Question 1

If inflation is expected to decrease, then

Accepted Answer

A)  savers will provide less funds at the existing equilibrium interest rate. 
B)  the equilibrium interest rate will increase. 
C)  the equilibrium interest rate will decrease. 
D)  borrowers will demand more funds at the existing equilibrium interest rate. 
A)  savers will provide less funds at the existing equilibrium interest rate. 
B)  the equilibrium interest rate will increase. 
C)  the equilibrium interest rate will decrease. 
D)  borrowers will demand more funds at the existing equilibrium interest rate.

Question 2

To forecast interest rates using the Fisher effect, the real interest rate for an upcoming period can be forecasted by subtracting the expected inflation rate over that period from the nominalinterest rate quoted for that period.

Accepted Answer

A) True 
 B)False

Question 3

If the real interest rate was negative for a period of time, then

Accepted Answer

A)  inflation is expected to exceed the nominal interest rate in the future. 
B)  inflation is expected to be less than the nominal interest rate in the future. 
C)  actual inflation was less than the nominal interest rate. 
D)  actual inflation was greater than the nominal interest rate. 
A)  inflation is expected to exceed the nominal interest rate in the future. 
B)  inflation is expected to be less than the nominal interest rate in the future. 
C)  actual inflation was less than the nominal interest rate. 
D)  actual inflation was greater than the nominal interest rate.

Question 4

The federal government's _________ determines the budget deficit and therefore determines the government's demand for loanable funds.

Accepted Answer

A)  monetary policy 
B)  fiscal policy 
C)  congressional policy 
D)  economic policy 
A)  monetary policy 
B)  fiscal policy 
C)  congressional policy 
D)  economic policy

Question 5

The crowding-out effect occurs when:

Accepted Answer

A)  foreign investors crowd out U.S. investors in the market for loanable funds. 
B)  the federal government's demand for loanable funds due to a higher budget deficit crowds out the private demand in the market for loanable funds. 
C)  institutional investors crowd out individual investors in the market for loanable funds. 
D)  firms and municipal governments crowd out households in the market for loanable funds. 
A)  foreign investors crowd out U.S. investors in the market for loanable funds. 
B)  the federal government's demand for loanable funds due to a higher budget deficit crowds out the private demand in the market for loanable funds. 
C)  institutional investors crowd out individual investors in the market for loanable funds. 
D)  firms and municipal governments crowd out households in the market for loanable funds.

Question 6

Which of the following is not true regarding foreign interest rates?

Accepted Answer

A)  The large flow of funds between countries causes interest rates in any given country to become more susceptible to interest rate movements in other countries. 
B)  The expectations of a strong dollar should cause a flow of funds to the United States. 
C)  An increase in a foreign country's interest rates will encourage investors in that country to invest their funds in other countries. 
D)  All of the above are true regarding foreign interest rates. 
A)  The large flow of funds between countries causes interest rates in any given country to become more susceptible to interest rate movements in other countries. 
B)  The expectations of a strong dollar should cause a flow of funds to the United States. 
C)  An increase in a foreign country's interest rates will encourage investors in that country to invest their funds in other countries. 
D)  All of the above are true regarding foreign interest rates.

Question 7

Other things being equal, foreign governments and corporations would demand ____ U.S. funds if their local interest rates were lower than U.S. rates. Therefore, for a given set of foreign interest rates, foreign demand for U.S. funds is ____ related to U.S. interest rates.

Accepted Answer

A)  less; inversely 
B)  more; positively 
C)  less; positively 
D)  more; inversely 
A)  less; inversely 
B)  more; positively 
C)  less; positively 
D)  more; inversely

If inflation is expected to decrease, then

To forecast interest rates using the Fisher effect, the real interest rate for an upcoming period can be forecasted by subtracting the expected inflation rate over that period from the nominalinterest rate quoted for that period.

If the real interest rate was negative for a period of time, then

The federal government's _________ determines the budget deficit and therefore determines the government's demand for loanable funds.

The crowding-out effect occurs when:

Which of the following is not true regarding foreign interest rates?

Other things being equal, foreign governments and corporations would demand U.S. funds if their local interest rates were lower than U.S. rates. Therefore, for a given set of foreign interest rates, foreign demand for U.S. funds is related to U.S. interest rates.

Role of Financial Markets and Institutions

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance Operations

Pension Fund Operations

Filters

Exam 2: Determination of Interest Rates

If inflation is expected to decrease, then

To forecast interest rates using the Fisher effect, the real interest rate for an upcoming period can be forecasted by subtracting the expected inflation rate over that period from the nominalinterest rate quoted for that period.

If the real interest rate was negative for a period of time, then

The federal government's _________ determines the budget deficit and therefore determines the government's demand for loanable funds.

The crowding-out effect occurs when:

Which of the following is not true regarding foreign interest rates?

Other things being equal, foreign governments and corporations would demand ____ U.S. funds if their local interest rates were lower than U.S. rates. Therefore, for a given set of foreign interest rates, foreign demand for U.S. funds is ____ related to U.S. interest rates.

Role of Financial Markets and Institutions

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance Operations

Pension Fund Operations

Filters

Other things being equal, foreign governments and corporations would demand U.S. funds if their local interest rates were lower than U.S. rates. Therefore, for a given set of foreign interest rates, foreign demand for U.S. funds is related to U.S. interest rates.