Question 1

Holding demand constant, an increase in the supply of loanable funds will result in an increase in interest rates.

Accepted Answer

A) True 
 B)False

Question 2

Compensation for those financial debt instruments that cannot be easily converted to cash at prices close to estimated fair market values is termed:

Accepted Answer

A) liquidity premium 
B) market risk premium 
C) maturity premium 
D) none of the above 
A) liquidity premium 
B) market risk premium 
C) maturity premium 
D) none of the above

Question 3

Cost-push inflation occurs when prices are raised to cover rising production costs, such as wages.

Accepted Answer

A) True 
 B)False

Question 4

The loanable funds theory states that interest rates are a function of the supply of and demand for loanable funds.

Accepted Answer

A) True 
 B)False

Question 5

Holding demand constant, an increase in the supply of loanable funds will result in a (n) ___________ in interest rates.

Accepted Answer

A) increase 
B) decrease 
C) increase or decrease 
D) none of the above 
A) increase 
B) decrease 
C) increase or decrease 
D) none of the above

Question 6

A "shock" may be defined as an unanticipated change that will cause the demand for, or supply of loanable funds to change.

Accepted Answer

A) True 
 B)False

Question 7

Inflation is an increase in the price of goods or services that is not offset by an increase in quality.

Accepted Answer

A) True 
 B)False

Question 8

Economists have estimated that the inflation rate in the United States and other countries has averaged in the ________________ range in recent years.

Accepted Answer

A) 2 to 4 percent 
B) 3 to 5 percent 
C) 4 to 6 percent 
D) 5 to 7 percent 
E) none of the above 
A) 2 to 4 percent 
B) 3 to 5 percent 
C) 4 to 6 percent 
D) 5 to 7 percent 
E) none of the above

Question 9

The liquidity premium is the compensation that investors demand for holding securities that cannot easily be converted to cash without major price discounts.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following characteristics of most debt instruments do not cause bond prices to vary inversely with changes in financial market interest rates?

Accepted Answer

A) coupon rates 
B) maturity dates 
C) par redemption values 
D) bond rating 
E) all of the above cause bond prices to vary inversely with changes in financial market interest rates 
A) coupon rates 
B) maturity dates 
C) par redemption values 
D) bond rating 
E) all of the above cause bond prices to vary inversely with changes in financial market interest rates

Question 11

While the Federal Reserve strongly influences the supply of funds, the Treasury's major influence is on the demand for funds, as it borrows heavily to finance federal deficits.

Accepted Answer

A) True 
 B)False

Question 12

The majority of marketable interest-bearing government obligations have a maturity of more than 5 years.

Accepted Answer

A) True 
 B)False

Question 13

Interest rates in the United States are only influenced by domestic factors.

Accepted Answer

A) True 
 B)False

Question 14

The risk-free rate of interest is found by combining the real rate of interest and the rate paid on U.S.Treasury debt.

Accepted Answer

A) True 
 B)False

Question 15

There are two basic sources of loanable funds: current savings and the expansion of deposits of depository institutions.

Accepted Answer

A) True 
 B)False

Question 16

The liquidity preference theory holds that securities of different maturities are not perfect substitutes for each other.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is most correct?

Accepted Answer

A) More firms fail or suffer financial distress during periods of economic expansion than during periods of economic recession.Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
B) More firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
C) Fewer firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
D) Fewer firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
E) none of the above 
A) More firms fail or suffer financial distress during periods of economic expansion than during periods of economic recession.Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
B) More firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
C) Fewer firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
D) Fewer firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
E) none of the above

Question 18

When referring to a "downward sloping" yield curve:

Accepted Answer

A) as maturities shorten, interest rates decline 
B) as maturities shorten, interest rates rise 
C) as maturities lengthen, interest rates remain the same 
D) as maturities lengthen, interest rates rise 
A) as maturities shorten, interest rates decline 
B) as maturities shorten, interest rates rise 
C) as maturities lengthen, interest rates remain the same 
D) as maturities lengthen, interest rates rise

Question 19

A decrease in the supply for loanable funds, holding demand constant, will cause interest rates to:

Accepted Answer

A) increase 
B) decrease 
C) stay the same 
D) not enough information to tell 
A) increase 
B) decrease 
C) stay the same 
D) not enough information to tell

Question 20

Which of the following is not true of Treasury bills?

Accepted Answer

A) long-lived 
B) sold at a discount 
C) mature at par 
D) all the above are false 
A) long-lived 
B) sold at a discount 
C) mature at par 
D) all the above are false

Holding demand constant, an increase in the supply of loanable funds will result in an increase in interest rates.

Compensation for those financial debt instruments that cannot be easily converted to cash at prices close to estimated fair market values is termed:

Cost-push inflation occurs when prices are raised to cover rising production costs, such as wages.

The loanable funds theory states that interest rates are a function of the supply of and demand for loanable funds.

Holding demand constant, an increase in the supply of loanable funds will result in a (n) ___________ in interest rates.

A "shock" may be defined as an unanticipated change that will cause the demand for, or supply of loanable funds to change.

Inflation is an increase in the price of goods or services that is not offset by an increase in quality.

Economists have estimated that the inflation rate in the United States and other countries has averaged in the ________________ range in recent years.

The liquidity premium is the compensation that investors demand for holding securities that cannot easily be converted to cash without major price discounts.

Which of the following characteristics of most debt instruments do not cause bond prices to vary inversely with changes in financial market interest rates?

While the Federal Reserve strongly influences the supply of funds, the Treasury's major influence is on the demand for funds, as it borrows heavily to finance federal deficits.

The majority of marketable interest-bearing government obligations have a maturity of more than 5 years.

Interest rates in the United States are only influenced by domestic factors.

The risk-free rate of interest is found by combining the real rate of interest and the rate paid on U.S.Treasury debt.

There are two basic sources of loanable funds: current savings and the expansion of deposits of depository institutions.

The liquidity preference theory holds that securities of different maturities are not perfect substitutes for each other.

Which of the following statements is most correct?

When referring to a "downward sloping" yield curve:

A decrease in the supply for loanable funds, holding demand constant, will cause interest rates to:

Which of the following is not true of Treasury bills?

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Time Value of Money

Bonds and Stocks: Characteristics and Valuation

Securities Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters

Exam 8: Interest Rates

Holding demand constant, an increase in the supply of loanable funds will result in an increase in interest rates.

Compensation for those financial debt instruments that cannot be easily converted to cash at prices close to estimated fair market values is termed:

Cost-push inflation occurs when prices are raised to cover rising production costs, such as wages.

The loanable funds theory states that interest rates are a function of the supply of and demand for loanable funds.

Holding demand constant, an increase in the supply of loanable funds will result in a (n) ___________ in interest rates.

A "shock" may be defined as an unanticipated change that will cause the demand for, or supply of loanable funds to change.

Inflation is an increase in the price of goods or services that is not offset by an increase in quality.

Economists have estimated that the inflation rate in the United States and other countries has averaged in the ________________ range in recent years.

The liquidity premium is the compensation that investors demand for holding securities that cannot easily be converted to cash without major price discounts.

Which of the following characteristics of most debt instruments do not cause bond prices to vary inversely with changes in financial market interest rates?

While the Federal Reserve strongly influences the supply of funds, the Treasury's major influence is on the demand for funds, as it borrows heavily to finance federal deficits.

The majority of marketable interest-bearing government obligations have a maturity of more than 5 years.

Interest rates in the United States are only influenced by domestic factors.

The risk-free rate of interest is found by combining the real rate of interest and the rate paid on U.S.Treasury debt.

There are two basic sources of loanable funds: current savings and the expansion of deposits of depository institutions.

The liquidity preference theory holds that securities of different maturities are not perfect substitutes for each other.

Which of the following statements is most correct?

When referring to a "downward sloping" yield curve:

A decrease in the supply for loanable funds, holding demand constant, will cause interest rates to:

Which of the following is not true of Treasury bills?

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Time Value of Money

Bonds and Stocks: Characteristics and Valuation

Securities Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters