Question 1

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

Accepted Answer

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

Question 2

Bank runs can devastate a financial institution and cause it close its doors to customers because:

Accepted Answer

A)  they are forced to offer loans at low interest rates. 
B)  the FDIC insurance is chronically underfunded. 
C)  not all deposits are liquid. 
D)  most short- term deposits offer high interest rates. 
A)  they are forced to offer loans at low interest rates. 
B)  the FDIC insurance is chronically underfunded. 
C)  not all deposits are liquid. 
D)  most short- term deposits offer high interest rates.

Question 3

Can the real interest rate be greater than the nominal interest rate? Explain.

Accepted Answer

Yes. Since the real interest rate is equ

Question 4

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

Accepted Answer

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

Question 5

Comment on the following statement: "If the firm owns the funds it uses to purchase investment goods, then the annual cost of investing is zero and we should invest in any project where the annual return net of inflation is greater than zero."

Accepted Answer

Disagree. The cost of investment include

Question 6

The price of a stock is equal to the present value of expected future dividend payments.

Accepted Answer

A) True 
 B)False

Question 7

The real interest rate tells you:

Accepted Answer

A)  the number of dollars in your bank account. 
B)  the purchasing power of your bank account. 
C)  how fast the purchasing power of your bank account increases over time. 
D)  how fast the number of dollars in your bank account increases over time. 
A)  the number of dollars in your bank account. 
B)  the purchasing power of your bank account. 
C)  how fast the purchasing power of your bank account increases over time. 
D)  how fast the number of dollars in your bank account increases over time.

Question 8

Recall Application 4, "Securitization: the Good, the Bad, and the Ugly," to answer the following questions:
-According to the application, "subprime" loans are loans that are:

Accepted Answer

A)  low risk bonds sold to homeowners to finance their mortgages. 
B)  offered below prime interest rates. 
C)  offered to borrowers who would not qualify for loans using traditional criteria. 
D)  sold to the U.S. Treasury. 
A)  low risk bonds sold to homeowners to finance their mortgages. 
B)  offered below prime interest rates. 
C)  offered to borrowers who would not qualify for loans using traditional criteria. 
D)  sold to the U.S. Treasury.

Question 9

Indicate which of the following represents investment as defined in Chap 12.
(a) Michael purchases a bond issued by the federal government.
(b) Joe buys a new delivery van for his floral shop.
(c) Peter buys 200 shares of stock in IBM Corporation.
(d) Lucy buys a new sink for her beauty salon.
(e) Can- Can Incorporated purchases new machinery for its factory.

Accepted Answer

(a) Yes.
(

Question 10

Which of the following increases the real interest rate?

Accepted Answer

A)  an increase in both the nominal interest rate and the inflation rate by the same percentage points 
B)  a decrease in the inflation rate, holding the nominal interest rate constant 
C)  a decrease in the nominal interest rate, holding the inflation rate constant 
D)  a decrease in both the nominal interest rate and the inflation rate by the same percentage points 
A)  an increase in both the nominal interest rate and the inflation rate by the same percentage points 
B)  a decrease in the inflation rate, holding the nominal interest rate constant 
C)  a decrease in the nominal interest rate, holding the inflation rate constant 
D)  a decrease in both the nominal interest rate and the inflation rate by the same percentage points

Question 11

During the U.S. savings and loan crisis in the 1980s, depositors were saved at the expense of taxpayers because:

Accepted Answer

A)  taxpayers had to foot the bill of bailing out the the S&Ls. 
B)  the depositors were the tax payers anyway. 
C)  the depositors were required to pay higher taxes on their deposit incomes. 
D)  taxpayers were required to keep their accounts with the S&L's. 
A)  taxpayers had to foot the bill of bailing out the the S&Ls. 
B)  the depositors were the tax payers anyway. 
C)  the depositors were required to pay higher taxes on their deposit incomes. 
D)  taxpayers were required to keep their accounts with the S&L's.

Question 12

Bank runs occur when:

Accepted Answer

A)  the FDIC believes that the government will fail. 
B)  depositors believe that the bank will fail. 
C)  the government believe that the bank will fail. 
D)  the depositors believe that the FDIC will fail. 
A)  the FDIC believes that the government will fail. 
B)  depositors believe that the bank will fail. 
C)  the government believe that the bank will fail. 
D)  the depositors believe that the FDIC will fail.

Question 13

If the inflation rate is smaller than the nominal interest rate, the real interest rate is:

Accepted Answer

A)  negative. 
B)  positive. 
C)  zero. 
D)  either positive or zero. 
A)  negative. 
B)  positive. 
C)  zero. 
D)  either positive or zero.

Question 14

If K = $200, t = 30 years, i = 5%, the present value (PV) of a payment to be received in 30 years is:

Accepted Answer

A)  $46.27. 
B)  $190.48. 
C)  $864.39. 
D)  none of the above 
A)  $46.27. 
B)  $190.48. 
C)  $864.39. 
D)  none of the above

Question 15

Define a financial intermediary.

Accepted Answer

A financial intermediary is a bank or ot

Question 16

According to the accelerator theory, there is a tendency for investment to increase when aggregate output increases, thus accelerating the growth of output.

Accepted Answer

A) True 
 B)False

Question 17

Financial intermediaries have more expertise than individual investors in:

Accepted Answer

A)  evaluating investment projects. 
B)  negotiating the terms of loans to be made to investors. 
C)  monitoring investment projects. 
D)  all of the above 
A)  evaluating investment projects. 
B)  negotiating the terms of loans to be made to investors. 
C)  monitoring investment projects. 
D)  all of the above

Question 18

A "bank run" occurs when panicky depositors simultaneously:

Accepted Answer

A)  withdraw their funds in order to invest in Treasury bills. 
B)  deposit their funds in a bank offering high deposit interest rates. 
C)  withdraw their funds from a bank they believe will fail. 
D)  chase a bank owner who has fled the country. 
A)  withdraw their funds in order to invest in Treasury bills. 
B)  deposit their funds in a bank offering high deposit interest rates. 
C)  withdraw their funds from a bank they believe will fail. 
D)  chase a bank owner who has fled the country.

Question 19

During the late 1990s and early 2000s, the stock market and investment expenditure were linked through:

Accepted Answer

A)  the management of monetary policy, that guaranteed low interest rates. 
B)  expectations, first optimistic and then pessimistic, about the economy. 
C)  the deregulation of financial intermediaries. 
D)  the creation of over- the- counter stock markets, such as NASDAQ. 
A)  the management of monetary policy, that guaranteed low interest rates. 
B)  expectations, first optimistic and then pessimistic, about the economy. 
C)  the deregulation of financial intermediaries. 
D)  the creation of over- the- counter stock markets, such as NASDAQ.

Question 20

Which of the following lists assets from the most to the least liquid?

Accepted Answer

A)  fine art, currency, checking accounts 
B)  currency, fine art, checking accounts 
C)  currency, checking accounts, fine art 
D)  fine art, checking accounts, currency 
A)  fine art, currency, checking accounts 
B)  currency, fine art, checking accounts 
C)  currency, checking accounts, fine art 
D)  fine art, checking accounts, currency

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

Bank runs can devastate a financial institution and cause it close its doors to customers because:

Can the real interest rate be greater than the nominal interest rate? Explain.

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

Comment on the following statement: "If the firm owns the funds it uses to purchase investment goods, then the annual cost of investing is zero and we should invest in any project where the annual return net of inflation is greater than zero."

The price of a stock is equal to the present value of expected future dividend payments.

The real interest rate tells you:

Recall Application 4, "Securitization: the Good, the Bad, and the Ugly," to answer the following questions: -According to the application, "subprime" loans are loans that are:

Which of the following increases the real interest rate?

During the U.S. savings and loan crisis in the 1980s, depositors were saved at the expense of taxpayers because:

Bank runs occur when:

If the inflation rate is smaller than the nominal interest rate, the real interest rate is:

If K = $200, t = 30 years, i = 5%, the present value (PV) of a payment to be received in 30 years is:

Define a financial intermediary.

According to the accelerator theory, there is a tendency for investment to increase when aggregate output increases, thus accelerating the growth of output.

Financial intermediaries have more expertise than individual investors in:

A "bank run" occurs when panicky depositors simultaneously:

During the late 1990s and early 2000s, the stock market and investment expenditure were linked through:

Which of the following lists assets from the most to the least liquid?

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

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

Bank runs can devastate a financial institution and cause it close its doors to customers because:

Can the real interest rate be greater than the nominal interest rate? Explain.

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

Comment on the following statement: "If the firm owns the funds it uses to purchase investment goods, then the annual cost of investing is zero and we should invest in any project where the annual return net of inflation is greater than zero."

The price of a stock is equal to the present value of expected future dividend payments.

The real interest rate tells you:

Recall Application 4, "Securitization: the Good, the Bad, and the Ugly," to answer the following questions: -According to the application, "subprime" loans are loans that are:

Which of the following increases the real interest rate?

During the U.S. savings and loan crisis in the 1980s, depositors were saved at the expense of taxpayers because:

Bank runs occur when:

If the inflation rate is smaller than the nominal interest rate, the real interest rate is:

If K = $200, t = 30 years, i = 5%, the present value (PV) of a payment to be received in 30 years is:

Define a financial intermediary.

According to the accelerator theory, there is a tendency for investment to increase when aggregate output increases, thus accelerating the growth of output.

Financial intermediaries have more expertise than individual investors in:

A "bank run" occurs when panicky depositors simultaneously:

During the late 1990s and early 2000s, the stock market and investment expenditure were linked through:

Which of the following lists assets from the most to the least liquid?

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 i implies: