Question 1

Bond prices are

Accepted Answer

A)  equal to the face value of the bond. 
B)  equal to the real interest rate. 
C)  equal to the nominal interest rate. 
D)  inversely related to the interest rate. 
A)  equal to the face value of the bond. 
B)  equal to the real interest rate. 
C)  equal to the nominal interest rate. 
D)  inversely related to the interest rate.

Question 2

Which of the following would not cause an increase in the demand for loanable funds?

Accepted Answer

A)  An increase in business borrowing 
B)  An increase in consumer borrowing 
C)  An increase in the public debt 
D)  A decrease in interest rates 
A)  An increase in business borrowing 
B)  An increase in consumer borrowing 
C)  An increase in the public debt 
D)  A decrease in interest rates

Question 3

A change in inflationary expectations will influence

Accepted Answer

A)  the supply of loanable funds only. 
B)  the demand for loanable funds only. 
C)  neither the supply nor demand for loanable funds. 
D)  both the supply and demand for loanable funds. 
A)  the supply of loanable funds only. 
B)  the demand for loanable funds only. 
C)  neither the supply nor demand for loanable funds. 
D)  both the supply and demand for loanable funds.

Question 4

The yield to maturity __________ capital gains; the current yield __________ capital gains.

Accepted Answer

A)  reflects; reflects 
B)  reflects; does not reflect 
C)  does not reflect; reflects 
D)  does not reflect; does not reflect 
A)  reflects; reflects 
B)  reflects; does not reflect 
C)  does not reflect; reflects 
D)  does not reflect; does not reflect

Question 5

An increase in inflationary expectations will cause a(n)__________ in the demand for loanable funds and a(n)__________ in the supply of loanable funds.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease

Question 6

If an individual received a total of $400 in simple interest payments on a $1,000 loan over four years, the annual simple interest rate was

Accepted Answer

A)  15 percent. 
B)  5 percent. 
C)  4 percent. 
D)  10 percent. 
A)  15 percent. 
B)  5 percent. 
C)  4 percent. 
D)  10 percent.

Question 7

The yield to maturity on a bond is the

Accepted Answer

A)  coupon rate. 
B)  annual interest payment divided by the purchase price. 
C)  coupon payment multiplied by the number of payments. 
D)  rate of discount that makes the sum of present values for all future payments equal to the purchase price. 
A)  coupon rate. 
B)  annual interest payment divided by the purchase price. 
C)  coupon payment multiplied by the number of payments. 
D)  rate of discount that makes the sum of present values for all future payments equal to the purchase price.

Question 8

If the inflation rate is expected to be 2 percent and creditors will lend only if the real interest rate is 3 percent, the nominal interest rate will be

Accepted Answer

A)  1 percent. 
B)  5 percent. 
C)  7 percent. 
D)  12 percent. 
A)  1 percent. 
B)  5 percent. 
C)  7 percent. 
D)  12 percent.

Question 9

The only difference between Treasury notes and bonds is

Accepted Answer

A)  the frequency of coupon payments. 
B)  that notes are issued on a discount basis and bonds make coupon payments. 
C)  maturity. 
D)  the agency issuing the security. 
A)  the frequency of coupon payments. 
B)  that notes are issued on a discount basis and bonds make coupon payments. 
C)  maturity. 
D)  the agency issuing the security.

Question 10

The equilibrium interest rate will fall if the

Accepted Answer

A)  supply of loanable funds decreases. 
B)  demand for loanable funds decreases. 
C)  demand for securities decreases. 
D)  inflation rate increases. 
A)  supply of loanable funds decreases. 
B)  demand for loanable funds decreases. 
C)  demand for securities decreases. 
D)  inflation rate increases.

Question 11

The demand for loanable funds is equivalent to the

Accepted Answer

A)  supply of loanable funds. 
B)  supply of securities. 
C)  demand for securities. 
D)  supply of bonds. 
A)  supply of loanable funds. 
B)  supply of securities. 
C)  demand for securities. 
D)  supply of bonds.

Question 12

If individuals save __________, there is usually __________ pressure on interest rates.

Accepted Answer

A)  less; upward 
B)  more; upward 
C)  less; downward 
D)  None of the above. 
A)  less; upward 
B)  more; upward 
C)  less; downward 
D)  None of the above.

Question 13

A consol has an annual coupon payment of $50. If the price of the consol rose from $400 to $500, the yield on the consol would

Accepted Answer

A)  fall from 10 percent to 8 percent. 
B)  fall from 12.5 percent to 10 percent. 
C)  rise from 10 percent to 12.5 percent. 
D)  rise from 8 percent to 10 percent. 
A)  fall from 10 percent to 8 percent. 
B)  fall from 12.5 percent to 10 percent. 
C)  rise from 10 percent to 12.5 percent. 
D)  rise from 8 percent to 10 percent.

Question 14

An increase in interest rates causes __________ the demand-for-loanable funds curve

Accepted Answer

A)  a rightward shift in 
B)  a leftward shift in 
C)  a movement down along 
D)  a movement up along 
A)  a rightward shift in 
B)  a leftward shift in 
C)  a movement down along 
D)  a movement up along

Question 15

A $10,000, one-month loan pays an annualized interest rate of 10 percent. The dollar amount of interest received from the loan is

Accepted Answer

A)  largest if simple interest is paid. 
B)  largest if interest is compounded monthly. 
C)  largest if interest is compounded quarterly. 
D)  the same whether interest is simple, compounded monthly, or compounded quarterly. 
A)  largest if simple interest is paid. 
B)  largest if interest is compounded monthly. 
C)  largest if interest is compounded quarterly. 
D)  the same whether interest is simple, compounded monthly, or compounded quarterly.

Question 16

During the expansion phase of the business cycle

Accepted Answer

A)  the demand for loanable funds tends to fall. 
B)  interest rates tend to rise. 
C)  bond prices tend to rise. 
D)  inflationary expectations tend to fall. 
A)  the demand for loanable funds tends to fall. 
B)  interest rates tend to rise. 
C)  bond prices tend to rise. 
D)  inflationary expectations tend to fall.

Question 17

The total amount of cash inflows a lender would receive on a $600 two-year loan with a simple annual interest rate of 8 percent is equal to

Accepted Answer

A)  $48. 
B)  $96. 
C)  $648. 
D)  $696. 
A)  $48. 
B)  $96. 
C)  $648. 
D)  $696.

Question 18

Suppose an individual pays $4,000 for a $5,000 face-value, coupon-bearing bond that pays $400 per year in interest and will be held until it matures in ten years. The coupon rate on this bond is

Accepted Answer

A)  10 percent. 
B)  8 percent. 
C)  6 percent. 
D)  5 percent. 
A)  10 percent. 
B)  8 percent. 
C)  6 percent. 
D)  5 percent.

Question 19

Luther Schwarz currently has a balance of $838.55 in his savings account. __________ years ago, Luther deposited $500 in his savings account, which pays an annual interest rate of 9 percent, compounded annually.

Accepted Answer

A)  8 
B)  7 
C)  6 
D)  5 
A)  8 
B)  7 
C)  6 
D)  5

Question 20

Which of these will cause the equilibrium interest rate to rise?

Accepted Answer

A)  A decrease in the supply of loanable funds 
B)  A decrease in the demand for loanable funds 
C)  An increase in the supply of loanable funds 
D)  A decrease in the quantity of loanable funds demanded 
A)  A decrease in the supply of loanable funds 
B)  A decrease in the demand for loanable funds 
C)  An increase in the supply of loanable funds 
D)  A decrease in the quantity of loanable funds demanded

Exam 4: Interest Rate Measurement and Behavior

Bond prices are

Which of the following would not cause an increase in the demand for loanable funds?

A change in inflationary expectations will influence

The yield to maturity __________ capital gains; the current yield __________ capital gains.

An increase in inflationary expectations will cause a(n)__________ in the demand for loanable funds and a(n)__________ in the supply of loanable funds.

If an individual received a total of $400 in simple interest payments on a $1,000 loan over four years, the annual simple interest rate was

The yield to maturity on a bond is the

If the inflation rate is expected to be 2 percent and creditors will lend only if the real interest rate is 3 percent, the nominal interest rate will be

The only difference between Treasury notes and bonds is

The equilibrium interest rate will fall if the

The demand for loanable funds is equivalent to the

If individuals save __________, there is usually __________ pressure on interest rates.

A consol has an annual coupon payment of $50. If the price of the consol rose from $400 to $500, the yield on the consol would

An increase in interest rates causes __________ the demand-for-loanable funds curve

A $10,000, one-month loan pays an annualized interest rate of 10 percent. The dollar amount of interest received from the loan is

During the expansion phase of the business cycle

The total amount of cash inflows a lender would receive on a $600 two-year loan with a simple annual interest rate of 8 percent is equal to

Suppose an individual pays $4,000 for a $5,000 face-value, coupon-bearing bond that pays $400 per year in interest and will be held until it matures in ten years. The coupon rate on this bond is

Luther Schwarz currently has a balance of $838.55 in his savings account. __________ years ago, Luther deposited $500 in his savings account, which pays an annual interest rate of 9 percent, compounded annually.

Which of these will cause the equilibrium interest rate to rise?

Introducing Money, Banking, and Financial Markets

The Role of Money in the Macroeconomy

Financial Instruments, Markets, and Institutions

The Term and Risk Structure of Interest Rates

The Structure and Performance of Securities Markets

The Pricing of Risky Financial Assets

Money and Capital Markets

Demystifying Derivatives

Understanding Foreign Exchange

The Nature of Financial Intermediation

Depository Financial Institutions

Nondepository Financial Institutions

Understanding Financial Contracts

The Regulation of Markets and Institutions

Financial System Design

Who's in Charge Here?

Bank Reserves and the Money Supply

The Instruments of Central Bankin

Understanding Movements in Bank Reserves

Monetary Policy Strategy

The Classical Foundations

The Keynesian Framework

The ISLM World

Money and Economic Stability in the ISLM World

An Aggregate Supply and Demand Perspective on Money and Economic Stability

Rational Expectations: Theory and Policy Implications

Empirical Evidence on the Effectiveness of Monetary Policy

Tying It All Together

Filters

The yield to maturity capital gains; the current yield capital gains.

An increase in inflationary expectations will cause a(n) in the demand for loanable funds and a(n) in the supply of loanable funds.

If individuals save , there is usually pressure on interest rates.