Question 1

A reduction in expected inflation will result in all of the following EXCEPT:

Accepted Answer

A) lower nominal interest rates 
B) lower real interest rates 
C) reduced demand for bonds 
D) increased supply of bonds 
A) lower nominal interest rates 
B) lower real interest rates 
C) reduced demand for bonds 
D) increased supply of bonds

Question 2

Businesses typically issue bonds to finance

Accepted Answer

A) their inventories. 
B) payments to their workers. 
C) spending on new plant and equipment. 
D) dividend payments to their stockholders. 
A) their inventories. 
B) payments to their workers. 
C) spending on new plant and equipment. 
D) dividend payments to their stockholders.

Question 3

As wealth decreases, which of the following is likely to account for a larger fraction of a saver's portfolio?

Accepted Answer

A) corporate stock 
B) corporate bonds 
C) U)S. government securities 
D) checking account balance 
A) corporate stock 
B) corporate bonds 
C) U)S. government securities 
D) checking account balance

Question 4

A closed economy is one that

Accepted Answer

A) has no government sector. 
B) neither borrows from nor lends to foreign countries. 
C) produces mainly agricultural goods. 
D) produces mainly manufactured goods. 
A) has no government sector. 
B) neither borrows from nor lends to foreign countries. 
C) produces mainly agricultural goods. 
D) produces mainly manufactured goods.

Question 5

If the government increases taxes while holding expenditures constant,

Accepted Answer

A) the bond supply curve will shift to the left and the equilibrium interest rate will fall. 
B) the bond supply curve will shift to the right and the real interest rate will fall. 
C) government borrowing will be increased. 
D) the government's deficit will increase. 
A) the bond supply curve will shift to the left and the equilibrium interest rate will fall. 
B) the bond supply curve will shift to the right and the real interest rate will fall. 
C) government borrowing will be increased. 
D) the government's deficit will increase.

Question 6

An open economy is one that

Accepted Answer

A) has a large government sector. 
B) lends and borrows in the international capital market. 
C) produces mainly agricultural goods. 
D) produces mainly manufactured goods. 
A) has a large government sector. 
B) lends and borrows in the international capital market. 
C) produces mainly agricultural goods. 
D) produces mainly manufactured goods.

Question 7

Which combination of assets represents the most diversification?

Accepted Answer

A) holding corporate and Treasury bonds 
B) holding shares of Google and Yahoo 
C) holding shares of Google and Microsoft 
D) holding shares of Google along with Treasury bonds 
A) holding corporate and Treasury bonds 
B) holding shares of Google and Yahoo 
C) holding shares of Google and Microsoft 
D) holding shares of Google along with Treasury bonds

Question 8

The bond demand curve slopes down because

Accepted Answer

A) interest rates decline as bond prices decline. 
B) when bond prices are low, inflation is low. 
C) the lender is willing and able to purchase more bonds when the price of the bond is low. 
D) the borrower is willing and able to purchase more bonds when the price of the bond is low. 
A) interest rates decline as bond prices decline. 
B) when bond prices are low, inflation is low. 
C) the lender is willing and able to purchase more bonds when the price of the bond is low. 
D) the borrower is willing and able to purchase more bonds when the price of the bond is low.

Question 9

Investors value liquidity in an asset because

Accepted Answer

A) liquid assets tend to have high rates of return. 
B) liquid assets incur lower selling costs. 
C) liquid assets incur lower tax liabilities. 
D) whereas liquid assets have high information costs, their low risk offsets this. 
A) liquid assets tend to have high rates of return. 
B) liquid assets incur lower selling costs. 
C) liquid assets incur lower tax liabilities. 
D) whereas liquid assets have high information costs, their low risk offsets this.

Question 10

The supply curve of loanable funds slopes up because

Accepted Answer

A) at higher bond prices more loanable funds will be supplied. 
B) higher interest rates reduce the inflation rate. 
C) an increase in the interest rate makes lenders more willing and able to supply more funds. 
D) a decrease in the interest rate makes lenders more willing and able to supply more funds. 
A) at higher bond prices more loanable funds will be supplied. 
B) higher interest rates reduce the inflation rate. 
C) an increase in the interest rate makes lenders more willing and able to supply more funds. 
D) a decrease in the interest rate makes lenders more willing and able to supply more funds.

Question 11

Other things equal, an increase in the tax on dividends is likely to result in all of the following EXCEPT:

Accepted Answer

A) higher expected return on bonds relative to stocks 
B) increased demand for bonds 
C) lower interest rates 
D) higher interest rates 
A) higher expected return on bonds relative to stocks 
B) increased demand for bonds 
C) lower interest rates 
D) higher interest rates

Question 12

If a government's income tax receipts exceed its expenditures, the government is running a

Accepted Answer

A) surplus and is a net borrower of funds. 
B) surplus and is a net saver of funds. 
C) deficit and is a net borrower of funds. 
D) deficit and is a net saver of funds. 
A) surplus and is a net borrower of funds. 
B) surplus and is a net saver of funds. 
C) deficit and is a net borrower of funds. 
D) deficit and is a net saver of funds.

Question 13

During most of the time in recent decades, the domestic government sector was

Accepted Answer

A) a net borrower. 
B) a net lender. 
C) neither a borrower nor a lender. 
D) a major factor in keeping real interest rates low. 
A) a net borrower. 
B) a net lender. 
C) neither a borrower nor a lender. 
D) a major factor in keeping real interest rates low.

Question 14

Suppose you are risk averse and you are deciding between two investments. One has a guaranteed return of 5% while the second has a 50% chance of a 10% return and a 50% chance of a 0% return. Which investment would you choose? Why?

Accepted Answer

The second investment has an e

Question 15

Which of the following assets had both the lowest average annual return and lowest risk between 1926 and 2011?

Accepted Answer

A) small company stocks 
B) large company stocks 
C) long-term corporate bonds 
D) U)S. Treasury bills 
A) small company stocks 
B) large company stocks 
C) long-term corporate bonds 
D) U)S. Treasury bills

Question 16

Diversification is most effective in reducing:

Accepted Answer

A) market risk 
B) systemic risk 
C) idiosyncratic risk 
D) all forms of risk 
A) market risk 
B) systemic risk 
C) idiosyncratic risk 
D) all forms of risk

Question 17

The formula for the yield to maturity, i, on a discount bond is

Accepted Answer

A) i = (Face value - Discount price)/Discount price. 
B) i = (Discount price - Face value)/Discount price. 
C) i = (Face value - Discount price)/Face value. 
D) i = (Discount price - Face value)/Face value. 
A) i = (Face value - Discount price)/Discount price. 
B) i = (Discount price - Face value)/Discount price. 
C) i = (Face value - Discount price)/Face value. 
D) i = (Discount price - Face value)/Face value.

Question 18

During most of the time in recent decades, the government sector

Accepted Answer

A) has not spent more than it collected in taxes. 
B) has run large deficits. 
C) has run large surpluses. 
D) has balanced its budget every year. 
A) has not spent more than it collected in taxes. 
B) has run large deficits. 
C) has run large surpluses. 
D) has balanced its budget every year.

Question 19

In 2008, the liquidity of mortgage-backed securities declined significantly. Make use of a graph of the bond market to show how this affected the price of mortgage-backed securities.

Accepted Answer

The lack of liquidity of mortg

Question 20

The supply curve for loanable funds would decline due to

Accepted Answer

A) an increase in wealth. 
B) an increase in the expected return on bonds. 
C) an increase in expected inflation. 
D) a decrease in the riskiness of bonds relative to other assets. 
A) an increase in wealth. 
B) an increase in the expected return on bonds. 
C) an increase in expected inflation. 
D) a decrease in the riskiness of bonds relative to other assets.

A reduction in expected inflation will result in all of the following EXCEPT:

Businesses typically issue bonds to finance

As wealth decreases, which of the following is likely to account for a larger fraction of a saver's portfolio?

A closed economy is one that

If the government increases taxes while holding expenditures constant,

An open economy is one that

Which combination of assets represents the most diversification?

The bond demand curve slopes down because

Investors value liquidity in an asset because

The supply curve of loanable funds slopes up because

Other things equal, an increase in the tax on dividends is likely to result in all of the following EXCEPT:

If a government's income tax receipts exceed its expenditures, the government is running a

During most of the time in recent decades, the domestic government sector was

Suppose you are risk averse and you are deciding between two investments. One has a guaranteed return of 5% while the second has a 50% chance of a 10% return and a 50% chance of a 0% return. Which investment would you choose? Why?

Which of the following assets had both the lowest average annual return and lowest risk between 1926 and 2011?

Diversification is most effective in reducing:

The formula for the yield to maturity, i, on a discount bond is

During most of the time in recent decades, the government sector

In 2008, the liquidity of mortgage-backed securities declined significantly. Make use of a graph of the bond market to show how this affected the price of mortgage-backed securities.

The supply curve for loanable funds would decline due to

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

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Exam 4: Determining Interest Rates

A reduction in expected inflation will result in all of the following EXCEPT:

Businesses typically issue bonds to finance

As wealth decreases, which of the following is likely to account for a larger fraction of a saver's portfolio?

A closed economy is one that

If the government increases taxes while holding expenditures constant,

An open economy is one that

Which combination of assets represents the most diversification?

The bond demand curve slopes down because

Investors value liquidity in an asset because

The supply curve of loanable funds slopes up because

Other things equal, an increase in the tax on dividends is likely to result in all of the following EXCEPT:

If a government's income tax receipts exceed its expenditures, the government is running a

During most of the time in recent decades, the domestic government sector was

Suppose you are risk averse and you are deciding between two investments. One has a guaranteed return of 5% while the second has a 50% chance of a 10% return and a 50% chance of a 0% return. Which investment would you choose? Why?

Which of the following assets had both the lowest average annual return and lowest risk between 1926 and 2011?

Diversification is most effective in reducing:

The formula for the yield to maturity, i, on a discount bond is

During most of the time in recent decades, the government sector

In 2008, the liquidity of mortgage-backed securities declined significantly. Make use of a graph of the bond market to show how this affected the price of mortgage-backed securities.

The supply curve for loanable funds would decline due to

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