Question 1

Because investment is generally procyclical, it usually _______ when the economy _______.

Accepted Answer

A)  decreases; is in an expansion 
B)  decreases; is in a recession 
C)  reaches its peak; in a recession 
D)  increases; in a recession 
A)  decreases; is in an expansion 
B)  decreases; is in a recession 
C)  reaches its peak; in a recession 
D)  increases; in a recession

Question 2

If Andrew is paid an interest rate of 10% on his savings, but the inflation rate is 20%, the real interest rate is:

Accepted Answer

A)  20%. 
B)  - 10%. 
C)  - 20%. 
D)  10%. 
A)  20%. 
B)  - 10%. 
C)  - 20%. 
D)  10%.

Question 3

What is the present value of an asset that pays you $5000 next year and $5000 two years from now? Assume that the real interest rate is 5 percent for the first year and 10 percent on the second year.

Accepted Answer

PV = 5000/(1.05) + 5

Question 4

If a firm that chooses to use all of its corporate earnings as dividends, then:

Accepted Answer

A)  retained earnings equal zero. 
B)  taxes paid to the government equal zero. 
C)  sales equal zero. 
D)  profits equal zero. 
A)  retained earnings equal zero. 
B)  taxes paid to the government equal zero. 
C)  sales equal zero. 
D)  profits equal zero.

Question 5

When using the formula PV = K/(1+i)t to calculate the present value of a future payment, a higher t implies:

Accepted Answer

A)  a lower present value. 
B)  a higher present value. 
C)  a higher future value. 
D)  a lower future value. 
A)  a lower present value. 
B)  a higher present value. 
C)  a higher future value. 
D)  a lower future value.

Question 6

Generally speaking, investment _______ when real GDP _______.

Accepted Answer

A)  decreases; increases 
B)  increases; decreases 
C)  increases; increases 
D)  does not change; increases or decreases 
A)  decreases; increases 
B)  increases; decreases 
C)  increases; increases 
D)  does not change; increases or decreases

Question 7

How did the presence of deposit insurance indirectly create the savings and loan crisis during the 1980s?

Accepted Answer

Because there was government insurance t

Question 8

Broadly defined, investments are:

Accepted Answer

A)  actions that create benefits today and provide costs in the future. 
B)  actions that create costs and benefits in the future. 
C)  actions that create costs today, but provide no benefit in the future. 
D)  actions that create a cost today but provide benefits in the future. 
A)  actions that create benefits today and provide costs in the future. 
B)  actions that create costs and benefits in the future. 
C)  actions that create costs today, but provide no benefit in the future. 
D)  actions that create a cost today but provide benefits in the future.

Question 9

The accelerator theory describes the impact of:

Accepted Answer

A)  a change in future GDP on investment. 
B)  a change in government spending on future GDP. 
C)  a change in planned aggregate expenditures on future GDP. 
D)  a change in investment on future GDP. 
A)  a change in future GDP on investment. 
B)  a change in government spending on future GDP. 
C)  a change in planned aggregate expenditures on future GDP. 
D)  a change in investment on future GDP.

Question 10

Retained earnings are corporate earnings that are not:

Accepted Answer

A)  taxed by the government. 
B)  generated by higher government subsidies. 
C)  declared to the IRS. 
D)  paid to owners in the form of dividends. 
A)  taxed by the government. 
B)  generated by higher government subsidies. 
C)  declared to the IRS. 
D)  paid to owners in the form of dividends.

Question 11

When using the formula PV = K/(1+i)t to calculate the present value of a future payment, t represents:

Accepted Answer

A)  the real interest rate. 
B)  the nominal interest rate. 
C)  the number of periods in the future that the future payment is received. 
D)  the present value. 
A)  the real interest rate. 
B)  the nominal interest rate. 
C)  the number of periods in the future that the future payment is received. 
D)  the present value.

Question 12

How did the financial crisis contribute to the worsening U.S. economy in 2008?

Accepted Answer

When banks started to realize their loss

Question 13

In theory, the price of a stock equals the:

Accepted Answer

A)  future value of expected future profits of the firm. 
B)  present value of expected future sales of the firm. 
C)  future value of expected future dividend payments. 
D)  present value of expected future dividend payments. 
A)  future value of expected future profits of the firm. 
B)  present value of expected future sales of the firm. 
C)  future value of expected future dividend payments. 
D)  present value of expected future dividend payments.

Question 14

If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, the real interest rate is 10 percent.

Accepted Answer

A) True 
 B)False

Question 15

Recall Application 3, "Underwater Homes: Bets Gone Wrong" to answer the following questions:
-According to the application, California is one of the states with the highest prevalence of homes underwater.

Accepted Answer

A) True 
 B)False

Question 16

Financial intermediaries help savers provide funds to investors.

Accepted Answer

A) True 
 B)False

Question 17

Financial intermediaries reduce the costs of negotiation between savers and investors through:

Accepted Answer

A)  the requirement of collateral in order to receive a loan. 
B)  the provision of deposit insurance. 
C)  the pooling of savers' funds. 
D)  the pooling of investors' debts. 
A)  the requirement of collateral in order to receive a loan. 
B)  the provision of deposit insurance. 
C)  the pooling of savers' funds. 
D)  the pooling of investors' debts.

Question 18

Figure 12.2
-Refer to Figure 12.2 to answer the question. Series A is a variable that increases when the economy is growing.

Accepted Answer

A) True 
 B)False

Question 19

Suppose you have $1000 that you deposited into a savings account that pays 5 percent per year. According to reports you hear in the news, the inflation rate this year is about 6 percent.
(a) What is the nominal value of the savings account after 1 year?
(b) In real terms, what is the value of the gain of your savings account, relative to the original $1000 deposit?

Accepted Answer

(a) $1000 X (1.05) = $1050
(b) real rate

Question 20

Bank runs occur when:

Accepted Answer

A)  the government runs away with the bank's money. 
B)  depositors simultaneously withdraw large amounts of deposits from banks. 
C)  the owners of the bank run away with depositors' money. 
D)  the government withdraws large amounts of deposits from banks simultaneously. 
A)  the government runs away with the bank's money. 
B)  depositors simultaneously withdraw large amounts of deposits from banks. 
C)  the owners of the bank run away with depositors' money. 
D)  the government withdraws large amounts of deposits from banks simultaneously.

Because investment is generally procyclical, it usually _ when the economy _.

If Andrew is paid an interest rate of 10% on his savings, but the inflation rate is 20%, the real interest rate is:

What is the present value of an asset that pays you $5000 next year and $5000 two years from now? Assume that the real interest rate is 5 percent for the first year and 10 percent on the second year.

If a firm that chooses to use all of its corporate earnings as dividends, then:

When using the formula PV = K/(1+i)^tto calculate the present value of a future payment, a higher t implies:

Generally speaking, investment _ when real GDP _.

How did the presence of deposit insurance indirectly create the savings and loan crisis during the 1980s?

Broadly defined, investments are:

The accelerator theory describes the impact of:

Retained earnings are corporate earnings that are not:

When using the formula PV = K/(1+i)^tto calculate the present value of a future payment, t represents:

How did the financial crisis contribute to the worsening U.S. economy in 2008?

In theory, the price of a stock equals the:

If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, the real interest rate is 10 percent.

Recall Application 3, "Underwater Homes: Bets Gone Wrong" to answer the following questions: -According to the application, California is one of the states with the highest prevalence of homes underwater.

Financial intermediaries help savers provide funds to investors.

Financial intermediaries reduce the costs of negotiation between savers and investors through:

Figure 12.2 -Refer to Figure 12.2 to answer the question. Series A is a variable that increases when the economy is growing.

Bank runs occur when:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Exam 12: Investment and Financial Markets

Because investment is generally procyclical, it usually _______ when the economy _______.

If Andrew is paid an interest rate of 10% on his savings, but the inflation rate is 20%, the real interest rate is:

What is the present value of an asset that pays you $5000 next year and $5000 two years from now? Assume that the real interest rate is 5 percent for the first year and 10 percent on the second year.

If a firm that chooses to use all of its corporate earnings as dividends, then:

When using the formula PV = K/(1+i)t to calculate the present value of a future payment, a higher t implies:

Generally speaking, investment _______ when real GDP _______.

How did the presence of deposit insurance indirectly create the savings and loan crisis during the 1980s?

Broadly defined, investments are:

The accelerator theory describes the impact of:

Retained earnings are corporate earnings that are not:

When using the formula PV = K/(1+i)t to calculate the present value of a future payment, t represents:

How did the financial crisis contribute to the worsening U.S. economy in 2008?

In theory, the price of a stock equals the:

If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, the real interest rate is 10 percent.

Recall Application 3, "Underwater Homes: Bets Gone Wrong" to answer the following questions: -According to the application, California is one of the states with the highest prevalence of homes underwater.

Financial intermediaries help savers provide funds to investors.

Financial intermediaries reduce the costs of negotiation between savers and investors through:

Figure 12.2 -Refer to Figure 12.2 to answer the question. Series A is a variable that increases when the economy is growing.

Bank runs occur when:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Because investment is generally procyclical, it usually _ when the economy _.

When using the formula PV = K/(1+i)^tto calculate the present value of a future payment, a higher t implies:

Generally speaking, investment _ when real GDP _.

When using the formula PV = K/(1+i)^tto calculate the present value of a future payment, t represents: