Question 1

Which age group typically has the highest savings rate?

Accepted Answer

A) Young people 
B) Middle-aged people 
C) Elderly people 
D) Savings rates are approximately the same for all age groups. 
A) Young people 
B) Middle-aged people 
C) Elderly people 
D) Savings rates are approximately the same for all age groups.

Question 2

The bond demand curve slopes down because

Accepted Answer

A) interest rates decline as bond prices decline. 
B) when bond prices are low, inflation is low. 
C) the lender is willing and able to purchase more bonds when the price of the bond is low. 
D) the borrower is willing and able to purchase more bonds when the price of the bond is low. 
A) interest rates decline as bond prices decline. 
B) when bond prices are low, inflation is low. 
C) the lender is willing and able to purchase more bonds when the price of the bond is low. 
D) the borrower is willing and able to purchase more bonds when the price of the bond is low.

Question 3

Studies by economists suggest that

Accepted Answer

A) households do not increase their saving as the government's dissaving increases. 
B) households increase their saving, but not by the full amount of an increase in government dissaving. 
C) households also increase their dissaving when the government increases its dissaving. 
D) households also increase their saving when the government increases its saving. 
A) households do not increase their saving as the government's dissaving increases. 
B) households increase their saving, but not by the full amount of an increase in government dissaving. 
C) households also increase their dissaving when the government increases its dissaving. 
D) households also increase their saving when the government increases its saving.

Question 4

The demand curve for bonds would be shifted to the left by

Accepted Answer

A) an increase in expected returns on other assets. 
B) a decrease in the information costs of bonds relative to other assets. 
C) a decrease in expected inflation. 
D) an increase in the liquidity of bonds relative to other assets. 
A) an increase in expected returns on other assets. 
B) a decrease in the information costs of bonds relative to other assets. 
C) a decrease in expected inflation. 
D) an increase in the liquidity of bonds relative to other assets.

Question 5

Assess the impact on the bond market of the rise in Internet trading of stocks.

Accepted Answer

The liquidity of the stock market has be

Question 6

How is the interest rate that prevails in the bond market determined?

Accepted Answer

A) By the interaction of stock prices and bond prices 
B) By the decision of the president, in consultation with Congress 
C) By demand for and supply of bonds 
D) By the Board of Governors of the New York Stock Exchange 
A) By the interaction of stock prices and bond prices 
B) By the decision of the president, in consultation with Congress 
C) By demand for and supply of bonds 
D) By the Board of Governors of the New York Stock Exchange

Question 7

In a large open economy,

Accepted Answer

A) domestic lending and borrowing decisions have no impact on the world real interest rate. 
B) an increase in the domestic supply of loanable funds would lower the world real interest rate. 
C) the domestic equilibrium real interest rate is determined independently of foreign borrowing and lending. 
D) an increase in the domestic demand for loanable funds would lower the world real interest rate. 
A) domestic lending and borrowing decisions have no impact on the world real interest rate. 
B) an increase in the domestic supply of loanable funds would lower the world real interest rate. 
C) the domestic equilibrium real interest rate is determined independently of foreign borrowing and lending. 
D) an increase in the domestic demand for loanable funds would lower the world real interest rate.

Question 8

The life-cycle model of consumption and saving focuses on

Accepted Answer

A) the tendency of young consumers to purchase fashionable or trendy goods. 
B) the tendency of older people to be very reluctant to spend. 
C) the pattern of using the financial system to match saving with consumption needs. 
D) the reluctance of most Americans to save for retirement. 
A) the tendency of young consumers to purchase fashionable or trendy goods. 
B) the tendency of older people to be very reluctant to spend. 
C) the pattern of using the financial system to match saving with consumption needs. 
D) the reluctance of most Americans to save for retirement.

Question 9

In the bond market, the buyer is considered to be

Accepted Answer

A) the lender. 
B) the borrower. 
C) the lender or the borrower, depending upon the use to which the funds are put. 
D) the lender or the borrower, depending upon whether interest rates are rising or falling. 
A) the lender. 
B) the borrower. 
C) the lender or the borrower, depending upon the use to which the funds are put. 
D) the lender or the borrower, depending upon whether interest rates are rising or falling.

Question 10

During the last several decades, the government sector

Accepted Answer

A) has not spent more than it collected in taxes. 
B) has run large deficits. 
C) has run large surpluses. 
D) has balanced its budget every year. 
A) has not spent more than it collected in taxes. 
B) has run large deficits. 
C) has run large surpluses. 
D) has balanced its budget every year.

Question 11

If the expected gains on stocks rise, while the expected returns on bonds do not change, then

Accepted Answer

A) the demand curve for bonds will shift to the right. 
B) the supply curve for loanable funds will shift to the right. 
C) the equilibrium interest rate will fall. 
D) the equilibrium interest rate will rise. 
A) the demand curve for bonds will shift to the right. 
B) the supply curve for loanable funds will shift to the right. 
C) the equilibrium interest rate will fall. 
D) the equilibrium interest rate will rise.

Question 12

Suppose that Congress passes an investment tax credit. The likely result will be

Accepted Answer

A) the supply curve for bonds will shift to the right. 
B) the demand curve for loanable funds will shift to the left. 
C) the supply curve for loanable funds will shift to the left. 
D) the equilibrium interest rate will fall. 
A) the supply curve for bonds will shift to the right. 
B) the demand curve for loanable funds will shift to the left. 
C) the supply curve for loanable funds will shift to the left. 
D) the equilibrium interest rate will fall.

Question 13

If households increase their saving at the same time that the government increases its deficit,

Accepted Answer

A) the demand and supply curves for bonds will be unaffected. 
B) the demand curve for bonds will shift to the left. 
C) the supply curve for bonds will shift to the right. 
D) the equilibrium interest rate will definitely rise. 
A) the demand and supply curves for bonds will be unaffected. 
B) the demand curve for bonds will shift to the left. 
C) the supply curve for bonds will shift to the right. 
D) the equilibrium interest rate will definitely rise.

Question 14

A one-year discount bond with a face value of $1000 has an interest rate of 7%. What is its price?

Accepted Answer

A) $930 
B) $934.58 
C) $993 
D) $1070 
A) $930 
B) $934.58 
C) $993 
D) $1070

Question 15

If the equilibrium price in the bond market for a one-year discount bond is $950, then the equilibrium interest rate in the loanable funds market must be

Accepted Answer

A) 5%. 
B) 5.26%. 
C) 50%. 
D) 10%. 
A) 5%. 
B) 5.26%. 
C) 50%. 
D) 10%.

Question 16

During a period of economic expansion, when expected profitability is high,

Accepted Answer

A) the supply curve for bonds shifts to the left. 
B) the demand curve for loanable funds shifts to the right. 
C) the equilibrium interest rate falls. 
D) the equilibrium price of bonds rises. 
A) the supply curve for bonds shifts to the left. 
B) the demand curve for loanable funds shifts to the right. 
C) the equilibrium interest rate falls. 
D) the equilibrium price of bonds rises.

Question 17

In the market for loanable funds, the buyer is considered to be

Accepted Answer

A) the lender. 
B) the borrower. 
C) the lender or the borrower depending upon the use to which the funds are put. 
D) the lender or the borrower depending upon whether interest rates are rising or falling. 
A) the lender. 
B) the borrower. 
C) the lender or the borrower depending upon the use to which the funds are put. 
D) the lender or the borrower depending upon whether interest rates are rising or falling.

Question 18

A one-year discount bond with a face value of $1000 that is currently selling for $900 has an interest rate of

Accepted Answer

A) 5.26%. 
B) 10%. 
C) 11.1%. 
D) 100%. 
A) 5.26%. 
B) 10%. 
C) 11.1%. 
D) 100%.

Question 19

A small open economy

Accepted Answer

A) is unable to affect the world real interest rate by its borrowing and lending decisions. 
B) will always be a net borrower from abroad. 
C) will always be a net lender abroad. 
D) is almost never able to borrow abroad. 
A) is unable to affect the world real interest rate by its borrowing and lending decisions. 
B) will always be a net borrower from abroad. 
C) will always be a net lender abroad. 
D) is almost never able to borrow abroad.

Question 20

During an economic recession,

Accepted Answer

A) the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises. 
B) the demand and supply curves for loanable funds both shift to the left and the equilibrium interest rate usually falls. 
C) the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilibrium interest rate usually falls. 
D) the demand curve for loanable funds shifts to the left, the supply curve for loanable funds shifts to the right, and the equilibrium interest rate usually rises. 
A) the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises. 
B) the demand and supply curves for loanable funds both shift to the left and the equilibrium interest rate usually falls. 
C) the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilibrium interest rate usually falls. 
D) the demand curve for loanable funds shifts to the left, the supply curve for loanable funds shifts to the right, and the equilibrium interest rate usually rises.

Exam 6: Determining Market Interest Rates

Which age group typically has the highest savings rate?

The bond demand curve slopes down because

Studies by economists suggest that

The demand curve for bonds would be shifted to the left by

Assess the impact on the bond market of the rise in Internet trading of stocks.

How is the interest rate that prevails in the bond market determined?

In a large open economy,

The life-cycle model of consumption and saving focuses on

In the bond market, the buyer is considered to be

During the last several decades, the government sector

If the expected gains on stocks rise, while the expected returns on bonds do not change, then

Suppose that Congress passes an investment tax credit. The likely result will be

If households increase their saving at the same time that the government increases its deficit,

A one-year discount bond with a face value of $1000 has an interest rate of 7%. What is its price?

If the equilibrium price in the bond market for a one-year discount bond is $950, then the equilibrium interest rate in the loanable funds market must be

During a period of economic expansion, when expected profitability is high,

In the market for loanable funds, the buyer is considered to be

A one-year discount bond with a face value of $1000 that is currently selling for $900 has an interest rate of

A small open economy

During an economic recession,

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

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