Question 1

Financial intermediaries typically require mortgage borrowers to have homeowner's insurance and do credit checks before making the loan.

Accepted Answer

A)  The insurance requirement and the credit check are both designed primarily to reduce adverse selection. 
B)  The insurance requirement and the credit check are both designed primarily to reduce the risk of moral hazard. 
C)  The insurance requirement is designed primarily to reduce adverse selection; the credit check is designed primarily to reduce the risk of moral hazard. 
D)  The insurance requirement is designed primarily to reduce the risk of moral hazard; the credit check is designed primarily to reduce adverse selection. 
A)  The insurance requirement and the credit check are both designed primarily to reduce adverse selection. 
B)  The insurance requirement and the credit check are both designed primarily to reduce the risk of moral hazard. 
C)  The insurance requirement is designed primarily to reduce adverse selection; the credit check is designed primarily to reduce the risk of moral hazard. 
D)  The insurance requirement is designed primarily to reduce the risk of moral hazard; the credit check is designed primarily to reduce adverse selection.

Question 2

The sooner a payment is received and the higher the interest rate, the greater the present value of a future payment.

Accepted Answer

A) True 
 B)False

Question 3

You may be unwilling to buy a used car because you suspect the last owner found out the car was a lemon. You may treat a car you rented with a little less care than you would use on your own car.

Accepted Answer

A)  Both examples primarily illustrate adverse selection. 
B)  Both examples primarily illustrate moral hazard. 
C)  The first example primarily illustrates adverse selection; the second primarily illustrates moral hazard. 
D)  The first example primarily illustrates moral hazard; the second primarily illustrates adverse selection. 
A)  Both examples primarily illustrate adverse selection. 
B)  Both examples primarily illustrate moral hazard. 
C)  The first example primarily illustrates adverse selection; the second primarily illustrates moral hazard. 
D)  The first example primarily illustrates moral hazard; the second primarily illustrates adverse selection.

Question 4

Describe the shape of the utility function of a risk averse person.

Accepted Answer

Its slope

Question 5

Write the rule of 70. Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600. Use the rule of 70 to determine about what interest rate she earned.

Accepted Answer

$1,600/$50 = 32. The rule of 70 says tha

Question 6

Ronaldo's Foods considered building a store in a new location. The owners and their accountants decided that this was not the profitable thing to do. However, soon after they made this decision, both the interest rate and the cost of building the store changed. In which case do these changes both make it more likely that they will now build the store?

Accepted Answer

A)  Interest rates rise and the cost of building the store rises. 
B)  Interest rates rise and the cost of building the store falls. 
C)  Interest rates fall and the cost of building the store rises. 
D)  Interest rates fall and the cost of building the store falls. 
A)  Interest rates rise and the cost of building the store rises. 
B)  Interest rates rise and the cost of building the store falls. 
C)  Interest rates fall and the cost of building the store rises. 
D)  Interest rates fall and the cost of building the store falls.

Question 7

The field of finance primarily studies

Accepted Answer

A)  how society manages its scarce resources. 
B)  the implications of time and risk for allocating resources over time. 
C)  firms' decisions concerning how much to produce and what price to charge. 
D)  how society can reduce market risk. 
A)  how society manages its scarce resources. 
B)  the implications of time and risk for allocating resources over time. 
C)  firms' decisions concerning how much to produce and what price to charge. 
D)  how society can reduce market risk.

Question 8

The nation of Zambonia experiences the same rate of population growth every year. If the population of Zambonia doubles every 35 years, then what is the approximate annual rate of population growth?

Accepted Answer

Using the Rule of 70

Question 9

If a savings account pays 7% interest, then according to the rule of 70 how long will it take for the account balance to double?

Accepted Answer

Approximat

Question 10

At which interest rate is the present value of $183.60 two years from today equal to about $173.06 today?

Accepted Answer

A)  2 percent 
B)  3 percent 
C)  4 percent 
D)  5 percent 
A)  2 percent 
B)  3 percent 
C)  4 percent 
D)  5 percent

Question 11

An asset market is said to experience a speculative bubble when

Accepted Answer

A)  the price of the asset rises above what appears to be its fundamental value. 
B)  the price of the asset appears to follow a random walk. 
C)  the market cannot establish an equilibrium price for the asset. 
D)  the asset is a natural resource and its supply is manipulated by foreign nations and foreign firms. 
A)  the price of the asset rises above what appears to be its fundamental value. 
B)  the price of the asset appears to follow a random walk. 
C)  the market cannot establish an equilibrium price for the asset. 
D)  the asset is a natural resource and its supply is manipulated by foreign nations and foreign firms.

Question 12

The idea of insurance

Accepted Answer

A)  would not appeal to a risk-averse person. 
B)  is, other things the same, to reduce the probability of a fire, accident, or death. 
C)  is to share risk. 
D)  is to provide a sure thing, not a gamble. 
A)  would not appeal to a risk-averse person. 
B)  is, other things the same, to reduce the probability of a fire, accident, or death. 
C)  is to share risk. 
D)  is to provide a sure thing, not a gamble.

Question 13

Suppose you invest $10,000 at 7% interest to be withdrawn by your heirs in 100 years. According to the rule of 70, approximately how much will your heirs be able to withdraw?

Accepted Answer

With a 7% interest rate the rule of 70 i

Question 14

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $750 for the next three years, you will have $944.78 in your account. If your accountant is correct, then what is the current interest rate?

Accepted Answer

A)  6 percent 
B)  7 percent 
C)  8 percent 
D)  10 percent 
A)  6 percent 
B)  7 percent 
C)  8 percent 
D)  10 percent

Question 15

Suppose the interest rate is 7 percent. Consider four payment options: Option

Accepted Answer

A: $500 today.
Option B: $550 one year f

Question 16

A judge requires Harry to make a payment to Sally. The judge says that Harry can pay her either $10,000 today or $12,000 two years from today. Of the following interest rates, which is the highest one at which Harry would be better off paying the money today?

Accepted Answer

A)  4 percent 
B)  6 percent 
C)  9 percent 
D)  11 percent 
A)  4 percent 
B)  6 percent 
C)  9 percent 
D)  11 percent

Question 17

If you believe the stock market is informationally efficient, then it is a waste of time to engage in fundamental analysis.

Accepted Answer

A) True 
 B)False

Question 18

After the 1982 recession, the U.S. and world economies entered into a long period

Accepted Answer

A)  of high unemployment rates. 
B)  high inflation rates. 
C)  that has become known as the "Great Moderation." 
D)  that has become known as the "Great Recession." 
A)  of high unemployment rates. 
B)  high inflation rates. 
C)  that has become known as the "Great Moderation." 
D)  that has become known as the "Great Recession."

Question 19

If you put $300 into an account paying 2 percent interest, what will be the value of this account in 4 years?

Accepted Answer

A)  $320.69 
B)  $324.00 
C)  $324.73 
D)  $327.81 
A)  $320.69 
B)  $324.00 
C)  $324.73 
D)  $327.81

Question 20

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 9%, should the firm undertake the project? Show evidence to support your answer.

Accepted Answer

With a 9% interest rate, the present val

Financial intermediaries typically require mortgage borrowers to have homeowner's insurance and do credit checks before making the loan.

The sooner a payment is received and the higher the interest rate, the greater the present value of a future payment.

You may be unwilling to buy a used car because you suspect the last owner found out the car was a lemon. You may treat a car you rented with a little less care than you would use on your own car.

Describe the shape of the utility function of a risk averse person.

Write the rule of 70. Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600. Use the rule of 70 to determine about what interest rate she earned.

The field of finance primarily studies

The nation of Zambonia experiences the same rate of population growth every year. If the population of Zambonia doubles every 35 years, then what is the approximate annual rate of population growth?

If a savings account pays 7% interest, then according to the rule of 70 how long will it take for the account balance to double?

At which interest rate is the present value of $183.60 two years from today equal to about $173.06 today?

An asset market is said to experience a speculative bubble when

The idea of insurance

Suppose you invest $10,000 at 7% interest to be withdrawn by your heirs in 100 years. According to the rule of 70, approximately how much will your heirs be able to withdraw?

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $750 for the next three years, you will have $944.78 in your account. If your accountant is correct, then what is the current interest rate?

Suppose the interest rate is 7 percent. Consider four payment options: Option

A judge requires Harry to make a payment to Sally. The judge says that Harry can pay her either $10,000 today or $12,000 two years from today. Of the following interest rates, which is the highest one at which Harry would be better off paying the money today?

If you believe the stock market is informationally efficient, then it is a waste of time to engage in fundamental analysis.

After the 1982 recession, the U.S. and world economies entered into a long period

If you put $300 into an account paying 2 percent interest, what will be the value of this account in 4 years?

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 9%, should the firm undertake the project? Show evidence to support your answer.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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Exam 9: The Basic Tools of Finance

Financial intermediaries typically require mortgage borrowers to have homeowner's insurance and do credit checks before making the loan.

The sooner a payment is received and the higher the interest rate, the greater the present value of a future payment.

You may be unwilling to buy a used car because you suspect the last owner found out the car was a lemon. You may treat a car you rented with a little less care than you would use on your own car.

Describe the shape of the utility function of a risk averse person.

Write the rule of 70. Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600. Use the rule of 70 to determine about what interest rate she earned.

The field of finance primarily studies

The nation of Zambonia experiences the same rate of population growth every year. If the population of Zambonia doubles every 35 years, then what is the approximate annual rate of population growth?

If a savings account pays 7% interest, then according to the rule of 70 how long will it take for the account balance to double?

At which interest rate is the present value of $183.60 two years from today equal to about $173.06 today?

An asset market is said to experience a speculative bubble when

The idea of insurance

Suppose you invest $10,000 at 7% interest to be withdrawn by your heirs in 100 years. According to the rule of 70, approximately how much will your heirs be able to withdraw?

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $750 for the next three years, you will have $944.78 in your account. If your accountant is correct, then what is the current interest rate?

Suppose the interest rate is 7 percent. Consider four payment options: Option

A judge requires Harry to make a payment to Sally. The judge says that Harry can pay her either $10,000 today or $12,000 two years from today. Of the following interest rates, which is the highest one at which Harry would be better off paying the money today?

If you believe the stock market is informationally efficient, then it is a waste of time to engage in fundamental analysis.

After the 1982 recession, the U.S. and world economies entered into a long period

If you put $300 into an account paying 2 percent interest, what will be the value of this account in 4 years?

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 9%, should the firm undertake the project? Show evidence to support your answer.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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