Question 1

If bond investors think they lack enough details to evaluate the likelihood of defaults on certain bonds, this will result in higher:

Accepted Answer

A) expected return 
B) liquidity 
C) information costs 
D) expected inflation 
A) expected return 
B) liquidity 
C) information costs 
D) expected inflation

Question 2

In recent decades, the United States

Accepted Answer

A) was essentially a closed economy. 
B) was generally a net borrower of foreign funds. 
C) was generally a net lender abroad. 
D) experienced a net outflow of savings. 
A) was essentially a closed economy. 
B) was generally a net borrower of foreign funds. 
C) was generally a net lender abroad. 
D) experienced a net outflow of savings.

Question 3

Given that most investors tend to be risk averse,

Accepted Answer

A) no one buys risky assets. 
B) there's a trade-off between risk and return. 
C) low risk assets provide the best return. 
D) it must be a superior strategy compared to one that is risk loving. 
A) no one buys risky assets. 
B) there's a trade-off between risk and return. 
C) low risk assets provide the best return. 
D) it must be a superior strategy compared to one that is risk loving.

Question 4

An increase in expected inflation results in

Accepted Answer

A) lower nominal interest rates and higher bond prices. 
B) lower real interest rates and higher bond prices. 
C) higher real interest rates and lower bond prices. 
D) higher nominal interest rates and lower bond prices. 
A) lower nominal interest rates and higher bond prices. 
B) lower real interest rates and higher bond prices. 
C) higher real interest rates and lower bond prices. 
D) higher nominal interest rates and lower bond prices.

Question 5

Risk that is common to all assets of a certain type is referred to as

Accepted Answer

A) systematic risk. 
B) unsystematic risk. 
C) idiosyncratic risk. 
D) structural risk. 
A) systematic risk. 
B) unsystematic risk. 
C) idiosyncratic risk. 
D) structural risk.

Question 6

Which of the following financial assets has both the highest risk and highest return for the period of 1926-2011?

Accepted Answer

A) small company stocks 
B) large company stocks 
C) corporate bonds 
D) Treasury bills 
A) small company stocks 
B) large company stocks 
C) corporate bonds 
D) Treasury bills

Question 7

Suppose that Congress passes an investment tax credit. The likely result will be

Accepted Answer

A) the supply curve for bonds will shift to the right. 
B) the demand curve for bonds will shift to the left. 
C) the demand curve for bonds will shift to the right. 
D) the equilibrium interest rate will fall. 
A) the supply curve for bonds will shift to the right. 
B) the demand curve for bonds will shift to the left. 
C) the demand curve for bonds will shift to the right. 
D) the equilibrium interest rate will fall.

Question 8

How can diversification reduce idiosyncratic risk but not systematic risk?

Accepted Answer

Since the returns on most assets do not

Question 9

During an economic recession,

Accepted Answer

A) the bond demand and supply curves both shift to the left and the equilibrium interest rate usually falls. 
B) the bond demand and supply curves both shift to the right and the equilibrium interest rate usually rises. 
C) the bond demand curve shifts to the right, the bond supply curve shifts to the left, and the equilibrium interest rate usually falls. 
D) the bond demand curve shifts to the left, the bond supply curve shifts to the right, and the equilibrium interest rate usually rises. 
A) the bond demand and supply curves both shift to the left and the equilibrium interest rate usually falls. 
B) the bond demand and supply curves both shift to the right and the equilibrium interest rate usually rises. 
C) the bond demand curve shifts to the right, the bond supply curve shifts to the left, and the equilibrium interest rate usually falls. 
D) the bond demand curve shifts to the left, the bond supply curve shifts to the right, and the equilibrium interest rate usually rises.

Question 10

How can a global savings glut affect the United States?

Accepted Answer

A) It can reduce the world real interest rate, thus encouraging borrowing by Americans. 
B) It can increase the world real interest rate, thus encouraging saving by Americans. 
C) It can reduce the supply of loanable funds for the United States. 
D) It can reduce the demand for loanable funds for the United States. 
A) It can reduce the world real interest rate, thus encouraging borrowing by Americans. 
B) It can increase the world real interest rate, thus encouraging saving by Americans. 
C) It can reduce the supply of loanable funds for the United States. 
D) It can reduce the demand for loanable funds for the United States.

Question 11

The bond supply curve

Accepted Answer

A) shows the quantity of bonds lenders are willing to supply as bond prices change. 
B) shows the quantity of bonds lenders are willing to supply as interest rates change. 
C) shows the quantity of bonds borrowers are willing to supply as bond prices change. 
D) is represented by a downward-sloping line when the price of bonds is on the vertical axis and the quantity of bonds supplied is on the vertical axis. 
A) shows the quantity of bonds lenders are willing to supply as bond prices change. 
B) shows the quantity of bonds lenders are willing to supply as interest rates change. 
C) shows the quantity of bonds borrowers are willing to supply as bond prices change. 
D) is represented by a downward-sloping line when the price of bonds is on the vertical axis and the quantity of bonds supplied is on the vertical axis.

Question 12

What is a black swan event?

Accepted Answer

It refers to rare ev

Question 13

If there is an excess demand for bonds at a given price of bonds, then

Accepted Answer

A) the interest rate will fall. 
B) the interest rate will rise. 
C) the price of bonds will fall. 
D) the interest rate may rise or the interest rate may fall depending upon the reasons for the excess demand for bonds. 
A) the interest rate will fall. 
B) the interest rate will rise. 
C) the price of bonds will fall. 
D) the interest rate may rise or the interest rate may fall depending upon the reasons for the excess demand for bonds.

Question 14

Which of the following is NOT a reason that interest rates remained low despite high budget deficits following the financial crisis?

Accepted Answer

A) increased demand for U.S. government bonds 
B) the perceived riskiness of alternative investments such as stocks 
C) low interest rates on CDs and similar short-term assets 
D) increases in expected inflation 
A) increased demand for U.S. government bonds 
B) the perceived riskiness of alternative investments such as stocks 
C) low interest rates on CDs and similar short-term assets 
D) increases in expected inflation

Question 15

In the bond market, the seller is considered to be

Accepted Answer

A) the lender. 
B) the borrower. 
C) the lender or the borrower depending upon the use to which the funds are put. 
D) the lender or the borrower depending upon whether interest rates are rising or falling. 
A) the lender. 
B) the borrower. 
C) the lender or the borrower depending upon the use to which the funds are put. 
D) the lender or the borrower depending upon whether interest rates are rising or falling.

Question 16

If expected inflation declines by 2%, what should happen to nominal interest rates according to the Fisher effect?

Accepted Answer

A) rise by 2% 
B) fall by 2% 
C) be cut in half 
D) double in size 
A) rise by 2% 
B) fall by 2% 
C) be cut in half 
D) double in size

Question 17

The demand curve for bonds would be shifted to the left by an

Accepted Answer

A) increase in wealth. 
B) increase in expected returns on bonds. 
C) increase in expected inflation. 
D) increase in the liquidity of bonds relative to other assets. 
A) increase in wealth. 
B) increase in expected returns on bonds. 
C) increase in expected inflation. 
D) increase in the liquidity of bonds relative to other assets.

Question 18

Alternating periods of economic expansion and recession are known as the:

Accepted Answer

A) Fisher effect 
B) business cycle 
C) market risk 
D) systematics 
A) Fisher effect 
B) business cycle 
C) market risk 
D) systematics

Question 19

What impact do savings rates in Belgium have on the real interest rate that businesses in Belgium must pay to obtain the funds to finance their spending on plant and equipment?

Accepted Answer

Because Belgium is a small open economy,

Question 20

Since all assets typically do not move together, how can investors typically reduce risk?

Accepted Answer

A) Purchase only the best performing assets. 
B) Diversify one's portfolio across different asset classes. 
C) Avoid poor performing assets. 
D) Actively manage one's portfolio. 
A) Purchase only the best performing assets. 
B) Diversify one's portfolio across different asset classes. 
C) Avoid poor performing assets. 
D) Actively manage one's portfolio.

If bond investors think they lack enough details to evaluate the likelihood of defaults on certain bonds, this will result in higher:

In recent decades, the United States

Given that most investors tend to be risk averse,

An increase in expected inflation results in

Risk that is common to all assets of a certain type is referred to as

Which of the following financial assets has both the highest risk and highest return for the period of 1926-2011?

Suppose that Congress passes an investment tax credit. The likely result will be

How can diversification reduce idiosyncratic risk but not systematic risk?

During an economic recession,

How can a global savings glut affect the United States?

The bond supply curve

What is a black swan event?

If there is an excess demand for bonds at a given price of bonds, then

Which of the following is NOT a reason that interest rates remained low despite high budget deficits following the financial crisis?

In the bond market, the seller is considered to be

If expected inflation declines by 2%, what should happen to nominal interest rates according to the Fisher effect?

The demand curve for bonds would be shifted to the left by an

Alternating periods of economic expansion and recession are known as the:

What impact do savings rates in Belgium have on the real interest rate that businesses in Belgium must pay to obtain the funds to finance their spending on plant and equipment?

Since all assets typically do not move together, how can investors typically reduce risk?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

Monetary Theory II: The IS-MP Model

Filters

Exam 4: Determining Interest Rates

If bond investors think they lack enough details to evaluate the likelihood of defaults on certain bonds, this will result in higher:

In recent decades, the United States

Given that most investors tend to be risk averse,

An increase in expected inflation results in

Risk that is common to all assets of a certain type is referred to as

Which of the following financial assets has both the highest risk and highest return for the period of 1926-2011?

Suppose that Congress passes an investment tax credit. The likely result will be

How can diversification reduce idiosyncratic risk but not systematic risk?

During an economic recession,

How can a global savings glut affect the United States?

The bond supply curve

What is a black swan event?

If there is an excess demand for bonds at a given price of bonds, then

Which of the following is NOT a reason that interest rates remained low despite high budget deficits following the financial crisis?

In the bond market, the seller is considered to be

If expected inflation declines by 2%, what should happen to nominal interest rates according to the Fisher effect?

The demand curve for bonds would be shifted to the left by an

Alternating periods of economic expansion and recession are known as the:

What impact do savings rates in Belgium have on the real interest rate that businesses in Belgium must pay to obtain the funds to finance their spending on plant and equipment?

Since all assets typically do not move together, how can investors typically reduce risk?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

Monetary Theory II: The IS-MP Model

Filters