Question 1

A rise in the interest rate:

Accepted Answer

A)  increases firms' desires to invest. 
B)  decreases the opportunity cost of investing. 
C)  increases the opportunity cost of investing. 
D)  none of the above 
A)  increases firms' desires to invest. 
B)  decreases the opportunity cost of investing. 
C)  increases the opportunity cost of investing. 
D)  none of the above

Question 2

If Andrew is paid an interest rate of 10% on his savings account, but the inflation rate is 20%, the real (effective) value of his savings account is

Accepted Answer

A)  constant. 
B)  dropping. 
C)  rising, but by less than 20 percent. 
D)  rising. 
A)  constant. 
B)  dropping. 
C)  rising, but by less than 20 percent. 
D)  rising.

Question 3

As interest rates rise, there will be fewer profitable projects that firms will be willing to invest in.

Accepted Answer

A) True 
 B)False

Question 4

Recall Application 3, "Underwater Homes: Bets Gone Wrong" to answer the following questions:
-According to the application, a home is underwater when:

Accepted Answer

A)  the value of the mortgage is greater than the value of the income of the homeowner. 
B)  the value of the home is greater than the value of the mortgage. 
C)  the income of the homeowner is zero. 
D)  the value of the home is less than the value of the mortgage. 
A)  the value of the mortgage is greater than the value of the income of the homeowner. 
B)  the value of the home is greater than the value of the mortgage. 
C)  the income of the homeowner is zero. 
D)  the value of the home is less than the value of the mortgage.

Question 5

The real interest rate is:

Accepted Answer

A)  the interest rate quoted in financial markets. 
B)  the nominal interest rate adjusted for the effects of inflation. 
C)  both of the above 
D)  none of the above 
A)  the interest rate quoted in financial markets. 
B)  the nominal interest rate adjusted for the effects of inflation. 
C)  both of the above 
D)  none of the above

Question 6

The real interest rate is:

Accepted Answer

A)  equal to the nominal interest rate most of the time. 
B)  the interest rate as quoted in the market. 
C)  always negative. 
D)  the interest rate adjusted for inflation. 
A)  equal to the nominal interest rate most of the time. 
B)  the interest rate as quoted in the market. 
C)  always negative. 
D)  the interest rate adjusted for inflation.

Question 7

Optimistic expectations about the future increase investment spending because they inflate the price of stock shares.

Accepted Answer

A) True 
 B)False

Question 8

Bob meets with a banker to discuss the terms of a 1- year loan. Bob and the banker both expect that inflation will be 4 percent over the next year and agree on a nominal interest rate of 9 percent. In actuality, the inflation rate is 5 percent over the next year.
(a) What was the expected real interest rate on the loan?
(b) What was the actual real interest rate on the loan?

Accepted Answer

(a) The expected real interest

Question 9

According to Keynes, the wild swings in investment spending are caused by

Accepted Answer

A)  irrational behavior called "animal spirits." 
B)  the multiplier- accelerator model. 
C)  wild swings in the interest rates. 
D)  government fiscal policy. 
A)  irrational behavior called "animal spirits." 
B)  the multiplier- accelerator model. 
C)  wild swings in the interest rates. 
D)  government fiscal policy.

Question 10

Figure 12.1
-Refer to Figure 12.1. Which of the following causes a movement from Point A to Point C?

Accepted Answer

A)  an increase in the interest rate 
B)  a decrease in the interest rate 
C)  positive growth in the GDP 
D)  negative growth in the GDP 
A)  an increase in the interest rate 
B)  a decrease in the interest rate 
C)  positive growth in the GDP 
D)  negative growth in the GDP

Question 11

Recall Application 2, "Options for a Lottery Winner," to answer the following questions:
-The higher the interest rates, the higher the present value.

Accepted Answer

A) True 
 B)False

Question 12

During the 1970s homeowners in California borrowed money at 10 percent interest rates per year because the growth rate in the value of housing prices exceeded:

Accepted Answer

A)  10 percent per year, and they believed that the trend would continue. 
B)  10 percent per year, and they believed that the trend would end soon. 
C)  30 percent per year, and they believed that the trend would continue. 
D)  4 percent per year, and they believed that the trend would continue. 
A)  10 percent per year, and they believed that the trend would continue. 
B)  10 percent per year, and they believed that the trend would end soon. 
C)  30 percent per year, and they believed that the trend would continue. 
D)  4 percent per year, and they believed that the trend would continue.

Question 13

Recall Application 1, "Energy Price Uncertainty Reduces Investment Spending," to answer the following questions:
-According to the application, the wild swing in the price of oil in 2008- 2009 resulted in:

Accepted Answer

A)  an increase in uncertainty and a decrease in investment in energy saving technology. 
B)  a decrease in uncertainty and an increase in investment in energy saving technology. 
C)  a decrease in uncertainty and a decrease in investment in energy saving technology. 
D)  an increase in uncertainty and an increase in investment in energy saving technology. 
A)  an increase in uncertainty and a decrease in investment in energy saving technology. 
B)  a decrease in uncertainty and an increase in investment in energy saving technology. 
C)  a decrease in uncertainty and a decrease in investment in energy saving technology. 
D)  an increase in uncertainty and an increase in investment in energy saving technology.

Question 14

Which of the following assets is the most liquid?

Accepted Answer

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

Question 15

In the late 1970s, nominal interest rates were high and inflation rates were also very high and were even higher than the nominal interest rate on some years. During this period, real interest rates were:

Accepted Answer

A)  low in some years and negative in others. 
B)  also very high. 
C)  always equal to zero. 
D)  none of the above 
A)  low in some years and negative in others. 
B)  also very high. 
C)  always equal to zero. 
D)  none of the above

Question 16

Can the real interest rate be negative? Explain.

Accepted Answer

The real interest ra

Question 17

Which of the following is a determinant of firms' investment and employment decisions?

Accepted Answer

A)  expectations of future economic conditions 
B)  cost of capital 
C)  interest rates 
D)  All of the above are correct. 
A)  expectations of future economic conditions 
B)  cost of capital 
C)  interest rates 
D)  All of the above are correct.

Question 18

An asset that is difficult to convert into money is liquid.

Accepted Answer

A) True 
 B)False

Question 19

Stocks and bonds are types of financial intermediaries.

Accepted Answer

A) True 
 B)False

Question 20

What did Keynes mean by the phrase "animal spirits"? Why do these "spirits" make investment a volatile component of GDP?

Accepted Answer

"Animal spirits" refers to the feelings

A rise in the interest rate:

If Andrew is paid an interest rate of 10% on his savings account, but the inflation rate is 20%, the real (effective) value of his savings account is

As interest rates rise, there will be fewer profitable projects that firms will be willing to invest in.

Recall Application 3, "Underwater Homes: Bets Gone Wrong" to answer the following questions: -According to the application, a home is underwater when:

The real interest rate is:

The real interest rate is:

Optimistic expectations about the future increase investment spending because they inflate the price of stock shares.

According to Keynes, the wild swings in investment spending are caused by

Figure 12.1 -Refer to Figure 12.1. Which of the following causes a movement from Point A to Point C?

Recall Application 2, "Options for a Lottery Winner," to answer the following questions: -The higher the interest rates, the higher the present value.

During the 1970s homeowners in California borrowed money at 10 percent interest rates per year because the growth rate in the value of housing prices exceeded:

Recall Application 1, "Energy Price Uncertainty Reduces Investment Spending," to answer the following questions: -According to the application, the wild swing in the price of oil in 2008- 2009 resulted in:

Which of the following assets is the most liquid?

In the late 1970s, nominal interest rates were high and inflation rates were also very high and were even higher than the nominal interest rate on some years. During this period, real interest rates were:

Can the real interest rate be negative? Explain.

Which of the following is a determinant of firms' investment and employment decisions?

An asset that is difficult to convert into money is liquid.

Stocks and bonds are types of financial intermediaries.

What did Keynes mean by the phrase "animal spirits"? Why do these "spirits" make investment a volatile component of GDP?

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

A rise in the interest rate:

If Andrew is paid an interest rate of 10% on his savings account, but the inflation rate is 20%, the real (effective) value of his savings account is

As interest rates rise, there will be fewer profitable projects that firms will be willing to invest in.

Recall Application 3, "Underwater Homes: Bets Gone Wrong" to answer the following questions: -According to the application, a home is underwater when:

The real interest rate is:

The real interest rate is:

Optimistic expectations about the future increase investment spending because they inflate the price of stock shares.

According to Keynes, the wild swings in investment spending are caused by

Figure 12.1 -Refer to Figure 12.1. Which of the following causes a movement from Point A to Point C?

Recall Application 2, "Options for a Lottery Winner," to answer the following questions: -The higher the interest rates, the higher the present value.

During the 1970s homeowners in California borrowed money at 10 percent interest rates per year because the growth rate in the value of housing prices exceeded:

Recall Application 1, "Energy Price Uncertainty Reduces Investment Spending," to answer the following questions: -According to the application, the wild swing in the price of oil in 2008- 2009 resulted in:

Which of the following assets is the most liquid?

In the late 1970s, nominal interest rates were high and inflation rates were also very high and were even higher than the nominal interest rate on some years. During this period, real interest rates were:

Can the real interest rate be negative? Explain.

Which of the following is a determinant of firms' investment and employment decisions?

An asset that is difficult to convert into money is liquid.

Stocks and bonds are types of financial intermediaries.

What did Keynes mean by the phrase "animal spirits"? Why do these "spirits" make investment a volatile component of GDP?

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