Question 1

The interest rate determines the present value of a future payment.

Accepted Answer

A) True 
 B)False

Question 2

Explain the multiplier- accelerator model.

Accepted Answer

The multiplier- accelerator mo

Question 3

Which of the following is generally procyclical?

Accepted Answer

A)  investment 
B)  consumption expenditures 
C)  interest rates 
D)  All of the above are procyclical. 
A)  investment 
B)  consumption expenditures 
C)  interest rates 
D)  All of the above are procyclical.

Question 4

The existence of deposit insurance can prevent a bank run because:

Accepted Answer

A)  the depositors with accounts greater than $1,000,000 are guaranteed to get their deposits in case the bank fails. 
B)  the depositors with accounts less than $1,000,000 are guaranteed to get their deposits in case the bank fails. 
C)  the depositors with accounts less than $100,000 are guaranteed to get their deposits in case the bank fails. 
D)  the depositors with accounts greater than $100,000 are guaranteed to get their deposits in case the bank fails. 
A)  the depositors with accounts greater than $1,000,000 are guaranteed to get their deposits in case the bank fails. 
B)  the depositors with accounts less than $1,000,000 are guaranteed to get their deposits in case the bank fails. 
C)  the depositors with accounts less than $100,000 are guaranteed to get their deposits in case the bank fails. 
D)  the depositors with accounts greater than $100,000 are guaranteed to get their deposits in case the bank fails.

Question 5

Recall Application 2, "Options for a Lottery Winner," to answer the following questions:
-If interest rates are 10 percent, the lottery winner should choose the lumpsum payment over 20 annual payments.

Accepted Answer

A) True 
 B)False

Question 6

If the inflation rate is 3 percent and the real interest rate is 5 percent, then the nominal interest rate is:

Accepted Answer

A)  4 percent. 
B)  10 percent. 
C)  2 percent. 
D)  8 percent. 
A)  4 percent. 
B)  10 percent. 
C)  2 percent. 
D)  8 percent.

Question 7

What factors determine the level of the interest rate on alternative assets?

Accepted Answer

Factors such as the riskiness

Question 8

When 7 of the 8 largest Japanese mortgage lenders in 1995 had gone bankrupt , the response of the Japanese government was:

Accepted Answer

A)  to bail out all the 7 bankrupt mortgage lenders. 
B)  to bail out the 3 largest mortgage lenders. 
C)  not to bail out any of the mortgage lenders. 
D)  to bail out 5 of the largest mortgage lenders. 
A)  to bail out all the 7 bankrupt mortgage lenders. 
B)  to bail out the 3 largest mortgage lenders. 
C)  not to bail out any of the mortgage lenders. 
D)  to bail out 5 of the largest mortgage lenders.

Question 9

Suppose that during a given year the nominal interest rate remains at 5% and the CPI rises from 147 to 154. What is the real rate of interest?

Accepted Answer

If the CPI increases from 147

Question 10

The existence of deposit insurance indirectly led to the U.S. savings and loan crisis in the 1980s because it:

Accepted Answer

A)  allowed the S & L banks to invest in treasury bills and bonds. 
B)  allowed the S & L banks to invest in real estate and other risky projects. 
C)  prevented the S & L banks to invest in real estate and other risky projects. 
D)  prevented the S & L banks to invest in treasury bills and bonds. 
A)  allowed the S & L banks to invest in treasury bills and bonds. 
B)  allowed the S & L banks to invest in real estate and other risky projects. 
C)  prevented the S & L banks to invest in real estate and other risky projects. 
D)  prevented the S & L banks to invest in treasury bills and bonds.

Question 11

Recall Application 2, "Options for a Lottery Winner," to answer the following questions:
-According to the application, if the interest rate is exactly 8 percent, then the present value of $1 million per year for the next 20 years is:

Accepted Answer

A)  $13.1 million. 
B)  $9.8 million. 
C)  $10.02 million. 
D)  $8.8 million. 
A)  $13.1 million. 
B)  $9.8 million. 
C)  $10.02 million. 
D)  $8.8 million.

Question 12

A firm sells a corporate bond to:

Accepted Answer

A)  its parent corporation in order to borrow money. 
B)  the public in order to borrow money. 
C)  the government in order to borrow money. 
D)  another corporation, in order to share profits. 
A)  its parent corporation in order to borrow money. 
B)  the public in order to borrow money. 
C)  the government in order to borrow money. 
D)  another corporation, in order to share profits.

Question 13

Recall Application 3, "Underwater Homes: Bets Gone Wrong" to answer the following questions:
-According to the application, in which state are the underwater homes most prevalent?

Accepted Answer

A)  Alaska 
B)  Nevada 
C)  Mississippi 
D)  Massachusetts 
A)  Alaska 
B)  Nevada 
C)  Mississippi 
D)  Massachusetts

Question 14

Recall Application 3, "Underwater Homes: Bets Gone Wrong" to answer the following questions:
-According to the application, which states had the highest proportion of underwater homes?

Accepted Answer

A)  Alaska, New York, California and Texas 
B)  Massachusetts, California, Florida and Arizona 
C)  Nevada, California, Florida and Arizona 
D)  Mississippi, Nevada, Florida and Arizona 
A)  Alaska, New York, California and Texas 
B)  Massachusetts, California, Florida and Arizona 
C)  Nevada, California, Florida and Arizona 
D)  Mississippi, Nevada, Florida and Arizona

Question 15

According to the accelerator theory of investment, a decrease in the expected future growth rate of real GDP will cause:

Accepted Answer

A)  current investment spending to increase. 
B)  future investment spending to decrease. 
C)  future investment spending to increase. 
D)  current investment spending to decrease. 
A)  current investment spending to increase. 
B)  future investment spending to decrease. 
C)  future investment spending to increase. 
D)  current investment spending to decrease.

Question 16

You want to make a 5% real return on a loan that you are planning to make, and the expected inflation rate during the period of the loan is 6%. You should charge a nominal interest rate of:

Accepted Answer

A)  7%. 
B)  11%. 
C)  - 1%. 
D)  1%. 
A)  7%. 
B)  11%. 
C)  - 1%. 
D)  1%.

Question 17

What does it mean for an economic variable to be procyclical? Is investment procyclical? Explain.

Accepted Answer

A variable is procyclical if i

Question 18

A variable is considered procyclical if it moves:

Accepted Answer

A)  in the same direction as unemployment. 
B)  in the same direction as real GDP. 
C)  in a different direction as real GDP. 
D)  in a different direction as inflation. 
A)  in the same direction as unemployment. 
B)  in the same direction as real GDP. 
C)  in a different direction as real GDP. 
D)  in a different direction as inflation.

Question 19

Explain why there is an inverse relationship between investment and the real interest rate.

Accepted Answer

Firms will compare the real net return o

The interest rate determines the present value of a future payment.

Explain the multiplier- accelerator model.

Which of the following is generally procyclical?

The existence of deposit insurance can prevent a bank run because:

Recall Application 2, "Options for a Lottery Winner," to answer the following questions: -If interest rates are 10 percent, the lottery winner should choose the lumpsum payment over 20 annual payments.

If the inflation rate is 3 percent and the real interest rate is 5 percent, then the nominal interest rate is:

What factors determine the level of the interest rate on alternative assets?

When 7 of the 8 largest Japanese mortgage lenders in 1995 had gone bankrupt , the response of the Japanese government was:

Suppose that during a given year the nominal interest rate remains at 5% and the CPI rises from 147 to 154. What is the real rate of interest?

The existence of deposit insurance indirectly led to the U.S. savings and loan crisis in the 1980s because it:

Recall Application 2, "Options for a Lottery Winner," to answer the following questions: -According to the application, if the interest rate is exactly 8 percent, then the present value of $1 million per year for the next 20 years is:

A firm sells a corporate bond to:

Recall Application 3, "Underwater Homes: Bets Gone Wrong" to answer the following questions: -According to the application, in which state are the underwater homes most prevalent?

Recall Application 3, "Underwater Homes: Bets Gone Wrong" to answer the following questions: -According to the application, which states had the highest proportion of underwater homes?

According to the accelerator theory of investment, a decrease in the expected future growth rate of real GDP will cause:

You want to make a 5% real return on a loan that you are planning to make, and the expected inflation rate during the period of the loan is 6%. You should charge a nominal interest rate of:

What does it mean for an economic variable to be procyclical? Is investment procyclical? Explain.

A variable is considered procyclical if it moves:

Explain why there is an inverse relationship between investment and the real interest rate.

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 interest rate determines the present value of a future payment.

Explain the multiplier- accelerator model.

Which of the following is generally procyclical?

The existence of deposit insurance can prevent a bank run because:

Recall Application 2, "Options for a Lottery Winner," to answer the following questions: -If interest rates are 10 percent, the lottery winner should choose the lumpsum payment over 20 annual payments.

If the inflation rate is 3 percent and the real interest rate is 5 percent, then the nominal interest rate is:

What factors determine the level of the interest rate on alternative assets?

When 7 of the 8 largest Japanese mortgage lenders in 1995 had gone bankrupt , the response of the Japanese government was:

Suppose that during a given year the nominal interest rate remains at 5% and the CPI rises from 147 to 154. What is the real rate of interest?

The existence of deposit insurance indirectly led to the U.S. savings and loan crisis in the 1980s because it:

Recall Application 2, "Options for a Lottery Winner," to answer the following questions: -According to the application, if the interest rate is exactly 8 percent, then the present value of $1 million per year for the next 20 years is:

A firm sells a corporate bond to:

Recall Application 3, "Underwater Homes: Bets Gone Wrong" to answer the following questions: -According to the application, in which state are the underwater homes most prevalent?

Recall Application 3, "Underwater Homes: Bets Gone Wrong" to answer the following questions: -According to the application, which states had the highest proportion of underwater homes?

According to the accelerator theory of investment, a decrease in the expected future growth rate of real GDP will cause:

You want to make a 5% real return on a loan that you are planning to make, and the expected inflation rate during the period of the loan is 6%. You should charge a nominal interest rate of:

What does it mean for an economic variable to be procyclical? Is investment procyclical? Explain.

A variable is considered procyclical if it moves:

Explain why there is an inverse relationship between investment and the real interest rate.

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