Multiple Answers

Multiple Answer Question: Select ALL of the following statements that are true. a. The present value of a future sum decreases as the discount rate increases. b. If the present value of a sum is equal to its future value, the interest rate must be zero. c. If the discount (or interest) rate is positive, the future value of an expected series of payments will always exceed the present value of the same series. d. For a given APR, the present value of a future sum decreases as the number of discounting periods per year decreases.

Answer: A, B, and C

55. Multiple Answer Question: Select ALL of the following statements that are true: a. When taxes and general revenues fail to meet expenditures, a budgetary deficit occurs. b. The federal debt is the same thing as the budget deficit. c. Financial assets include ownership of land, buildings, machinery, inventory, commodities, and precious metals. Real assets d. The federal government relies primarily on borrowing to support its various expenditure programs.

A

4. Multiple Answer Question: Select ALL of the following that are the primary providers of adequate funds to meet investment needs: a. businesses b. the federal government c. individuals d. U.S. Treasury e. state and local governments

Answer: a and c

1. Multiple Answer Question: Select ALL of the following that are examples of personal consumption expenditures (PCE): a. individual expenditures for durable goods b. individual expenditures for nondurable goods c. individual expenditures for services d. gross investments by local governments e. fixed investment in residential and nonresidential structures

Answer: a, b, and c

Multiple Answer Question: Select ALL of the following that are factors that usually influence a person's choice of the medium used for savings: a. liquidity b. degree of safety c. return d. the current discount rate e. the current required reserve ratio

Answer: a, b, and c

46. Multiple Answer Question: Select ALL of the following that are a determinant of market interest rates: a. the inflation premium b. the maturity risk premium c. the volatility risk premium d. the real rate of interest e. the political premium

Answer: a, b, and d

35. Multiple Answer Question: Select ALL of the following that are part of the sum that is Gross Domestic Product: a. personal consumption expenditures PCE b. net exports NE c. government expenditures GE d. gross private domestic investment GPDI e. personal savings

Answer: a, b, c, and d

39. Multiple Answer Question: Select ALL of the following statements that were factors that contributed to the 2007-2009 financial crisis? a. The cultural shift that allowed the public to "spend now and pay later"—rather than their parents' or grandparents' philosophy of "save now, spend later" led to increases in consumer debt levels. b. U.S. government officials engaged in efforts to expand home ownership by encouraging lenders to make mortgage loans available to a broader spectrum of individuals. c. Federal fiscal policy also became stimulative, with increased government spending and the passage of tax cuts in 2002. d. The Federal Reserve adopted an expansionary monetary policy characterized by very low interest rates.

Answer: a, b, c, and d

47. Multiple Answer Question: Select ALL of the following who encouraged individuals to enter into risky mortgages during the 2000's: a. Financial institution lenders b. Conservative financial advisors c. Government-supported agencies d. Mortgage originators e. Government officials

Answer: a, c, d, and e

32. Multiple Answer Question: Select ALL of the following that occur, in general, during the business cycle, when economic activity is peaking: a. short-term interest rates are lower than long-term interest rates b. unemployment levels are low c. inflation begins to edge higher d. the Fed raises short-term interest rates higher to slow the economy e. interest rates are low because inflation rates are high

Answer: b, c, and d

8. Multiple Answer Question: Select ALL of the following theories that are commonly used to explain the term structure of interest rates: a. the default risk theory b. the expectations theory c. the market segmentation theory d. the liquidity preference theory e. the demand-pull theory f. the cost-push theory

Answer: b, c, d

43. Multiple Answer Question: Select ALL of the following that are true of Treasury bills: a. are issued usually for maturities ranging from one to ten years b. are issued with maturities of up to one year c. typically have original maturities in excess of ten years d. are issued on a discount basis e. are callable f. mature at par g. issued at specified interest rates

Answer: b, d, f

38. Multiple Answer Question: Select ALL of the following statements that are true. Bank reserves in the banking system consist of: a. vault cash held at commercial banks and other depository institutions b. reserve deposits held at Federal Reserve banks by commercial banks and other depository institutions c. currency in circulation d. Treasury cash holdings

Answer: both a and b

2. Multiple Answer Question: Select ALL of the following that are not examples of personal consumption expenditures (PCE): a. individual expenditures for durable goods b. individual expenditures for nondurable goods c. individual expenditures for services d. individual savings e. imports

Answer: d and e

. Multiple Answer Question: Select ALL of the following statements that do not occur when a customer demands additional currency by cashing a check for $500: a. the deposits of the bank are reduced $500 b. the dollar amount of the bank's required reserves is reduced c. Federal Reserve notes decrease d. additional reserves must be acquired if the bank has no excess reserves

Answer: only statement c does not occur

3. Multiple Answer Question: Select ALL of the following statements that are not descriptive of an amortization schedule? a. Each payment is the same. b. The same dollar amount of interest is paid with each payment. the dollar amount decreases c. Payment on principal increases with each total payment. d. Balance owed is reduced by the principal portion of each payment.

B

37. Multiple Answer Question: Select ALL of the following statements that are correct. a. The liquidity preference theory holds that interest rates are determined by the supply of and demand for loanable funds. loanable funds theory b. The mutual funds theory and the liquidity preference theory are compatible with each other. c. Marketable U.S. government securities are mainly sold through dealers and have interest payments that are federally taxable. d. The market segmentation theory holds that securities of different maturities are perfect substitutes for each other.

C

7. Multiple Answer Question: Select ALL of the following statements that are false. a. For a given APR, more frequent compounding results in additional return on the investment. b. If the number of compounding periods is more than one per year, the APR formula will understate the true or effective interest cost. c. The effective annual rate is determined by multiplying the interest rate charged per period by the number of periods in a year. d. The APR misstates the true interest rate. e. The EAR is the true opportunity cost measure of the interest rate.

C

Multiple Answer Question: Select ALL of the following statements that are correct about the money multiplier. a. A monetary base of $5 million and a money multiplier of 5 means that the money supply will be $1 million. b. The magnitude of the money multiplier constantly decreases over time. c. The money multiplier is influenced by the public's switching between checkable and noncheckable deposits at their banks. d. The monetary base multiplied by the money multiplier calculates the amount of required reserves for the banking system as a whole.

statement c is correct

Multiple Answer Question: Select ALL of the following statements that are correct. a. The multiplying capacity of primary deposits is hindered by cash leakages from the banking system. b. The monetary base is defined as bank reserves plus currency held by the public. c. In contrast to the other transactions that affect reserves in the banking system, open market operations are entirely at the initiative of the Federal Reserve. d. The Fed sets the prime rate

statements a, b, and c are correct

48. Multiple Answer Question: Select ALL of the following statements that are true. a. Required reserves are the minimum amount of total reserves that a depository institution must hold. b. The ability to alter the money supply and credit is based on the fact that our banking system does not utilize a fractional reserve system. c. The ability to predict M1 velocity, in addition to money supply changes, is important in achieving successful monetary policy making. d. A derivative deposit occurs when reserves created by a primary deposit are made available to borrowers through bank loans.

statements a, c, and d are true