Question 1

The demand curve for bonds would be reduced by

Accepted Answer

A)  a decrease in expected returns on other assets. 
B)  an increase in the information costs of bonds relative to other assets. 
C)  an increase in wealth. 
D)  an increase in the liquidity of bonds relative to other assets. 
A)  a decrease in expected returns on other assets. 
B)  an increase in the information costs of bonds relative to other assets. 
C)  an increase in wealth. 
D)  an increase in the liquidity of bonds relative to other assets.

Question 2

How should a financial plan of an older saver differ from that of a younger saver?

Accepted Answer

The older saver has a shorter time horiz

Question 3

Investors value liquidity in an asset because

Accepted Answer

A)  liquid assets tend to have high rates of return. 
B)  liquid assets incur lower selling costs. 
C)  liquid assets incur lower tax liabilities. 
D)  whereas liquid assets have high information costs, their low risk offsets this. 
A)  liquid assets tend to have high rates of return. 
B)  liquid assets incur lower selling costs. 
C)  liquid assets incur lower tax liabilities. 
D)  whereas liquid assets have high information costs, their low risk offsets this.

Question 4

If a government's income tax receipts exceed its expenditures,the government is running a

Accepted Answer

A)  surplus and is a net borrower of funds. 
B)  surplus and is a net saver of funds. 
C)  deficit and is a net borrower of funds. 
D)  deficit and is a net saver of funds. 
A)  surplus and is a net borrower of funds. 
B)  surplus and is a net saver of funds. 
C)  deficit and is a net borrower of funds. 
D)  deficit and is a net saver of funds.

Question 5

Suppose you are risk loving 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?

Accepted Answer

The second investment has an expected re

Question 6

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

Accepted Answer

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

Question 7

The supply curve for bonds would be shifted to the right by

Accepted Answer

A)  a decrease in expected profitability. 
B)  a decrease in the corporate tax on profits. 
C)  a decrease in tax subsidies for investment. 
D)  a decrease in government borrowing. 
A)  a decrease in expected profitability. 
B)  a decrease in the corporate tax on profits. 
C)  a decrease in tax subsidies for investment. 
D)  a decrease in government borrowing.

Question 8

In the bond market,the buyer is considered to be

Accepted Answer

A)  the lender. 
B)  the borrower. 
C)  the lender or the borrower, depending upon the use to which the funds are put. 
D)  the lender or the borrower, depending upon whether interest rates are rising or falling. 
A)  the lender. 
B)  the borrower. 
C)  the lender or the borrower, depending upon the use to which the funds are put. 
D)  the lender or the borrower, depending upon whether interest rates are rising or falling.

Question 9

In November 2012,HP claimed that they had weak earnings due to questionable accounting by a company that they had taken over.This is an example of

Accepted Answer

A)  market risk. 
B)  systemic risk. 
C)  idiosyncratic risk. 
D)  liquidity risk. 
A)  market risk. 
B)  systemic risk. 
C)  idiosyncratic risk. 
D)  liquidity risk.

Question 10

How can diversification reduce idiosyncratic risk but not systematic risk?

Accepted Answer

Since the returns on most assets do not

Question 11

Which of the following can best be characterized as a "Black Swan" event?

Accepted Answer

A)  decline in stock prices due to a recession 
B)  rising market interest rates as the Fed tightens monetary policy 
C)  a financial crisis causing credit to dry up 
D)  an individual firm unexpectedly filing for bankruptcy 
A)  decline in stock prices due to a recession 
B)  rising market interest rates as the Fed tightens monetary policy 
C)  a financial crisis causing credit to dry up 
D)  an individual firm unexpectedly filing for bankruptcy

Question 12

In 2012,many investors feared that Greece may default on its bonds.Make use of a graph of the bond market to show how this affected interest rates on Greek bonds.

Accepted Answer

Fear of default reduced the de

Question 13

During a period of economic expansion,when expected profitability is high

Accepted Answer

A)  the demand curve for bonds shifts to the left. 
B)  the supply curve of bonds shifts to the right. 
C)  the equilibrium interest rate falls. 
D)  the equilibrium price of bonds rises. 
A)  the demand curve for bonds shifts to the left. 
B)  the supply curve of bonds shifts to the right. 
C)  the equilibrium interest rate falls. 
D)  the equilibrium price of bonds rises.

Question 14

During 2000,the government repurchased $30 billion in U.S.Treasury bonds outstanding.This was the first time this had been done since the administration of Herbert Hoover in the early 1930s.Analyze the impact of this repurchase on the bond market.

Accepted Answer

The supply curve for

Question 15

A one-year discount bond with a face value of $1,000 has an interest rate of 4%.What is its price?

Accepted Answer

A)  $960 
B)  $961.54 
C)  $996 
D)  $1,040 
A)  $960 
B)  $961.54 
C)  $996 
D)  $1,040

Question 16

A decrease in expected inflation

Accepted Answer

A)  usually leads to falling nominal interest rates. 
B)  results in increased nominal capital gains on physical assets. 
C)  will shift the bond demand curve to the left. 
D)  will shift the supply curve for loanable funds to the left. 
A)  usually leads to falling nominal interest rates. 
B)  results in increased nominal capital gains on physical assets. 
C)  will shift the bond demand curve to the left. 
D)  will shift the supply curve for loanable funds to the left.

Question 17

When nominal interest rates fall on financial assets such as U.S.Treasury bills,the amount of interest that households and firms

Accepted Answer

A)  gain by holding money decreases. 
B)  lose by holding money decreases. 
C)  lose by holding money increases. 
D)  lose or gain by holding money does not change. 
A)  gain by holding money decreases. 
B)  lose by holding money decreases. 
C)  lose by holding money increases. 
D)  lose or gain by holding money does not change.

Question 18

An increase in expected inflation will

Accepted Answer

A)  increase the nominal interest rate on both short-term and long-term bonds. 
B)  decrease the nominal interest rate on both short-term and long-term bonds. 
C)  increase the nominal interest rate on short-term bonds but not affect the nominal interest rate on long-term bonds. 
D)  increase the nominal interest rate on long-term bonds but not affect the nominal interest rate on short-term bonds. 
A)  increase the nominal interest rate on both short-term and long-term bonds. 
B)  decrease the nominal interest rate on both short-term and long-term bonds. 
C)  increase the nominal interest rate on short-term bonds but not affect the nominal interest rate on long-term bonds. 
D)  increase the nominal interest rate on long-term bonds but not affect the nominal interest rate on short-term bonds.

Question 19

Suppose that businesses in Japan reduce their spending on plant and equipment.What will be the effect on spending on plant and equipment by businesses in the United States?

Accepted Answer

Because Japan is a large open economy,th

Question 20

Consider an open economy that is a net borrower (like the United States).What would be the impact of a shift to a closed economy?

Accepted Answer

A)  domestic interest rates would decline 
B)  domestic savings would decline 
C)  domestic investment would decline 
D)  net borrowing would increase 
A)  domestic interest rates would decline 
B)  domestic savings would decline 
C)  domestic investment would decline 
D)  net borrowing would increase

The demand curve for bonds would be reduced by

How should a financial plan of an older saver differ from that of a younger saver?

Investors value liquidity in an asset because

If a government's income tax receipts exceed its expenditures,the government is running a

Suppose you are risk loving 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?

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

The supply curve for bonds would be shifted to the right by

In the bond market,the buyer is considered to be

In November 2012,HP claimed that they had weak earnings due to questionable accounting by a company that they had taken over.This is an example of

How can diversification reduce idiosyncratic risk but not systematic risk?

Which of the following can best be characterized as a "Black Swan" event?

In 2012,many investors feared that Greece may default on its bonds.Make use of a graph of the bond market to show how this affected interest rates on Greek bonds.

During a period of economic expansion,when expected profitability is high

During 2000,the government repurchased $30 billion in U.S.Treasury bonds outstanding.This was the first time this had been done since the administration of Herbert Hoover in the early 1930s.Analyze the impact of this repurchase on the bond market.

A one-year discount bond with a face value of $1,000 has an interest rate of 4%.What is its price?

A decrease in expected inflation

When nominal interest rates fall on financial assets such as U.S.Treasury bills,the amount of interest that households and firms

An increase in expected inflation will

Suppose that businesses in Japan reduce their spending on plant and equipment.What will be the effect on spending on plant and equipment by businesses in the United States?

Consider an open economy that is a net borrower (like the United States).What would be the impact of a shift to a closed economy?

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

The demand curve for bonds would be reduced by

How should a financial plan of an older saver differ from that of a younger saver?

Investors value liquidity in an asset because

If a government's income tax receipts exceed its expenditures,the government is running a

Suppose you are risk loving 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?

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

The supply curve for bonds would be shifted to the right by

In the bond market,the buyer is considered to be

In November 2012,HP claimed that they had weak earnings due to questionable accounting by a company that they had taken over.This is an example of

How can diversification reduce idiosyncratic risk but not systematic risk?

Which of the following can best be characterized as a "Black Swan" event?

In 2012,many investors feared that Greece may default on its bonds.Make use of a graph of the bond market to show how this affected interest rates on Greek bonds.

During a period of economic expansion,when expected profitability is high

During 2000,the government repurchased $30 billion in U.S.Treasury bonds outstanding.This was the first time this had been done since the administration of Herbert Hoover in the early 1930s.Analyze the impact of this repurchase on the bond market.

A one-year discount bond with a face value of $1,000 has an interest rate of 4%.What is its price?

A decrease in expected inflation

When nominal interest rates fall on financial assets such as U.S.Treasury bills,the amount of interest that households and firms

An increase in expected inflation will

Suppose that businesses in Japan reduce their spending on plant and equipment.What will be the effect on spending on plant and equipment by businesses in the United States?

Consider an open economy that is a net borrower (like the United States).What would be the impact of a shift to a closed economy?

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