) supply; supply; right B) supply; supply; left C) demand; demand; right D) demand; demand; left

In his Liquidity Preference Framework, Keynes assumed that money has a zero rate of return; thus A) when interest rates rise, the expected return on money falls relative to the expected return on bonds, causing the demand for money to fall. B) when interest rates rise, the expected return on money falls relative to the expected return on bonds, causing the demand for money to rise. C) when interest rates fall, the expected return on money falls relative to the expected return on bonds, causing the demand for money to fall. D) when interest rates fall, the expected return on money falls relative to the expected return on bonds, causing the demand for money to rise.

In the figure above, illustrates the effect of an increased rate of money supply growth at time period 0. From the figure, one can conclude that the ________. A) liquidity effect is smaller than the expected inflation effect 最终and interest rates adjust quickly to changes in expected inflation B) liquidity effect is larger than the expected inflation effect and interest rates adjust quickly to changes in expected inflation C) liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation D) liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation

In the figure above, the price of bonds would fall from P1 to P2 if ________. A) inflation is expected to increase in the future B) interest rates are expected to fall in the future C) the expected return on bonds relative to other assets is expected to increase in the future D) the riskiness of bonds falls relative to other assets

In the figure above, the price of bonds would fall from P1 to P2 when A) inflation is expected to increase in the future. B) interest rates are expected to fall in the future. C) the expected return on bonds relative to other assets is expected to increase in the future. D) the riskiness of bonds falls relative to other assets.

In the liquidity preference framework, a one-time increase in the money supply results in a price level effect. The maximum impact of the price level effect on interest rates occurs A) at the moment the price level hits its peak (stops rising) because both the price level and expected inflation effects are at work. B) immediately after the price level begins to rise, because both the price level and expected inflation effects are at work. C) at the moment the expected inflation rate hits its peak. D) at the moment the inflation rate hits it peak.

In the market for money, an interest rate below equilibrium results in an excess ____ money and the interest rate will _____. A) demand for; rise B) demand for; fall C) supply of; fall D) supply of; rise

In the market for money, an interest rate below equilibrium results in an excess ________ money and the interest rate will ________. A) demand for; rise B) demand for; fall C) supply of; fall D) supply of; rise

Interest-rate risk is the riskiness of an asset's returns due to ________. A) interest-rate changes B) changes in the coupon rate C) default of the borrower D) changes in the asset's maturity

Interest-rate risk is the riskiness of an assetʹs returns due to A) interest-rate changes. B) changes in the coupon rate. C) default of the borrower. D) changes in the assetʹs maturity.

Introduction of checks into the payments system reduced the costs of exchanging goods and services. Another advantage of checks is that A) they provide convenient receipts for purchases. B) they can never be stolen. C) they are more widely accepted than currency. D) the funds from a deposited check are available for use immediately.

Kevin purchasing concert tickets with a $100 bill is an example of the ________ function of money. A) medium of exchange B) store of value C) unit of account D) specialization

Kevin purchasing concert tickets with his debit card is an example of the ________ function of money. A) medium of exchange B) unit of account C) store of value D) specialization

Milton Friedman called the response of lower interest rates resulting from an increase in the money supply the ___ _____ effect. A) liquidity B) price level C) expected-inflation D) income

Milton Friedman called the response of lower interest rates resulting from an increase in the money supply the ________ effect. A) liquidity B) price level C) expected-inflation D) income

Monetary aggregates are A) measures of the money supply reported by the Federal Reserve. B) measures of the wealth of individuals. C) never redefined since "money" never changes. D) reported by the Treasury Department annually.

Money ________ transaction costs, allowing people to specialize in what they do best. A) reduces B) increases C) enhances D) eliminates

Money is A) anything that is generally accepted in payment for goods and services or in the repayment of debt. B) a flow of earnings per unit of time. C) the total collection of pieces of property that are a store of value. D) always based on a precious metal like gold or silver.

Of the four effects on interest rates from an increase in the money supply, the one that works in the opposite direction of the other three is the A) liquidity effect. B) income effect. C) price level effect. D) expected inflation effect.

Of the four effects on interest rates from an increase in the money supply, the one that works in the opposite direction of the other three is the ________. A) liquidity effect B) income effect C) price level effect D) expected inflation effect

Of the four factors that influence asset demand, which factor will cause the demand for all assets to increases, everything else held constant? A) Wealth B) Expected returns C) Risk D) Liquidity

People hold money even during inflationary episodes when other assets prove to be better stores of value. This can be explained by the fact that money is A) extremely liquid. B) a unique good for which there are no substitutes. C) the only thing accepted in economic exchange. D) backed by gold.

Pieces of property that serve as a store of value are called ____. A) assets B) units of account C) liabilities D) borrowings

Since it does not have to be converted into anything else to make purchases, ________ is the most liquid asset. A) money B) stock C) artwork D) gold

The M2 monetary aggregate contains everything that is in M1 plus other assets that are highly ________ (can be turned into cash quickly at very little cost). A) liquid B) stable C) consistent D) efficient

The ________ interest rate is adjusted for expected changes in the price level. A) ex ante real B) ex post real C) ex post nominal D) ex ante nominal

The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation. A) Fisher equation B) Keynesian equation C) Monetarist equation D) Marshall equation

The ________ states that the real interest rate equals the nominal interest rate minus the expected rate of inflation. A) Fisher equation B) Keynesian equation C) Monetarist equation D) Marshall equation

The ________ the returns on two securities move together, the ________ benefit there is from diversification. A) less; more B) less; less C) more; more D) more; greater

The concept of ________ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today. A) present value B) future value C) interest D) deflation

The demand for silver decreases, other things equal, when ________. A) the gold market is expected to boom B) the market for silver becomes more liquid C) wealth grows rapidly D) interest rates are expected to rise

The duration of a coupon bond increases ________. A) the longer is the bond's term to maturity B) when interest rates increase C) the higher the coupon rate on the bond D) the higher the bond price

The evidence on the interest sensitivity of the demand for money suggests that the demand for money is ________ to interest rates, and there is ________ evidence that a liquidity trap exists. 35) A) sensitive; little B) insensitive; little C) sensitive; substantial D) insensitive; substantial

The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that the ________. A) Fisher effect is dominated by the liquidity effect 最初and interest rates adjust slowly to changes in expected inflation B) liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to changes in expected inflation C) liquidity effect is dominated by the Fisher effect and interest rates adjust quickly to changes in expected inflation D) Fisher effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation

The interest rate on Real Return Bonds is a direct measure of ________. A) the real interest rate B) the nominal interest rate C) the rate of inflation D) the rate of deflation

The interest rate on Treasury Inflation Protected Securities is a direct measure of A) the real interest rate. B) the nominal interest rate. C) the rate of inflation. D) the rate of deflation.

The interest rate that describes how well a lender has done in real terms after the fact is called the ________. A) ex post real interest rate B) ex ante real interest rate C) ex post nominal interest rate D) ex ante nominal interest rate

The nominal interest rate minus the expected rate of inflation A) defines the real interest rate. B) is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate. C) is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate. D) defines the discount rate.

The nominal interest rate minus the expected rate of inflation ________. A) defines the real interest rate B) is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate C) is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate D) defines the bank rate

The payments system is A) the method of conducting transactions in the economy. B) used by union officials to set salary caps. C) an illegal method of rewarding contracts. D) used by your employer to determine salary increases.

The present value of a fixed-payment loan is calculated as the ________ of the present value of all cash flow payments. A) sum B) difference C) multiple D) log

The present value of an expected future payment ________ as the interest rate increases. A) falls B) rises C) is constant D) is unaffected

The price of gold should be ________ to the expected inflation rate. A) positively related B) negatively related C) inversely related D) unrelated

The risk of a well-diversified portfolio depends only on the ________ risk of the assets in the portfolio. A) systematic B) nonsystematic C) portfolio D) investment

The sum of the current yield and the rate of capital gain is called the ________. A) rate of return B) discount yield C) perpetuity yield D) par value

The total collection of pieces of property that serve to store value is a person's A) wealth. B) income. C) money. D) credit.

The yield to maturity for a discount bond is ________ related to the current bond price. A) negatively B) positively C) not D) directly

The yield to maturity for a one-year discount bond equals the increase in price over the year, divided by the A) initial price. B) face value. C) interest rate. D) coupon rate.

The yield to maturity for a one-year discount bond equals the increase in price over the year, divided by the ________. A) initial price B) face value C) interest rate D) coupon rate

The yield to maturity for a perpetuity is a useful approximation for the yield to maturity on long-term coupon bonds. It is called the ________ when approximating the yield for a coupon bond. A) current yield B) discount yield C) future yield D) star yield

There is ________ for any bond whose time to maturity matches the holding period. A) no interest-rate risk B) a large interest-rate risk C) rate-of-return risk D) yield-to-maturity risk

To an economist, ________ is anything that is generally accepted in payment for goods or services or in the repayment of debt A) money B) wealth C) credit D) income

When an economy grows out of a recession, normally the demand for bonds ________ and the supply of bonds ________, everything else held constant. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases

When compared to exchange systems that rely on money, disadvantages of the barter system include A) the requirement of a double coincidence of wants. B) lowering the cost of exchanging goods over time. C) lowering the cost of exchange to those who would specialize. D) encouraging specialization and the division of labor.

When compared to exchange systems that rely on money, disadvantages of the barter system include: A) the requirement of a double coincidence of wants. B) lowering the cost of exchanging goods over time. C) lowering the cost of exchange to those who would specialize. D) encouraging specialization and the division of labor.

When money prices are used to facilitate comparisons of value, money is said to function as a A) unit of account. B) medium of exchange. C) store of value. D) payments-system ruler.

When stock prices become more volatile, the ________ curve for gold shifts right and gold prices ________, everything else held constant. A) demand; increase B) demand; decrease C) supply; increase D) supply; decrease

When the growth rate of the money supply increases, interest rates end up being permanently lower if A) the liquidity effect is larger than the other effects. B) there is fast adjustment of expected inflation. C) there is slow adjustment of expected inflation. D) the expected inflation effect is larger than the liquidity effect

When the price level falls, the ________ curve for nominal money ________, and interest rates ________, everything else held constant. A) demand; decreases; fall B) demand; increases; rise C) supply; increases; rise D) supply; decreases; fall

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.

Which of the following $1,000 face-value securities has the highest yield to maturity? A) A 5 percent coupon bond with a price of $600 B) A 5 percent coupon bond with a price of $800 C) A 5 percent coupon bond with a price of $1,000 D) A 5 percent coupon bond with a price of $1,200

Which of the following $1,000 face-value securities has the lowest yield to maturity? A) A 5 percent coupon bond selling for $1,000 B) A 10 percent coupon bond selling for $1,000 C) A 15 percent coupon bond selling for $1,000 D) A 15 percent coupon bond selling for $900

Which of the following $1000 face-value securities has the highest yield to maturity? A) A 5 percent coupon bond with a price of $600 B) A 5 percent coupon bond with a price of $800 C) A 5 percent coupon bond with a price of $1000 D) A 5 percent coupon bond with a price of $1200

Which of the following $1000 face-value securities has the lowest yield to maturity? A) A 5 percent coupon bond selling for $1000 B) A 10 percent coupon bond selling for $1000 C) A 15 percent coupon bond selling for $1000 D) A 15 percent coupon bond selling for $900

Which of the following are generally true of bonds? A) The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period. B) A rise in interest rates is associated with a fall in bond prices, resulting in capital gains on bonds whose terms to maturity are longer than the holding periods. C) The longer a bondʹs maturity, the smaller is the size of the price change associated with an interest rate change. D) Prices and returns for short-term bonds are more volatile than those for longer-term bonds.

Which of the following are true for a coupon bond? A) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. B) The price of a coupon bond and the yield to maturity are positively related. C) The yield to maturity is greater than the coupon rate when the bond price is above the par value. D) The yield is less than the coupon rate when the bond price is below the par value.

Which of the following bonds would you prefer to be buying? A) A $10000 face-value security with a 10 percent coupon selling for $9000 B) A $10000 face-value security with a 7 percent coupon selling for $10000 C) A $10000 face-value security with a 9 percent coupon selling for $10000 D) A $10000 face-value security with a 10 percent coupon selling for $10000

Which of the following bonds would you prefer to be buying? A) A $10,000 face-value security with a 10 percent coupon selling for $9,000 B) A $10,000 face-value security with a 7 percent coupon selling for $10,000 C) A $10,000 face-value security with a 9 percent coupon selling for $10,000 D) A $10,000 face-value security with a 10 percent coupon selling for $10,000

Which of the following is generally true of bonds? A) The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period. B) A rise in interest rates is associated with a fall in bond prices, resulting in capital gains on bonds whose terms to maturity are longer than the holding periods. C) The longer a bond's maturity, the smaller is the size of the price change associated with an interest rate change. D) Prices and returns for short-term bonds are more volatile than those for longer-term bonds.

Which of the following is included in both M1 and M2? A) Currency B) Savings deposits C) Small-denomination time deposits D) Money market deposit accounts

Which of the following is included in both M1 and M2? A) currency B) savings deposits C) small-denomination time deposits D) money market deposit accounts

Which of the following is true concerning the distinction between interest rates and returns? A) The rate of return on a bond will not necessarily equal the interest rate on that bond. B) The return can be expressed as the difference between the current yield and the rate of capital gains. C) The rate of return will be greater than the interest rate when the price of the bond falls between time t and time t + 1. D) The return can be expressed as the sum of the discount yield and the rate of capital gains

Which of the following is true for a coupon bond? A) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. B) The price of a coupon bond and the yield to maturity are positively related. C) The yield to maturity is greater than the coupon rate when the bond price is above the par value. D) The yield is less than the coupon rate when the bond price is below the par value

Which of the following sequences accurately describes the evolution of the payments system? A) Barter, coins made of precious metals, paper currency, checks, electronic funds transfers B) Barter, coins made of precious metals, checks, paper currency, electronic funds transfers C) Barter, checks, paper currency, coins made of precious metals, electronic funds transfers D) Barter, checks, paper currency, electronic funds transfers

Which of the following statements accurately describes the two measures of the money supply? A) The two measures do not move together, so they cannot be used interchangeably by policymakers. B) The two measures' movements closely parallel each other, even on a month-to-month basis. C) Short-run movements in the money supply are extremely reliable. D) M2 is the narrowest measure the Fed reports.

_______ in the money supply creates excess _______ money, causing interest rates to _______, everything else held constant. A) A decrease; demand for; rise B) An increase; demand for; fall C) An increase; supply of; rise D) A decrease; supply of; fall

________ in the money supply creates excess ________ money, causing interest rates to ________, everything else held constant. A) A decrease; demand for; rise B) An increase; demand for; fall C) An increase; supply of; rise D) A decrease; supply of; fall

________ is a flow of earnings per unit of time. A) Income B) Money C) Wealth D) Currency

________ money could be used for some other purpose other than as a medium of exchange, for example, gold coins could be melted down and turned into gold jewelry. A) Commodity B) Fiat C) Paper D) Electronic

Which of the following $1,000 face-value securities has the highest yield to maturity?

A 12 percent coupon bond selling for $1,000

Which of the following $5,000 face-value securities has the highest yield to maturity?

A 12 percent coupon bond selling for $4,500

Medium of Exchange

A common asset that is used to pay for goods, services, and labor

A) The present value of a loan in which $5000 is to be paid out a year from today with the interest rate equal to 2% is B) If a loan is paid after two years, and the amount $3000 is to be paid then with a corresponding 3% interest rate, the present value of the loan is

A) $4,901.96 B) $2,827.79

9) If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is A) $650. B) $1,300. C) $130. D) $13. E) None of the above.

A) $650.

16) With an interest rate of 8 percent, the present value of $100 received one year from now is approximately A) $93. B) $96. C) $100. D) $108. Answer: A

A) $93.

59) (I) Prices of longer-maturity bonds respond more dramatically to changes in interest rates. (II) Prices and returns for long-term bonds are less volatile than those for short-term bonds. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false.

A) (I) is true, (II) false.

43) If a $5,000 face value discount bond maturing in one year is selling for $5,000, then its yield to maturity is A) 0 percent. B) 5 percent. C) 10 percent. D) 20 percent.

A) 0 percent.

10) An $8,000 coupon bond with a $400 annual coupon payment has a coupon rate of A) 5 percent. B) 8 percent. C) 10 percent. D) 40 percent. Answer: A

A) 5 percent.

25) A $10,000, 8 percent coupon bond that sells for $10,000 has a yield to maturity of A) 8 percent. B) 10 percent. C) 12 percent. D) 14 percent.

A) 8 percent.

57) 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

A) A bond with one year to maturity

________ in the money supply creates excess demand for ________, causing interest rates to ________, everything else held constant.

A) An increase; money; rise *B) An increase; bonds; fall* C) A decrease; bonds; rise D) A decrease; money; fall

In the figure above, illustrates the effect of an increased rate of money supply growth at time period 0. From the figure, one can conclude that the

A) Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation. B) liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to changes in expected inflation. *C) liquidity effect is dominated by the Fisher effect and interest rates adjust quickly to changes in expected inflation.* D) Fisher effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.

32) Which of the following are true for a coupon bond? A) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. B) The price of a coupon bond and the yield to maturity are positively related. C) The yield to maturity is greater than the coupon rate when the bond price is above the par value. D) All of the above are true. E) Only A and B of the above are true.

A) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate.

15) In the figure above, one factor not responsible for the decline in the demand for money is (Md shifted left)

A) a decline the price level. B) a decline in income. *C) an increase in income.* D) a decline in the expected inflation rate.

In the figure above, the factor responsible for the decline in the interest rate is (Ms shifted right)

A) a decline the price level. B) a decline in income. *C) an increase in the money supply.* D) a decline in the expected inflation rate.

In the figure above, the decrease in the interest rate from i1 to i2 can be explained by

A) a decrease in money growth. *B) a decline in the expected price level.* C) an increase in income. D) an increase in the expected price level.

18) In the figure above, the decrease in the interest rate from i1 to i2 can be explained by

A) a decrease in money growth. *B) an increase in money growth.* C) a decline in the expected price level. D) an increase in income.

Keynes assumed that money has ________ rate of return

A) a positive B) a negative *C) a zero* D) an increasing

74) An ex post real interest rate is adjusted for ________ changes in the price level. A) actual B) expected C) nominal D) real

A) actual

A higher ________ means that an asset's return is more sensitive to changes in the value of the market portfolio.

A) alpha *B) beta* C) CAPM D) APT

In Keynes's liquidity preference framework, if there is excess demand for money, there is

A) an excess demand for bonds. B) equilibrium in the bond market. *C) an excess supply of bonds.* D) too much money.

37) The current yield on a coupon bond is the bond's ________ divided by its ________. A) annual coupon payment; price B) annual coupon payment; face value C) annual return; price D) annual return; face value

A) annual coupon payment; price

Interest rates increased continuously during the 1970s. The most likely explanation is

A) banking failures that reduced the money supply. B) a rise in the level of income. C) the repeated bouts of recession and expansion. *D) increasing expected rates of inflation.*

3) A bond's future payments are called its A) cash flows. B) maturity values. C) discounted present values. D) yields to maturity.

A) cash flows.

A rise in the price level causes the demand for money to ________ and the interest rate to ________, everything else held constant.

A) decrease; decrease B) decrease; increase C) increase; decrease *D) increase; increase*

A decline in the expected inflation rate causes the demand for money to ________ and the demand curve to shift to the ________, everything else held constant.

A) decrease; right *B) decrease; left* C) increase; right D) increase; left

When the Fed ________ the money stock, the money supply curve shifts to the ________ and the interest rate ________, everything else held constant.

A) decreases; right; rises *B) increases; right; falls* C) decreases; left; falls D) increases; left; rises

48) The nominal interest rate minus the expected rate of inflation A) defines the real interest rate. B) is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate. C) is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate. D) defines the discount rate.

A) defines the real interest rate.

When the interest rate is above the equilibrium interest rate, there is an excess ________ money and the interest rate will ________.

A) demand for; rise B) demand for; fall *C) supply of; fall* D) supply of; rise

In the loanable funds framework, the ________ curve of bonds is equivalent to the ________ curve of loanable funds.

A) demand; demand *B) demand; supply* C) supply; supply D) supply; equilibrium

68) The interest rate that is adjusted for actual changes in the price level is called the A) ex post real interest rate. B) expected interest rate. C) ex ante real interest rate. D) none of the above.

A) ex post real interest rate.

A) expected inflation; bonds *B) expected inflation; money* C) government budget deficits; bonds D) government budget deficits; money

It is possible that when the money supply rises, interest rates may ________ if the ________ effect is more than offset by changes in income, the price level, and expected inflation.

A) fall; liquidity B) fall; risk *C) rise; liquidity* D) rise; risk

A) falls; bonds *B) falls; money* C) rises; bonds D) rises; money

When the price level ________, the demand curve for money shifts to the ________ and the interest rate ________, everything else held constant.

A) falls; left; falls B) rises; right; falls C) falls; left; rises *D) rises; right; rises*

When real income ________, the demand curve for money shifts to the ________ and the interest rate ________, everything else held constant.

A) falls; right; rises *B) rises; right; rises* C) falls; left; rises D) rises; left; rises

Of the four effects on interest rates from an increase in the money supply, the initial effect is, generally, the

A) income effect. *B) liquidity effect.* C) price level effect. D) expected inflation effect.

Discovery of new gold in Alaska will ________ the ________ of gold, ________ its price, everything else held constant.

A) increase; demand; increasing B) decrease; demand; decreasing C) decrease; supply; increasing *D) increase; supply; decreasing*

In the Keynesian liquidity preference framework, a rise in the price level causes the demand for money to ________ and the demand curve to shift to the ________, everything else held constant

A) increase; left *B) increase; right* C) decrease; left D) decrease; right

An increase in the interest rate

A) increases the demand for money. B) increases the quantity of money demanded. C) decreases the demand for money. *D) decreases the quantity of money demanded.*

If there is an excess supply of money

A) individuals sell bonds, causing the interest rate to rise. B) individuals sell bonds, causing the interest rate to fall. *C) individuals buy bonds, causing interest rates to fall.* D) individuals buy bonds, causing interest rates to rise.

If the liquidity effect is smaller than the other effects, and the adjustment to expected inflation is slow, then the

A) interest rate will fall. B) interest rate will rise. *C) interest rate will initially fall but eventually climb above the initial level in response to an increase in money growth.* D) interest rate will initially rise but eventually fall below the initial level in response to an increase in money growth.

If the liquidity effect is smaller than the other effects, and the adjustment to expected inflation is immediate, then the

A) interest rate will fall. B) interest rate will rise. C) interest rate will fall immediately below the initial level when the money supply grows. *D) interest rate will rise immediately above the initial level when the money supply grows*

61) The riskiness of an asset's return that results from interest rate changes is called A) interest-rate risk. B) coupon-rate risk. C) reinvestment risk. D) yield-to-maturity risk.

A) interest-rate risk.

A) larger; fast *B) larger; slow* C) smaller; slow D) smaller; fast

The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that the ________. A) liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation B) liquidity effect is larger than the expected inflation effect and interest rates adjust quickly to changes in expected inflation C) liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation D) liquidity effect is smaller than the expected inflation effect 最终and interest rates adjust slowly to changes in expected inflation

The interest rate on a consol equals the A) price times the coupon payment. B) price divided by the coupon payment. C) coupon payment plus the price. D) coupon payment divided by the price.

The interest rate on a consol equals the ________. A) price times the coupon payment B) price divided by the coupon payment C) coupon payment plus the price D) coupon payment divided by the price

The price of a consol equals the coupon payment A) times the interest rate. B) plus the interest rate. C) minus the interest rate. D) divided by the interest rate.

The price of a consol equals the coupon payment ________. A) times the interest rate B) plus the interest rate C) minus the interest rate D) divided by the interest rate

The price of a coupon bond and the yield to maturity are ________ related; that is, as the yield to maturity ________, the price of the bond ________. A) positively; rises; rises B) negatively; falls; falls C) positively; rises; falls D) negatively; rises; falls

The riskiness of an asset that is unique to the particular asset is A) systematic risk. B) portfolio risk. C) investment risk. D) nonsystematic risk.

The riskiness of an asset's returns due to changes in interest rates is ________. A) exchange-rate risk B) price risk C) asset risk D) interest-rate risk

The riskiness of an assetʹs returns due to changes in interest rates is A) exchange-rate risk. B) price risk. C) asset risk. D) interest-rate risk.

The supply curve for bonds has the usual upward slope, indicating that as the price _______, ceteris paribus 其他条件相同, the ________ increases. A) falls; supply B) falls; quantity supplied C) rises; supply D) rises; quantity supplied

The theory of portfolio choice indicates that higher interest rates make money ________ desirable, and the demand for real money balances ________. ) A) more; falls B) less; rises C) more; rises D) less; falls

The yield on a discount basis of a 90-day, $1,000 Treasury bill selling for $950 is A) 5 percent. B) 10 percent. C) 15 percent. D) 20 percent.

To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the concept of A) face value. B) par value. C) deflation. D) discounting the future.

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year? A) 5 percent B) 10 percent C) -5 percent D) 25 percent

What is the return on a 5 percent coupon bond that initially sells for $1000 and sells for $1200 next year? A) 5 percent B) 10 percent C) -5 percent D) 25 percent

When gold prices become more volatile, the ________ curve for gold shifts to the ________; ________ the price of gold. A) supply; right; increasing B) supply; left; increasing C) demand; right; decreasing D) demand; left; decreasing

When referring to changes in yields, a basis point equals A) 10 percent. B) 1 percent. C) 0.1 percent. D) 0.01 percent.

When the Fed decreases the money stock, the money supply curve shifts to the ________ and the interest rate ________, everything else held constant. A) right; rises B) right; falls C) left; falls D) left; rises

When the expected inflation rate increases, the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant. A) increases; increases; rises B) decreases; decreases; falls C) increases; decreases; falls D) decreases; increases; rises

When the interest rate changes, A) the demand curve for bonds shifts to the right. B) the demand curve for bonds shifts to the left. C) the supply curve for bonds shifts to the right. D) it is because either the demand or the supply curve has shifted.

When the price level ________, the demand curve for money shifts to the ________ and the interest rate ________, everything else held constant. A) falls; right; rises B) rises; right; falls C) falls; left; rises D) rises; right; rises

When the price of a bond is _______ the equilibrium price, there is an excess demand for bonds and price will ________. A) above; rise B) above; fall C) below; fall D) below; rise

Which of the following $5,000 face-value securities has the highest to maturity? A) A 6 percent coupon bond selling for $5,000 B) A 6 percent coupon bond selling for $5,500 C) A 10 percent coupon bond selling for $5,000 D) A 12 percent coupon bond selling for $4,500

Which of the following $5000 face-value securities has the highest yield-to maturity? A) A 6 percent coupon bond selling for $5000 B) A 6 percent coupon bond selling for $5500 C) A 10 percent coupon bond selling for $5000 D) A 12 percent coupon bond selling for $4500

Which of the following is NOT included in the M1 measure of money but is included in the M2 measure of money? A) currency B) traveler's checks C) demand deposits D) small-denomination time deposits

Which of the following is NOT included in the measure of M1? A) NOW accounts B) demand deposits C) currency D) savings deposits

Which of the following is included in M2 but NOT in M1? A) NOW accounts B) demand deposits C) currency D) money market mutual fund shares (retail)

Which of the following is included in M2 but not in M1? A) NOW accounts B) Demand deposits C) Currency D) Money market mutual fund shares (retail)

Which of the following is not included in the M1 measure of money but is included in the M2 measure of money? A) Currency B) Traveler's checks C) Demand deposits D) Small-denomination time deposits

________ is used to make purchases while ________ is the total collection of pieces of property that serve to store value. ) A) Money; income B) Income; money C) Wealth; income D) Money; wealth

________ is used to make purchases while ________ is the total collection of pieces of property that serve to store value. A) Money; income B) Wealth; income C) Income; money D) Money; wealth

45) If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is A) 7 percent. B) 22 percent. C) -15 percent. D) -8 percent. E) none of the above.

D) -8 percent.

42) If a $10,000 face value discount bond maturing in one year is selling for $5,000, then its yield to maturity is A) 5 percent. B) 10 percent. C) 50 percent. D) 100 percent.

D) 100 percent.

24) The yield to maturity of a one-year, simple loan of $400 that requires an interest payment of $50 is A) 5 percent. B) 8 percent. C) 12 percent. D) 12.5 percent.

D) 12.5 percent.

53) The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,100 one year later is A) 5 percent. B) 10 percent. C) 14 percent. D) 15 percent.

D) 15 percent.

34) The yield to maturity on a consol bond that pays $100 yearly and sells for $500 is A) 5 percent. B) 10 percent. C) 12.5 percent. D) 20 percent. E) 25 percent.

D) 20 percent.

51) What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 one year later? A) 5 percent B) 10 percent C) -5 percent D) 25 percent E) None of the above

D) 25 percent

28) Which of the following $1,000 face value securities has the highest yield to maturity? A) A 5 percent coupon bond selling for $1,000 B) A 10 percent coupon bond selling for $1,000 C) A 15 percent coupon bond selling for $1,000 D) A 15 percent coupon bond selling for $900

D) A 15 percent coupon bond selling for $900

30) Which of the following are true for a coupon bond? A) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. B) The price of a coupon bond and the yield to maturity are negatively related. C) The yield to maturity is greater than the coupon rate when the bond price is below the par value. D) All of the above are true. E) Only A and B of the above are true.

D) All of the above are true.

55) Which of the following are generally true of all bonds? A) The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period. B) A rise in interest rates is associated with a fall in bond prices, resulting in capital losses on bonds whose term to maturities are longer than the holding period. C) The longer a bond's maturity, the greater is the price change associated with a given interest rate change. D) All of the above are true. E) Only A and B of the above are true.

D) All of the above are true.

7) Which of the following are generally true of all bonds? A) The longer a bond's maturity, the lower is the rate of return that occurs as a result of the increase in the interest rate. B) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. C) Prices and returns for long-term bonds are more volatile than those for shorter-term bonds. D) All of the above are true. E) Only A and B of the above are true.

D) All of the above are true.

6) Which of the following are true of coupon bonds? A) The owner of a coupon bond receives a fixed interest payment every year until the maturity date, when the face or par value is repaid. B) U.S. Treasury bonds and notes are examples of coupon bonds. C) Corporate bonds are examples of coupon bonds. D) All of the above. E) Only A and B of the above.

D) All of the above.

60) (I) Prices of longer-maturity bonds respond less dramatically to changes in interest rates. (II) Prices and returns for long-term bonds are less volatile than those for shorter-term bonds. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false.

D) Both are false.

50) In which of the following situations would you prefer to be borrowing? 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.

D) The interest rate is 25 percent and the expected inflation rate is 50 percent.

47) The nominal interest rate minus the expected rate of inflation A) defines the real interest rate. B) is a better measure of the incentives to borrow and lend than the nominal interest rate. C) is a more accurate indicator of the tightness of credit market conditions than the nominal interest rate. D) all of the above. E) only A and B of the above.

D) all of the above.

44) The Fisher equation states that A) the nominal interest rate equals the real interest rate plus the expected rate of inflation. B) the real interest rate equals the nominal interest rate less the expected rate of inflation. C) the nominal interest rate equals the real interest rate less the expected rate of inflation. D) both A and B of the above are true. E) both A and C of the above are true.

D) both A and B of the above are true.

69) The change in the bond's price relative to the initial purchase price is A) the current yield. B) coupon payment. C) yield to maturity. D) rate of capital gain.

D) rate of capital gain.

21) For a simple loan, the simple interest rate equals the A) real interest rate. B) nominal interest rate. C) current yield. D) yield to maturity.

D) yield to maturity.

An increase in the time to the promised future payment ________ the present value of the payment.

Decreases

27) Everything else held constant, would an increase in volatility of stock prices have any impact on the demand for rare coins? Why or why not?

Demand would increase

A ________ is bought at a price below its face value, and the ________ value is repaid at the maturity date.

Discount, Face

Using the liquidity preference framework, show what happens to interest rates during a business cycle recession.

During a business cycle recession, income will fall. This causes the money demand curve to shift to the left. The resulting equilibrium will be at a lower interest rate.

31) Which of the following are true for a coupon bond? A) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. B) The price of a coupon bond and the yield to maturity are negatively related. C) The yield to maturity is greater than the coupon rate when the bond price is above the par value. D) All of the above are true. E) Only A and B of the above are true.

E) Only A and B of the above are true.

56) Which of the following are true concerning the distinction between interest rates and return? A) The rate of return on a bond will not necessarily equal the interest rate on that bond. B) The return can be expressed as the sum of the current yield and the rate of capital gains. C) The rate of return will be greater than the interest rate when the price of the bond falls between time t and time t + 1. D) All of the above are true. E) Only A and B of the above are true.

E) Only A and B of the above are true.

Would it make sense to buy a house when mortgage rates are 14% and expected inflation is 15%? Explain your answer

Even though the nominal rate for the mortgage appears high, the real cost of borrowing the funds is -1%. Yes, under this circumstance it would be reasonable to make this purchase

Would it make sense to buy a house when mortgage rates are 14% and expected inflation is 15%? Explain your answer.

Even though the nominal rate for the mortgage appears high, the real cost of borrowing the funds is -1%. Yes, under this circumstance it would be reasonable to make this purchase.

The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation.

Fisher

The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation

Fisher equation

The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value.

Greater; Coupon; below

Includes the most liquid assets

Your favorite uncle advises you to purchase long-term bonds because their interest rate is 10%. Should you follow his advice?

It depends on where you think interest rates are headed in the future. If you think interest rates will be going up, you should not follow your uncleʹs advice because you would then have to discount your bond if you needed to sell it before the maturity date. Long-term bonds have a greater interest-rate risk.

which of the following represents an advantage of using commodity money LOADING... for transactions?

It has an intrinsic value beyond its use as a medium of exchange

________ is the relative ease and speed with which an asset can be converted into a medium of exchange.

Liquidity

is the relative ease and speed with which an asset can be converted into cash.

Liquidity

________ is the relative ease and speed with which an asset can be converted into a medium of exchange.

Liquidity

________ is the narrowest monetary aggregate that the Fed reports.

is the narrowest monetary aggregate that the Fed reports.

For each of the following assets, indicate which, if any, of the monetary aggregates includes them: a. Currency b. Money market mutual funds (noninstitutional) c. U.S. T-bills (with maturities of less than 90 days) d. Small-denomination time deposits e. Large-cap mutual funds f. Check-able deposits

M1 and M2 M2 only Neither M1 nor M2 M2 only Neither M1 nor M2 M1 and M2

If an individual uses money from a demand deposit account to purchase a U.S. savings bond,

M1 decreases and M2 decreases.

If an individual moves money from a demand deposit account to a money market deposit account,

M1 decreases and M2 stays the same

If an individual redeems a U.S. savings bond for currency

M1 increases and M2 increases.

Of the following, the largest is

M2.

Brooke accepts money in exchange for performing her daily tasks at her office, since she knows she can use that money to buy goods and services.

Medium of exchange (money is being used)

is the most liquid store of value in the economy.

Money

Which of the following statements best explains how the use of money in an economy increases economic efficiency?

Money increases economic efficiency because it decreases transactions costs.

Commodity Money

Money made up of precious metals or another value commodity

________ is used to make purchases while ________ is the total collection of pieces of property that serve to store value.

Money; wealth

The price of a coupon bond and the yield to maturity are ________ related; that is, as the yield to maturity ________, the price of the bond ________.

Negatively, Rises, Falls

There is ________ for any bond whose time to maturity matches the holding period.

No interest rate risk

Which of the following are true concerning the distinction between interest rates and returns?

The rate of return on a bond will not necessarily equal the interest rate on that bond.

Liquidity

The relative ease and speed with which an asset can be converted into a medium of exchange

A relative has just won a state lottery paying $20 million in installments of $1 million per year for twenty years. Your relative states that she is $20 million richer. Is she correct? Create a simple example for two years to illustrate your position.

The relative is incorrect. The discounted present value of the payments is less than $20 million. The example should demonstrate that the discounted value of the payment due in one year is less than $1 million.

Which of the following statements accurately describes the two measures of the money supply?

The two measures do not move together, so they cannot be used interchangeably by policymakers.

________ are the time and resources spent trying to exchange goods and services.

Transaction costs.

________ are the time and resources spent trying to exchange goods and services.

Transaction costs.

The demand for Picasso paintings rises (holding everything else equal) when

Treasury securities become riskier

All of the following are examples of coupon bonds except

U.S. Treasury bills

Examples of discount bonds include

U.S. Treasury bills

Hyperinflation

When inflation rate exceeds 50% per month

Everything else held constant, would an increase in volatility of stock prices have any impact on the demand for rare coins? Why or why not?

Yes, it would cause the demand for rare coins to increase. The increased volatility of stock prices means that there is relatively more risk in owning stock than there was previously and so the demand for an alternative asset, rare coins, would increase

A discount bond is also called a ________ because the owner does not receive periodic payments.

Zero Coupon Bond

In a barter economy the number of prices in an economy with N goods is

[N(N - 1)]/2.

4) In which of the following situations would you prefer to be the lender? A) The interest rate is 4 percent and the expected inflation rate is 1 percent. B) The interest rate is 9 percent and the expected inflation rate is 7 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.

A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a ________. A) simple loan B) fixed-payment loan C) coupon bond D) discount bond

An increase in the time to the promised future payment ________ the present value of the payment. A) decreases B) increases C) has no effect on D) is irrelevant to

If a $5000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is ________. A) $650 B) $1300 C) $130 D) $13

The dollar amount of the yearly coupon payment expressed as a percentage of the face value of the bond is called the bond's ________. A) coupon rate B) maturity rate C) face value rate D) payment rate

The present value of an expected future payment ________ as the interest rate increases. A) falls B) rises C) is constant D) is unaffected

When talking about a coupon bond, face value and ________ mean the same thing. A) par value B) coupon value C) amortized value D) discount value

One of the assumptions of the Gordon Growth Model is that dividends will continue growing at ________ rate.

a constant

Which of the following is not a form of e-money?

a credit card

Factors that decrease the demand for bonds include

a decrease in riskiness of stocks

income

a flow of earning per unit of time

Of the following assets, the least liquid is

a house

A hyperinflation is

a period of extreme inflation generally greater than 50% per month.

Which of the following bonds are considered to be default − risk free?

a us treasury bonds

When the interest rate on a bond is ___ the equilibrium interest rate, in the bond market there is excess ___ and the interest rate will ___.

above; demand; fall

When paper currency is decreed by governments as legal tender, legally it must be

accepted as payment for debts.

adds to M1 other assets that are not quite as liquid as those included in M1: assets that have check-writing features and other assets that can be turned into cash quickly at very little cost

Factors that can cause the supply curve for bonds to shift to the right include

an expansion in overall economic activity

A feature of Bitcoin, a new type of electronic money, that make it attractive as a medium of exchange is

anonymous transactions

Money is

anything that is generally accepted in payment for goods and services or in the repayment of debt.

A key assumption in the segmented markets theory is that bonds of different maturities

are not substitutes at all

Pieces of property that serve as a store of value are called

assets

2) 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 twenty years to maturity B) a bond with one year to maturity C) a bond with five years to maturity D) a bond with ten years to maturity

6) When the expected inflation rate increases, the real cost of borrowing ________ and bond supply ________, everything else held constant. A) increases; increases B) decreases; increases C) increases; decreases D) decreases; decreases

A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a ________. A) simple loan B) fixed-payment loan C) coupon bond D) discount bond

A fully amortized loan is another name for ________. A) a simple loan B) a fixed-payment loan C) a commercial loan D) an unsecured loan

If a security pays $55 in one year and $133 in three years, its present value is $150 if the interest rate is ________. A) 5 percent B) 10 percent C) 12.5 percent D) 15 percent

Which of the following is 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.

Whatever a society uses as money, the distinguishing characteristic is that it must

be generally acceptable as payment for goods and services or in the repayment of debt.

Whatever a society uses as money, the distinguishing characteristic is that it must

be generally acceptable as payment for goods and services or in the repayment of debt.

Explain how cigarettes could be called "money" in prisoner-of-war camps of World War II.

because cigarettes are generally accepted in payment for goods and services or in the repayment of debt. You can trade them in for other things.

52) Use demand and supply analysis to explain why an expectation of Fed rate hikes would cause Treasury prices to fall.

because more people will be putting money in their banks (saving not spending)

If the price of bonds is set ___ the equilibrium price, the quantity of bonds demanded exceeds the quantity of bonds supplied, a condition called excess ___.

below; demand

When the price of a bond is ___ the equilibrium price, there is an excess demand for bonds and price will ___.

below; rise

A movement along the bond demand or supply curve occurs when ___ changes.

bond price

Everything else held constant, an increase in expected inflation, lowers the expected return on ___ compared to ___ assets.

bonds; real

10) If stock prices are expected to climb next year, everything else held constant, the ________ curve for bonds shifts ________ and the interest rate ________. A) demand; left; falls B) supply; left; rises C) demand; left; rises D) demand; right; rises

5) Everything else held constant, when households save less, wealth and the demand for bonds ________ and the bond demand curve shifts ________. A) increase; left B) decrease; right C) decrease; left D) increase; right

8) If people expect real estate prices to increase significantly, the ________ curve for bonds will shift to the ________, everything else held constant. A) supply; left B) supply; right C) demand; left D) demand; right

A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called a ________. A) simple loan B) fixed-payment loan C) coupon bond D) discount bond

The ________ is the final amount that will be paid to the holder of a coupon bond. A) discount value B) coupon value C) face value D) present value

With an interest rate of 6 percent, the present value of $100 next year is approximately ________. A) $106 B) $100 C) $94 D) $92

A smart card is the equivalent of

cash

A smart card is the equivalent of

cash.

If expectations are formed rationally, then individuals

change their forecast when faced with new information

A disadvantage of ________made from precious metals is that it is very heavy and hard to transport from one place to another.

commodity money

As the payments system evolves from barter to a monetary system,

commodity money is likely to precede the use of paper currency.

smart card

contains a computer chip that allows it be loaded with digital cash from the owner's bank account whenever needed

A ________ pays the owner a fixed coupon payment every year until the maturity date, when the ________ value is repaid.

coupon bond; face

The ________ is calculated by multiplying the coupon rate times the par value of the bond.

coupon payment

Ranking assets from most liquid to least liquid, the correct order is

currency, savings bonds, house

Ranking assets from most liquid to least liquid, the correct order is

currency; savings bonds; house

Ranking assets from most liquid to least liquid, the correct order is

currency; savings bonds; house.

3) If the nominal rate of interest is 2 percent, and the expected inflation rate is -10 percent, the real rate of interest is A) 2 percent. B) 8 percent. C) 10 percent. D) 12 percent.

7) Everything else held constant, when the inflation rate is expected to rise, interest rates will ________; this result has been termed the ________. A) fall; Fisher effect B) rise; Keynes effect C) fall; Keynes effect D) rise; Fisher effect

8) When the price of a bond is ________ the equilibrium price, there is an excess demand for bonds and price will ________. A) above; rise B) above; fall C) below; fall D) below; rise

9) Everything else held constant, when the government has higher budget deficits A) the demand curve for bonds shifts to the left and the interest rate falls. B) the supply curve for bonds shifts to the right and the interest rate falls. C) the demand curve for bonds shifts to the left and the interest rate rises. D) the supply curve for bonds shifts to the right and the interest rate rises.

To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of ________. A) face value B) par value C) deflation D) discounting the future

If the price of gold because less volatile, then, other things equal, the demand for stocks will ___ and the demand for antiques will ___.

decrease; decrease

If stock prices are expected to drop dramatically, then, other things equal, the demand for stocks will ___ and that of Treasury bills will ___.

decrease; increase

Everything else held constant, when households save less, wealth and the demand for bonds ___ and the bond demand curve shifts ___.

decrease; left

Holding the expected return on bonds constant, an increase in the expected return on common stocks would ___ the demand for bonds, shifting the demand curve to the ___.

decrease; left

If the price of gold becomes less volatile, then, other things equal, the demand for stocks will ________ and the demand for antiques will ________.

decrease;decrease

If stock prices are expected to drop dramatically, then, other things equal, the demand for stocks will ________ and that of Treasury bills will ________.

decrease;increase

An increase in the time to the promised future payment ________ the present value of the payment

decreases

An equal increase in all bond interest rates

decreases long-term bond returns more than short-term bond returns

An equal increase in all bond interest rates

decreases long-term bond returns more than short-term bond returns.

When the economy slips into a recession, normally the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant.

decreases; decreases; falls

If brokerage commissions on stocks fall, everything else held constant, the demand for bonds ________, the price of bonds ________, and the interest rate ________.

decreases; decreases; increases

If fluctuations in interest rates become smaller, then, other things equal, the demand for stocks ___ and the demand for long-term bonds ___.

decreases; increases

When the expected inflation rate increases, the real cost of borrowing ___ and bond supply ___, everything else held constant.

decreases; increases

When the expected inflation rate increases, the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant.

decreases; increases; rises

During a recession, the supply of bonds ____ and the supply curve shifts to the ____, everything else held constant.

decreases; left

Holding everything else constant, if interest rates are expected to increase, the demand for bonds ___ and the demand curve shifts ___.

decreases; left

If fluctuations in interest rates become smaller, then, other things equal, the demand for stocks ________ and the demand for long-term bonds ________.

decreases;increases

The nominal interest rate minus the expected rate of inflation

defines the real interest rate

In the 1990s Japan had the lowest interest rates in the world due to a combination of

deflation and recession

When the interest rate on a bond is above the equilibrium interest rate, in the bond market there is excess ___ and the interest rate will ___.

demand; fall

A decrease in the brokerage commissions in the housing market from 6% to 5% of the sales price will shift the ________ curve for bonds to the ________, everything else held constant.

demand; left

If people expect real estate prices to increase significantly, the ________ curve for bonds will shift to the ________, everything else held constant.

demand; left

If stock prices are expected to climb next year, everything else held constant, the ________ curve for bonds shifts ________ and the interest rate ________.

demand; left; rises

When rare coin prices become volatile, the ________ curve for bonds shifts to the ________, everything else held constant.

demand; right

If the interest rate on a bond is above the equilibrium interest rate, there is an excess ___ for bonds and the bond price will ___.

demand; rise

When the inflation rate is expected to increase, the ________ for bonds falls, while the ________ curve shifts to the right, everything else held constant

demand; supply

When the inflation rate is expected to increase, the ________ for bonds falls, while the ________ curve shifts to the right, everything

demand; supply

A _____ is bought at a price below its face value, and the _____ value is repaid at the maturity date

discount bond; face

To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of

discounting the future

The price of a console equals the coupon payment

divided by the interest rate

When the price of a bond decreases, all else equal, the bond demand curve

does not shift

The bond demand curve is ___ sloping, indicating a(n) ___ relationship between the price and quantity demanded of bonds.

downward; inverse

For a commodity to function effectively as money it must be

easily standardized, making it easy to ascertain its value.

An important characteristic of the modern payments system has been the rapidly increasing use of

electronic fund transfers

For simple loans, the simple interest rate is ________ the yield to maturity

equal to

The ________ interest rate is adjusted for expected changes in the price level

ex ante real

The ________ interest rate is adjusted for expected changes in the price level.

ex ante real

The interest rate that describes how well a lender has done in real terms after the fact is called the

ex post real interest rate

The interest rate that describes how well a lender has done in real terms after the fact is called the

ex post real interest rate.

People hold money even during inflationary episodes when other assets prove to be better stores of value. This can be explained by the fact that money is

extremely liquid

The ________ is the final amount that will be paid to the holder of a coupon bond

face value

Everything else held constant, an increase in the riskiness of bonds relative to alternative assets causes the demand for bonds to ___ and the demand curve to shift to the ___.

fall; left

The reduction of brokerage commissions for trading common stocks that occurred in 1975 caused the demand for bonds to ___ and the demand curve to shift to the ___.

fall; left

The present value of an expected future payment ________ as the interest rate increases

falls

The present value of an expected future payment ________ as the interest rate increases.

falls

Everything else held constant, if the expected return on U.S. Treasury bonds falls from 8 to 7 percent and the expected return on corporate bonds falls from 10 to 8 percent, then the expected return of corporate bonds ___ relative to U.S. Treasury bonds and the demand for corporate bonds ___.

falls; falls

Everything else held constant, if the expected return on RST stock declines from 12 to 9 percent and the expected return on XYZ stock declines from 8 to 7 percent, then the expected return of holding RST stock ___ relative to XYZ stock and demand for XYZ stock ___.

falls; rises

Everything else held constant, if the expected return on ABC stock rises from 5 to 10 percent and the expected return on CBS stock is unchanged, then the expected return of holding CBS stock ___ relative to ABC stock and the demand for CBS stock ___.

falls;falls

Everything else held constant, if the expected return on ABC stock rises from 5 to 10 percent and the expected return on CBS stock is unchanged, then the expected return of holding CBS stock ________ relative to ABC stock and the demand for CBS stock ________.

falls;falls

Everything else held constant, if the expected return on U.S. Treasury bonds falls from 8 to 7 percent and the expected return on corporate bonds falls from 10 to 8 percent, then the expected return of corporate bonds ________ relative to U.S. Treasury bonds and the demand for corporate bonds ________.

falls;falls

Everything else held constant, if the expected return on RST stock declines from 12 to 9 percent and the expected return on XYZ stock declines from 8 to 7 percent, then the expected return of holding RST stock ________ relative to XYZ stock and demand for XYZ stock ________.

falls;rises

Paper currency that has been declared legal tender but is not convertible into coins or precious metals is called ________ money.

fiat

A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a

fixed-payment loan

You would be less willing to purchase U.S. Treasury bonds, other things equal, if

gold becomes more liquid

The demand for houses decreases, all else equal, when

gold prices are expected to increase

In the United States during the late 1970s, the nominal interest rates were quite high, but the real interest rates were negative. From the Fisher equation, we can conclude that expected inflation in the United States during this period was

high

Because inflation in Germany after World War I sometimes exceeded 1,000 % per month, one can conclude that the German economy suffered from

hyperinflation

a period of extreme inflation generally greater than 50% per month.

hyperinflation

is a flow of earnings per unit of time

income

51) What is the impact on interest rates when the Federal Reserve decreases the money supply by selling bonds to the public?

increase interest rates

If brokerage commissions on bond sales decrease, then, other things equal, the demand for bonds will ___ and the demand for real estate will ___.

increase; decrease

If gold because acceptable as a medium of exchange, the demand for gold will ___ and the demand for bonds will ___.

increase; decrease

If housing prices are expected to increase, then, other things equal, the demand for houses will ___ and that of Treasury bills will ___.

increase; decrease

Deflation causes the demand for bonds to ________, the supply of bonds to ________, and bond prices to ________, everything else held constant.

increase; decrease; increase

A rise in the price level causes the demand for money to ________ and the interest rate to ________, everything else held constant.

increase; increase

An increase in the expected inflation rate causes the supply of bonds to ____ and the supply curve to shift to the ___, everything else held constant.

increase; right

Higher government deficits ________ the supply of bonds and shift the supply curve to the ________, everything else held constant.

increase; right

If brokerage commissions on bond sales decrease, then, other things equal, the demand for bonds will ________ and the demand for real estate will ________.

increase;decrease

If gold becomes acceptable as a medium of exchange, the demand for gold will ________ and the demand for bonds will ________, everything else held constant.

increase;decrease

If housing prices are expected to increase, then, other things equal, the demand for houses will ________ and that of Treasury bills will ________.

increase;decrease

An increase in an asset's expected return relative to that of an alternative asset, holding everything else constant, ___ the quantity demanded of the asset.

increases

An increase in an asset's expected return relative to that of an alternative asset, holding everything else constant, ________ the quantity demanded of the asset

increases

The conversion of a barter economy to one that uses money

increases efficiency by reducing transactions costs.

An equal decrease in all bond interest rates

increases the price of a ten-year bond more than the price of a five-year bond.

A fall in the level of prices

increases the value of money

A fall in the level of prices

increases the value of money.

If the expected return on bonds increases, all else equal, the demand for bonds increases, the price of bonds ________, and the interest rate ________.

increases; decreases

The interest rate falls when either the demand for bonds ________ or the supply of bonds ________.

increases; decreases

If real estate prices are expected to drop, all else equal, the demand for bonds ________ and the interest rate_______.

increases; falls

If wealth increases, the demand for stocks ___ and that of long-term bonds ___, everything else held constant.

increases; increases

When an economy grows out of a recession, normally the demand for bonds ________ and the supply of bonds ________, everything else held constant.

increases; increases

If wealth increases, the demand for stocks ________ and that of long-term bonds ________, everything else held constant

increases;increases

Interest rates increased continuously during the 1970s. The most likely explanation is

increasing expected rates of inflation

The riskiness of an asset's returns due to changes in interest rates is

interest rate risk

The demand for gold increases, other things equal, when

interest rates are expected to rise

19) Using the liquidity preference framework, what will happen to interest rates if the Fed increases the money supply?

interest rates will go down

Interest-rate risk is the riskiness of an asset's returns due to

interest-rate changes

Income

is a flow of earnings per unit of time

As a store of value, money

is a way of saving for future purchases.

When the interest rate changes,

it is because either the demand or the supply curve has shifted

Advantage of money

it simplifies and thereore increases, market trasactions

If prices in the bond market become more volatile, everything else held constant, the demand curve for bonds shifts ________ and interest rates ________.

left; rise

Everything else held constant, when bonds become less widely traded, and as a consequence the market becomes less liquid, the demand curve for bonds shifts to the ___ and the interest rate ___.

left; rises

Everything else held constant, when stock prices become less volatile, the demand curve for bonds shifts to the ___ and the interest rate ___.

left; rises

In the bond market, the bond demanders are the ___ and the bond suppliers are the ___.

lenders; borrowers

In the bond market, the bond demanders are the ________ and the bond suppliers are the ________

lenders; borrowers

Increasing transactions costs of selling an asset make the asset

less liquid

is the relative ease and speed with which an asset can be converted into a medium of exchange.

liquidity

Prices and returns for ________ bonds are more volatile than those for ________ bonds, everything else held constant.

long-term; short-term

The demand curve for bonds has the usual downward slope, indicating that at ___ prices of the bond, everything else equal, the ___ is higher

lower; quantity demanded

monetary aggregates

measure of the money supply

Monetary aggregates are

measures of the money supply reported by the Federal Reserve.

Kevin purchasing concert tickets with his debit card is an example of the ________ function of money.

medium of exchange

Of money s three functions, the one that distinguishes money from other assets is its function as a

medium of exchange

Of money's three functions, the one that distinguishes money from other assets is its function as a

medium of exchange

measures of the money supply reported by the Federal Reserve.

monetary aggregates

If peanuts serve as a medium of exchange, a unit of account, and a store of value, then peanuts are

money

If peanuts serve as a medium of exchange, a unit of account, and a store of value, then peanuts are

money

Since it does not have to be converted into anything else to make purchases, ________ is the most liquid asset.

money

To an economist, ________ is anything that is generally accepted in payment for goods and services or in the repayment of debt.

money

is the most liquid asset

money

store of value

money also functions as a store of value; it is a repository of purchasing power over time

In Keynes's liquidity preference framework, individuals are assumed to hold their wealth in two forms:

money and bonds

The difference between money and income is that

money is a stock and income is a flow.

Unit of Acount

money is used to provide a common measurement of the relative value of goods and services

commodity money

money made up of valuable commodities, and from ancient times until several hundred years ago, commodity money functioned as the medium of exchange in all but the most primitive societies

Examples of M2

money market deposit accounts and money market mutual fund shares, savings deposits and small denomination time deposits

electronic money (e-money)

money that exists only electronic form. The first form of e-money was the debit card

e-money

money that exsists only in electronic form

medium of exchange

money's function as a medium of exchange is what distinguishes is from other assets such as stocks, bonds, and houses. In almost all market transactions in our economy, money in the form of currency or checks is a medium of exchange

The difference between money and income is that

money=stock, income=flow

A payments system based on money is

more efficient than a barter economy because fewer prices are needed to establish relative values between all commodities.

A situation in which the quantity of bonds supplied exceeds the quantity of bonds demanded is called a condition of excess supply; because people want to sell ___ bonds than others want to buy, the price of bonds will ___.

more; fall

Everything else held constant, when stock prices become ___ volatile, the demand curve for bonds shifts to the ___ and the interest rate ___.

more; right; falls

In explaining the evolution of money

new forms of money evolve to lower transaction costs.

other assets that are not quite as liquid as those included in M1. Assets that have check-writing features and other assets that can be turned into cash quickly at very little costs

Fiat Money

paper currency decreed by goverments as legal tender

fiat money

paper currency decreed by governments as a legal tender but not convertible into coins or precious metal

Currency includes

paper money and coins

currency

paper money and coins

currency includes

paper money and coins

Currency includes

paper money and coins.

Currency includes:

paper money and coins.

the method of conducting transactions in the economy.

payment system

Holding all other factors constant, the quantity demanded of an asset is

positively related to wealth

The evolution of the payments system from barter to precious metals, then to fiat money, then to checks can best be understood as a consequence of the fact that

precious metals were difficult to carry and transport.

The concept of ________ is based on the common − sense notion that a dollar paid to you in the future is less valuable to you than a dollar today

present value

In the bond market, the market equilibrium shows the market-clearing ___ and market-clearing ___.

price; interest rate

The ________ interest rate more accurately reflects the true cost of borrowing

real

The ________ interest rate more accurately reflects the true cost of borrowing.

real

When the ________ interest rate is low, there are greater incentives to ________ and fewer incentives to ________.

real;borrow;lend

An increase in the expected rate of inflation will ___ the expected return on bonds relative to the that on ___ assets, everything else held constant.

reduce; real

An increase in the expected rate of inflation will ________ the expected return on bonds relative to the that on ________ assets, everything else held constant.

reduce;real

Money ________ transaction costs, allowing people to specialize in what they do best.

reduces

Everything else held constant, a decrease in wealth

reduces demand for silver

Everything else held constant, a decrease in wealth

reduces the demand for silver

Because it is a unit of account, money

reduces the number of prices that need to be calculated

A fall in the level of prices

reduces the value of money.

Everything else held constant, during a business cycle expansion, the supply of bonds shifts to the ________ as businesses perceive more profitable investment opportunities, while the demand for bonds shifts to the ________ as a result of the increase in wealth generated by the economic expansion.

right; right

Everything else held constant, when the inflation rate is expected to rise, interest rates will ________; this result has been termed the ________.

rise; Fisher effect

The economist Irving Fisher, after whom the Fisher effect is named, explained why interest rates ________ as the expected rate of inflation ________, everything else held constant.

rise; increases

Everything else held constant, an increase in the liquidity of bonds results in a ___ in demand for bonds and the demand curve shifts to the ___.

rise; right

In the market for money, when the price level ________, the demand curve for money shifts to the ________ and the interest rate ________, everything else held constant.

rises, right, rises

The supply curve for bonds has the usual upward slope, indicating that as the price ___, ceteris paribus, the ___ increases.

rises; quantity supplied

During business cycle expansions when income and wealth are rising, the demand for bonds ___ and the demand curve shifts to the ___, everything else held constant.

rises; right

Everything else held constant, if interest rates are expected to fall in the future, the demand for long-term bonds today ___ and the demand curve shifts to the ___.

rises; right

Everything else held constant, if the expected return on U.S. Treasury bonds falls from 10 to 5 percent and the expected return on GE stock rises from 7 to 8 percent, then the expected return of holding GE stock ___ relative to U.S. Treasury bonds and the demand for GE stock ___.

rises; rises

Everything else held constant, if the expected return on U.S. Treasury bonds falls from 10 to 5 percent and the expected return on GE stock rises from 7 to 8 percent, then the expected return of holding GE stock ________ relative to U.S. Treasury bonds and the demand for GE stock ________.

rises;rises

If there is an excess demand for money, individuals ________ bonds, causing interest rates to ________

sell; rise

If there is an excess demand for money, individuals ________ bonds, causing interest rates to ________.

sell; rise

A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a

simple loan

Debt Money Income Savings deposits Wealth

stock variable stock variable flow variable stock variable stock variable

Maria is currently pregnant. She expects her expenditures to increase in the future and decides to increase the balance in her savings account.

store of value (money is being used)

Patrick places his pocket change into his savings bank on his desk each evening. By his actions, Patrick indicates that he believes that money is a

store of value.

The present value of a fixed-payment loan is calculated as the ________ of the present value of all cash flow payments

sum

When the price of a bond is above the equilibrium price, there is an excess ___ bonds and price will ___.

supply of; fall

If the interest rate on a bond is below the equilibrium interest rate, there is an excess ___ of bonds and the bond price will ____.

supply; fall

When the government has a surplus, as occurred in the late 1990s, the ________ curve of bonds shifts to the ________, everything else held constant.

supply; left

In a business cycle expansion, the ___ of bonds increases and the ___ curve shifts to the ___ as business investments are expected to be more profitable.

supply; supply; right

You would be more willing to buy AT&T bonds (holding everything else constant) if

the brokerage commissions on bond sales become cheaper

Everything else held constant, when prices in the art market become more uncertain,

the demand curve for bonds shifts to the right and the interest rate falls.

Everything else held constant, when real estate prices are expected to decrease

the demand curve for bonds shifts to the right and the interest rate falls.

Barter

the direct exchange of one good for another good, rather than for money

Assuming the same coupon rate and maturity length, the difference between the yield on a Treasury Inflation Protected Security and the yield on a nonindexed Treasury security provides insight into

the expected inflation rate

The demand for silver decreases, other things equal, when

the gold market is expected to boom

The currency component includes paper money and coins held in ________.

the hands of the nonbank public

The currency component includes paper money and coins held in

the hands of the nonpublic bank

Monetary Aggregates

the measures of the money supply used by The Fed

Payments System

the method of collecting transactions in the economy

payments system

the method of conducting transactions in the economy

Holding everything else constant,

the more liquid is asset A, relative to alternative assets, the greater will be the demand for asset A

the narrowest measure of money that the Fed reports. It included the most liquid assets: currency, checking account deposits, and traveler's checks.

In the one − period valuation model, the value of a share of stock today depends upon

the present value of both eh dividends and the expected sales price

When we say that money is a stock variable, we mean that

the quantity of money is measured at a given point in time.

The interest rate on Treasury Inflation Protected Securities is a direct measure of

the real interest rate

The risk structure of interest rates is

the relationship among interest rates on bonds that have different characteristics but the same maturity

liquidity

the relative ease and speed with which an asset can be converted into a medium of exchange

When compared to exchange systems that rely on money, disadvantages of the barter system include:

the requirement of a double coincidence of wants

unit of account

the second role of money is to provide a unit of account; that is, it is used to measure value in the economy

Everything else held constant, when the government has higher budget deficits

the supply curve for bonds shifts to the right and the interest rate rises.

Wealth

the total collection of pieces of property that serve to store value

wealth

the total collection of pieces of property that serve to store value

All but the most primitive societies use money as a medium of exchange, implying that

the use of money is economically efficient.

What is the main disadvantage of moving to e-money LOADING... or moving to a cashless society?

there are problems with security and privacy

When there are many goods is that in a barter system,

there exists a multiple number of prices for each good.

20) Using the liquidity preference framework, show what happens to interest rates during a business cycle recession.

they go down? (money demand shifts left)

Introduction of checks into the payments system reduced the costs of exchanging goods and services. Another advantage of checks is that

they provide convenient receipts for purchases.

The major criticism of the view that expectations are formed adaptively is that

this view ignores that people use more information than just past data from their expectations

________ are the time and resources spent trying to exchange goods and services.

transaction costs

are the time and resources spent trying to exchange goods and services.

transaction costs

Compared to an economy that uses a medium of exchange, in a barter economy

transaction costs are higher

Compared to an economy that uses a medium of exchange, in a barter economy

transaction costs are higher.

An electronic payments system has not completely replaced the paper payments system because of all of the following reasons except

transportation costs.

When money prices are used to facilitate comparisons of value, money is said to function as a

unit of account

Tim wants to calculate the relative value of oranges and apples, and therefore checks the price per pound of each of these goods quoted in currency units.

unit of account (money is used as)

Dennis notices that jackets are on sale for $99. In this case money is functioning as a

unit of account.

When money prices are used to facilitate comparisons of value, money is said to function as a

unit of account.

The bond supply curve is ___ sloping, indicating a(n) ___ relationship between the price and quantity supplied of bonds.

upward; direct

If expectations are formed adaptively, then people

use only the information from past data on a single variable to form their expectations of that variable

e-cash

used on the internet to purchase goods or services

e-cash

used on the internet to purchase goods or services. A consumer gets e-cash by setting up an account with a bank that has links the Internet and then has the e-cash transferred to her PC

A stockholder's ownership of a company's stock gives her the right to

vote and be the residual claimant of all cash flows

Of the four factors that influence asset demand, which factor will cause the demand for all assets to increase when it increases, everything else held constant?

wealth

The total collection of pieces of property that serve to store value is a person's

wealth

the total collection of pieces of property that serve to store value is a person's

wealth

A person's house is part of her ___

wealth.

hyperinflation

when inflation rates exceed 50% per month

Economists consider the ________ to be the most accurate measure of interest rates

yield to maturity

The interest rate that equates the present value of payments received from a debt instrument with its value today is the

yield to maturity

The ________ is below the coupon rate when the bond price is ________ its par value.

yield to maturity; above

A discount bond is also called a ________ because the owner does not receive periodic payments

zero-coupon bond

Everything else held constant, when the government has higher budget deficits A) the demand curve for bonds shifts to the left and the interest rate rises. B) the demand curve for bonds shifts to the left and the interest rate falls. C) the supply curve for bonds shifts to the right and the interest rate falls. D) the supply curve for bonds shifts to the right and the interest rate rises.

A movement along the bond demand or supply curve occurs when ________ changes. A) bond price B) income C) wealth D) expected return

An increase in an asset's expected return relative to that of an alternative asset, holding everything else constant, ________ the quantity demanded of the asset. A) increases B) decreases C) has no effect on D) erases

Everything else held constant, an increase in the liquidity of bonds results in a ________ in demand for bonds and the demand curve shifts to the ________. A) rise; right B) rise; left C) fall; right D) fall; left

In the bond market, the bond demanders are the ________ and the bond suppliers are the ________. A) lenders; borrowers B) lenders; advancers C) borrowers; lenders D) borrowers; advancers

Of the four factors that influence asset demand, which factor will cause the demand for all assets to increase when it increases, everything else held constant? A) wealth B) expected returns C) risk D) liquidity

Pieces of property that serve as a store of value are called A) assets. B) units of account. C) liabilities. D) borrowings.

The bond demand curve is ________ sloping, indicating a(n) ________ relationship between the price and quantity demanded of bonds, everything else equal. A) downward; inverse B) downward; direct C) upward; inverse D) upward; direct

The demand for silver decreases, other things equal, when A) the gold market is expected to boom. B) the market for silver becomes more liquid. C) wealth grows rapidly. D) interest rates are expected to rise.

The economist Irving Fisher, after whom the Fisher effect is named, explained why interest rates ________ as the expected rate of inflation ________, everything else held constant. A) rise; increases B) rise; stabilizes C) fall; stabilizes D) fall; increases

You would be more willing to buy AT&T bonds (holding everything else constant) if A) the brokerage commissions on bond sales become cheaper. B) interest rates are expected to rise. C) your wealth has decreased. D) you expect diamonds to appreciate in value.

16) The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that the A) Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation. B) liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to changes in expected inflation. C) liquidity effect is dominated by the Fisher effect and interest rates adjust quickly to changes in expected inflation. D) Fisher effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.

A) Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation

Higher government deficits ________ the supply of bonds and shift the supply curve to the ________, everything else held constant. A) increase; left B) increase; right C) decrease; left D) decrease; right

When the interest rate on a bond is ________ the equilibrium interest rate, in the bond market there is excess ________ and the interest rate will ________. A) above; demand; rise B) above; demand; fall C) below; supply; fall D) above; supply; rise

When the interest rate on a bond is above the equilibrium interest rate, in the bond market there is excess ________ and the interest rate will ________. A) demand; rise B) demand; fall C) supply; fall D) supply; rise

n the figure above, a factor that could cause the demand for bonds to decrease (shift to the left) is A) an increase in the expected return on bonds relative to other assets. B) a decrease in the expected return on bonds relative to other assets. C) an increase in wealth. D) a reduction in the riskiness of bonds relative to other assets.

46) A factor that could cause the demand for bonds to decrease (shift to the left) is A) an increase in the expected return on bonds relative to other assets. B) a decrease in the expected return on bonds relative to other assets. C) an increase in wealth. D) a reduction in the riskiness of bonds relative to other assets.

B) a decrease in the expected return on bonds relative to other assets

9) A decline in the expected inflation rate causes the demand for money to ________ and the demand curve to shift to the ________, everything else held constant. A) decrease; right B) decrease; left C) increase; right D) increase; left

B) decrease; left

27) When the economy slips into a recession, normally the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant. A) increases; increases; rises B) decreases; decreases; falls C) increases; decreases; falls D) decreases; increases; rises

B) decreases; decreases; falls

7) In Keynes's liquidity preference framework, as the expected return on bonds increases (holding everything else unchanged), the expected return on money ________, causing the demand for ________ to fall. A) falls; bonds B) falls; money C) rises; bonds D) rises; money

B) falls; money

A situation in which the quantity of bonds supplied exceeds the quantity of bonds demanded is called a condition of excess supply; because people want to sell ________ bonds than others want to buy, the price of bonds will ________. A) fewer; fall B) fewer; rise C) more; fall D) more; rise

You would be less willing to purchase U.S. Treasury bonds, other things equal, if A) you inherit $1 million from your Uncle Harry. B) you expect interest rates to fall. C) gold becomes more liquid. D) stock prices are expected to fall.

49) A factor that could cause the demand for bonds to shift to the right is A) an increase in the riskiness of bonds relative to other assets. B) an increase in the expected rate of inflation. C) expectations of lower interest rates in the future. D) a decrease in wealth.

C) expectations of lower interest rates in the future

48) A factor that could cause the supply of bonds to increase (shift to the right) is A) a decrease in government budget deficits. B) a decrease in expected inflation. C) expectations of more profitable investment opportunities. D) a business cycle recession

C) expectations of more profitable investment opportunities

olding everything else constant, if interest rates are expected to increase, the demand for bonds ________ and the demand curve shifts ________. A) increases; right B) decreases; right C) increases; left D) decreases; left

45) A factor that could cause the supply of bonds to shift to the right is A) a decrease in government budget deficits. B) a decrease in expected inflation. C) a recession. D) a business cycle expansion.

D) a business cycle expansion

D) a decrease in the riskiness of stocks

D) decreases; increases; rises

15) The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that the A) liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation. B) liquidity effect is larger than the expected inflation effect and interest rates adjust quickly to changes in expected inflation. C) liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation. D) liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation

D) liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation

31) The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that the A) liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation. B) liquidity effect is larger than the expected inflation effect and interest rates adjust quickly to changes in expected inflation. C) liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation. D) liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.

31) The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that the A) liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation. B) liquidity effect is larger than the expected inflation effect and interest rates adjust quickly to changes in expected inflation. *C) liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.* D) liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.

A coupon bond with a face value of $800 that pays an annual coupon of $300 has a coupon rate equal to What is the approximate (closest whole number) yield to maturity on a coupon bond that matures one year from today, has a par value of $990, pays an annual coupon of $70, and whose price today is $1004.50

38% 6%

If $22,050 is the amount payable in two years for a $20,000 simple loan made today, the interest rate is

5 Percent

5 percent

Consider a coupon bond that has a par value of $1,000 and a coupon rate of 8%. The bond is currently selling for $1,055.78 and has 2 years to maturity. What is the bond's yield to maturity (YTM)?

5% P= 1,055.78/(1.08)....

If there are four goods in a barter economy, then one needs to know ________ prices in order to exchange one good for another.

When we say that income is a flow variable, we mean that A) it is measured at a given point in time. B) the value is constantly changing. C) it moves through our hands quickly. D) we must attach a time period to the measure for it to make sense

A $1000 face value coupon bond with a $60 coupon payment every year has a coupon rate of

6 percent

What is the real interest rate if the nominal interest rate is 12% and the expected inflation rate is 6% over the course of a year?

If you borrow $200 from a friend and in 3 years that friend wants $250 back from you, what is the yield to maturity in the loan? Yield to maturity=

7.72%

) The nominal interest rate minus the expected rate of inflation ________. A) defines the real interest rate B) is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate C) is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate D) defines the discount rate

1) In the bond market, the bond demanders are the ________ and the bond suppliers are the ________. A) lenders; borrowers B) lenders; advancers C) borrowers; lenders D) borrowers; advancers

1) The ________ interest rate is adjusted for expected changes in the price level. A) ex ante real B) ex post real C) ex post nominal D) ex ante nominal

1) The present value of an expected future payment ________ as the interest rate increases. A) falls B) rises C) is constant D) is unaffected

10) Which of the following statements best explains how the use of money in an economy increases economic efficiency? A) Money increases economic efficiency because it decreases transactions costs. B) Money cannot have an effect on economic efficiency. C) Money increases economic efficiency because it is costless to produce. D) Money increases economic efficiency because it discourages specialization.

10) The interest rate on Treasury Inflation Protected Securities is a direct measure of A) the real interest rate. B) the nominal interest rate. C) the rate of inflation. D) the rate of deflation.

11) There is ________ for any bond whose time to maturity matches the holding period. A) no interest-rate risk B) a large interest-rate risk C) rate-of-return risk D) yield-to-maturity risk

Your friend tells you that she bought a 10-year to maturity discount bond that she plans to hold until maturity in order to finance her daughter's university education. She also tells you that she is worried that due to interest-rate-risk she may suffer significant capital losses if interest rates increase. Are her fears justified?

No, her fear of significant capital losses from future increases in the interest rates for bonds are not justified as she is planning to hold the 10-year bond until maturity when she is guaranteed to receive the face value of the bond back. There is no interest-rate-risk associated with this investment as the time to maturity matches the holding period and any increase in interest rates can have no effect on the price at the end of the holding period.

You are considering alternative quotes, a one-year Treasury note with a yield to maturity of 4.5% and a one-year Treasury bill with a yield on a discount basis of 4.5%. Would these be equivalent? Why or why not?

No, these are not the same. The yield on a discount basis always understates true yield so the yield to maturity on the one-year Treasury bill is higher than the quoted value.

If the interest rate is 5%, what is the present value of a security that pays you $1, 050 next year and $1,102.50 two years from now? If this security sold for $2200, is the yield to maturity greater or less than 5%? Why?

PV = $1,050/(1. +.05) + $1,102.50/(1 + 0.5)2 PV = $2,000 If this security sold for $2200, the yield to maturity is less than 5%. The lower the interest rate the higher the present value.

If the interest rate is 5 percent, what is the present value of a security that pays you $1050 next year and $1102.50 two years from now? If this security sold for $2200, is the yield to maturity greater or less than 5 percent? Why?

PV = $1050/(1 + .05) + $1102.50/ PV = $2000 If this security sold for $2200, the yield to maturity is less than 5 percent. The lower the interest rate the higher the present value.

Currency

Paper money and coins

__________is based on the notion that a dollar paid in the future is less valuable than a dollar paid today.

Present Discounted Value

Which of the following is not a purpose or function of money?

Protection against inflation

The ________ is defined as the payments to the owner plus the change in a security's value expressed as a fraction of the security's purchase price.

Rate of return

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

Small-denomination time deposits

Using the liquidity preference framework, what will happen to interest rates if the Fed increases the money supply?

The Fed's actions shift the money supply curve to the right. The new equilibrium interest rate will be lower than it was previously.

In which of the following situations would you prefer to be the borrower

The interest rate is 25 percent and the expected inflation rate is 50 percent

In which of the following situations would you prefer to be the lender?

The interest rate is 4 percent and the expected inflation rate is 1 percent

In which of the following situations would you prefer to be the lender?

The interest rate is 4 percent and the expected inflation rate is 1 percent.

Everything else held constant, if interest rates are expected to fall in the future, the demand for long-term bonds today ________ and the demand curve shifts to the ________. A) rises; right B) rises; left C) falls; right D) falls; left

Everything else held constant, if the expected return on U.S. Treasury bonds falls from 10 to 5 percent and the expected return on GE stock rises from 7 to 8 percent, then the expected return of holding GE stock ________ relative to U.S. Treasury bonds and the demand for GE stock ________. A) rises; rises B) rises; falls C) falls; rises D) falls; falls

If brokerage commissions on stocks fall, everything else held constant, the demand for bonds ________, the price of bonds ________, and the interest rate ________. A) decreases; decreases; increases B) decreases; decreases; decreases C) increases; decreases; increases D) increases; increases; increases

If prices in the diamond market become less volatile, all else equal, then the demand for diamonds ________ and the demand for gold ________. A) increases; decreases B) increases; increases C) decreases; decreases D) decreases; increases

If stock prices are expected to climb next year, everything else held constant, the ________ curve for bonds shifts ________ and the interest rate ________. A) demand; left; rises B) demand; right; rises C) demand; left; falls D) supply; left; rises

If the expected return on bonds increases, all else equal, the demand for bonds increases, the price of bonds ________, and the interest rate ________. A) increases; decreases B) increases; increases C) decreases; decreases D) decreases; increases

If the interest rate on a bond is above the equilibrium interest rate, there is an excess ________ for bonds and the bond price will ________. A) demand; rise B) demand; fall C) supply; rise D) supply; fall

If the price of diamonds is expected to decrease, all else equal, then the demand for diamonds ________ and the demand for platinum ________. A) decreases; increases B) decreases; decreases C) increases; increases D) increases; decreases

If wealth increases, the demand for stocks ________ and that of long-term bonds ________, everything else held constant. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases

When the prices of rare coins become volatile, the ________ curve for bonds shifts to the ________, everything else held constant. A) demand; right B) demand; left C) supply; right D) supply; left

When the inflation rate is expected to increase, the ________ for bonds falls, while the ________ curve shifts to the right, everything else held constant. A) demand; demand B) demand; supply C) supply; demand D) supply; supply

14) When the price level falls, the ________ curve for nominal money ________, and interest rates ________, everything else held constant. A) demand; decreases; fall B) demand; increases; rise C) supply; increases; rise D) supply; decreases; fall

A) demand; decreases; fall

6) When the growth rate of the money supply increases, interest rates end up being permanently lower if A) the liquidity effect is larger than the other effects. B) there is fast adjustment of expected inflation. C) there is slow adjustment of expected inflation. D) the expected inflation effect is larger than the liquidity effect.

A) the liquidity effect is larger than the other effects

Everything else held constant, an increase in expected inflation, lowers the expected return on ________ compared to ________ assets. A) bonds; financial B) bonds; real C) real estate; financial D) real estate; real

Holding everything else constant A) if asset A's risk rises relative to that of alternative assets, the demand will increase for asset A. B) the more liquid is asset A, relative to alternative assets, the greater will be the demand for asset A. C) the lower the expected return to asset A relative to alternative assets, the greater will be the demand for asset A. D) if wealth increases, demand for asset A increases and demand for alternative assets decreases.

If people expect real estate prices to increase significantly, the ________ curve for bonds will shift to the ________, everything else held constant. A) demand; right B) demand; left C) supply; left D) supply; right

If real estate prices are expected to drop, all else equal, the demand for bonds ________ and the interest rate_______. A) increases; rises B) increases; falls C) decreases; rises D) decreases; falls

The reduction of brokerage commissions for trading common stocks that occurred in 1975 caused the demand for bonds to ________ and the demand curve to shift to the ________. A) fall; right B) fall, left C) rise; right D) rise; left

When the economy slips into a recession, normally the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant. A) increases; increases; rises B) decreases; decreases; falls C) increases; decreases; falls D) decreases; increases; rises

During a recession, the supply of bonds ________ and the supply curve shifts to the ________, everything else held constant. A) increases; left B) increases; right C) decreases; left D) decreases; right

Everything else held constant, when prices in the art market become more uncertain A) the demand curve for bonds shifts to the left and the interest rate rises. B) the demand curve for bonds shifts to the left and the interest rate falls. C) the demand curve for bonds shifts to the right and the interest rate falls. D) the supply curve for bonds shifts to the right and the interest rate falls.

Everything else held constant, when real estate prices are expected to decrease A) the demand curve for bonds shifts to the left and the interest rate rises. B) the demand curve for bonds shifts to the left and the interest rate falls. C) the demand curve for bonds shifts to the right and the interest rate falls. D) the supply curve for bonds shifts to the right and the interest rate falls.

If the price of gold becomes less volatile, then, other things equal, the demand for stocks will ________ and the demand for antiques will ________. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

In the bond market, the market equilibrium shows the market-clearing ________ and market-clearing ________. A) price; deposit B) interest rate; deposit C) price; interest rate D) interest rate; premium

The demand for Picasso paintings rises (holding everything else equal) when A) stocks become easier to sell. B) people expect a boom in real estate prices. C) Treasury securities become riskier. D) people expect gold prices to rise.

9) If the liquidity effect is smaller than the other effects, and the adjustment to expected inflation is slow, then the A) interest rate will fall. B) interest rate will rise. C) interest rate will initially fall but eventually climb above the initial level in response to an increase in money growth. D) interest rate will initially rise but eventually fall below the initial level in response to an increase in money growth.

C) interest rate will initially fall but eventually climb above the initial level in response to an increase in money growth

3) During business cycle expansions when income and wealth are rising, the demand for bonds ________ and the demand curve shifts to the ________, everything else held constant. A) falls; right B) falls; left C) rises; right D) rises; left

C) rises; right

Everything else held constant, if the expected return on ABC stock rises from 5 to 10 percent and the expected return on CBS stock is unchanged, then the expected return of holding CBS stock ________ relative to ABC stock and the demand for CBS stock ________. A) rises; rises B) rises; falls C) falls; rises D) falls; falls

Everything else held constant, if the expected return on U.S. Treasury bonds falls from 8 to 7 percent and the expected return on corporate bonds falls from 10 to 8 percent, then the expected return of corporate bonds ________ relative to U.S. Treasury bonds and the demand for corporate bonds ________. A) rises; rises B) rises; falls C) falls; rises D) falls; falls

Everything else held constant, when bonds become less widely traded, and as a consequence the market becomes less liquid, the demand curve for bonds shifts to the ________ and the interest rate ________. A) right; rises B) right; falls C) left; falls D) left; rises

Everything else held constant, when households save less, wealth and the demand for bonds ________ and the bond demand curve shifts ________. A) increase; right B) increase; left C) decrease; right D) decrease; left

Everything else held constant, when stock prices become less volatile, the demand curve for bonds shifts to the ________ and the interest rate ________. A) right; rises B) right; falls C) left; falls D) left; rises

If fluctuations in interest rates become smaller, then, other things equal, the demand for stocks ________ and the demand for long-term bonds ________. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases

The supply curve for bonds has the usual upward slope, indicating that as the price ________, ceteris paribus, the ________ increases. A) falls; supply B) falls; quantity supplied C) rises; supply D) rises; quantity supplied

When the price of a bond is ________ the equilibrium price, there is an excess demand for bonds and price will ________. A) above; rise B) above; fall C) below; fall D) below; rise

10) Everything else held constant, when stock prices become less volatile, the demand curve for bonds shifts to the ________ and the interest rate ________. A) right; rises B) right; falls C) left; falls D) left; rises

D) left; rises

Everything else held constant, a decrease in wealth A) increases the demand for stocks. B) increases the demand for bonds. C) reduces the demand for silver. D) increases the demand for gold.

Everything else held constant, when stock prices become ________ volatile, the demand curve for bonds shifts to the ________ and the interest rate ________. A) more; right; rises B) more; right; falls C) less; left; falls D) less; left; does not change

During business cycle expansions when income and wealth are rising, the demand for bonds ________ and the demand curve shifts to the ________, everything else held constant. A) falls; right B) falls; left C) rises; right D) rises; left

Everything else held constant, if the expected return on RST stock declines from 12 to 9 percent and the expected return on XYZ stock declines from 8 to 7 percent, then the expected return of holding RST stock ________ relative to XYZ stock and demand for XYZ stock ________. A) rises; rises B) rises; falls C) falls; rises D) falls; falls

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