econ financial system
Consider a bond that pays its face value $4100 next year. If the market interest rate is 3.15% but increases to 4.05% , what is the expected change in the bond price? (note positive numbers imply price increases and negative numbers are price decreases) $−37.52$−42.13$34.38$−34.38None of the above
$-34.38
Consider a bond that pays its face value $3400 next year. If the market interest rate is 5.35% but increases to 5.9% , what is the expected change in the bond price? (note positive numbers imply price increases and negative numbers are price decreases) $16.76$−21.57$−15.02$−22.63None of the above
$16.76
At an interest rate of 8%, borrowers' demand is $30 billion. At 4%, borrowers would want to borrow: $30 billion.$45 billion$20 billion.$25 billion.
$45 billion
Consider a bond that pays its face value $2900 next year. If the market interest rate is 3.15% but decreases to 1.2% , what is the expected change in the bond price? (note positive numbers imply price increases and negative numbers are price decreases) $54.17$−72.57$56.90$48.94None of the above
$54.17
Which of the following statements is NOT true? Arbitrage keeps interest rates on equally risky assets the same.Interest rates and bond prices move inversely with each other.A longer term to maturity exposes a bond holder to greater interest rate risk.Corporate bonds have no interest rate risk in the long run.
Corporate bonds have no interest rate risk in the long run.
What would happen to the equilibrium interest rate and quantity of loans if a decrease in the supply of loanable funds? The interest rate would increase and the quantity of loans would increaseThe interest rate would decrease and the quantity of loans would decreaseThe interest rate would decrease and the quantity of loans would increaseThe interest rate would increase and the quantity of loans would decreaseThere is not enough information to answer the question
The interest rate would increase and the quantity of loans would decrease
What would happen to the equilibrium interest rate and quantity of loans if the government increases the size of its deficits?The interest rate would increase and the quantity of loans would increaseThe interest rate would decrease and the quantity of loans would decreaseThe interest rate would decrease and the quantity of loans would increaseThe interest rate would increase and the quantity of loans would decreaseThere is not enough information to answer the question
The interest rate would increase and the quantity of loans would increase
Which of the following is NOT a characteristic of stocks that are sold at initial public offerings? They transfer ownership of the company.They are being sold for the first time.They allow the firm selling the stock to acquire funds for investment.They represent ownership of government-run enterprises only.
They represent ownership of government-run enterprises only.
If bond prices fall, what happens to interest rates?They initially fall, and then return to their initial level.They will rise.They will fall.They remain stable.
They will rise.
Insecure property rights in bank account deposits typically lead to: a decrease in the supply of savings.an increase in the supply of savings.a decrease in the demand to borrow.an increase in the demand to borrow.
a decrease in the supply of savings.
The main reason people save during their working years is: a preference toward a smooth consumption path over time.a high time preference for the present.a preference toward matching income with spending over time.an expectation that they will die early.
a preference toward a smooth consumption path over time.
A binding and effective interest rate ceiling creates _____ loanable funds. a surplus ofa shortage ofincrease inan equilibrium quantity of
a shortage of
Why is the demand for loanable funds downward sloping? More people borrow money when interest rates are low than when they are high.People save more when the interest rate is high.Fewer investment projects have returns that can beat higher interest rates, so people are more willing to invest at higher interest rates.People save less when the interest rate is low.
More people borrow money when interest rates are low than when they are high.
Which of the following can be defined as saving, according to economics? General Motors issues corporate bonds.Sandra purchases a certificate of deposit from a bank.Microsoft sells stock at an initial public offering.Andrea finances her new car through an auto loan.
Sandra purchases a certificate of deposit from a bank.
What would happen to the equilibrium interest rate and quantity of loans if the government reduces the size of its deficits? The interest rate would increase and the quantity of loans would increaseThe interest rate would decrease and the quantity of loans would decreaseThe interest rate would decrease and the quantity of loans would increaseThe interest rate would increase and the quantity of loans would decreaseThere is not enough information to answer the question
The interest rate would decrease and the quantity of loans would decrease
What would happen to the equilibrium interest rate and quantity of loans if an increase in the supply of loanable funds? The interest rate would increase and the quantity of loans would increaseThe interest rate would decrease and the quantity of loans would decreaseThe interest rate would decrease and the quantity of loans would increaseThe interest rate would increase and the quantity of loans would decreaseThere is not enough information to answer the question
The interest rate would decrease and the quantity of loans would increase
Consumption smoothing means:borrowing to consume more than one's income in low-income years and consuming less than one's income in high-income years.borrowing every year to consume more than one earns.never borrowing.borrowing to consume more than one's income in high-income years and consuming less than one's income in low-income years.
borrowing to consume more than one's income in low-income years and consuming less than one's income in high-income years.
People smooth their consumption over their lifetime by: both borrowing and saving.borrowing.neither borrowing nor saving.saving.
both borrowing and saving.
Which of the following represents loaning money to a firm? selling a bondselling a stockbuying a bondbuying stock
buying a bond
Which of the following represents loaning money to a firm?selling a stockselling a bondbuying a bondbuying stock
buying a bond
The shadow banking system includes each of the following except:investment banks.commercial banks.hedge funds.money market funds.
commercial banks.
Crowding out occurs because the government increases the demand for loanable funds, drives up interest rates, and causes:saving to rise.saving to fall.consumption and private investment to fall.consumption and private investment to rise.
consumption and private investment to fall.
Stock shares represent _____ and bonds represent _____. corporate debt; corporate ownershipcorporate ownership; corporate ownershipcorporate debt; corporate debtcorporate ownership; corporate debt
corporate ownership; corporate debt
If the government decides to drastically increase spending (and by extension the budget deficit) during an economic recession, it will increase the _____ loanable funds and _____ equilibrium interest rates. supply of; increasedemand for; decreasedemand for; increasesupply of; decrease
demand for; increase
A corporation is planning to construct new offices, but it has limited funds. The corporation is likely to: supply loanable funds by selling bonds.demand loanable funds by selling bonds.demand loanable funds by buying bonds.supply loanable funds by buying bonds.
demand loanable funds by selling bonds.
The demand to borrow function is: vertical.upward sloping.downward sloping.horizontal.
downward sloping.
Which of the following institutions channels loanable funds from savers to borrowers? the Treasury Departmentthe Internal Revenue Servicefinancial intermediariesCongress
financial intermediaries
Financial intermediation can break down as a result of: private ownership of banks.government controls on interest rates.stable inflation.low inflation.
government controls on interest rates.
Which of the following did NOT contribute to the financial crisis of 2007-2008? highly leveraged investment bankshigh interest rateshighly leveraged homeownersfear on the part of short-term lenders
high interest rates
Bond prices and bond interest rates move: in the same direction.in opposite directions.together when there is arbitrage.together when there is collateral damage.
in opposite directions.
Savings is:the purchase of new capital goods.the purchase of new consumption goods.income that is not spent on capital goods.income that is not spent on consumption goods.
income that is not spent on consumption goods.
When a family's income becomes more uncertain, we expect its saving to: remain unchanged.become more uncertain.decrease.increase.
increase.
The crowding-out effect of government borrowing refers to the reduction of private: consumption due to a lower interest rate.savings due to a higher interest rate.investment due to higher taxes.investment due to a higher interest rate.
investment due to a higher interest rate.
People will usually save more if the interest rate: moves erratically.is lower.is higher.is zero.
is higher.
People will usually borrow more if the interest rate: is lower.moves erratically.is higher.is stable.
is lower.
The supply curve for savings indicates that the higher the interest rate, the: larger the quantity saved.larger the saver's income.smaller the saver's income.smaller the quantity saved.
larger the quantity saved.
According to Ben Bernanke, bank failures during the onset of the Great Depression: increased the rate of investment, which ultimately got the United States out of depression.made it harder for households, farmers, and small firms to get credit, worsening the recession.were not as harmful as the stock market crash.are urban legends.
made it harder for households, farmers, and small firms to get credit, worsening the recession.
When bond prices increase, interest rates:must decrease.will not change.will first increase and then decrease.must increase.
must decrease
The supply of savings is positively sloped because:when people have more incomes they save more.firms borrow more when interest rates are low.people are enticed to forgo consumption when interest rates are higher.higher interest rates cause people to save less.
people are enticed to forgo consumption when interest rates are higher.
Which of the following would cause the interest rate to decrease and the quantity of loans to decrease in the market for loanable funds?savers become more impatient, increasing their rate of time preferencenew technoloy introduces new and lucrative investment opportunitiesindividuals become less willing to savean increase in the demand for loanable fundsprice changes in the economy make investments less profitable
price changes in the economy make investments less profitable
An increase in government borrowing will cause the interest rate to: fall and private spending to rise.rise and private spending to fall.rise and private spending to rise.fall and private spending to fall.
rise and private spending to fall.
When a person's income is greater than her spending on consumption goods, then she is: disinvesting.investing.dissaving.saving.
saving
The process in which bank loans are bundled together and sold on the market as financial assets is called: grouping.consolidation.aggregation.securitization.
securitization
Which of the following represents ownership in a corporation? bondsIOUssaving depositsstocks
stocks
What is an example of impatience in economic behavior? eating a healthy diet every dayinsisting on getting a physical exam every yeartaking the first job you are offeredasking for your grade right after finishing a test
taking the first job you are offered
The decrease in private consumption and investment that occurs when the government borrows more is called: collateral damage.the substitution effect.the crowding-out effect.the wealth effect.
the crowding-out effect.
A higher leverage ratio means that: the firm is better able to securitize its assets.the firm has a lower risk of defaulting on loans.the firm is at a greater risk for becoming insolvent.the firm's debts exceed the value of its assets.
the firm is at a greater risk for becoming insolvent.
An initial public offering is: something of value that by agreement becomes the property of the lender if the borrower defaults.a sophisticated IOU that documents who owes how much and when payment must be made.the decrease in private consumption and investment that occurs when government borrows more.the first time a corporation sells stock to the public in order to raise capital.
the first time a corporation sells stock to the public in order to raise capital.
Which of the following would cause the interest rate to decrease and the quantity of loans to decrease in the market for loanable funds? a decrease in the supply of loanable fundssavers become more impatient, increasing their rate of time preferencethe government increases the size of its deficitsnew technoloy introduces new and lucrative investment opportunitiesthe government reduces the size of its deficits
the government reduces the size of its deficits
The supply of savings curve shows the relationship between savings and: investment.the interest rate.age.income.
the interest rate
Businesses will take out additional loans only if: the interest rate is less than the expected rate of return on their investment.they have no other way to obtain funds.the interest rate is less than the cost of borrowing.the demand for investment is equal to the supply of savings.
the interest rate is less than the expected rate of return on their investment.
Investment is: a sophisticated IOU that documents who owes how much and when payment must be made.income that is not spent on consumption goods.the purchase of new capital goods.the desire to have goods and services sooner rather than later (all else being equal).
the purchase of new capital goods.
Equilibrium in the market for loanable funds takes place when: the quantity supplied of savings is equal to the quantity demanded for borrowing.the quantity supplied of savings is greater than the quantity demanded for borrowing.the supply of savings is greater than the demand for borrowing.the quantity supplied of savings is less than the quantity demanded for borrowing.
the quantity supplied of savings is equal to the quantity demanded for borrowing.
Individual saving contributes to: neither the supply of loanable funds nor the demand for loanable funds.the demand for loanable funds.both the supply of loanable funds and the demand for loanable funds.the supply of loanable funds.
the supply of loanable funds
China has a higher saving rate than the United States. One economic explanation for this fact is that:there is a lower rate of time preference for Americans than for the Chinese.Americans are more irrational than the Chinese.there is a higher rate of time preference for Americans than for the Chinese.Americans are more rational than the Chinese.
there is a higher rate of time preference for Americans than for the Chinese.
Which of the following is NOT a reason people save during their working lifetimes? to take precautionary measures in case of job lossso they do not have to drastically reduce their consumption once they retireto consume later in lifeto allow for a more volatile consumption path over time
to allow for a more volatile consumption path over time
Why do ratings agencies rate bonds? to validate the amount of collateral involvedto indicate the chance of a bond being repaidto verify the cost of the bondto show a bond's probable rate of return
to indicate the chance of a bond being repaid
Buying stock in a company is: investment.divestment.leverage.a transfer of ownership rights
transfer of ownership rights
The supply of savings function is: horizontal.downward sloping.vertical.upward sloping.
upward sloping.
If you buy a $500,000 house with $50,000 down, the leverage ratio is: 109505
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Which of the following best describes the role of banks in the loanable funds market? Banks act as nonprofit middlemen whose primary goal is to facilitate trade in the loanable funds market.Banks are the primary demanders of loanable funds and thus have an important role in setting interest rates.Banks act as profit-seeking institutions, taking the supply of loanable funds from households and distributing them to borrowers.Banks own the supply of loanable funds and distribute them to borrowers.
Banks act as profit-seeking institutions, taking the supply of loanable funds from households and distributing them to borrowers.