Exam 4: Determining Interest Rates

Explain what happens to the nominal interest rate when there is an increase in real GDP.Make use of a graph of the money market to illustrate this change in real GDP and the nominal interest rate.

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

A rise in expected inflation will result in all of the following EXCEPT

Suppose you are risk averse and you are deciding between two investments.One has a guaranteed return of 5% while the second has a 50% chance of a 10% return and a 50% chance of a 0% return.Which investment would you choose? Why?

Suppose there's an 80% chance of a stock rising by 20% and a 20% chance of it falling by 40%.Which type of investor would prefer an investment with a guaranteed return of 5%?

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

Which type of investor is most likely to have a diversified portfolio?

As wealth increases in the economy,savers are willing to

The formula for the yield to maturity,i,on a discount bond is

Suppose Ireland is a small open economy that is neither a net international borrower or international lender.Many countries increase their savings resulting in a lower world real interest rate.Make use of a graph of the loanable funds market for a small open economy to show the impact this has on Ireland's international financial position.

In an effort to increase government revenue,Congress and the president decide to increase the corporate profits tax.The likely result will be

Since Germany is a large open economy,the increase in German borrowing and investment in what was formerly East Germany in the early 1990s resulted in

Explain why the nominal interest rate is the opportunity cost of holding money.

If the Fed decreases the money supply and as a result,households and firms buy fewer short-term financial assets,the prices of those short-term financial assets will ________ and the interest rates on those assets will ________.

The bond supply curve slopes up because

Which of the following financial assets has both the highest risk and highest return for the period of 1926-2015?

Explain what happens to the nominal interest rate when the Fed decreases the money supply.Make use of a graph of the money market to illustrate this change in the money supply and the nominal interest rate.

As a result of the perceived riskiness of alternative investments following the financial crisis of 2007-2009,the bond market was affected in all of the following ways EXCEPT

Which of the following is NOT a likely impact on the bond market if corporations become convinced that a robust economic recovery is underway?

A decrease in real GDP will result in a(n)________ in the demand for money and cause the nominal interest rate to ________.