Question 1

As a person's wealth increases,which of the following portfolio holdings is likely to increase the least?

Accepted Answer

A)  checking account 
B)  stocks 
C)  money market fund 
D)  bonds 
A)  checking account 
B)  stocks 
C)  money market fund 
D)  bonds

Question 2

The equilibrium real interest rate in Belgium will be

Accepted Answer

A)  generally above the world real interest rate. 
B)  generally below the world real interest rate. 
C)  equal to the world real interest rate. 
D)  determined by the equilibrium between desired domestic saving and desired domestic investment. 
A)  generally above the world real interest rate. 
B)  generally below the world real interest rate. 
C)  equal to the world real interest rate. 
D)  determined by the equilibrium between desired domestic saving and desired domestic investment.

Question 3

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 4

Economists believe that as a saver's wealth increases,the saver will generally

Accepted Answer

A)  increase his or her holdings of all assets proportionately. 
B)  increase the fraction of wealth held as cash. 
C)  increase the fraction of wealth held as common stock. 
D)  decrease the fraction held as corporate bonds. 
A)  increase his or her holdings of all assets proportionately. 
B)  increase the fraction of wealth held as cash. 
C)  increase the fraction of wealth held as common stock. 
D)  decrease the fraction held as corporate bonds.

Question 5

The Federal Reserve issues a report indicating that future inflation will be higher than had previously seemed likely.As a result

Accepted Answer

A)  the supply curve for bonds shifts to the right. 
B)  the demand curve for loanable funds shifts to the left. 
C)  the equilibrium interest rate falls. 
D)  the equilibrium price of bonds rises. 
A)  the supply curve for bonds shifts to the right. 
B)  the demand curve for loanable funds shifts to the left. 
C)  the equilibrium interest rate falls. 
D)  the equilibrium price of bonds rises.

Question 6

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 7

Suppose that you own $10,000 worth of stock in General Motors.Adding stock in which of the following companies would be least likely to reduce the risk in your portfolio?

Accepted Answer

A)  Google 
B)  Wal-Mart 
C)  Ford 
D)  General Electric 
A)  Google 
B)  Wal-Mart 
C)  Ford 
D)  General Electric

Question 8

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 9

In Spring 2010,many investors feared that Greece may default on its bonds.Make use of a graph of the bond market to show how this affected interest rates on Greek bonds.

Accepted Answer

Fear of default reduced the de

Question 10

The idea that nominal interest rates rise or fall one-for-one with expected inflation is known as

Accepted Answer

A)  market risk. 
B)  systematic risk. 
C)  idiosyncratic risk. 
D)  the Fisher effect. 
A)  market risk. 
B)  systematic risk. 
C)  idiosyncratic risk. 
D)  the Fisher effect.

Question 11

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 12

In a large open economy,

Accepted Answer

A)  domestic lending and borrowing decisions have no impact on the world real interest rate. 
B)  an increase in the domestic supply of loanable funds would lower the world real interest rate. 
C)  the domestic equilibrium real interest rate is determined independently of foreign borrowing and lending. 
D)  an increase in the domestic demand for loanable funds would lower the world real interest rate. 
A)  domestic lending and borrowing decisions have no impact on the world real interest rate. 
B)  an increase in the domestic supply of loanable funds would lower the world real interest rate. 
C)  the domestic equilibrium real interest rate is determined independently of foreign borrowing and lending. 
D)  an increase in the domestic demand for loanable funds would lower the world real interest rate.

Question 13

In an article,"Preparing for the Next Black Swan" (Wall Street Journal,Aug 21,2010),the point is made that diversification may be insufficient in protecting one's portfolio during a "Black Swan" event.Why may this be true?

Accepted Answer

A)  virtually all asset classes may decline at the same time 
B)  investors may be unable to buy different assets during a "Black Swan" event 
C)  some assets may rise while others decline during a "Black Swan" event 
D)  Black Swan events are surprises and thus one cannot prepare for such an event. 
A)  virtually all asset classes may decline at the same time 
B)  investors may be unable to buy different assets during a "Black Swan" event 
C)  some assets may rise while others decline during a "Black Swan" event 
D)  Black Swan events are surprises and thus one cannot prepare for such an event.

Question 14

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 15

Which of the following can best be characterized as a "Black Swan" event?

Accepted Answer

A)  decline in stock prices due to a recession 
B)  rising market interest rates as the Fed tightens monetary policy 
C)  a financial crisis causing credit to dry up 
D)  an individual firm unexpectedly filing for bankruptcy 
A)  decline in stock prices due to a recession 
B)  rising market interest rates as the Fed tightens monetary policy 
C)  a financial crisis causing credit to dry up 
D)  an individual firm unexpectedly filing for bankruptcy

Question 16

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 17

A small open economy

Accepted Answer

A)  is unable to affect the world real interest rate by its borrowing and lending decisions. 
B)  will always be a net borrower from abroad. 
C)  will always be a net lender abroad. 
D)  is almost never able to borrow abroad. 
A)  is unable to affect the world real interest rate by its borrowing and lending decisions. 
B)  will always be a net borrower from abroad. 
C)  will always be a net lender abroad. 
D)  is almost never able to borrow abroad.

Question 18

A decrease in expected inflation

Accepted Answer

A)  usually leads to falling nominal interest rates. 
B)  results in increased nominal capital gains on physical assets. 
C)  will shift the bond demand curve to the left. 
D)  will shift the supply curve for loanable funds to the left. 
A)  usually leads to falling nominal interest rates. 
B)  results in increased nominal capital gains on physical assets. 
C)  will shift the bond demand curve to the left. 
D)  will shift the supply curve for loanable funds to the left.

Question 19

If households increase their saving at the same time that the government increases its deficit,

Accepted Answer

A)  the demand and supply curves for bonds will be unaffected. 
B)  the demand curve for bonds will shift to the left. 
C)  the supply curve for bonds will shift to the right. 
D)  the equilibrium interest rate will definitely rise. 
A)  the demand and supply curves for bonds will be unaffected. 
B)  the demand curve for bonds will shift to the left. 
C)  the supply curve for bonds will shift to the right. 
D)  the equilibrium interest rate will definitely rise.

Question 20

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

Accepted Answer

A)  corporate stock 
B)  corporate bonds 
C)  cash 
D)  U.S. government securities 
A)  corporate stock 
B)  corporate bonds 
C)  cash 
D)  U.S. government securities

As a person's wealth increases,which of the following portfolio holdings is likely to increase the least?

The equilibrium real interest rate in Belgium will be

Which combination of assets represents the most diversification?

Economists believe that as a saver's wealth increases,the saver will generally

The Federal Reserve issues a report indicating that future inflation will be higher than had previously seemed likely.As a result

Given that most investors tend to be risk averse,

Suppose that you own $10,000 worth of stock in General Motors.Adding stock in which of the following companies would be least likely to reduce the risk in your portfolio?

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

In Spring 2010,many investors feared that Greece may default on its bonds.Make use of a graph of the bond market to show how this affected interest rates on Greek bonds.

The idea that nominal interest rates rise or fall one-for-one with expected inflation is known as

In recent decades,the United States

In a large open economy,

In an article,"Preparing for the Next Black Swan" (Wall Street Journal,Aug 21,2010),the point is made that diversification may be insufficient in protecting one's portfolio during a "Black Swan" event.Why may this be true?

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

Which of the following can best be characterized as a "Black Swan" event?

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

A small open economy

A decrease in expected inflation

If households increase their saving at the same time that the government increases its deficit,

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

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

As a person's wealth increases,which of the following portfolio holdings is likely to increase the least?

The equilibrium real interest rate in Belgium will be

Which combination of assets represents the most diversification?

Economists believe that as a saver's wealth increases,the saver will generally

The Federal Reserve issues a report indicating that future inflation will be higher than had previously seemed likely.As a result

Given that most investors tend to be risk averse,

Suppose that you own $10,000 worth of stock in General Motors.Adding stock in which of the following companies would be least likely to reduce the risk in your portfolio?

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

In Spring 2010,many investors feared that Greece may default on its bonds.Make use of a graph of the bond market to show how this affected interest rates on Greek bonds.

The idea that nominal interest rates rise or fall one-for-one with expected inflation is known as

In recent decades,the United States

In a large open economy,

In an article,"Preparing for the Next Black Swan" (Wall Street Journal,Aug 21,2010),the point is made that diversification may be insufficient in protecting one's portfolio during a "Black Swan" event.Why may this be true?

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

Which of the following can best be characterized as a "Black Swan" event?

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

A small open economy

A decrease in expected inflation

If households increase their saving at the same time that the government increases its deficit,

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

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