Question 1

Why do CDs have lower rates of return than stocks?

Accepted Answer

A)  CDs are much riskier investments than stocks. 
B)  CDs are less risky than stocks. 
C)  CDs are not taxed while stocks' returns are taxable. 
D)  CDs are not as liquid as stocks. 
A)  CDs are much riskier investments than stocks. 
B)  CDs are less risky than stocks. 
C)  CDs are not taxed while stocks' returns are taxable. 
D)  CDs are not as liquid as stocks.

Question 2

According to the Fisher effect,an increase in expected inflation results in

Accepted Answer

A)  lower nominal interest rates. 
B)  higher nominal interest rates. 
C)  lower real interest rates. 
D)  higher real interest rates. 
A)  lower nominal interest rates. 
B)  higher nominal interest rates. 
C)  lower real interest rates. 
D)  higher real interest rates.

Question 3

In an article,"Preparing for the Next Black Swan" (Wall Street Journal,Aug 21,2010),the point is made that diversification may be insufficient in protecting one's portfolio during a "Black Swan" event.Why may this be TRUE?

Accepted Answer

A)  Virtually all asset classes may decline at the same time. 
B)  Investors may be unable to buy different assets during a "Black Swan" event. 
C)  Some assets may rise while others decline during a "Black Swan" event. 
D)  Black Swan events are surprises and thus one cannot prepare for such an event. 
A)  Virtually all asset classes may decline at the same time. 
B)  Investors may be unable to buy different assets during a "Black Swan" event. 
C)  Some assets may rise while others decline during a "Black Swan" event. 
D)  Black Swan events are surprises and thus one cannot prepare for such an event.

Question 4

Which of the following would NOT cause the demand curve for bonds to shift?

Accepted Answer

A)  a change in wealth 
B)  a change in the price of bonds 
C)  a change in the liquidity of bonds 
D)  a change in expected inflation 
A)  a change in wealth 
B)  a change in the price of bonds 
C)  a change in the liquidity of bonds 
D)  a change in expected inflation

Question 5

Economists believe that as a saver's wealth increases,the saver will generally

Accepted Answer

A)  increase his or her holdings of all assets proportionately. 
B)  increase the fraction of wealth held as cash. 
C)  increase the fraction of wealth held as common stock. 
D)  decrease the fraction of wealth held as corporate bonds. 
A)  increase his or her holdings of all assets proportionately. 
B)  increase the fraction of wealth held as cash. 
C)  increase the fraction of wealth held as common stock. 
D)  decrease the fraction of wealth held as corporate bonds.

Question 6

The equilibrium real interest rate in Belgium will be

Accepted Answer

A)  generally above the world real interest rate. 
B)  generally below the world real interest rate. 
C)  equal to the world real interest rate. 
D)  determined by the equilibrium between desired domestic saving and desired domestic investment. 
A)  generally above the world real interest rate. 
B)  generally below the world real interest rate. 
C)  equal to the world real interest rate. 
D)  determined by the equilibrium between desired domestic saving and desired domestic investment.

Question 7

If bond investors think they lack enough details to evaluate the likelihood of defaults on certain bonds,this will result in higher

Accepted Answer

A)  expected return. 
B)  liquidity. 
C)  information costs. 
D)  expected inflation. 
A)  expected return. 
B)  liquidity. 
C)  information costs. 
D)  expected inflation.

Question 8

Suppose there's a 50% chance of a stock rising by 20% and a 50% chance of it falling by 20%.What is the expected rate of return on the stock?

Accepted Answer

A)  -20% 
B)  0% 
C)  10% 
D)  20% 
A)  -20% 
B)  0% 
C)  10% 
D)  20%

Question 9

A portfolio is a

Accepted Answer

A)  brokerage house specializing in the trading of common stock. 
B)  brokerage house specializing in the trading of corporate bonds. 
C)  measure of the risk involved with a holding a particular asset. 
D)  collection of assets. 
A)  brokerage house specializing in the trading of common stock. 
B)  brokerage house specializing in the trading of corporate bonds. 
C)  measure of the risk involved with a holding a particular asset. 
D)  collection of assets.

Question 10

When nominal interest rates on financial assets are high,the opportunity cost of holding money is ________,so the quantity of money demanded by households and firms will be ________.

Accepted Answer

A)  high; high 
B)  high; low 
C)  low; high 
D)  low; low 
A)  high; high 
B)  high; low 
C)  low; high 
D)  low; low

Question 11

As wealth decreases in the economy,savers are likely to

Accepted Answer

A)  hold less cash relative to their holdings of bonds. 
B)  buy more bonds at any given price. 
C)  lend more at any given interest rate. 
D)  lend less at any given interest rate. 
A)  hold less cash relative to their holdings of bonds. 
B)  buy more bonds at any given price. 
C)  lend more at any given interest rate. 
D)  lend less at any given interest rate.

Question 12

When expected inflation increases,investors ________ their demand for bonds because,for each nominal interest rate,the higher the inflation rate,the ________ the real interest rate investors will receive.

Accepted Answer

A)  increase; higher 
B)  increase; lower 
C)  reduce; higher 
D)  reduce; lower 
A)  increase; higher 
B)  increase; lower 
C)  reduce; higher 
D)  reduce; lower

Question 13

Businesses typically issue bonds to finance

Accepted Answer

A)  their inventories. 
B)  payments to their workers. 
C)  spending on new plant and equipment. 
D)  dividend payments to their stockholders. 
A)  their inventories. 
B)  payments to their workers. 
C)  spending on new plant and equipment. 
D)  dividend payments to their stockholders.

Question 14

Suppose that there is concern about the stability of the global financial system causing a flight to the safety of U.S.government bonds.Which of the following is NOT a likely consequence?

Accepted Answer

A)  higher price of U.S. government bonds 
B)  lower interest rate on U.S. government bonds 
C)  increased demand for U.S. government bonds 
D)  reduced supply of U.S. government bonds 
A)  higher price of U.S. government bonds 
B)  lower interest rate on U.S. government bonds 
C)  increased demand for U.S. government bonds 
D)  reduced supply of U.S. government bonds

Question 15

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

Accepted Answer

A)  stocks 
B)  corporate bonds 
C)  cash 
D)  U.S. government securities 
A)  stocks 
B)  corporate bonds 
C)  cash 
D)  U.S. government securities

Question 16

Higher expected inflation ________ the supply of bonds and ________ the demand for bonds.

Accepted Answer

A)  increases; increases 
B)  increases; reduces 
C)  reduces; increases 
D)  reduces; reduces 
A)  increases; increases 
B)  increases; reduces 
C)  reduces; increases 
D)  reduces; reduces

Question 17

Given that most investors tend to be risk averse

Accepted Answer

A)  no one buys risky assets. 
B)  there's a trade-off between risk and return. 
C)  low risk assets provide the best return. 
D)  it must be a superior strategy compared to one that is risk loving. 
A)  no one buys risky assets. 
B)  there's a trade-off between risk and return. 
C)  low risk assets provide the best return. 
D)  it must be a superior strategy compared to one that is risk loving.

Question 18

If the government were to simultaneously cut the personal income tax and the corporate profits tax,the equilibrium interest rate

Accepted Answer

A)  would fall. 
B)  would rise. 
C)  would be unaffected. 
D)  might either rise or fall. 
A)  would fall. 
B)  would rise. 
C)  would be unaffected. 
D)  might either rise or fall.

Question 19

Which of the following will cause the money demand curve to shift to the right?

Accepted Answer

A)  a decrease in real GDP 
B)  an increase in the price level 
C)  an increase in the nominal interest rate 
D)  a decrease in the supply of money 
A)  a decrease in real GDP 
B)  an increase in the price level 
C)  an increase in the nominal interest rate 
D)  a decrease in the supply of money

Question 20

How can a global savings glut affect the United States?

Accepted Answer

A)  It can reduce the world real interest rate, thus encouraging borrowing by Americans. 
B)  It can increase the world real interest rate, thus encouraging saving by Americans. 
C)  It can reduce the supply of loanable funds for the United States. 
D)  It can reduce the demand for loanable funds for the United States. 
A)  It can reduce the world real interest rate, thus encouraging borrowing by Americans. 
B)  It can increase the world real interest rate, thus encouraging saving by Americans. 
C)  It can reduce the supply of loanable funds for the United States. 
D)  It can reduce the demand for loanable funds for the United States.

Why do CDs have lower rates of return than stocks?

According to the Fisher effect,an increase in expected inflation results in

In an article,"Preparing for the Next Black Swan" (Wall Street Journal,Aug 21,2010),the point is made that diversification may be insufficient in protecting one's portfolio during a "Black Swan" event.Why may this be TRUE?

Which of the following would NOT cause the demand curve for bonds to shift?

Economists believe that as a saver's wealth increases,the saver will generally

The equilibrium real interest rate in Belgium will be

If bond investors think they lack enough details to evaluate the likelihood of defaults on certain bonds,this will result in higher

Suppose there's a 50% chance of a stock rising by 20% and a 50% chance of it falling by 20%.What is the expected rate of return on the stock?

A portfolio is a

When nominal interest rates on financial assets are high,the opportunity cost of holding money is ,so the quantity of money demanded by households and firms will be .

As wealth decreases in the economy,savers are likely to

When expected inflation increases,investors their demand for bonds because,for each nominal interest rate,the higher the inflation rate,the the real interest rate investors will receive.

Businesses typically issue bonds to finance

Suppose that there is concern about the stability of the global financial system causing a flight to the safety of U.S.government bonds.Which of the following is NOT a likely consequence?

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

Higher expected inflation the supply of bonds and the demand for bonds.

Given that most investors tend to be risk averse

If the government were to simultaneously cut the personal income tax and the corporate profits tax,the equilibrium interest rate

Which of the following will cause the money demand curve to shift to the right?

How can a global savings glut affect the United States?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 4: Determining Interest Rates

Why do CDs have lower rates of return than stocks?

According to the Fisher effect,an increase in expected inflation results in

In an article,"Preparing for the Next Black Swan" (Wall Street Journal,Aug 21,2010),the point is made that diversification may be insufficient in protecting one's portfolio during a "Black Swan" event.Why may this be TRUE?

Which of the following would NOT cause the demand curve for bonds to shift?

Economists believe that as a saver's wealth increases,the saver will generally

The equilibrium real interest rate in Belgium will be

If bond investors think they lack enough details to evaluate the likelihood of defaults on certain bonds,this will result in higher

Suppose there's a 50% chance of a stock rising by 20% and a 50% chance of it falling by 20%.What is the expected rate of return on the stock?

A portfolio is a

When nominal interest rates on financial assets are high,the opportunity cost of holding money is ________,so the quantity of money demanded by households and firms will be ________.

As wealth decreases in the economy,savers are likely to

When expected inflation increases,investors ________ their demand for bonds because,for each nominal interest rate,the higher the inflation rate,the ________ the real interest rate investors will receive.

Businesses typically issue bonds to finance

Suppose that there is concern about the stability of the global financial system causing a flight to the safety of U.S.government bonds.Which of the following is NOT a likely consequence?

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

Higher expected inflation ________ the supply of bonds and ________ the demand for bonds.

Given that most investors tend to be risk averse

If the government were to simultaneously cut the personal income tax and the corporate profits tax,the equilibrium interest rate

Which of the following will cause the money demand curve to shift to the right?

How can a global savings glut affect the United States?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

When nominal interest rates on financial assets are high,the opportunity cost of holding money is ,so the quantity of money demanded by households and firms will be .

When expected inflation increases,investors their demand for bonds because,for each nominal interest rate,the higher the inflation rate,the the real interest rate investors will receive.

Higher expected inflation the supply of bonds and the demand for bonds.