Question 1

The amount by which the expected return on a risky asset exceeds the return on an otherwise comparable safe asset is known as the

Accepted Answer

A) CDS spread. 
B) risk premium. 
C) VIX. 
D) term spread. 
A) CDS spread. 
B) risk premium. 
C) VIX. 
D) term spread.

Question 2

Why do people keep currency in their pockets when bank deposits pay interest?

Accepted Answer

A) Because banks might steal your money. 
B) Because currency is more liquid. 
C) Because bank deposits lose value due to inflation. 
D) Because bank deposits lose value due to changes in interest rates. 
A) Because banks might steal your money. 
B) Because currency is more liquid. 
C) Because bank deposits lose value due to inflation. 
D) Because bank deposits lose value due to changes in interest rates.

Question 3

Why did some of the formerly Communist countries of Eastern Europe have inflation rates over 100%,while others didn't? Which factor was more important in explaining the differing inflation rates,real money demand or nominal money supply? Why did the countries with high inflation rates allow inflation to get so high?

Accepted Answer

Some countries had high inflation while

Question 4

The number of units of one good that trade for one unit of alternative goods can be determined most easily when

Accepted Answer

A) there is one unit of account. 
B) the goods all weigh about the same. 
C) the goods are all new. 
D) the goods are actively traded through barter. 
A) there is one unit of account. 
B) the goods all weigh about the same. 
C) the goods are all new. 
D) the goods are actively traded through barter.

Question 5

In the early 2000s,lenders began issuing mortgage loans to people who would normally not be qualified to take out loans because they did not meet lending standards.Those borrowers are known as

Accepted Answer

A) alternative borrowers. 
B) weak borrowers. 
C) subprime borrowers. 
D) credit risks. 
A) alternative borrowers. 
B) weak borrowers. 
C) subprime borrowers. 
D) credit risks.

Question 6

Velocity is defined as

Accepted Answer

A) nominal money stock/nominal GDP. 
B) nominal GDP/nominal money stock. 
C) real money stock/real GDP. 
D) mc2. 
A) nominal money stock/nominal GDP. 
B) nominal GDP/nominal money stock. 
C) real money stock/real GDP. 
D) mc2.

Question 7

The most likely explanation for the high inflation rates that countries like Russia and the Ukraine have suffered is that

Accepted Answer

A) large inflows of foreign funds increase the money supply,causing inflation. 
B) without inflation,these countries would be unable to achieve high rates of growth. 
C) borrowing from the central bank is the most expedient method of funding the government's expenditures. 
D) the flood of financial innovations has increased liquidity in these nations' economies. 
A) large inflows of foreign funds increase the money supply,causing inflation. 
B) without inflation,these countries would be unable to achieve high rates of growth. 
C) borrowing from the central bank is the most expedient method of funding the government's expenditures. 
D) the flood of financial innovations has increased liquidity in these nations' economies.

Question 8

Suppose the real money demand function is
Md/P = 2400 + 0.2 Y - 10,000 (r + ?e).
Assume M = 5000,?e = .03,and Y = 5000.If the price level were to decrease from 2.5 to 2.0,then the real interest rate would decrease by how many percentage points (assuming Md/,?e,and Y are unchanged)?

Accepted Answer

A) 4 
B) 5 
C) 9 
D) 14 
A) 4 
B) 5 
C) 9 
D) 14

Question 9

An increase in expected inflation is likely to cause

Accepted Answer

A) a decline in the demand for real balances. 
B) an increase in the demand for real balances. 
C) no change in the demand for real balances. 
D) no change in the demand for real balances only if the income elasticity of real money demand is zero. 
A) a decline in the demand for real balances. 
B) an increase in the demand for real balances. 
C) no change in the demand for real balances. 
D) no change in the demand for real balances only if the income elasticity of real money demand is zero.

Question 10

If the nominal money supply grows 5%,real income falls 2%,and the income elasticity of money demand is 0.8,then the inflation rate is

Accepted Answer

A) 3)0%. 
B) 3)4%. 
C) 6)6%. 
D) 7)0%. 
A) 3)0%. 
B) 3)4%. 
C) 6)6%. 
D) 7)0%.

Question 11

Which of the following statements about M1 and M2 is true?

Accepted Answer

A) Demand deposits are not part of M1. 
B) M2 is more liquid than M1. 
C) M1 is larger than M2. 
D) Savings deposits are part of M2. 
A) Demand deposits are not part of M1. 
B) M2 is more liquid than M1. 
C) M1 is larger than M2. 
D) Savings deposits are part of M2.

Question 12

People in other countries want to hold U.S.dollars as a

Accepted Answer

A) medium of exchange. 
B) store of value. 
C) unit of account. 
D) standard of deferred payment. 
A) medium of exchange. 
B) store of value. 
C) unit of account. 
D) standard of deferred payment.

Question 13

AAA Company stock has a higher expected rate of return than ZZZ Company stock.All else being equal,you would expect that relative to ZZZ,AAA company stock provides

Accepted Answer

A) less risk and less liquidity. 
B) less risk and more liquidity. 
C) more risk and less liquidity. 
D) more risk and more liquidity. 
A) less risk and less liquidity. 
B) less risk and more liquidity. 
C) more risk and less liquidity. 
D) more risk and more liquidity.

Question 14

Over half of U.S.currency is

Accepted Answer

A) held abroad. 
B) used in the underground economy. 
C) held by banks as reserves. 
D) held by businesses,especially retailers,for making transactions. 
A) held abroad. 
B) used in the underground economy. 
C) held by banks as reserves. 
D) held by businesses,especially retailers,for making transactions.

Question 15

Why is per-capita U.S.currency demand so large? Who is holding large amounts of U.S.currency and why are they doing so? Should U.S.policymakers be concerned about this? Why?

Accepted Answer

Currency demand is large mostly because

Question 16

Time to maturity refers to the amount of time until

Accepted Answer

A) an asset repays the principal to an investor. 
B) an asset pays interest for the first time. 
C) a bond can be sold on the secondary market. 
D) the yield curve shows an upward slope. 
A) an asset repays the principal to an investor. 
B) an asset pays interest for the first time. 
C) a bond can be sold on the secondary market. 
D) the yield curve shows an upward slope.

Question 17

Suppose real money demand is
L = 0.8 Y - 100,000 (r + ?e).
If the nominal money supply is 12,000,real output is 15,000,the real interest rate is .02,and the expected inflation rate is .01,then the price level is

Accepted Answer

A) 3/4. 
B) 1) 
C) 4/3. 
D) 3) 
A) 3/4. 
B) 1) 
C) 4/3. 
D) 3)

Question 18

If real GDP is $4 billion,the price level is 1.25,and the nominal money stock is $500 million,then velocity is

Accepted Answer

A) 0)1. 
B) 1) 
C) 10. 
D) 100. 
A) 0)1. 
B) 1) 
C) 10. 
D) 100.

Question 19

If there is a financial panic and increased uncertainty about the returns in the stock market and bond market,what is the likely effect on money demand?

Accepted Answer

A) Money demand declines first,then rises when inflation increases. 
B) Money demand rises. 
C) The overall effect is ambiguous. 
D) Money demand declines. 
A) Money demand declines first,then rises when inflation increases. 
B) Money demand rises. 
C) The overall effect is ambiguous. 
D) Money demand declines.

Question 20

The uncertainty about the return an asset will earn is

Accepted Answer

A) liquidity. 
B) risk. 
C) time to maturity. 
D) stochastic dominance. 
A) liquidity. 
B) risk. 
C) time to maturity. 
D) stochastic dominance.

The amount by which the expected return on a risky asset exceeds the return on an otherwise comparable safe asset is known as the

Why do people keep currency in their pockets when bank deposits pay interest?

The number of units of one good that trade for one unit of alternative goods can be determined most easily when

In the early 2000s,lenders began issuing mortgage loans to people who would normally not be qualified to take out loans because they did not meet lending standards.Those borrowers are known as

Velocity is defined as

The most likely explanation for the high inflation rates that countries like Russia and the Ukraine have suffered is that

Suppose the real money demand function is Md/P = 2400 + 0.2 Y - 10,000 (r + ?e). Assume M = 5000,?e = .03,and Y = 5000.If the price level were to decrease from 2.5 to 2.0,then the real interest rate would decrease by how many percentage points (assuming Md/,?e,and Y are unchanged)?

An increase in expected inflation is likely to cause

If the nominal money supply grows 5%,real income falls 2%,and the income elasticity of money demand is 0.8,then the inflation rate is

Which of the following statements about M1 and M2 is true?

People in other countries want to hold U.S.dollars as a

AAA Company stock has a higher expected rate of return than ZZZ Company stock.All else being equal,you would expect that relative to ZZZ,AAA company stock provides

Over half of U.S.currency is

Why is per-capita U.S.currency demand so large? Who is holding large amounts of U.S.currency and why are they doing so? Should U.S.policymakers be concerned about this? Why?

Time to maturity refers to the amount of time until

Suppose real money demand is L = 0.8 Y - 100,000 (r + ?e). If the nominal money supply is 12,000,real output is 15,000,the real interest rate is .02,and the expected inflation rate is .01,then the price level is

If real GDP is $4 billion,the price level is 1.25,and the nominal money stock is $500 million,then velocity is

If there is a financial panic and increased uncertainty about the returns in the stock market and bond market,what is the likely effect on money demand?

The uncertainty about the return an asset will earn is

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

Business Cycles

The IS-LM/AD-AS Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates,Business Cycles,and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

Exam 7: The Asset Market, Money, and Prices

The amount by which the expected return on a risky asset exceeds the return on an otherwise comparable safe asset is known as the

Why do people keep currency in their pockets when bank deposits pay interest?

The number of units of one good that trade for one unit of alternative goods can be determined most easily when

In the early 2000s,lenders began issuing mortgage loans to people who would normally not be qualified to take out loans because they did not meet lending standards.Those borrowers are known as

Velocity is defined as

The most likely explanation for the high inflation rates that countries like Russia and the Ukraine have suffered is that

Suppose the real money demand function is Md/P = 2400 + 0.2 Y - 10,000 (r + ?e). Assume M = 5000,?e = .03,and Y = 5000.If the price level were to decrease from 2.5 to 2.0,then the real interest rate would decrease by how many percentage points (assuming Md/,?e,and Y are unchanged)?

An increase in expected inflation is likely to cause

If the nominal money supply grows 5%,real income falls 2%,and the income elasticity of money demand is 0.8,then the inflation rate is

Which of the following statements about M1 and M2 is true?

People in other countries want to hold U.S.dollars as a

AAA Company stock has a higher expected rate of return than ZZZ Company stock.All else being equal,you would expect that relative to ZZZ,AAA company stock provides

Over half of U.S.currency is

Why is per-capita U.S.currency demand so large? Who is holding large amounts of U.S.currency and why are they doing so? Should U.S.policymakers be concerned about this? Why?

Time to maturity refers to the amount of time until

Suppose real money demand is L = 0.8 Y - 100,000 (r + ?e). If the nominal money supply is 12,000,real output is 15,000,the real interest rate is .02,and the expected inflation rate is .01,then the price level is

If real GDP is $4 billion,the price level is 1.25,and the nominal money stock is $500 million,then velocity is

If there is a financial panic and increased uncertainty about the returns in the stock market and bond market,what is the likely effect on money demand?

The uncertainty about the return an asset will earn is

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

Business Cycles

The IS-LM/AD-AS Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates,Business Cycles,and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters