Question 1

You have contracted to borrow $2,000 from the bank for one year. The nominal rate of interest is 8.5% and the real interest rate is 6%. At the end of the year, inflation was 1%. How does this affect the borrower (you) and the lender (the bank)? Who is better off?

Accepted Answer

The answer of You have contracted to borrow $2,000 from...

Question 2

Capital inflow is:

Accepted Answer

A) the net inflow of funds into a country. 
B) the net outflow of funds from a country. 
C) the amount by which domestic savings exceeds foreign savings. 
D) physical capital exported minus physical capital imported.

Question 3

Facebook's primary type of investment spending is the purchase of:

Accepted Answer

A) server farms, or arrays of linked computers. 
B) health care for its employees. 
C) stock in Yahoo and Google. 
D) U.S. Treasury securities.

Question 4

Crowding out means:

Accepted Answer

A) private savings decreases when the government borrows money. 
B) private investment decreases when the government borrows money. 
C) there are too many players in the financial markets. 
D) some bondholders will be squeezed out of the market.

Question 5

Because bonds are more standardized than loans, transactions costs for bonds are typically lower than transactions costs for loans.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is NOT a financial intermediary?

Accepted Answer

A) pension funds 
B) mutual funds 
C) life insurance company 
D) credit card company

Question 7

Financial markets eliminate transactions costs.

Accepted Answer

A) True 
 B)False

Question 8

Alison lends $100 to Vanessa for one year. Alison expects that inflation will be 10%. If Alison wishes to maintain the real value of her $100, she should expect payment from Vanessa in the amount of:

Accepted Answer

A) $100. 
B) $110. 
C) $120. 
D) $101.

Question 9

A loan is a liability to the issuer but an asset to the person taking it out.

Accepted Answer

A) True 
 B)False

Question 10

According to the savings-investment spending identity:

Accepted Answer

A) savings equals investment spending. 
B) government spending equals tax receipts. 
C) total income equals consumption spending plus savings. 
D) savings equals investment spending plus consumption spending.

Question 11

During the financial crisis of 2008, many financial assets lost value, but mortgage-backed securities never underwent default.

Accepted Answer

A) True 
 B)False

Question 12

The theory that assets embody all publicly available information about their fundamentals is the:

Accepted Answer

A) efficient markets hypothesis. 
B) multiplier theory. 
C) accelerator theory 
D) Fisher effect.

Question 13

All of the following are financial intermediaries EXCEPT:

Accepted Answer

A) mutual funds. 
B) pension funds. 
C) insurance companies. 
D) the New York Stock Exchange.

Question 14

Facebook's primary type of investment spending is the purchase of server farms, or arrays of linked computers that track and process social media information.

Accepted Answer

A) True 
 B)False

Question 15

Investment spending contributes to economic growth.

Accepted Answer

A) True 
 B)False

Question 16

Interest rates were high during the 1970s and decreased during the 1980s because expected inflation was:

Accepted Answer

A) high during both decades. 
B) low during both decades. 
C) high during the 1970s and decreased during the 1980s. 
D) low during the 1970s and increased during the 1980s.

Question 17

You have agreed to borrow $2,000 from the bank for one year. The nominal rate of interest is 8.5% and the real interest rate is 6%. At the end of the year, inflation was 3.5%. How does this affect the borrower (you) and the lender (the bank)? Who is better off?

Accepted Answer

The answer of You have agreed to borrow $2,000 from...

Question 18

Use the following to answer questions :
Figure: The Market for Loanable Funds II 
-(Figure: The Market for Loanable Funds II) Look at the figure The Market for Loanable Funds II. Other things being equal, if there is a decrease in the interest rate below 8%, _____ quantity of loanable funds will be demanded.

Accepted Answer

A) the same 
B) a larger 
C) a smaller 
D) at first a smaller and then a larger

Question 19

A _____ is a nonprofit institution that collects the savings of its members and invests those funds in a diversified portfolio to provide income to members when they retire.

Accepted Answer

A) life insurance company 
B) pension fund 
C) commercial bank 
D) investment bank

Question 20

Higher interest rates encourage investment spending.

Accepted Answer

A) True 
 B)False

Exam 10: Savings, Investment Spending, and the Financial System

You have contracted to borrow $2,000 from the bank for one year. The nominal rate of interest is 8.5% and the real interest rate is 6%. At the end of the year, inflation was 1%. How does this affect the borrower (you) and the lender (the bank)? Who is better off?

Capital inflow is:

Facebook's primary type of investment spending is the purchase of:

Crowding out means:

Because bonds are more standardized than loans, transactions costs for bonds are typically lower than transactions costs for loans.

Which of the following is NOT a financial intermediary?

Financial markets eliminate transactions costs.

Alison lends $100 to Vanessa for one year. Alison expects that inflation will be 10%. If Alison wishes to maintain the real value of her $100, she should expect payment from Vanessa in the amount of:

A loan is a liability to the issuer but an asset to the person taking it out.

According to the savings-investment spending identity:

During the financial crisis of 2008, many financial assets lost value, but mortgage-backed securities never underwent default.

The theory that assets embody all publicly available information about their fundamentals is the:

All of the following are financial intermediaries EXCEPT:

Facebook's primary type of investment spending is the purchase of server farms, or arrays of linked computers that track and process social media information.

Investment spending contributes to economic growth.

Interest rates were high during the 1970s and decreased during the 1980s because expected inflation was:

You have agreed to borrow $2,000 from the bank for one year. The nominal rate of interest is 8.5% and the real interest rate is 6%. At the end of the year, inflation was 3.5%. How does this affect the borrower (you) and the lender (the bank)? Who is better off?

A _____ is a nonprofit institution that collects the savings of its members and invests those funds in a diversified portfolio to provide income to members when they retire.

Higher interest rates encourage investment spending.