Econ chpts. 1-5 questions

stagflation in the US economy was worsened by

an oil embargo instituted by the Organization of Petroleum Exporting Countries (OPEC) in 1973

When a newly issued bond sells above its face value, it is said to sell

at a premium

Your good friend Megan is starting a new business and you decide to invest with $20,000. If you get back $2,000, what is your rate of return?

10%

Sarah is considering the purchase of a 10-year, $10,000 bond being issued by Disreputable, Inc. The bond offers an interest rate of 5.5%. The rate on a similar US Treasury bond is 2.5%. All else equal, what will Sarah's default premium be if she purchases the Disreputable, Inc. bond?

3%

Sherry says that she requires a 3% rate of interest in order to lend you some money. This implies that for Sherry the present value of $100 to be received one year from today is

97.09

Edward would be equally happy with receiving $95 today or $100 one year from today. Edward's friend Bella would be just as happy receiving $90 today or $100 one year from today. Based on this information, which of the following best describes the difference between Edward and Bella?

Bella has a higher rate of time preference than Edward

Following World War II, inflation became so bad that Germans stopped using Reichsmarks for transactions, and instead used cigarettes for small transactions and cognac for large transactions. Which of the following best describes this situation?

Cigarettes and cognac functioned as money in Germany in this period following World War II

Which of the following statements is not true of cryptocurrency?

Cryptocurrency is only centralized by two banks worldwide

What is the best description of the relationship between the price of bonds and the quantity of bonds supplied, all else equal?

Direct

T/F: A 4%, $10,000, 30-year bond will produce for the owner a series of 30 annual payments of $400 from the issuer of the bond and a one-time payment of $9,600.

False

T/F: A corporate bond offering an interest rate of 5% is as good a deal as a municipal bond offering the same interest rate.

False

T/F: An increase in the price of bonds will cause a decrease in the demand for bonds.

False

T/F: For an asset to function as commodity money, it must be easily divisible, easily standardized, easy to carry around, physically attractive, and broadly demanded.

False

T/F: If the market interest rate exceeds the coupon rate on a bond, the selling price of the bond will be greater than the bond's face value.

False

T/F: In the early 1980s, Paul Volcker used an easy monetary policy to bring inflation under control.

False

T/F: Lenders benefit from inflation in the short run

False

T/F: The higher a person's rate of time preference, the lower the interest rate needed to get them to defer their consumption to the future.

False

What is the best description of the relationship between the price of bonds and the quantity of bonds demanded, all else equal?

Inverse

the term monetary aggregates refers to things like

M1 and M2

Which of the following statements most accurately describes the measurements of the money supply known as M1 and M2?

M1 was a measure of the money supply that worked well until the mid-1970s; then M2 became more accurate measure until the 1990s

T/F: Financial assets include intangibles that can change in value, such as stocks and bonds.

True

T/F: For a social justice class, you take a field trip to a prison, where you notice prisoners exchanging cigarettes for other items, such as a candy bar, a magazine, a soft drink, and so on. In this circumstance, cigarettes could be considered money.

True

T/F: The expansion of the "junk bond" market in the 1980s was one factor that allowed for the rapid increase in the number of leveraged buyouts.

True

T/F: The market for bonds is a subset of the market for loanable funds.

True

T/F: Your friend Jacob is looking at a steep yield curve and makes an attempt to understand the implications using segmented market theory. He says more information will be needed to make economic predictions, as this type of yield curve could be either good news or bad news. Are his comments about this yield curve, using segmented market theory, true or false?

True

Rosa goes to the grocery store to buy groceries, and at the checkout counter she pays cash. This is an example of money being used as

a medium of exchange

the Chairman of the Federal Reserve, Paul Volcker, decided that dealing with stagflation would require

a shift in focus by the federal reserve from targeting interest rates to targeting the rate of growth of the money supply.

Unlike older bonds, which were printed on paper with mail-in coupons used to trigger interest payments, bonds today are mostly recorded in a different way. Which statement best describes how bond details are recorded for most bonds today?

bonds are recorded electronically

in a barter economy, the number of prices necessary will

depend on the number of goods exchanged in the economy

An inverted yield curve likely means the

economy is headed for recession

Low nominal interest rates can indicate

either a sufficient money supply or an economy suffering from deflation

Stagflation is the term used for an economy experiencing a combination of

high unemployment and rising rates of inflation

In the early twentieth century, the business scene in America was transformed by the formation of trusts. Business trusts are __________ integrated ownership structures.

horizontally

When there is too much money chasing too few goods, the likely impact is

inflation

In the period following World War II, the US Treasury was in charge of monetary policy and instructed the Federal Reserve to

keep interest rates low in order to keep spending high

Assets accepted for repayment of debt to the government as well as private transactions are known as

legal tender

Which of these groups of people is most hurt by inflation?

lenders and working class people

Which of these most accurately defines possible effects of fluctuating interest rates in the financial markets

prices and levels of employment

Travis buys a 20-year, $10,000 US Treasury bond with a coupon rate of 5%. After three years, he has some unexpected expenses and decides to sell the bond. In which market will Travis sell his bond?

secondary bond market

You read a review written by a well-respected financial analyst who says that the steep yield curve we currently see suggests that borrowers require a relatively higher premium to hold longer-term bonds now, compared to short-term bonds. This analyst is most likely a proponent of which theory of interest rates?

term premium

A yield curve illustrates the relationship between

term to maturity of bonds and the interest rate they pay, at a particular point of time

Three things fully describe the aspects of a bond. They are

the face value, the coupon rate, and the term to maturity

A major advantage that municipal bonds have over corporate bonds for investors is that

the income earned on municipal bonds is not subject to federal income tax

The quantity of loanable funds supplied is directly related to interest rates because as interest rates increase

the opportunity cost of household consumption increases, causing households to bring more of their after-tax income to the pool of loanable funds

What is the face value of a bond, also known as the bond principal?

the original amount of money borrowed by the bond issuer

What do we refer to when we talk about Becca's time preference?

the rate at which Becca prefers to consume today as opposed to consuming in the future

If gold and silver became the primary types of commodity money in circulation, what would most likely be expected if there was a sudden and great amount of hoarding of these two items?

There would likely not be enough money, and the economy could slide into an economic recession

Which of these was a lesson that economists learned from the battle with stagflation in the late 1970s and early 1980s?

The money supply matters and has a very real impact on economic activity