Question 1

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 2

An increase in the tax rate on dividends, other things equal, is likely to result in a(n):

Accepted Answer

A) increased demand for bonds due to an increase in the expected return on bonds relative to stocks 
B) increased supply of bonds due to an increase in the expected return on bonds relative to stocks 
C) reduced demand for bonds due to a decrease in the expected return on bonds relative to stocks 
D) reduced demand for bonds due to an increase in the expected return on bonds relative to stocks 
A) increased demand for bonds due to an increase in the expected return on bonds relative to stocks 
B) increased supply of bonds due to an increase in the expected return on bonds relative to stocks 
C) reduced demand for bonds due to a decrease in the expected return on bonds relative to stocks 
D) reduced demand for bonds due to an increase in the expected return on bonds relative to stocks

Question 3

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 4

The world real interest rate is

Accepted Answer

A) set annually by a special commission at the United Nations. 
B) set annually by a special commission at the International Monetary Fund. 
C) determined in the international capital market. 
D) determined daily on the New York Stock Exchange. 
A) set annually by a special commission at the United Nations. 
B) set annually by a special commission at the International Monetary Fund. 
C) determined in the international capital market. 
D) determined daily on the New York Stock Exchange.

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 is a possible impact of a global savings glut on a small open economy?

Accepted Answer

A) interest rate would increase 
B) interest rate would decrease 
C) domestic savings would increase 
D) domestic investment would increase 
A) interest rate would increase 
B) interest rate would decrease 
C) domestic savings would increase 
D) domestic investment would increase

Question 7

As wealth increases in the economy, we would expect to observe

Accepted Answer

A) bond prices and interest rates both rise. 
B) bond prices and interest rates both fall. 
C) bond prices rise and interest rates fall. 
D) bond prices fall and interest rates rise. 
A) bond prices and interest rates both rise. 
B) bond prices and interest rates both fall. 
C) bond prices rise and interest rates fall. 
D) bond prices fall and interest rates rise.

Question 8

How is the interest rate that prevails in the bond market determined?

Accepted Answer

A) by the interaction of stock prices and bond prices 
B) by the decision of the president, in consultation with Congress 
C) by the demand for and supply of bonds 
D) by the Board of Governors of the New York Stock Exchange 
A) by the interaction of stock prices and bond prices 
B) by the decision of the president, in consultation with Congress 
C) by the demand for and supply of bonds 
D) by the Board of Governors of the New York Stock Exchange

Question 9

Suppose that you own $10,000 worth of stock in General Motors. Adding stock in which of the following companies would be least likely to reduce the risk in your portfolio?

Accepted Answer

A) Google 
B) Walmart 
C) Ford 
D) General Electric 
A) Google 
B) Walmart 
C) Ford 
D) General Electric

Question 10

Assess the impact on the bond market of the rise in Internet trading of stocks.

Accepted Answer

The liquidity of the stock market has be

Question 11

An increase in the corporate profits tax is likely to cause

Accepted Answer

A) the equilibrium interest rate to rise and the equilibrium price of bonds to fall. 
B) the equilibrium interest rate to fall and the equilibrium price of bonds to rise. 
C) the equilibrium interest rate and the equilibrium price of bonds both rise. 
D) the equilibrium interest rate and the equilibrium price of bonds both fall. 
A) the equilibrium interest rate to rise and the equilibrium price of bonds to fall. 
B) the equilibrium interest rate to fall and the equilibrium price of bonds to rise. 
C) the equilibrium interest rate and the equilibrium price of bonds both rise. 
D) the equilibrium interest rate and the equilibrium price of bonds both fall.

Question 12

The supply curve for loanable funds would increase due to a(n)

Accepted Answer

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

Question 13

A one-year discount bond with a face value of $1000 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 14

If the federal government decreases its spending and doesn't decrease taxes, the bond supply shifts to the

Accepted Answer

A) left and the equilibrium interest rate rises. 
B) left and the equilibrium interest rate falls. 
C) right and the equilibrium interest rate rises. 
D) right and the equilibrium interest rate falls. 
A) left and the equilibrium interest rate rises. 
B) left and the equilibrium interest rate falls. 
C) right and the equilibrium interest rate rises. 
D) right and the equilibrium interest rate falls.

Question 15

During an economic recession,

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 falls. 
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 falls. 
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 16

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) lend more at any given interest rate. 
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) lend more at any given interest rate. 
D) lend less at any given interest rate.

Question 17

Suppose there's an 80% chance of a stock rising by 20% and a 20% chance of it falling by 40%. What is the expected rate of return on the stock?

Accepted Answer

A) -40% 
B) -20% 
C) 8% 
D) 16% 
A) -40% 
B) -20% 
C) 8% 
D) 16%

Question 18

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

Accepted Answer

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

Question 19

In an open economy, desired domestic lending

Accepted Answer

A) must equal desired domestic borrowing. 
B) must equal desired domestic borrowing plus the amount of international lending. 
C) is always greater than desired domestic borrowing. 
D) is always less than desired domestic borrowing. 
A) must equal desired domestic borrowing. 
B) must equal desired domestic borrowing plus the amount of international lending. 
C) is always greater than desired domestic borrowing. 
D) is always less than desired domestic borrowing.

Question 20

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

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

An increase in the tax rate on dividends, other things equal, is likely to result in a(n):

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?

The world real interest rate is

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 is a possible impact of a global savings glut on a small open economy?

As wealth increases in the economy, we would expect to observe

How is the interest rate that prevails in the bond market determined?

Suppose that you own $10,000 worth of stock in General Motors. Adding stock in which of the following companies would be least likely to reduce the risk in your portfolio?

Assess the impact on the bond market of the rise in Internet trading of stocks.

An increase in the corporate profits tax is likely to cause

The supply curve for loanable funds would increase due to a(n)

A one-year discount bond with a face value of $1000 that is currently selling for $900 has an interest rate of

If the federal government decreases its spending and doesn't decrease taxes, the bond supply shifts to the

During an economic recession,

As wealth increases in the economy, savers are willing to

Suppose there's an 80% chance of a stock rising by 20% and a 20% chance of it falling by 40%. What is the expected rate of return on the stock?

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

In an open economy, desired domestic lending

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:

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

Exam 4: Determining Interest Rates

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

An increase in the tax rate on dividends, other things equal, is likely to result in a(n):

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?

The world real interest rate is

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 is a possible impact of a global savings glut on a small open economy?

As wealth increases in the economy, we would expect to observe

How is the interest rate that prevails in the bond market determined?

Suppose that you own $10,000 worth of stock in General Motors. Adding stock in which of the following companies would be least likely to reduce the risk in your portfolio?

Assess the impact on the bond market of the rise in Internet trading of stocks.

An increase in the corporate profits tax is likely to cause

The supply curve for loanable funds would increase due to a(n)

A one-year discount bond with a face value of $1000 that is currently selling for $900 has an interest rate of

If the federal government decreases its spending and doesn't decrease taxes, the bond supply shifts to the

During an economic recession,

As wealth increases in the economy, savers are willing to

Suppose there's an 80% chance of a stock rising by 20% and a 20% chance of it falling by 40%. What is the expected rate of return on the stock?

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

In an open economy, desired domestic lending

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:

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