Question 1

An investor who desires the ability to have quick and easy access to cash would prefer to hold which type of asset?

Accepted Answer

A)  risky 
B)  liquid 
C)  tax free 
D)  any form of bond 
A)  risky 
B)  liquid 
C)  tax free 
D)  any form of bond

Question 2

As a person's wealth increases,which of the following portfolio holdings is likely to increase the least?

Accepted Answer

A)  checking account 
B)  stocks 
C)  money market fund 
D)  bonds 
A)  checking account 
B)  stocks 
C)  money market fund 
D)  bonds

Question 3

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

Accepted Answer

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

Question 4

Which is the best example of idiosyncratic risk?

Accepted Answer

A)  a financial crisis 
B)  a lawsuit because the corporation produced a faulty product 
C)  a recession 
D)  rising interest rates 
A)  a financial crisis 
B)  a lawsuit because the corporation produced a faulty product 
C)  a recession 
D)  rising interest rates

Question 5

The bond supply curve

Accepted Answer

A)  shows the quantity of bonds lenders are willing to supply as bond prices change. 
B)  shows the quantity of bonds lenders are willing to supply as interest rates change. 
C)  shows the quantity of bonds borrowers are willing to supply as bond prices change. 
D)  is represented by a downward-sloping line when the price of bonds is on the vertical axis and the quantity of bonds supplied is on the horizontal axis. 
A)  shows the quantity of bonds lenders are willing to supply as bond prices change. 
B)  shows the quantity of bonds lenders are willing to supply as interest rates change. 
C)  shows the quantity of bonds borrowers are willing to supply as bond prices change. 
D)  is represented by a downward-sloping line when the price of bonds is on the vertical axis and the quantity of bonds supplied is on the horizontal axis.

Question 6

In late 2008 and early 2009,many feared that the economy may experience deflation.Make use of a graph of the bond market to show how this affected interest rates.

Accepted Answer

Expectations of deflation incr

Question 7

An investor who bases the decision to buy an asset solely on the expected return of an asset is considered to be

Accepted Answer

A)  risk loving. 
B)  risk averse. 
C)  risk neutral. 
D)  risk avoiding. 
A)  risk loving. 
B)  risk averse. 
C)  risk neutral. 
D)  risk avoiding.

Question 8

Which of the following is NOT a reason that interest rates remained low despite high budget deficits following the financial crisis?

Accepted Answer

A)  increased demand for U.S. government bonds 
B)  the perceived riskiness of alternative investments such as stocks 
C)  low interest rates on corporate bonds and similar short-term assets 
D)  increases in expected inflation 
A)  increased demand for U.S. government bonds 
B)  the perceived riskiness of alternative investments such as stocks 
C)  low interest rates on corporate bonds and similar short-term assets 
D)  increases in expected inflation

Question 9

The expected change in the supply and demand for bonds due to an increase in expected inflation will definitely result in

Accepted Answer

A)  an increase in the equilibrium price of bonds. 
B)  an increase in the equilibrium quantity of bonds. 
C)  a decrease in the equilibrium price of bonds. 
D)  a decrease in the equilibrium quantity of bonds. 
A)  an increase in the equilibrium price of bonds. 
B)  an increase in the equilibrium quantity of bonds. 
C)  a decrease in the equilibrium price of bonds. 
D)  a decrease in the equilibrium quantity of bonds.

Question 10

Suppose that a small economy that had previously been closed becomes open.If its real interest rate had previously been below the world real interest rate,we would expect that

Accepted Answer

A)  the country's real interest rate would remain below the world level. 
B)  the country would become a net lender abroad. 
C)  the country would become a new borrower abroad. 
D)  the amount of loanable funds supplied in the country would decline. 
A)  the country's real interest rate would remain below the world level. 
B)  the country would become a net lender abroad. 
C)  the country would become a new borrower abroad. 
D)  the amount of loanable funds supplied in the country would decline.

Question 11

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

Accepted Answer

A)  rise; rise 
B)  rise; fall 
C)  fall; rise 
D)  fall; fall 
A)  rise; rise 
B)  rise; fall 
C)  fall; rise 
D)  fall; fall

Question 12

An open economy is one that

Accepted Answer

A)  has a large government sector. 
B)  lends and borrows in the international capital market. 
C)  produces mainly agricultural goods. 
D)  produces mainly manufactured goods. 
A)  has a large government sector. 
B)  lends and borrows in the international capital market. 
C)  produces mainly agricultural goods. 
D)  produces mainly manufactured goods.

Question 13

In a large open economy

Accepted Answer

A)  domestic lending and borrowing decisions have no impact on the world real interest rate. 
B)  an increase in the domestic supply of loanable funds would lower the world real interest rate. 
C)  the domestic equilibrium real interest rate is determined independently of foreign borrowing and lending. 
D)  an increase in the domestic demand for loanable funds would lower the world real interest rate. 
A)  domestic lending and borrowing decisions have no impact on the world real interest rate. 
B)  an increase in the domestic supply of loanable funds would lower the world real interest rate. 
C)  the domestic equilibrium real interest rate is determined independently of foreign borrowing and lending. 
D)  an increase in the domestic demand for loanable funds would lower the world real interest rate.

Question 14

If a large open economy,like the United States,reduces its budget deficit,what impact would this have on a small open economy?

Accepted Answer

A)  higher savings 
B)  increased investment 
C)  increased net savings 
D)  no change in interest rates 
A)  higher savings 
B)  increased investment 
C)  increased net savings 
D)  no change in interest rates

Question 15

What impact do savings rates in Belgium have on the real interest rate that businesses in Belgium must pay to obtain the funds to finance their spending on plant and equipment?

Accepted Answer

Because Belgium is a small open economy,

Question 16

Interest rates typically fall during recessions,suggesting that

Accepted Answer

A)  the supply curve for bonds shifts more to the left than does the demand curve for bonds. 
B)  the demand curve for bonds shifts more to the left than does the supply curve for bonds. 
C)  the supply curve for bonds shifts to the left and the demand curve for bonds shifts to the right. 
D)  the demand curve for bonds shifts to the left and the supply curve for bonds shifts to the right. 
A)  the supply curve for bonds shifts more to the left than does the demand curve for bonds. 
B)  the demand curve for bonds shifts more to the left than does the supply curve for bonds. 
C)  the supply curve for bonds shifts to the left and the demand curve for bonds shifts to the right. 
D)  the demand curve for bonds shifts to the left and the supply curve for bonds shifts to the right.

Question 17

A one-year discount bond with a face value of $1,000 that is currently selling for $900 has an interest rate of

Accepted Answer

A)  5.26%. 
B)  10%. 
C)  11.1%. 
D)  100%. 
A)  5.26%. 
B)  10%. 
C)  11.1%. 
D)  100%.

Question 18

Since all assets typically do NOT move together,how can investors typically reduce risk?

Accepted Answer

A)  purchase only the best performing assets 
B)  diversify one's portfolio across different asset classes 
C)  avoid poor performing assets 
D)  actively manage one's portfolio 
A)  purchase only the best performing assets 
B)  diversify one's portfolio across different asset classes 
C)  avoid poor performing assets 
D)  actively manage one's portfolio

Question 19

In the market for loanable funds,the seller 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 20

If there is an excess supply of bonds at a given price of bonds,then

Accepted Answer

A)  the interest rate will fall. 
B)  the interest rate will rise. 
C)  the price of bonds will rise. 
D)  the interest rate may rise or the interest rate may fall depending upon the reasons for the excess supply for bonds. 
A)  the interest rate will fall. 
B)  the interest rate will rise. 
C)  the price of bonds will rise. 
D)  the interest rate may rise or the interest rate may fall depending upon the reasons for the excess supply for bonds.

An investor who desires the ability to have quick and easy access to cash would prefer to hold which type of asset?

As a person's wealth increases,which of the following portfolio holdings is likely to increase the least?

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

Which is the best example of idiosyncratic risk?

The bond supply curve

In late 2008 and early 2009,many feared that the economy may experience deflation.Make use of a graph of the bond market to show how this affected interest rates.

An investor who bases the decision to buy an asset solely on the expected return of an asset is considered to be

Which of the following is NOT a reason that interest rates remained low despite high budget deficits following the financial crisis?

The expected change in the supply and demand for bonds due to an increase in expected inflation will definitely result in

Suppose that a small economy that had previously been closed becomes open.If its real interest rate had previously been below the world real interest rate,we would expect that

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

An open economy is one that

In a large open economy

If a large open economy,like the United States,reduces its budget deficit,what impact would this have on a small open economy?

What impact do savings rates in Belgium have on the real interest rate that businesses in Belgium must pay to obtain the funds to finance their spending on plant and equipment?

Interest rates typically fall during recessions,suggesting that

A one-year discount bond with a face value of $1,000 that is currently selling for $900 has an interest rate of

Since all assets typically do NOT move together,how can investors typically reduce risk?

In the market for loanable funds,the seller is considered to be

If there is an excess supply of bonds at a given price of bonds,then

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

An investor who desires the ability to have quick and easy access to cash would prefer to hold which type of asset?

As a person's wealth increases,which of the following portfolio holdings is likely to increase the least?

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

Which is the best example of idiosyncratic risk?

The bond supply curve

In late 2008 and early 2009,many feared that the economy may experience deflation.Make use of a graph of the bond market to show how this affected interest rates.

An investor who bases the decision to buy an asset solely on the expected return of an asset is considered to be

Which of the following is NOT a reason that interest rates remained low despite high budget deficits following the financial crisis?

The expected change in the supply and demand for bonds due to an increase in expected inflation will definitely result in

Suppose that a small economy that had previously been closed becomes open.If its real interest rate had previously been below the world real interest rate,we would expect that

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

An open economy is one that

In a large open economy

If a large open economy,like the United States,reduces its budget deficit,what impact would this have on a small open economy?

What impact do savings rates in Belgium have on the real interest rate that businesses in Belgium must pay to obtain the funds to finance their spending on plant and equipment?

Interest rates typically fall during recessions,suggesting that

A one-year discount bond with a face value of $1,000 that is currently selling for $900 has an interest rate of

Since all assets typically do NOT move together,how can investors typically reduce risk?

In the market for loanable funds,the seller is considered to be

If there is an excess supply of bonds at a given price of bonds,then

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

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