macro exam 4

raise the federal funds rate by half of a percentage point.

. According to the Taylor rule, if the target rate of inflation for the Fed is 2 percent and

. A liability of the Federal Reserve Banks and an asset for commercial banks.

. Commercial bank reserves, most of which are held by the Federal Reserve Banks, are

. Government bonds.

. The collateral used for repos and reverse repos is (are)

. Federal funds rate

. The interest rate that banks charge one another on overnight loans is called the

Open-market operations

. Which of the following tools of monetary policy is flexible and able to affect bank

. $210

.$200 invested at an annual interest rate of 5 percent will be worth how much at the end of one year?

. are unconcerned about risk and require no additional compensation for risk.

.A horizontal Security Market Line would imply that investors

. money is more valuable to a person the sooner it is received.

.According to the concept of the time value of money,

. absolute advantage; comparative advantage

.Adam Smith recognized the benefits from trade based on ____, and David Ricardo recognized the benefits from trade based on ____.

. level of nondiversifiable risk as the market portfolio.

.An investment with a beta of 4.0 means that the investment has four times the

. investors try to profit from selling a lower rate of return asset to buy one that is nearly identical but with a higher rate of return.

.Arbitrage occurs when

. two identical assets have different rates of return.

.Arbitrage occurs when investors try to profit from situations where

. Alpha should specialize in Y and Beta in X.

.Assume that by devoting all of its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all of its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. We can conclude that

. Bonds

.Debt contracts (also called instruments) issued by government and corporations are known as

subsidies for domestic producers.

.In effect, tariffs on imports are

. Directly related.

.In general, risk levels and average expected rates of return are

. banks held on to excess reserves and people chose to pay off loans rather than

.In the recent financial and economic crises, the economy fell into a so-called liquidity trap, which means that

. to reduce the risk of losing their investment.

.Investors diversify portfolios

. $1,079.46

.Myrna borrows $500 at an annually compounded interest rate of 8 percent that she will repay at the end of 10 years. How much will be required to pay off the loan at the end of 10 years?

. has reduced most trade barriers between Canada, Mexico, and the United States

.NAFTA

events that move all investments in the same direction.

.Nondiversifiable risk refers to potential losses from

. 9.8 percent

.Pigou buys a house for $500,000, rents it for $2,000 per month for four years, and then sells it for $600,000. What is Pigou's per-year rate of return?

. adverse shocks to aggregate supply.

.Rightward and upward shifts of the Phillips Curve in the 1970s and early 1980s were caused by

lower prices, so they provide a higher expected rate of return to compensate for risk.

.Riskier investments tend to sell for

. the Phillips Curve was unstable.

.Statistical data for the 1970s and 1980s suggest that

the rate that compensates for time preference plus the rate that compensates for risk.

.The average expected rate of return of a financial asset equals

whatever they paid for the shares in the company.

.The maximum amount of money that company shareholders can lose on their investment in the corporation is

. lower the interest rate.

.The present value of a future amount of money will be greater the

. exactly equal the total present value of all of the asset's future payments.

.The price of an asset should

. relative costs of production differ between nations.

.The principle of comparative advantage indicates that mutually beneficial international trade can take place only when

. terms of trade.

.The ratio at which nations will exchange one product for another is known as the

. exports are less than imports.

.The term trade deficit refers to a situation where

. the inflation rate will increase.

.The traditional Phillips Curve suggests that, if government uses an expansionary fiscal policy to stimulate output and employment

. $1,927.72

.What is the present value of $5,000 to be received 10 years from now if the interest rate is 10 percent?

. U.S. federal government

.Which institution is least likely to default on a bond?

. Bond payouts are more predictable than payouts from stocks.

.Which of the following is a difference between stocks and bonds?

. Chemicals

.Which of the following is an example of a capital-intensive commodity?

bondholders get paid from the sale of company assets before stockholders do.

If a corporation goes bankrupt,

The Fed borrows money from financial institutions

In a reverse repo transaction,.

. Is 6 percent

Katie buys a house for $200,000 and rents it for $1,000 per month. Katie's annual rate of return

. Either stocks or bonds.

Mutual funds may contain

Mortgage-backed securities

Since the financial crisis that began in 2007, the Federal Reserve has added a significant amount of which of the following securities?.

. Fed buys securities in the open market.

The lending ability of commercial banks increases when the

The purchase of government bonds in the open market by the Federal Reserve Banks.

Which of the following will increase commercial bank reserves?.

. lower the federal funds rate by half of a percentage point.

then the Fed should