ECO 301 Final Connect

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A lottery claims its grand prize is $5 million, payable over 5 years at $1,000,000 per year. If the first payment is made immediately, what is the grand prize really worth? (interest rate of 4%)

$4629895

What is the structure of the Federal Reserve System?

(see aid on page 362)

Under 100% reserve banking, the money multiplier will be:

1

A bank almost always insists that the firms it lends to keep compensating balances at the bank. Why? (3 reasons)

1) Compensating balances help the bank monitor the activities of a borrowing firm, which reduces the moral hazard problem 2) Compensating balances help establish long-term customer relationships, which make it easier for the bank to collect information about prospective borrowers, thus reducing the adverse selection problem 3) Compensating balances can act as collateral

X-Bank reported an ROE of 16% and an ROA of 1.46%. What is the equity multiplier? How well capitalize is this bank? A) This is a well-capitalized bank because its equity/asset ratio exceeds the minimum required level B) This is a poorly-capitalized bank because its ROA is lower than its ROE. C) There is not enough information to answer the question

10.96 A

What Fed district has jurisdiction over Oxford?

4th

Suppose $50,000 is deposited at a bank. The required reserve ratio is 20%, and the bank chooses not to hold any excess reserves but makes loans instead. What are the banks total loans?

=$40,000

A bank with excess reserves can economize on these reserves by: A) lending reserves in the federal funds market B) buying short-term Treasury securities C) buying municipal bonds D) calling in loans

A

A dilemma challenging the existing structure of the European Central Bank​ (ECB) has been brought on​ by: A) the possibility of expanding the membership in the Eurosystem B) the​ over-involvement of the ECB in the supervision and regulation of financial institutions C) the ECB president and vice​ president's avoidance of the press

A

Assets of value promised to the lender as compensation if the borrower defaults are called: A) collateral B) deductibles C) restrictive covenants D) contingencies

A

Bank loans from the Federal Reserve are called ________ and represent a source of new funds for financial intermediaries A) discount loans B) prime loans C) agency loans D) federal funds

A

Critics of Fed independence argue​ that: A) it is undemocratic to have monetary policy controlled by an elite group responsible to no one B) the​ Fed, since it does not face a binding budget​ constraint, spends too much of its earnings C) an independent Fed conducts monetary policy with a consistent inflationary bias D) Only A and B are correct

A

_________ are intended to change the level of reserves and the monetary base. A) Dynamic open market operations B) Open market sales C) Defensive open market operations D) Open market purchases

A

Advantages of the​ Fed's "just do​ it" approach​ include: A) the strong dependence on the​ preferences, skills, and trustworthiness of the individuals in charge of the central bank. B) its​ forward-looking behavior and stress on price stability that help to discourage overly expansionary monetary​ policy, thereby ameliorating the​ time-inconsistency problem. C) it does not rely on a stable​ money-inflation relationship. D) Only B and C are correct. E) All of the above are correct.

D

​"The only way that the Fed can affect the level of borrowed reserves is by adjusting the discount​ rate." Is this statement​ true, false, or​ uncertain? Explain your answer. A) False. The Fed can also limit the amount of discount loans that an individual bank can have. B) False. The Fed can also engage in open market operations. C) True. The Fed uses only the discount rate to adjust the amount of discount loans made. D) Uncertain. It depends on whether the discount rate is set lower than the federal funds rate target.

A

A graph shows a fall in the horizontal section of the supply curve of reserves. The fall in supply is caused by:

A decrease in the discount rate

People in the US in the 19th century were sometimes willing to be paid by cheque rather than with gold, even though they knew there was a possibility that the cheque might bounce. Which of the following would represent an advantage of gold over cheques as a form of money? A) Gold is easy for an individual to carry from place to place B) Gold is easy to transfer from one city to another or one state to another C) Gold is easily divisible and may be used for small expenditures D) Gold has intrinsic value when compared to cheques

D

In order to reduce the ___________ problem in loan markets, banks often insist on collateral from potential borrowers. A) adverse lending B) moral hazard C) principal-agent D) asymmetric information

B

In prison, cigarettes are sometimes used among inmates as a form of payment. All the following explain how cigarettes solve the "double coincidence of wants" problem, even if a prisoner does not smoke, EXCEPT: A) cigarettes are widely accepted as a form of payment in prison B) exchanging cigarettes for other goods and services increases transaction costs C) prisoners can exchange cigarettes for other goods and services D) cigarettes serve as a medium of exchange

B

Suppose the central bank sets the growth rate for nonborrowed reserves to​ 3% in order to achieve a growth rate of​ 4% for​ M2, which in turn should grow nominal GDP by​ 5%. In this​ case, nonborrowed reserves are​ _______, M2 is​ ____________, and nominal GDP is a​ _________. A) a monetary policy​ goal; an intermediate​ target; policy instrument B) a policy​ instrument; an intermediate​ target; monetary policy goal C) a policy​ instrument; a policy​ instrument; monetary policy goal D) an intermediate​ target; a policy​ instrument; monetary policy goal

B

The money multiplier declined significantly during the period​ 1930-1933 and also during the recent financial crisis of​ 2008-2010. Yet the M1 money supply decreased by​ 25% in the Depression period but increased by more than​ 20% during the recent financial crisis. What explains the difference in​ outcomes? A) The excess reserves ratio increased rapidly during the recent financial crisis. B) There was a significant increase in the monetary base during the recent financial crisis. C) There was a minimal increase in the currency ratio during the recent financial crisis. D) The overall level of deposit expansion decreased during the recent financial crisis.

B

The primary reason for the creation of the Federal Reserve System ​was: A) to eliminate​ state-chartered banks. B) to reduce or eliminate future bank panics. C) to stabilize​ short-term interest rates. D) to create a single central bank similar to the Bank of England.

B

What is the main disadvantage of moving to e-money or moving to a cashless society? A) The use of e-money does not work with vending machines or other coin-based transactions B) There are problems with security and privacy C) Funds are debited too quickly from the payer's account D) It is difficult to keep track of electronic purchases

B

When the federal government sells a Treasury bond in the primary market - via Treasury auction, it is: A) increasing the money supply B) seeking to finance government spending as an alternative to raising taxes C) directly putting downward pressure on interest rates D) seeking a safe investment vehicle for the Social Security Trust Fund

B

Which of the following is a disadvantage of using fiat money? A) Fiat money is not easily divisible or suitable for small purchases B) Public authorities may be tempted to produce too much of it C) Fiat money is not portable or widely accepted

B

A discount bond will have a negative nominal rate when the: A) bond is sold long before its maturity date B) sum of the annual coupon payments and the face value of the bond is higher than its current price C) current bond price is greater than its face value D) current bond yield is smaller than its yield to maturity

C

If a bank decides that it wants to hold​ $1 million of excess​ reserves, what effect will this have on checkable deposits in the banking​ system? Assume that the required reserve ratio on checkable deposits is​ 10% and the​ public's holdings of currency do not change. A) Checkable deposits decline by​ $100,000. B) Checkable deposits decline by​ $1 million. C) Checkable deposits decline by​ $10 million. D) Checkable deposits do not change

C

If the Treasury has just paid a large bill to defense contractors and as a result its deposits with the Fed​ fall, what defensive open market operations will the manager of the open market desk​ undertake? A) A defensive open market purchase. B) A repurchase agreement. C) A defensive open market sale. D) None of the above are correct.

C

If you are a banker and expect interest rates to rise in the​ future, would you want to make​ short-term or​ long-term loans? A) You would want to make​ long-term loans to secure the higher interest rate for an extended period of time. B) You would want to make​ short-term loans since there is no guarantee that the interest rate will rise as expected. C) You would want to make​ short-term loans so you can reinvest the funds at higher interest rates after their maturity. D) Both​ short-term and​ long-term loans will be profitable with an expected interest rate increase.

C

Is it better for bondholders when the YTM increases or decreases? They are better off when YTM...: A) decreases, since this represents an increase in the coupon payment and an increase in potential capital gains. B) increases, since this represents a decrease in the price of the bond and an increase in potential capital gains. C) decreases, since this represents an increase in the price of the bond and a decrease in potential capital losses. D) increases, since this represents a decrease in the bond maturity and a decrease in potential capital losses.

C

Measuring the sensitivity of bank profits to changes in interest rates by calculating the product of the gap and the change in the interest rate is called: A) interest-exposure analysis B) basic duration analysis C) basic gap analysis D) gap-exposure analysis

C

Retired persons often have much of their wealth placed in savings accounts and other interest-bearing investments, and complain whenever interest rates are low. Which of the following, if true, would be a valid complaint? A) Expected inflation is falling at the same rate as nominal interest rates. B) There has not been significant growth of nominal interest rates for the last 5 years C) Expected inflation is falling at a slower rate than nominal interest rates D) Nominal interest rates decrease, while there is a slight increase in real interest rates

C

What effect will a sudden increase in the volatility of gold prices have on interest rates? A) Interest rates will increase because bonds will become relatively more risky, which decreases the demand for bonds B) Interest rates will decrease because bonds will become relatively more risky, which decreases the demand for bonds C) Interest rates will decrease because bonds will become relatively less risky, which increases the demand for bonds D) Interest rates will increase because bonds will become relatively less risky, which increases the demand for bonds

C

What is the primary tool that Congress uses to exercise some control over the​ Fed? A) The threat that Congress can remove some members of the Board of Governors on a whim. B) The threat that Congress can withhold the​ Fed's appropriations. C) The threat that Congress will acquire greater control over the​ Fed's finances and budget. D) All of the above are correct.

C

When the zero-lower-bound problem occurs, central banks can rely on: A) quantitative easing B) Systemic adjustment C) the liquidity provision D) asset sales

C

Which of the following may NOT be used as a backup line of credit? A) Loan commitments B) Standby letters of credit C) Mortgages D) Overdraft privileges

C

Which of the following statements is true? A) Both a coupon bond and a perpetuity can have a negative nominal interest rate B) Neither a coupon bond nor a perpetuity can have a negative nominal interest rate C) Only a coupon bond can have a negative nominal interest rate D) Only a perpetuity can have a negative nominal interest rate

C

What happens to checkable deposits in the banking system when the Fed lends an additional​ $1 million to the First National​ Bank, assuming that the required reserve ratio on checkable deposits is​ 10%, banks do not hold any excess​ reserves, and the​ public's holdings of currency do not​ change? A) Checkable deposits rise by​ $10 million. B) Checkable deposits rise by​ $1 million. C) Checkable deposits rise by​ $100,000. D) Checkable deposits rise by​ $900,000.

A

Which of the following is NOT an income-producing asset on a bank's balance sheet? A) Treasury notes B) Consumer loans C) Treasury bills D) Bank reserves

D

Which of the following is not part of the checks and balances of the Federal Reserve System​? A) The provision for three types of directors to district banks​ (A, B, and​ C) that would represent different groups​ (professional bankers, business​ people, and the​ public). B) The ability of the twelve regional banks to affect discount policy. C) The​ Fed's independence from the federal government and the setting up of the Federal Reserve banks as incorporated institutions. D) The requirement that all depository institutions keep deposits at the Fed.

D

Why are repurchase agreements used to conduct most​ short-term monetary policy​ operations, rather than simply buying and selling securities​ outright? A) Repurchase agreements allow the Fed to easily adjust open market operations in response to daily conditions. B) Repurchase agreements are temporary open market purchases that can be reversed. C.) They are effective in dealing with persistent shortages in​ reserves, and thus have a more permanent impact. D) Only A and B are correct. E) All of the above are correct.

D

The European system of central banks uses similar monetary policy tools to that of the Federal reserve. These tools​ involve: A) open market operations B) lending to banks C) reserve requirements D) Both A and C are correct E) All of the above are correct

E

What would happen to the risk premium on corporate bonds if brokerage commissions were lowered in the corporate bond market?

Lower brokerage commissions for corporate bonds would make them more liquid and thus increase demand, which would lower the risk premium

Banking institutions in the European Monetary Union can borrow (against eligible collateral) overnight loans from the national central banks at the:

Marginal lending rate

If the economy starts to boom and loan demand picks up, what do you predict will happen to the money supply?

Money supply will increase

The problems that are created by inflation can be mainly attributed to:

Uncertainty

Money may serve as an instrument that allows for comparison of the relative worth of various goods and services. What function of money does this describe?

Unit of account

What is the YTM on a simple loan for $2000 that requires a repayment of $4000 in five years' time?

YTM = 14.9%

What is the YTM on a $1,000-face-value discount bond maturing in one year that sells for $869.57?

YTM = 15%

Suppose you observe a change in the relationship between ST and LT bonds. Specifically, you note that although interest rates on both ST and LT bonds are rising together, as expected, the rate on LT bonds is not rising by as much as has been observed in the past. Assuming the liquidity premium theory of term structure, you conclude that the liquidity premium is ____________. As a result, the yield curve becomes ___________.

decreasing; flatter

If the market price of a $1,200 face-value discount bond changes from $925 to $900, the YTM _______________ by ______%

increases; 3.60%

Large denomination CDs are ___________, so that like a bond, they have a ___________ degree of liquidity and can be sold in secondary markets.

negotiable; greater

The money multiplier when people hold currency and when banks hold excess reserves is ______________ than the simple multiplier (1/rr)

smaller

If Jane Brown closes her account at the First National Bank and uses the money instead to open a money market mutual fund​ account, what happens to​ M1? Why? A) M1 does not change because the funds that go to the money market mutual fund are first deposited into the mutual​ fund's bank account B) M1 increases because the funds that go to the money market mutual fund are first deposited into the mutual​ fund's bank account C) M1 increases due to a shift from one component of the money supply​ (chequable deposits) with less multiple expansion to another​ (money market mutual​ funds) with more D) M1 decreases due to a shift from one component of the money supply​ (chequable deposits) with less multiple expansion to another​ (money market mutual​ funds) with more

A

In Canada​, the Bank of Canada and the government jointly set the goal of monetary​ policy, a target for inflation.​ Thus, when compared to the​ Fed, the Bank of Canada ​has: A) less goal independence B)less instrument independence C) more goal independence D) more instrument independence

A

M1 money growth in the US was about 16% in 2008, 7% in 2009, and 9% in 2010. Over the same time period, the yield on 3-month Treasury bills fell from almost 3% to close to 0%. Given these high rates of money growth ], why did interest rates fall, rather than increase? A) The income, price-level, and expected-inflation effects were small relative to the liquidity effect B) The liquidity effect did not dominate the other effects as the liquidity preference framework would suggest C) The income, price-level, and expected-inflation effects were large relative to the liquidity effect D) The liquidity effect was working in the same direction as the income, price-level, and expected inflation effects

A

Open market purchases raise the ____________, thereby increasing the _________. A) monetary base and reserves; money supply B) money multiplier; monetary base and reserves C) money multiplier; money supply D) money base; money multiplier

A

Predict what will happen to the money supply if there is a sharp rise in the currency ratio. A) The money supply falls B) The money supply increases C) The money supply stays the same D) The effect on the money supply is ambiguous

A

The goals of a dual mandate can sometimes conflict​ because: A) policies that increase output and employment in the short run can create excessive inflation in the long run B) it is difficult to achieve both​ long-run price stability and the natural rate of unemployment C) low and stable rates of inflation detract from economic growth

A

The management of expectations is a strategy best defined​ by: A) keeping the federal funds rate at zero for an extended period to lower the​ market's expectations of future​ short-term interest rates. B) lowering the​ market's expectations of future​ short-term interest rates by paying interest on reserves. C) lowering the​ market's expectations of future​ long-term interest rates by decreasing excess reserves. D) keeping the discount rate at zero for an extended period to lower the​ market's expectations of future​ long-term interest rates.

A

The theory of bureaucratic behaviour when applied to the Fed helps to explain why the​ Fed: A) is so secretive about the conduct of future monetary policy B) sought less control over banks in the 1980s C) is supportive of congressional attempts to limit the central​ bank's autonomy D) is willing to take on powerful groups that may threaten its autonomy

A

The​ Fed's lender-of-last-resort​ function: A) creates a moral hazard problem. B) cannot prevent runs by large depositors. C) is no longer necessary due to FDIC insurance. D) has proven to be ineffective.

A

The​ zero-lower-bound problem: A) occurs because people can always earn more from holding bonds than holding cash. B) implies that nominal interest rates can be zero. C) is responsible for the recession of​ 2007-2009. D) creates a negative shock to the economy.

A

Risk premiums on corporate bonds are usually ANTICYCLICAL; that is, they decrease during business cycle expansions and increase during recessions. Why is this so?

As the economy enters an expansion, there is greater likelihood that borrowers will be able to service their debt

Loans that the Fed makes to banks appear in the balance sheet as part of its ____________, and deposits made by banks appear on the Fed's balance sheet as part of its ____________.

Assets; liabilities

A bank finds that its ROE is too low because it has too much bank capital. Which of the following will NOT raise its ROE? A) The bank can buy some of its shares B) The bank can sell part of its holdings of securities and hold more excess reserves C) The bank can increase the amount of its assets by acquiring new funds D) The bank can pay out more dividends

B

How does the Federal Reserve have a high degree of instrument​ independence? A) The Federal Reserve is not subject to the influence of Congress. B) The Federal Reserve can choose any method it wants in order to achieve a given set of policy objectives. C) The Federal Reserve is able to set the goals of monetary policy. D) The Federal Reserve can contract with independent experts to choose the appropriate fiscal instruments.

B

If a bank depositor withdraws​ $1,000 of currency from an​ account, what happens to​ reserves, checkable​ deposits, and the monetary​ base? Assume that the required reserve ratio on checkable deposits is​ 10% and banks do not hold any excess reserves. A) Reserves do not​ change, checkable deposits fall by​ $1,000, and the monetary base falls by​ $10,000. B) Reserves fall by​ $1,000, checkable deposits fall by​ $10,000, and the monetary base remains unchanged. C) Reserves do not​ change, checkable deposits fall by​ $10,000, and the monetary base falls by​ $1,000. D) Reserves fall by​ $10,000, checkable deposits fall by​ $1,000, and the monetary base remains unchanged.

B

If the Federal Reserve has a specific mandate from Congress to achieve​ "maximum employment and​ low, stable​ prices," then how does the Fed have goal​ independence? A) The Fed can choose any method it wants in order to achieve the assigned goal. B) The Fed is free to interpret exactly what these objectives mean. C) The Fed is free to discuss the assigned goals with Congress. D) The Fed is able to change its goals frequently

B

If the bank you own has no excess reserves and a sound customer comes in asking for a​ loan, should you automatically turn the customer​ down, explaining that you​ don't have any excess reserves to lend​ out? Why or why​ not? What options are available for you to provide the funds your customer​ needs? A) Yes. Although excess reserve are not the only source of new​ lending, the cost of acquiring the excess reserves for lending are higher than the expected return on the loan. B) No. There are several ways that reserves can be acquired. For​ example, the bank can borrow at the discount window or in the federal funds​ market, or it can acquire funds by issuing negotiable CDs. C) No. There are only two sources of funds that can used to acquire reserves. The bank can borrow at the discount window or in the federal funds market. D) Yes. In response to the subprime mortgage​ meltdown, the Federal Lending Act of 2008 stipulates that excess reserves are the only source of new lending.

B

Why was the Federal Reserve System set up with twelve regional Federal Reserve banks rather than one central​ bank, as in other​ countries? A) With twelve regional​ banks, the Federal Reserve could easily influence politics in all parts of the United States. B) The writers of the Federal Reserve Act wanted to ensure the​ Fed's power was not centralized in a single location. C) With twelve regional​ banks, employees of the Federal Reserve could quickly and easily get to a monetary crisis point anywhere in the United States. D) By creating twelve regional​ banks, writers of the Federal Reserve Act could ensure that finances from all parts of the country would flow through the Federal Reserve System.

B

_______ are intended to offset movements in other factors that affect reserves and the monetary base. A) Open market purchases B) Defensive open market operations C) Open market sales D) Dynamic open market operations

B

​"Because diversification is a desirable strategy for avoiding​ risk, it never makes sense for a bank to specialize in making specific types of​ loans." Is this statement true or​ false? Explain your answer. A) True. A bank can reduce its risk by using​ diversification, just like individuals can. B) False. A bank may have developed expertise in screening and monitoring a particular type of​ loan, thus improving its ability to handle problems of adverse selection and moral hazard. C) True. Diversification is a desirable strategy for a​ bank, so it does not make sense for a bank to specialize in certain types of lending. D) False. A bank does not gain anything by​ diversifying; the bank only raises its costs when it diversifies.

B

Which entity controls the discount rate?

Board of Governors

Which entity controls the reserve requirement?

Board of Governors

The European System of Central Banks​ (ESCB) is similar to the Federal Reserve System in​ that: A) it is structured such that the central banks for each country control their own budgets as Federal Reserve banks do. B) monetary operations are centralized. C) it is structured such that the central banks for each country have a similar role to that of the Federal Reserve banks. D) the ECB is involved in supervision and regulation of financial institutions.

C

The players in the money supply process include all of the following except​: A) banks. B) depositors. C) the Treasury. D) the central bank.

C

The primary reason for the creation of the Federal Reserve System was: A) to eliminate​ state-chartered banks. B) to stabilize​ short-term interest rates. C) to reduce or eliminate future bank panics. D) to create a single central bank similar to the Bank of England.

C

The principal-agent problem that exists for bank trading activities can be reduced​ by: A) eliminating the regulation of the financial industry B) combining trading activities with bookkeeping activities C) the physical separation of trading activities from bookkeeping activities D) eliminating internal controls

C

Following a policy meeting on March 19, 2009, the Federal Reserve made an announcement that it would purchase up to $300 billion of longer term Treasury securities over the following six months. What effect might this policy have on the yield curve. A) The yield curve would steepen at the end and flatten somewhere along the rest of the curve B) The yield curve would steadily shift up, with slightly more increase in ST rates C) The yield curve would jump with medium- and long-term rates and remain unchanged with ST rates D) The yield curve would shift down, but mostly on medium- and long-term maturities

D

The M2 money multiplier increases in value when​ the: A) time deposit ratio ​(t) increases B) money market fund ratio ​(mm) increases C) required reserve ratio ​(r) increases D) A and B are correct E) All of the above are correct

D

The monetary base is affected by: A) the Federal Reserve through open market operations B) the Federal Reserve through its extension of discount loans C) float and Treasury deposits at the Federal Reserve D) All of the above E) None of the above

D

When an economy is at its natural rate of unemployment: A) the rate of unemployment is zero. B) the economy is at a​ full-employment level. C) the demand for labor is equal to the supply of labor. D) Both B and C are correct. E) All of the above are correct.

D

The Board of Governors of the Federal Reserve​ System: A) ​establishes, within​ limits, reserve requirements. B) effectively sets the discount rate. C) sets margin requirements. D) Only A and B are correct. E) All of the above are correct.

E

Assume that you are interested in earning some return on idle balances you usually keep in your checking account and decide to buy some money market mutual fund shares by writing a check. Everything else the same, M1 will __________ and M2 will _____________.

Decrease; stay the same

Disadvantages of inflation targeting​ include: A) too much rigidity. B) delayed signaling. C) low economic growth. D) Only A and B are correct. E) All of the above are correct.

E

Why might the procyclical behavior of interest rates​ (rising during business cycle expansions and falling during​ recessions) lead to procyclical movements in the money​ supply? ​ (Assume the Fed does not change the discount​ rate.) A) The excess reserves ratio e falls with rising interest rates and the money supply rises when e falls. B) Discount loan borrowing is negatively related to interest rates and the money supply is negatively related to the level of discount loans from the Fed. C) Discount loan borrowing is positively related to interest rates and the money supply is positively related to the level of discount loans from the Fed. D) The excess reserves ratio e rises with rising interest rates and the money supply rises when e rises. E) Both A​ & C are correct. F) Both B​ & D are correct.

E

Which entity directs open market operations?

FOMC

If a bank doubles the amount of its capital and ROA stays constant, what will happen to ROE?

Given the ROA, if bank capital doubles, then ROE will fall by half.

Two primary assets of the Federal Reserve System are:

Government securities and loans to commercial banks

What will happen to interest rates if the public suddenly expects a large increase in stock prices?

Interest rates will rise because the expected increase in stock prices raises the expected return on stocks relative to bonds and so the demand for bonds decreases

What effect would reducing income tax rates have on the interest rates of municipal bonds?

Interest rates would rise because the reduction in income tax would make the tax-exempt privilege for municipal bonds less valuable and reduce the demand for municipal bonds.

Calculate the PV of a $900 discount bond with 3 years to maturity if the YTM is 8%?

PV = $714.45

If the interest rate is 15%, what is the PV of a security that pays you $1,125 next year, $1,250 the year after, and $1,331 the year after that?

PV is $2798.59

The most important advantage of the discount policy is that the Fed can use it to:

Perform its role as lender of last resort

If the next chair of the Federal Reserve Board has a reputation for advocating an even slower rate of money growth than the current chair, what will happen to interest rates?

Slower money growth will lead to a liquidity effect, which will raise interest rates; however, the lower income, price level, and inflation will tend to lower interest rates

(Assume expectations theory) If bond investors decide that 30-year bonds are no longer as desirable an investment, the yield curve would:

Steepen at the end of the yield curve and flatten somewhere along the rest of the curve

Maria is currently pregnant. She expects her expenditures to increase in the future and decides to increase the balance in her savings account. In this case, money is being used as a ___________.

Store of value

Why do US Treasury bills have lower interest rates than large-denomination negotiable bank CDs?

Treasuries are considered to be risk-free debt instruments

True or False: With a discount bond, the return on a bond is equal to the rate of capital gain.

True


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