Question 1

The nominal interest rate is:

Accepted Answer

A)  the real rate of return to the lender. 
B)  the real cost of borrowing to the borrower. 
C)  the interest rate as quoted in the market. 
D)  all of the above 
A)  the real rate of return to the lender. 
B)  the real cost of borrowing to the borrower. 
C)  the interest rate as quoted in the market. 
D)  all of the above

Question 2

If an investment projects offers to pay $200 in year 1 and $200 in year 2, and the interest rate is 5%, the investment rule states that you should invest in the project as long as the cost is less than:

Accepted Answer

A)  $186. 
B)  $371.9. 
C)  $410. 
D)  none of the above 
A)  $186. 
B)  $371.9. 
C)  $410. 
D)  none of the above

Question 3

According to the application, the reason why the problem caused by subprime loans came to light was because:

Accepted Answer

A)  the housing boom ended. 
B)  the economy was in a recession and the Fed lowered the interest rates further. 
C)  the Federal Reserve put an end to it. 
D)  investors realized the risks before it was too late. 
A)  the housing boom ended. 
B)  the economy was in a recession and the Fed lowered the interest rates further. 
C)  the Federal Reserve put an end to it. 
D)  investors realized the risks before it was too late.

Question 4

Citibank is a financial intermediary.

Accepted Answer

A) True 
 B)False

Question 5

When interest rates fall, the present value of a given payment in the future increases.

Accepted Answer

A) True 
 B)False

Question 6

The accelerator theory refers to the effects of:

Accepted Answer

A)  interest rates on investment. 
B)  the money supply on inflation. 
C)  wages on inflation. 
D)  expected output growth on investment. 
A)  interest rates on investment. 
B)  the money supply on inflation. 
C)  wages on inflation. 
D)  expected output growth on investment.

Question 7

Financial intermediaries reduce the risk faced by savers through:

Accepted Answer

A)  pooling the funds of savers. 
B)  lowering negotiation costs. 
C)  reducing the liquidity of savers' funds. 
D)  diversification of investment projects. 
A)  pooling the funds of savers. 
B)  lowering negotiation costs. 
C)  reducing the liquidity of savers' funds. 
D)  diversification of investment projects.

Question 8

The Q- theory of investment:

Accepted Answer

A)  was developed by John Maynard Keynes. 
B)  suggests that taxes and the real interest rate are the most important determinants of investment spending. 
C)  says that an increase in real interest rates will cause an increase in investment. 
D)  links investment spending to stock prices. 
A)  was developed by John Maynard Keynes. 
B)  suggests that taxes and the real interest rate are the most important determinants of investment spending. 
C)  says that an increase in real interest rates will cause an increase in investment. 
D)  links investment spending to stock prices.

Question 9

Paradoxically, the existence of deposit insurance:

Accepted Answer

A)  reduces the risk to investors but increases the risks to depositors. 
B)  reduces the risk to depositors but increases the risks to investors. 
C)  reduces the risk to depositors but are indirectly linked to the failure of some financial institutions. 
D)  reduces the financial institutions' probability of failure but also increases the probability of bank runs. 
A)  reduces the risk to investors but increases the risks to depositors. 
B)  reduces the risk to depositors but increases the risks to investors. 
C)  reduces the risk to depositors but are indirectly linked to the failure of some financial institutions. 
D)  reduces the financial institutions' probability of failure but also increases the probability of bank runs.

Question 10

What important roles do financial intermediaries play in the U.S. economy?

Accepted Answer

Financial intermediaries accept funds fr

Question 11

Which of the following is a way in which a firm can add to its capital stock?

Accepted Answer

A)  purchasing raw materials 
B)  building a new plant and equipment 
C)  expanding its labor force 
D)  unplanned inventory depletion 
A)  purchasing raw materials 
B)  building a new plant and equipment 
C)  expanding its labor force 
D)  unplanned inventory depletion

Question 12

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.

Accepted Answer

PV = 5000/(1.05) + 5

Question 13

The boom period of the late 1990s was a good example of irrational exuberance because:

Accepted Answer

A)  even though the stock market took a plunge investment spending continued to rise. 
B)  investment spending and the stock market became positively related. 
C)  stock prices for companies that had never turned a profit soared. 
D)  the present value of expected future dividend payments exceeded the stock share price. 
A)  even though the stock market took a plunge investment spending continued to rise. 
B)  investment spending and the stock market became positively related. 
C)  stock prices for companies that had never turned a profit soared. 
D)  the present value of expected future dividend payments exceeded the stock share price.

Question 14

Liquidity refers to:

Accepted Answer

A)  the ease at which an asset can be converted into money on short notice. 
B)  the ability of an asset to hold its value over time. 
C)  the purchasing power of a dollar over time. 
D)  none of the above 
A)  the ease at which an asset can be converted into money on short notice. 
B)  the ability of an asset to hold its value over time. 
C)  the purchasing power of a dollar over time. 
D)  none of the above

Question 15

With a higher interest rate, the opportunity cost of keeping your money as cash is:

Accepted Answer

A)  lower. 
B)  higher. 
C)  the same, because cash earns no interest. 
D)  none of the above, it depends on the amount of money and on the amount of years. 
A)  lower. 
B)  higher. 
C)  the same, because cash earns no interest. 
D)  none of the above, it depends on the amount of money and on the amount of years.

Question 16

The accelerator theory is a theory of investment that states that current investment spending depends:

Accepted Answer

A)  positively on last years growth in real GDP. 
B)  positively on the expected future growth of real GDP. 
C)  positively on the investment levels last period. 
D)  negatively on the expected future growth of real GDP. 
A)  positively on last years growth in real GDP. 
B)  positively on the expected future growth of real GDP. 
C)  positively on the investment levels last period. 
D)  negatively on the expected future growth of real GDP.

Question 17

In response to the troubles in the U.S. financial system in 2008, Congress authorized a bailout package of about _______ to shore up the financial sector.

Accepted Answer

A)  $900 billion 
B)  $2 trillion 
C)  $700 billion 
D)  $350 billion 
A)  $900 billion 
B)  $2 trillion 
C)  $700 billion 
D)  $350 billion

Question 18

The present value of a given payment in the future _______ as the interest rate _______.

Accepted Answer

A)  remains the same; increases 
B)  increases; decreases 
C)  decreases; decreases 
D)  increases; increases 
A)  remains the same; increases 
B)  increases; decreases 
C)  decreases; decreases 
D)  increases; increases

Question 19

According to the application, the reason why the problem caused by securitization was exposed was because the housing boom ended.

Accepted Answer

A) True 
 B)False

Question 20

The nominal interest rate is always _______ than the real interest rate when inflation is positive.

Accepted Answer

A)  greater 
B)  less 
C)  equal 
D)  equal or less 
A)  greater 
B)  less 
C)  equal 
D)  equal or less

The nominal interest rate is:

If an investment projects offers to pay $200 in year 1 and $200 in year 2, and the interest rate is 5%, the investment rule states that you should invest in the project as long as the cost is less than:

According to the application, the reason why the problem caused by subprime loans came to light was because:

Citibank is a financial intermediary.

When interest rates fall, the present value of a given payment in the future increases.

The accelerator theory refers to the effects of:

Financial intermediaries reduce the risk faced by savers through:

The Q- theory of investment:

Paradoxically, the existence of deposit insurance:

What important roles do financial intermediaries play in the U.S. economy?

Which of the following is a way in which a firm can add to its capital stock?

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.

The boom period of the late 1990s was a good example of irrational exuberance because:

Liquidity refers to:

With a higher interest rate, the opportunity cost of keeping your money as cash is:

The accelerator theory is a theory of investment that states that current investment spending depends:

In response to the troubles in the U.S. financial system in 2008, Congress authorized a bailout package of about _______ to shore up the financial sector.

The present value of a given payment in the future _ as the interest rate _.

According to the application, the reason why the problem caused by securitization was exposed was because the housing boom ended.

The nominal interest rate is always _______ than the real interest rate when inflation is positive.

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

The nominal interest rate is:

If an investment projects offers to pay $200 in year 1 and $200 in year 2, and the interest rate is 5%, the investment rule states that you should invest in the project as long as the cost is less than:

According to the application, the reason why the problem caused by subprime loans came to light was because:

Citibank is a financial intermediary.

When interest rates fall, the present value of a given payment in the future increases.

The accelerator theory refers to the effects of:

Financial intermediaries reduce the risk faced by savers through:

The Q- theory of investment:

Paradoxically, the existence of deposit insurance:

What important roles do financial intermediaries play in the U.S. economy?

Which of the following is a way in which a firm can add to its capital stock?

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.

The boom period of the late 1990s was a good example of irrational exuberance because:

Liquidity refers to:

With a higher interest rate, the opportunity cost of keeping your money as cash is:

The accelerator theory is a theory of investment that states that current investment spending depends:

In response to the troubles in the U.S. financial system in 2008, Congress authorized a bailout package of about _______ to shore up the financial sector.

The present value of a given payment in the future _______ as the interest rate _______.

According to the application, the reason why the problem caused by securitization was exposed was because the housing boom ended.

The nominal interest rate is always _______ than the real interest rate when inflation is positive.

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

The present value of a given payment in the future _ as the interest rate _.