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. B

Question 2

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 demand for Greek bonds, leading to a lower price and higher interest rate.

Question 3

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 B

Question 4

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 5

A one-year discount bond with a face value of $10,000 that is currently selling for $9400 has an interest rate of

Accepted Answer

A) 3)10%. 
B) 6%. 
C) 6)38%. 
D) 60%. 
A) 3)10%. 
B) 6%. 
C) 6)38%. 
D) 60%.

Question 6

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, t

Question 7

Suppose that a new bond rating service is established that specializes in rating municipal bonds that had not previously been rated. The likely result would be

Accepted Answer

A) a shift to the left in the demand curve for municipal bonds. 
B) a shift to the left in the supply curve for municipal bonds. 
C) an increase in the equilibrium interest rate. 
D) a decrease in the equilibrium interest rate. 
A) a shift to the left in the demand curve for municipal bonds. 
B) a shift to the left in the supply curve for municipal bonds. 
C) an increase in the equilibrium interest rate. 
D) a decrease in the equilibrium interest rate.

Question 8

Which best describes the relationship between the cost of acquiring information and return?

Accepted Answer

A) A high return must compensate for a high cost of acquiring information. 
B) A higher cost of information corresponds with a low return. 
C) A low cost of acquiring information corresponds with a high return. 
D) A higher return results in a lower cost of acquiring information. 
A) A high return must compensate for a high cost of acquiring information. 
B) A higher cost of information corresponds with a low return. 
C) A low cost of acquiring information corresponds with a high return. 
D) A higher return results in a lower cost of acquiring information.

Question 9

A one-year discount bond with a face value of $1000 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 10

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 11

As a result of higher expected inflation,

Accepted Answer

A) the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises. 
B) the demand and supply curves for loanable funds both shift to the left and the equilibrium interest rate usually falls. 
C) the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilibrium interest rate usually rises. 
D) the demand curve for loanable funds shifts to the left, the supply curve for loanable funds shifts to the right, and the equilibrium interest rate usually rises. 
A) the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises. 
B) the demand and supply curves for loanable funds both shift to the left and the equilibrium interest rate usually falls. 
C) the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilibrium interest rate usually rises. 
D) the demand curve for loanable funds shifts to the left, the supply curve for loanable funds shifts to the right, and the equilibrium interest rate usually rises.

Question 12

As wealth increases in the economy, savers are willing to

Accepted Answer

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

Question 13

The wealth of most people declined as a result of the financial crisis of 2007-2009. As a result, which asset was most likely became a larger portion of their portfolio?

Accepted Answer

A) bonds 
B) stocks 
C) house 
D) checking account 
A) bonds 
B) stocks 
C) house 
D) checking account

Question 14

As a result of low interest rates on CDs and 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:

Accepted Answer

A) higher demand for bonds 
B) higher real interest rates 
C) lower nominal interest rates 
D) higher price of bonds 
A) higher demand for bonds 
B) higher real interest rates 
C) lower nominal interest rates 
D) higher price of bonds

Question 15

Which of the following is the most likely explanation of Japan's very low market interest rates in the early 2000s?

Accepted Answer

A) expected deflation 
B) an increasing budget deficit 
C) an increasing trade surplus 
D) an increase in corporate profits 
A) expected deflation 
B) an increasing budget deficit 
C) an increasing trade surplus 
D) an increase in corporate profits

Question 16

Loanable funds refers to

Accepted Answer

A) only those funds loaned from one bank to another. 
B) only those funds loaned to banks by the Federal Reserve. 
C) only those funds loaned by banks to private individuals. 
D) all those funds changing hands between lenders and borrowers in the bond market. 
A) only those funds loaned from one bank to another. 
B) only those funds loaned to banks by the Federal Reserve. 
C) only those funds loaned by banks to private individuals. 
D) all those funds changing hands between lenders and borrowers in the bond market.

Question 17

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 18

The demand for bonds is

Accepted Answer

A) equivalent to the demand for loanable funds. 
B) equivalent to the supply of loanable funds. 
C) represented by an upward-sloping line when the price of bonds is on the vertical axis and the quantity of bonds demanded is on the horizontal axis. 
D) represented by a downward-sloping line when the interest rate is on the vertical axis and the quantity of bonds demanded is on the horizontal axis. 
A) equivalent to the demand for loanable funds. 
B) equivalent to the supply of loanable funds. 
C) represented by an upward-sloping line when the price of bonds is on the vertical axis and the quantity of bonds demanded is on the horizontal axis. 
D) represented by a downward-sloping line when the interest rate is on the vertical axis and the quantity of bonds demanded is on the horizontal axis.

Question 19

The Federal Reserve issues a report indicating that future inflation will be higher than had previously seemed likely. As a result

Accepted Answer

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

Question 20

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

Accepted Answer

A) increased demand for bonds 
B) increased supply of bonds 
C) lower bond prices 
D) higher interest rates 
A) increased demand for bonds 
B) increased supply of bonds 
C) lower bond prices 
D) higher interest rates

The demand curve for bonds would be reduced by

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.

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

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

A one-year discount bond with a face value of $10,000 that is currently selling for $9400 has an interest rate of

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?

Suppose that a new bond rating service is established that specializes in rating municipal bonds that had not previously been rated. The likely result would be

Which best describes the relationship between the cost of acquiring information and return?

A one-year discount bond with a face value of $1000 has an interest rate of 4%. What is its price?

In a large open economy,

As a result of higher expected inflation,

As wealth increases in the economy, savers are willing to

The wealth of most people declined as a result of the financial crisis of 2007-2009. As a result, which asset was most likely became a larger portion of their portfolio?

As a result of low interest rates on CDs and 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 the most likely explanation of Japan's very low market interest rates in the early 2000s?

Loanable funds refers to

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

The demand for bonds is

The Federal Reserve issues a report indicating that future inflation will be higher than had previously seemed likely. As a result

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

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

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

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

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Exam 4: Determining Interest Rates

The demand curve for bonds would be reduced by

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.

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

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

A one-year discount bond with a face value of $10,000 that is currently selling for $9400 has an interest rate of

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?

Suppose that a new bond rating service is established that specializes in rating municipal bonds that had not previously been rated. The likely result would be

Which best describes the relationship between the cost of acquiring information and return?

A one-year discount bond with a face value of $1000 has an interest rate of 4%. What is its price?

In a large open economy,

As a result of higher expected inflation,

As wealth increases in the economy, savers are willing to

The wealth of most people declined as a result of the financial crisis of 2007-2009. As a result, which asset was most likely became a larger portion of their portfolio?

As a result of low interest rates on CDs and 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 the most likely explanation of Japan's very low market interest rates in the early 2000s?

Loanable funds refers to

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

The demand for bonds is

The Federal Reserve issues a report indicating that future inflation will be higher than had previously seemed likely. As a result

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

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

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

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