Question 1

Explain how deposit insurance contributed indirectly to the savings and loan crisis of the 1980s.

Accepted Answer

In the early 1970s, savings and loan ins

Question 2

If firms receive an economic forecast predicting future increases in the growth of real GDP, they are likely to respond by

Accepted Answer

A)  decreasing their level of investment spending to decrease future production capacity. 
B)  increasing their level of investment spending to increase current production capacity. 
C)  increasing their level of investment spending to increase future production capacity. 
D)  decreasing their level of investment spending to decrease current production capacity. 
A)  decreasing their level of investment spending to decrease future production capacity. 
B)  increasing their level of investment spending to increase current production capacity. 
C)  increasing their level of investment spending to increase future production capacity. 
D)  decreasing their level of investment spending to decrease current production capacity.

Question 3

Recall the Application about energy price uncertainty and its impact on investment spending and GDP growth to answer the following question(s). Increases in oil prices can lead to a drop in GDP. However, uncertainty about oil prices is also an important factor. The volatility of oil prices creates uncertainty for firms making investment decisions, and adversely affects GDP growth.
-According to this Application, the volatility of energy prices can contribute to uncertainty in the economy. An increasingly uncertain future will tend to cause firms to

Accepted Answer

A)  delay their investment decisions. 
B)  wait for significant GDP growth before reducing investments. 
C)  rely on the government to make their investment decisions for them. 
D)  continue with a stable flow of investment spending so as not to get trapped by a downturning economy. 
A)  delay their investment decisions. 
B)  wait for significant GDP growth before reducing investments. 
C)  rely on the government to make their investment decisions for them. 
D)  continue with a stable flow of investment spending so as not to get trapped by a downturning economy.

Question 4

It is difficult to determine expected real rates of interest because

Accepted Answer

A)  we cannot measure the inflation rate. 
B)  we cannot measure the nominal interest rate. 
C)  the inflation rate is a subjective measurement. 
D)  we never know exactly what inflation rates people anticipate. 
A)  we cannot measure the inflation rate. 
B)  we cannot measure the nominal interest rate. 
C)  the inflation rate is a subjective measurement. 
D)  we never know exactly what inflation rates people anticipate.

Question 5

As the real interest rate ________, the real investment spending ________.

Accepted Answer

A)  increases; increases 
B)  decreases; decreases 
C)  increases; decreases 
D)  changes; does not change 
A)  increases; increases 
B)  decreases; decreases 
C)  increases; decreases 
D)  changes; does not change

Question 6

Scenario 12.1: Jennifer has decided to give up her pack-a-day smoking habit and invest the money she would have spent on cigarettes in a retirement account. At $6.00 a pack, Jennifer is currently spending $2,190 per year on cigarettes. Jennifer is 25 years old and plans to retire in 35 years, at age 60. She has chosen a retirement account that will earn a long-term average return of 5 percent per year. Jennifer is currently earning $40,000 annually. Assume that the average annual inflation rate will be 5 percent per year, that the cost of cigarettes will increase with inflation, and that Jennifer's income will also rise with the inflation rate.
-Refer to Scenario 12.1. Assume Jennifer gave up smoking for only one year and invested that money ($2,190)at the 5 percent interest rate. How much would the investment be worth in 35 years?

Accepted Answer

A)  $2,300 
B)  $12,080 
C)  $32,445 
D)  $80,483 
A)  $2,300 
B)  $12,080 
C)  $32,445 
D)  $80,483

Question 7

The theory of investment that emphasizes the roles of real interest rates and taxes is known as the

Accepted Answer

A)  accelerator model. 
B)  neoclassical theory of investment. 
C)  multiplier model. 
D)  Q-theory of investment. 
A)  accelerator model. 
B)  neoclassical theory of investment. 
C)  multiplier model. 
D)  Q-theory of investment.

Question 8

At an interest rate of 6 percent, what would be the present value of receiving $22,000 twelve years from now?

Accepted Answer

A)  $10,934 
B)  $18,645 
C)  $19,643 
D)  $20,755 
A)  $10,934 
B)  $18,645 
C)  $19,643 
D)  $20,755

Question 9

If the nominal interest rate is 4 percent and the inflation rate is 1 percent, then the real rate of interest is

Accepted Answer

A)  1 percent. 
B)  3 percent. 
C)  4 percent. 
D)  5 percent. 
A)  1 percent. 
B)  3 percent. 
C)  4 percent. 
D)  5 percent.

Question 10

Deposit insurance is a protection for bank depositors up to a certain amount which is guaranteed by the federal government.

Accepted Answer

A) True 
 B)False

Question 11

As real rates of interest increase in the economy, real investment spending increases.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that a firm can invest $100 today in a project and receive $105 a year from today. There is no inflation, and the annual interest rate in the economy is 4%. The firm should

Accepted Answer

A)  invest in the project because the opportunity cost is less than the return on the investment. 
B)  invest in the project because the opportunity cost is greater than the return on the investment. 
C)  invest in the project because the opportunity cost is the same as the return on the investment. 
D)  not invest in the project because the opportunity cost is less than the return on the investment. 
A)  invest in the project because the opportunity cost is less than the return on the investment. 
B)  invest in the project because the opportunity cost is greater than the return on the investment. 
C)  invest in the project because the opportunity cost is the same as the return on the investment. 
D)  not invest in the project because the opportunity cost is less than the return on the investment.

Question 13

If the real interest rate is 4 percent and the nominal interest rate is 7 percent, this implies an expected inflation rate of

Accepted Answer

A)  3 percent. 
B)  4 percent. 
C)  5.5 percent. 
D)  11 percent. 
A)  3 percent. 
B)  4 percent. 
C)  5.5 percent. 
D)  11 percent.

Question 14

Explain why financial intermediaries are necessary to facilitate the movement of funds from savers to investors and how they provide benefits to both groups.

Accepted Answer

There are some fundamental differences b

Question 15

The opportunity cost of something is

Accepted Answer

A)  what you sacrifice to get it. 
B)  the price you must pay to purchase it. 
C)  the real rate of interest. 
D)  what you get when you give something up. 
A)  what you sacrifice to get it. 
B)  the price you must pay to purchase it. 
C)  the real rate of interest. 
D)  what you get when you give something up.

Question 16

Diversification ________ the risks of investing in the stock market.

Accepted Answer

A)  increases 
B)  eliminates 
C)  can reduce but not eliminate 
D)  is unrelated to 
A)  increases 
B)  eliminates 
C)  can reduce but not eliminate 
D)  is unrelated to

Question 17

If the nominal interest rate is 2 percent and the inflation rate is 4 percent, then the real rate of interest is

Accepted Answer

A)  -2 percent. 
B)  2 percent. 
C)  3 percent. 
D)  6 percent. 
A)  -2 percent. 
B)  2 percent. 
C)  3 percent. 
D)  6 percent.

Question 18

If firms receive an economic forecast predicting future decreases in the growth of real GDP, they are likely to respond by

Accepted Answer

A)  decreasing their level of investment spending to decrease future production capacity. 
B)  increasing their level of investment spending to increase current production capacity. 
C)  increasing their level of investment spending to increase future production capacity. 
D)  decreasing their level of investment spending to decrease current production capacity. 
A)  decreasing their level of investment spending to decrease future production capacity. 
B)  increasing their level of investment spending to increase current production capacity. 
C)  increasing their level of investment spending to increase future production capacity. 
D)  decreasing their level of investment spending to decrease current production capacity.

Question 19

There is a negative relationship between the real rate of interest and investment spending.

Accepted Answer

A) True 
 B)False

Question 20

Scenario 12.1: Jennifer has decided to give up her pack-a-day smoking habit and invest the money she would have spent on cigarettes in a retirement account. At $6.00 a pack, Jennifer is currently spending $2,190 per year on cigarettes. Jennifer is 25 years old and plans to retire in 35 years, at age 60. She has chosen a retirement account that will earn a long-term average return of 5 percent per year. Jennifer is currently earning $40,000 annually. Assume that the average annual inflation rate will be 5 percent per year, that the cost of cigarettes will increase with inflation, and that Jennifer's income will also rise with the inflation rate.
-Refer to Scenario 12.1 At the assumed annual inflation rate of 5 percent, approximately how much will the $6.00 pack of cigarettes cost in 10 years, when Jennifer reaches the age of 35?

Accepted Answer

A)  $8 
B)  $10 
C)  $16 
D)  $23 
A)  $8 
B)  $10 
C)  $16 
D)  $23

Explain how deposit insurance contributed indirectly to the savings and loan crisis of the 1980s.

If firms receive an economic forecast predicting future increases in the growth of real GDP, they are likely to respond by

It is difficult to determine expected real rates of interest because

As the real interest rate , the real investment spending .

The theory of investment that emphasizes the roles of real interest rates and taxes is known as the

At an interest rate of 6 percent, what would be the present value of receiving $22,000 twelve years from now?

If the nominal interest rate is 4 percent and the inflation rate is 1 percent, then the real rate of interest is

Deposit insurance is a protection for bank depositors up to a certain amount which is guaranteed by the federal government.

As real rates of interest increase in the economy, real investment spending increases.

Suppose that a firm can invest $100 today in a project and receive $105 a year from today. There is no inflation, and the annual interest rate in the economy is 4%. The firm should

If the real interest rate is 4 percent and the nominal interest rate is 7 percent, this implies an expected inflation rate of

Explain why financial intermediaries are necessary to facilitate the movement of funds from savers to investors and how they provide benefits to both groups.

The opportunity cost of something is

Diversification ________ the risks of investing in the stock market.

If the nominal interest rate is 2 percent and the inflation rate is 4 percent, then the real rate of interest is

If firms receive an economic forecast predicting future decreases in the growth of real GDP, they are likely to respond by

There is a negative relationship between the real rate of interest and investment spending.

Introduction: What Is Economics?

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nation's 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

Explain how deposit insurance contributed indirectly to the savings and loan crisis of the 1980s.

If firms receive an economic forecast predicting future increases in the growth of real GDP, they are likely to respond by

It is difficult to determine expected real rates of interest because

As the real interest rate ________, the real investment spending ________.

The theory of investment that emphasizes the roles of real interest rates and taxes is known as the

At an interest rate of 6 percent, what would be the present value of receiving $22,000 twelve years from now?

If the nominal interest rate is 4 percent and the inflation rate is 1 percent, then the real rate of interest is

Deposit insurance is a protection for bank depositors up to a certain amount which is guaranteed by the federal government.

As real rates of interest increase in the economy, real investment spending increases.

Suppose that a firm can invest $100 today in a project and receive $105 a year from today. There is no inflation, and the annual interest rate in the economy is 4%. The firm should

If the real interest rate is 4 percent and the nominal interest rate is 7 percent, this implies an expected inflation rate of

Explain why financial intermediaries are necessary to facilitate the movement of funds from savers to investors and how they provide benefits to both groups.

The opportunity cost of something is

Diversification ________ the risks of investing in the stock market.

If the nominal interest rate is 2 percent and the inflation rate is 4 percent, then the real rate of interest is

If firms receive an economic forecast predicting future decreases in the growth of real GDP, they are likely to respond by

There is a negative relationship between the real rate of interest and investment spending.

Introduction: What Is Economics?

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nation's 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

As the real interest rate , the real investment spending .