Question 1

Which of the following statements is true?

Accepted Answer

A)  If the opportunity cost of current consumption is high, people will save more. 
B)  If the opportunity cost of current consumption is high, people will save less. 
C)  If the opportunity cost of current consumption is high, the inflation rate will increase. 
D)  If the opportunity cost of current consumption is high, the unemployment rate will decrease. 
A)  If the opportunity cost of current consumption is high, people will save more. 
B)  If the opportunity cost of current consumption is high, people will save less. 
C)  If the opportunity cost of current consumption is high, the inflation rate will increase. 
D)  If the opportunity cost of current consumption is high, the unemployment rate will decrease.

Question 2

The following table lists some economic agents and their intentions. At present the interest rate is 5 percent.
  
-Refer to the table above.If there are no other people or companies in the market for loanable funds,which of the statements below must be true?

Accepted Answer

A)  There is a shortage of savings, and for the market to clear the interest rate will decrease. 
B)  There is a shortage of investment, and for the market to clear the interest rate will decrease. 
C)  There is a shortage of savings, and for the market to clear the interest rate will increase. 
A)  There is a shortage of savings, and for the market to clear the interest rate will decrease. 
B)  There is a shortage of investment, and for the market to clear the interest rate will decrease. 
C)  There is a shortage of savings, and for the market to clear the interest rate will increase.

Question 3

The following figure shows two credit demand curves, CD₁ and CD₂, and two credit supply curves, CS₁ and CS₂.
  
-Refer to the figure above.What is the equilibrium rate of interest when the credit demand curve is CD₁ and the credit supply curve is CS₁?

Accepted Answer

A)  2 percent 
B)  3 percent 
C)  4 percent 
D)  5 percent 
A)  2 percent 
B)  3 percent 
C)  4 percent 
D)  5 percent

Question 4

A well-capitalized bank ________.

Accepted Answer

A)  owns far more than it owes 
B)  does not have stockholders' equity 
C)  is prone to bank runs 
D)  only accepts deposits but does not advance loans 
A)  owns far more than it owes 
B)  does not have stockholders' equity 
C)  is prone to bank runs 
D)  only accepts deposits but does not advance loans

Question 5

The most established theory of stock prices relates a company's asset prices to the ________.

Accepted Answer

A)  future value of inflation and interest rates 
B)  past earnings of companies and past values of interest rates 
C)  future earning prospects of companies and future values of interest rates 
D)  future earning prospects of companies and future values of inflation rates 
A)  future value of inflation and interest rates 
B)  past earnings of companies and past values of interest rates 
C)  future earning prospects of companies and future values of interest rates 
D)  future earning prospects of companies and future values of inflation rates

Question 6

A debtor's quantity of credit demanded and the rate of interest are likely to be ________.

Accepted Answer

A)  unrelated 
B)  positively correlated 
C)  negatively correlated 
D)  positively related if the rate of interest is below 10 percent and negatively related if it is above 10 percent. 
A)  unrelated 
B)  positively correlated 
C)  negatively correlated 
D)  positively related if the rate of interest is below 10 percent and negatively related if it is above 10 percent.

Question 7

The theory of efficient markets suggests that ________.

Accepted Answer

A)  interest rates and inflation rates are inversely related 
B)  systemically important financial institutions are more likely to fail 
C)  all movements in stock markets are based on rational appraisals of new information 
D)  long-term investments by banks are more profitable than short-term investments 
A)  interest rates and inflation rates are inversely related 
B)  systemically important financial institutions are more likely to fail 
C)  all movements in stock markets are based on rational appraisals of new information 
D)  long-term investments by banks are more profitable than short-term investments

Question 8

Assuming all else equal,if there is an increase in the real interest rate,________.

Accepted Answer

A)  the credit demand curve will shift to the left 
B)  the credit demand curve will shift to the right 
C)  there will be an upward movement along the credit demand curve 
D)  there will be a downward movement along the credit demand curve 
A)  the credit demand curve will shift to the left 
B)  the credit demand curve will shift to the right 
C)  there will be an upward movement along the credit demand curve 
D)  there will be a downward movement along the credit demand curve

Question 9

Scenario: John is looking to buy a house in Bozeman. He has about $120,000 in savings, and the house he is interested in costs $300,000. When he approaches Boze Bank, the same bank at which all of his five brothers have accounts, he learns that he can borrow at a nominal interest rate of 5 percent. Inflation is 2 percent for 2 years after he buys the house and then increases to 3 percent. Assume that Boze Bank is the only bank in Bozeman and John's five brothers contribute a significant amount to the bank's total savings.
-Refer to the scenario above.If the bank calls John back one day later and explains that there has been a mistake and the actual nominal interest rate at which he can borrow is 5.5 percent,John will be ________.

Accepted Answer

A)  less likely to want to borrow the remaining amount 
B)  more likely to want to borrow the remaining amount 
C)  unfazed in terms of willingness to borrow the remaining amount 
D)  All of the above could be true 
A)  less likely to want to borrow the remaining amount 
B)  more likely to want to borrow the remaining amount 
C)  unfazed in terms of willingness to borrow the remaining amount 
D)  All of the above could be true

Question 10

Demand deposits have a ________ maturity.

Accepted Answer

A)  0-year 
B)  1-year 
C)  2-year 
D)  3-year 
A)  0-year 
B)  1-year 
C)  2-year 
D)  3-year

Question 11

An institutional bank run is most likely to occur when ________.

Accepted Answer

A)  households deposit their money in a weak bank 
B)  households withdraw their money from a weak bank 
C)  firms and other banks withdraw money from a weak bank 
D)  firms and other banks deposit their money in a weak bank 
A)  households deposit their money in a weak bank 
B)  households withdraw their money from a weak bank 
C)  firms and other banks withdraw money from a weak bank 
D)  firms and other banks deposit their money in a weak bank

Question 12

Institutions that channel funds from suppliers of financial capital to users of financial capital are referred to as ________.

Accepted Answer

A)  central banks 
B)  mutual funds 
C)  financial intermediaries 
D)  deposit insurance committees 
A)  central banks 
B)  mutual funds 
C)  financial intermediaries 
D)  deposit insurance committees

Question 13

Investment pools gathered from a small number of very wealthy individuals or institutions are referred to as ________.

Accepted Answer

A)  hedge funds 
B)  fixed deposits 
C)  capital investment 
D)  institutional savings 
A)  hedge funds 
B)  fixed deposits 
C)  capital investment 
D)  institutional savings

Question 14

Assuming all else equal,a rise in the rate of interest ________.

Accepted Answer

A)  results in a fall in the cost of borrowing 
B)  results in a fall in the quantity of credit demanded 
C)  results in an increase in the number of potential debtors 
D)  results in a fall in the amount of interest accumulated on a loan 
A)  results in a fall in the cost of borrowing 
B)  results in a fall in the quantity of credit demanded 
C)  results in an increase in the number of potential debtors 
D)  results in a fall in the amount of interest accumulated on a loan

Question 15

When the credit demand curve is relatively steep,the quantity of credit demanded is ________.

Accepted Answer

A)  relatively sensitive to changes in the tax rates 
B)  relatively sensitive to changes in the real interest rate 
C)  not very sensitive to changes in the tax rates 
D)  not very sensitive to changes in the real interest rate 
A)  relatively sensitive to changes in the tax rates 
B)  relatively sensitive to changes in the real interest rate 
C)  not very sensitive to changes in the tax rates 
D)  not very sensitive to changes in the real interest rate

Question 16

Demand deposits are so termed because ________.

Accepted Answer

A)  depositors can demand any rate of interest on such deposits 
B)  most consumers want to open such accounts as they are greatly in demand 
C)  depositors can withdraw money from such deposits at any point of time 
D)  there are no limitations on the amount of money that can be deposited into such accounts 
A)  depositors can demand any rate of interest on such deposits 
B)  most consumers want to open such accounts as they are greatly in demand 
C)  depositors can withdraw money from such deposits at any point of time 
D)  there are no limitations on the amount of money that can be deposited into such accounts

Question 17

Scenario: John is looking to buy a house in Bozeman. He has about $120,000 in savings, and the house he is interested in costs $300,000. When he approaches Boze Bank, the same bank at which all of his five brothers have accounts, he learns that he can borrow at a nominal interest rate of 5 percent. Inflation is 2 percent for 2 years after he buys the house and then increases to 3 percent. Assume that Boze Bank is the only bank in Bozeman and John's five brothers contribute a significant amount to the bank's total savings.
-Refer to the scenario above.Assume John has to pay a 5 percent sales tax on his house.He uses the remainder of his cash and borrows the remaining amount of money.At the end of each year,he pays $50,000 toward the loan.How much interest will he end up paying in total?

Accepted Answer

A)  $28,805 
B)  $20,805 
C)  $13,805 
D)  $17,805 
A)  $28,805 
B)  $20,805 
C)  $13,805 
D)  $17,805

Question 18

The following table lists various statistics for Bridger Bank.
  
-Refer to the table above.Which of the following changes would cause Bridger Bank's stockholder equity to be $120 million?

Accepted Answer

A)  Reserves increase by $45 million, and demand deposits decrease by $15 million. 
B)  Long-term debt increases by $30 million, and long-term investments increase by $30 million. 
C)  Cash equivalents decrease by $20 million, and short-term investments increase by $60 million. 
D)  Short-term and long-term investments increase by $20 million each. 
A)  Reserves increase by $45 million, and demand deposits decrease by $15 million. 
B)  Long-term debt increases by $30 million, and long-term investments increase by $30 million. 
C)  Cash equivalents decrease by $20 million, and short-term investments increase by $60 million. 
D)  Short-term and long-term investments increase by $20 million each.

Question 19

Differentiate between asset management companies and venture capital funds.

Accepted Answer

Asset management companies enable invest

Question 20

If the annual inflation rate in an economy is i,then $1 borrowed at the beginning of a year will have the same purchasing power as ________ dollars at the end of the year.

Accepted Answer

A)  i 
B)  (1/i) 
C)  (1 − i) 
D)  (1 + i) 
A)  i 
B)  (1/i) 
C)  (1 − i) 
D)  (1 + i)

Which of the following statements is true?

The following table lists some economic agents and their intentions. At present the interest rate is 5 percent. -Refer to the table above.If there are no other people or companies in the market for loanable funds,which of the statements below must be true?

The following figure shows two credit demand curves, CD₁ and CD₂, and two credit supply curves, CS₁ and CS₂. -Refer to the figure above.What is the equilibrium rate of interest when the credit demand curve is CD₁ and the credit supply curve is CS₁?

A well-capitalized bank ________.

The most established theory of stock prices relates a company's asset prices to the ________.

A debtor's quantity of credit demanded and the rate of interest are likely to be ________.

The theory of efficient markets suggests that ________.

Assuming all else equal,if there is an increase in the real interest rate,________.

Demand deposits have a ________ maturity.

An institutional bank run is most likely to occur when ________.

Institutions that channel funds from suppliers of financial capital to users of financial capital are referred to as ________.

Investment pools gathered from a small number of very wealthy individuals or institutions are referred to as ________.

Assuming all else equal,a rise in the rate of interest ________.

When the credit demand curve is relatively steep,the quantity of credit demanded is ________.

Demand deposits are so termed because ________.

The following table lists various statistics for Bridger Bank. -Refer to the table above.Which of the following changes would cause Bridger Bank's stockholder equity to be $120 million?

Differentiate between asset management companies and venture capital funds.

If the annual inflation rate in an economy is i,then $1 borrowed at the beginning of a year will have the same purchasing power as ________ dollars at the end of the year.

The Principles and Practice of Economics

Economic Methods and Economic Questions

Optimization: Doing the Best You Can

Demand, Supply, and Equilibrium

The Wealth of Nations: Defining and Measuring Macroeconomic Aggregates

Aggregate Incomes

Economic Growth

Why Isn't the Whole World Developed?

Employment and Unemployment

The Monetary System

Short-Run Fluctuations

Countercyclical Macroeconomic Policy

Macroeconomics and International Trade

Open Economy Macroeconomics

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Exam 10: Credit Markets

Which of the following statements is true?

The following table lists some economic agents and their intentions. At present the interest rate is 5 percent. -Refer to the table above.If there are no other people or companies in the market for loanable funds,which of the statements below must be true?

The following figure shows two credit demand curves, CD₁ and CD₂, and two credit supply curves, CS₁ and CS₂. -Refer to the figure above.What is the equilibrium rate of interest when the credit demand curve is CD₁ and the credit supply curve is CS₁?

A well-capitalized bank ________.

The most established theory of stock prices relates a company's asset prices to the ________.

A debtor's quantity of credit demanded and the rate of interest are likely to be ________.

The theory of efficient markets suggests that ________.

Assuming all else equal,if there is an increase in the real interest rate,________.

Demand deposits have a ________ maturity.

An institutional bank run is most likely to occur when ________.

Institutions that channel funds from suppliers of financial capital to users of financial capital are referred to as ________.

Investment pools gathered from a small number of very wealthy individuals or institutions are referred to as ________.

Assuming all else equal,a rise in the rate of interest ________.

When the credit demand curve is relatively steep,the quantity of credit demanded is ________.

Demand deposits are so termed because ________.

The following table lists various statistics for Bridger Bank. -Refer to the table above.Which of the following changes would cause Bridger Bank's stockholder equity to be $120 million?

Differentiate between asset management companies and venture capital funds.

If the annual inflation rate in an economy is i,then $1 borrowed at the beginning of a year will have the same purchasing power as ________ dollars at the end of the year.

The Principles and Practice of Economics

Economic Methods and Economic Questions

Optimization: Doing the Best You Can

Demand, Supply, and Equilibrium

The Wealth of Nations: Defining and Measuring Macroeconomic Aggregates

Aggregate Incomes

Economic Growth

Why Isn't the Whole World Developed?

Employment and Unemployment

The Monetary System

Short-Run Fluctuations

Countercyclical Macroeconomic Policy

Macroeconomics and International Trade

Open Economy Macroeconomics

Filters