Question 1

Financial intermediaries are:

Accepted Answer

A)  individuals who play the stock market. 
B)  organizations that receive funds from savers and channel those funds to investors. 
C)  a type a financial asset. 
D)  responsible for regulating the amount of money supply in the economy. 
A)  individuals who play the stock market. 
B)  organizations that receive funds from savers and channel those funds to investors. 
C)  a type a financial asset. 
D)  responsible for regulating the amount of money supply in the economy.

Question 2

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

Accepted Answer

A)  a lower interest rate. 
B)  a higher interest rate. 
C)  a higher present value. 
D)  a lower present value. 
A)  a lower interest rate. 
B)  a higher interest rate. 
C)  a higher present value. 
D)  a lower present value.

Question 3

The investment rule states that you should invest in a project as long as:

Accepted Answer

A)  the future payments for the project is less than or equal to the present value of the cost you incur today. 
B)  the inflation rate is lower than the real interest rate. 
C)  the economic cost you incur today is less than or equal to the present value of the future payments for the project. 
D)  the real interest rate is higher than the nominal interest rate. 
A)  the future payments for the project is less than or equal to the present value of the cost you incur today. 
B)  the inflation rate is lower than the real interest rate. 
C)  the economic cost you incur today is less than or equal to the present value of the future payments for the project. 
D)  the real interest rate is higher than the nominal interest rate.

Question 4

The Q- theory of investment postulates that high stock prices lead to high investment.

Accepted Answer

A) True 
 B)False

Question 5

Deposit Insurance

Accepted Answer

A)  provides life insurance to depositors. 
B)  protects banks in the event of a bank failure. 
C)  protects depositors in the event of bank failures. 
D)  all of the above 
A)  provides life insurance to depositors. 
B)  protects banks in the event of a bank failure. 
C)  protects depositors in the event of bank failures. 
D)  all of the above

Question 6

Which of the following is an investment (broadly defined)?

Accepted Answer

A)  a purchase of ownership of a company 
B)  purchase of capital equipment 
C)  education 
D)  All of the above are investments. 
A)  a purchase of ownership of a company 
B)  purchase of capital equipment 
C)  education 
D)  All of the above are investments.

Question 7

Which of the following assets is the least liquid?

Accepted Answer

A)  checking accounts 
B)  stocks 
C)  real estate 
D)  currency 
A)  checking accounts 
B)  stocks 
C)  real estate 
D)  currency

Question 8

Bank runs are not common today because of deposit insurance.

Accepted Answer

A) True 
 B)False

Question 9

Actions by business today that have costs today and provide benefits in the future are:

Accepted Answer

A)  savings. 
B)  revenues. 
C)  investments. 
D)  none of the above 
A)  savings. 
B)  revenues. 
C)  investments. 
D)  none of the above

Question 10

Today, bank runs are:

Accepted Answer

A)  common because deposit insurance is useless. 
B)  uncommon because of the presence of deposit insurance. 
C)  common because individuals have little faith in the banking system. 
D)  uncommon because people have less funds in their savings accounts. 
A)  common because deposit insurance is useless. 
B)  uncommon because of the presence of deposit insurance. 
C)  common because individuals have little faith in the banking system. 
D)  uncommon because people have less funds in their savings accounts.

Question 11

The deposit insurance is provided by a private corporation.

Accepted Answer

A) True 
 B)False

Question 12

By 1995 in Japan, _______ largest mortgage lenders had gone bankrupt due to a real estate crash.

Accepted Answer

A)  seven of the eight 
B)  three of the four 
C)  seven of the nine 
D)  five of the six 
A)  seven of the eight 
B)  three of the four 
C)  seven of the nine 
D)  five of the six

Question 13

Which of the following individuals referred to the expectations of investors as "animal spirits"?

Accepted Answer

A)  Lucas 
B)  Keynes 
C)  Greenspan 
D)  Friedman 
A)  Lucas 
B)  Keynes 
C)  Greenspan 
D)  Friedman

Question 14

Figure 12.1
-Refer to Figure 12.1. Suppose the economy is currently at Point A. If interest rates increase, the economy moves to Point:

Accepted Answer

A)  B. 
B)  E. 
C)  C. 
D)  The economy stays at Point A. 
A)  B. 
B)  E. 
C)  C. 
D)  The economy stays at Point A.

Question 15

Recall Application 4, "Securitization: the Good, the Bad, and the Ugly," to answer the following questions:
-According to the application, the reason why investors were lured into purchasing securities comprised of "subprime" loans was that:

Accepted Answer

A)  the risks were low even if the real estate market headed south. 
B)  the securities were so new that investors did not completely understand the risks. 
C)  the subprime loans were FDIC insured. 
D)  All of the above are correct. 
A)  the risks were low even if the real estate market headed south. 
B)  the securities were so new that investors did not completely understand the risks. 
C)  the subprime loans were FDIC insured. 
D)  All of the above are correct.

Question 16

The level of the stock market and the level of investment spending tend to be related because the higher the share price is:

Accepted Answer

A)  the higher the retained earnings are going to be. 
B)  the higher the present value of any given future payment. 
C)  the cheaper it would be to sell corporate bonds. 
D)  the more capital can be raised by issuing new stock. 
A)  the higher the retained earnings are going to be. 
B)  the higher the present value of any given future payment. 
C)  the cheaper it would be to sell corporate bonds. 
D)  the more capital can be raised by issuing new stock.

Question 17

How do financial intermediaries reduce the risk faced by households?

Accepted Answer

Financial institutions invest in a large

Question 18

Figure 12.2
-Refer to Figure 12.2 to answer the question. Which of the following series is procyclical?

Accepted Answer

A)  Series A 
B)  Series B 
C)  Series A and B 
D)  Neither Series A nor B 
A)  Series A 
B)  Series B 
C)  Series A and B 
D)  Neither Series A nor B

Question 19

Bridget wants to make an 8% real return on a loan that she is planning to make, and the expected inflation rate during the period of the loan is 10%. She should charge a nominal interest rate of:

Accepted Answer

A)  8%. 
B)  18%. 
C)  - 2%. 
D)  5%. 
A)  8%. 
B)  18%. 
C)  - 2%. 
D)  5%.

Question 20

Recall Application 1, "Energy Price Uncertainty Reduces Investment Spending," to answer the following questions:
-According to the application, uncertainty in future oil prices usually cause firms to

Accepted Answer

A)  hasten investments to take advantage of low energy prices. 
B)  increase investment in oil exploration. 
C)  never make investment choices in the energy sector. 
D)  delay investment until uncertainty is removed. 
A)  hasten investments to take advantage of low energy prices. 
B)  increase investment in oil exploration. 
C)  never make investment choices in the energy sector. 
D)  delay investment until uncertainty is removed.

Financial intermediaries are:

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

The investment rule states that you should invest in a project as long as:

The Q- theory of investment postulates that high stock prices lead to high investment.

Deposit Insurance

Which of the following is an investment (broadly defined)?

Which of the following assets is the least liquid?

Bank runs are not common today because of deposit insurance.

Actions by business today that have costs today and provide benefits in the future are:

Today, bank runs are:

The deposit insurance is provided by a private corporation.

By 1995 in Japan, _______ largest mortgage lenders had gone bankrupt due to a real estate crash.

Which of the following individuals referred to the expectations of investors as "animal spirits"?

Figure 12.1 -Refer to Figure 12.1. Suppose the economy is currently at Point A. If interest rates increase, the economy moves to Point:

Recall Application 4, "Securitization: the Good, the Bad, and the Ugly," to answer the following questions: -According to the application, the reason why investors were lured into purchasing securities comprised of "subprime" loans was that:

The level of the stock market and the level of investment spending tend to be related because the higher the share price is:

How do financial intermediaries reduce the risk faced by households?

Figure 12.2 -Refer to Figure 12.2 to answer the question. Which of the following series is procyclical?

Bridget wants to make an 8% real return on a loan that she is planning to make, and the expected inflation rate during the period of the loan is 10%. She should charge a nominal interest rate of:

Recall Application 1, "Energy Price Uncertainty Reduces Investment Spending," to answer the following questions: -According to the application, uncertainty in future oil prices usually cause firms to

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

Financial intermediaries are:

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

The investment rule states that you should invest in a project as long as:

The Q- theory of investment postulates that high stock prices lead to high investment.

Deposit Insurance

Which of the following is an investment (broadly defined)?

Which of the following assets is the least liquid?

Bank runs are not common today because of deposit insurance.

Actions by business today that have costs today and provide benefits in the future are:

Today, bank runs are:

The deposit insurance is provided by a private corporation.

By 1995 in Japan, _______ largest mortgage lenders had gone bankrupt due to a real estate crash.

Which of the following individuals referred to the expectations of investors as "animal spirits"?

Figure 12.1 -Refer to Figure 12.1. Suppose the economy is currently at Point A. If interest rates increase, the economy moves to Point:

Recall Application 4, "Securitization: the Good, the Bad, and the Ugly," to answer the following questions: -According to the application, the reason why investors were lured into purchasing securities comprised of "subprime" loans was that:

The level of the stock market and the level of investment spending tend to be related because the higher the share price is:

How do financial intermediaries reduce the risk faced by households?

Figure 12.2 -Refer to Figure 12.2 to answer the question. Which of the following series is procyclical?

Bridget wants to make an 8% real return on a loan that she is planning to make, and the expected inflation rate during the period of the loan is 10%. She should charge a nominal interest rate of:

Recall Application 1, "Energy Price Uncertainty Reduces Investment Spending," to answer the following questions: -According to the application, uncertainty in future oil prices usually cause firms to

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

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