Question 1

In the market for money the behavior of borrowers is represented by the

Accepted Answer

A) demand curve. 
B) supply curve. 
C) neither the supply curve nor the demand curve. 
D) a combination of the supply and demand curves. 
A) demand curve. 
B) supply curve. 
C) neither the supply curve nor the demand curve. 
D) a combination of the supply and demand curves.

Question 2

Suppose your grandmother dies and leaves you $100,000. You are trying to figure out how long it will take for it to double in value and you don't have a calculator handy. What concept would you use?

Accepted Answer

A) Present Value 
B) Future Value 
C) The Rule of 72 
D) Internal Rate of Return 
A) Present Value 
B) Future Value 
C) The Rule of 72 
D) Internal Rate of Return

Question 3

If people (who used to neither borrow nor save)are now saving for their retirement then this will cause the

Accepted Answer

A) supply for loanable funds to increase. 
B) demand for loanable funds to increase. 
C) supply for loanable funds to decrease. 
D) demand for loanable funds to decrease. 
A) supply for loanable funds to increase. 
B) demand for loanable funds to increase. 
C) supply for loanable funds to decrease. 
D) demand for loanable funds to decrease.

Question 4

In the market for money the price is

Accepted Answer

A) the interest rate. 
B) the wage rate. 
C) the exchange rate. 
D) the premium. 
A) the interest rate. 
B) the wage rate. 
C) the exchange rate. 
D) the premium.

Question 5

Dividing the number seventy-two by an interest rate yields

Accepted Answer

A) the annual payment required to pay off a loan at that interest rate. 
B) the number of years it would take an investment to double in value. 
C) a good measure of the level of risk in the investment proposal. 
D) all of these options are correct. 
A) the annual payment required to pay off a loan at that interest rate. 
B) the number of years it would take an investment to double in value. 
C) a good measure of the level of risk in the investment proposal. 
D) all of these options are correct.

Question 6

In a market for money, it is typically the case that we use the ________ in a supply and demand model.

Accepted Answer

A) inflation rate 
B) interest rate 
C) wage rate 
D) monetary index 
A) inflation rate 
B) interest rate 
C) wage rate 
D) monetary index

Question 7

If a business makes the determination that an investment makes sense at the current interest rate but before they can act the interest rates fall

Accepted Answer

A) they will have to recalculate whether it still makes sense. 
B) it will only make the situation better so they will clearly make the investment. 
C) it will cause them to not make the investment regardless of the decrease. 
D) they will go ahead with the investment because interest rates have nothing to do with whether an investment makes sense. 
A) they will have to recalculate whether it still makes sense. 
B) it will only make the situation better so they will clearly make the investment. 
C) it will cause them to not make the investment regardless of the decrease. 
D) they will go ahead with the investment because interest rates have nothing to do with whether an investment makes sense.

Question 8

An increase in the confidence that equipment-buying firms have in their future profitability will

Accepted Answer

A) increase the demand for borrowable money. 
B) decrease the demand for borrowable money. 
C) increase the supply of borrowable money. 
D) decrease the supply of borrowable money. 
A) increase the demand for borrowable money. 
B) decrease the demand for borrowable money. 
C) increase the supply of borrowable money. 
D) decrease the supply of borrowable money.

Question 9

If you are anticipating having to pay $100,000 to a lender 10 years from now and the interest rate falls, the present value of this sum

Accepted Answer

A) falls. 
B) rises. 
C) remains unchanged. 
D) becomes more uncertain. 
A) falls. 
B) rises. 
C) remains unchanged. 
D) becomes more uncertain.

Question 10

If an investment requires payment of $10,000 now and promises to return a payout of $15,000 one year from now and another payout of $15,000 two years from now, the net present value of the investment at an interest rate of 8% is approximately

Accepted Answer

A) $5,000. 
B) $11,749. 
C) $16,749. 
D) $26,749. 
A) $5,000. 
B) $11,749. 
C) $16,749. 
D) $26,749.

Question 11

If a person is going to pay $500 per month every month for 5 years, what do you know about their car loan (if the interest rate is positive)?

Accepted Answer

A) Nothing. 
B) The loan amount was more than $30,000. 
C) The loan amount was exactly $30,000. 
D) The loan amount was less than $30,000. 
A) Nothing. 
B) The loan amount was more than $30,000. 
C) The loan amount was exactly $30,000. 
D) The loan amount was less than $30,000.

Question 12

If a person is going to pay $1000 per month every month for 30 years, what do you know about their mortgage (if the interest rate is positive)?

Accepted Answer

A) Nothing. 
B) The loan amount was more than $360,000. 
C) The loan amount was exactly $360,000. 
D) The loan amount was less than $360,000. 
A) Nothing. 
B) The loan amount was more than $360,000. 
C) The loan amount was exactly $360,000. 
D) The loan amount was less than $360,000.

Question 13

Using the Rule of 72, how long will it take something growing at 2% per year to double

Accepted Answer

A) 100 years. 
B) 50 years. 
C) 36 years. 
D) 144 years. 
A) 100 years. 
B) 50 years. 
C) 36 years. 
D) 144 years.

Question 14

Using an interest rate of 5%, which figure has the smallest present value

Accepted Answer

A) $5000. 
B) $5050 to be received two years from now. 
C) $5075 to be received three years from now. 
D) $5500 to be received ten years from now. 
A) $5000. 
B) $5050 to be received two years from now. 
C) $5075 to be received three years from now. 
D) $5500 to be received ten years from now.

Question 15

-Assuming that Figure 7.1 is a market for money that can be borrowed or saved, Box 6 is

Accepted Answer

A) "$" for the amount borrowed/saved. 
B) "$*" for the equilibrium amount borrowed/saved. 
C) "r" for interest rate. 
D) "r*" for equilibrium interest rate. 
A) "$" for the amount borrowed/saved. 
B) "$*" for the equilibrium amount borrowed/saved. 
C) "r" for interest rate. 
D) "r*" for equilibrium interest rate.

Question 16

The notion of business investment being related to interest rates is shown when interest rates are

Accepted Answer

A) higher, more projects (where businesses borrow capital to start new lines of business)are profitable. 
B) higher, fewer projects (where businesses borrow capital to start new lines of business)are profitable. 
C) higher, people are less likely to buy expensive goods on installments. 
D) higher, people are more likely to buy expensive goods on installments. 
A) higher, more projects (where businesses borrow capital to start new lines of business)are profitable. 
B) higher, fewer projects (where businesses borrow capital to start new lines of business)are profitable. 
C) higher, people are less likely to buy expensive goods on installments. 
D) higher, people are more likely to buy expensive goods on installments.

Question 17

A decrease in the interest rate will

Accepted Answer

A) increase the demand for money alone. 
B) decrease the demand for money and increase the supply of money. 
C) increase the demand for money and decrease the supply of money. 
D) change neither the demand nor the supply of money; rather it will only affect the quantity demanded and quantity supplied. 
A) increase the demand for money alone. 
B) decrease the demand for money and increase the supply of money. 
C) increase the demand for money and decrease the supply of money. 
D) change neither the demand nor the supply of money; rather it will only affect the quantity demanded and quantity supplied.

Question 18

If the inflation rate is 3% and the real interest rate is 4%, then the nominal interest rate is around

Accepted Answer

A) 1%. 
B) 3%. 
C) 7%. 
D) 12%. 
A) 1%. 
B) 3%. 
C) 7%. 
D) 12%.

Exam 7: Interest Rates and Present Value

In the market for money the behavior of borrowers is represented by the

Suppose your grandmother dies and leaves you $100,000. You are trying to figure out how long it will take for it to double in value and you don't have a calculator handy. What concept would you use?

If people (who used to neither borrow nor save)are now saving for their retirement then this will cause the

In the market for money the price is

Dividing the number seventy-two by an interest rate yields

In a market for money, it is typically the case that we use the ________ in a supply and demand model.

If a business makes the determination that an investment makes sense at the current interest rate but before they can act the interest rates fall

An increase in the confidence that equipment-buying firms have in their future profitability will

If you are anticipating having to pay $100,000 to a lender 10 years from now and the interest rate falls, the present value of this sum

If an investment requires payment of $10,000 now and promises to return a payout of $15,000 one year from now and another payout of $15,000 two years from now, the net present value of the investment at an interest rate of 8% is approximately

If a person is going to pay $500 per month every month for 5 years, what do you know about their car loan (if the interest rate is positive)?

If a person is going to pay $1000 per month every month for 30 years, what do you know about their mortgage (if the interest rate is positive)?

Using the Rule of 72, how long will it take something growing at 2% per year to double

Using an interest rate of 5%, which figure has the smallest present value

-Assuming that Figure 7.1 is a market for money that can be borrowed or saved, Box 6 is

The notion of business investment being related to interest rates is shown when interest rates are

A decrease in the interest rate will

If the inflation rate is 3% and the real interest rate is 4%, then the nominal interest rate is around

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