Question 1

Suppose there's a 50% chance of a stock rising by 20% and a 50% chance of it falling by 20%.What is the expected rate of return on the stock?

Accepted Answer

A)  -20% 
B)  0% 
C)  10% 
D)  20% 
A)  -20% 
B)  0% 
C)  10% 
D)  20%

Question 2

Why do CDs have lower rates of return than stocks?

Accepted Answer

A)  CDs are much riskier investments than stocks. 
B)  CDs are less risky than stocks. 
C)  CDs are not taxed while stock s returns are taxable. 
D)  CDs are not as liquid as stocks. 
A)  CDs are much riskier investments than stocks. 
B)  CDs are less risky than stocks. 
C)  CDs are not taxed while stock s returns are taxable. 
D)  CDs are not as liquid as stocks.

Question 3

The supply curve for loanable funds would decline due to

Accepted Answer

A)  an increase in wealth. 
B)  an increase in the expected return on bonds. 
C)  an increase in expected inflation. 
D)  a decrease in the riskiness of bonds relative to other assets. 
A)  an increase in wealth. 
B)  an increase in the expected return on bonds. 
C)  an increase in expected inflation. 
D)  a decrease in the riskiness of bonds relative to other assets.

Question 4

How can a global savings glut affect the United States?

Accepted Answer

A)  It can reduce the world real interest rate, thus encouraging borrowing by Americans. 
B)  It can increase the world real interest rate, thus encouraging saving by Americans. 
C)  It can reduce the supply of loanable funds for the United States. 
D)  It can reduce the demand for loanable funds for the United States. 
A)  It can reduce the world real interest rate, thus encouraging borrowing by Americans. 
B)  It can increase the world real interest rate, thus encouraging saving by Americans. 
C)  It can reduce the supply of loanable funds for the United States. 
D)  It can reduce the demand for loanable funds for the United States.

Question 5

In 2008,the liquidity of mortgage-backed securities declined significantly.Make use of a graph of the bond market to show how this affected the price of mortgage-backed securities.

Accepted Answer

The lack of liquidity of mortg

Question 6

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 7

Which of the following would NOT cause the demand curve for bonds to shift?

Accepted Answer

A)  a change in wealth 
B)  a change in the price of bonds 
C)  a change in the liquidity of bonds 
D)  a change in expected inflation 
A)  a change in wealth 
B)  a change in the price of bonds 
C)  a change in the liquidity of bonds 
D)  a change in expected inflation

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

In November 2010,concern was raised about Ireland's sovereign debt.Make use of a graph of the bond market to show how this would affect the price of Irish bonds.

Accepted Answer

Fear about the ability of Irel

Question 10

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 11

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 12

As wealth decreases,which of the following is likely to account for a larger fraction of a saver's portfolio?

Accepted Answer

A)  corporate stock 
B)  corporate bonds 
C)  U.S. government securities 
D)  checking account balance 
A)  corporate stock 
B)  corporate bonds 
C)  U.S. government securities 
D)  checking account balance

Question 13

If the government were to simultaneously cut the personal income tax and the corporate profits tax,the equilibrium interest rate

Accepted Answer

A)  would fall. 
B)  would rise. 
C)  would be unaffected. 
D)  might either rise or fall. 
A)  would fall. 
B)  would rise. 
C)  would be unaffected. 
D)  might either rise or fall.

Question 14

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 15

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% change of a 0% return.Which investment would you choose? Why?

Accepted Answer

The second investment has an expected re

Question 16

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 17

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 18

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 19

If expected inflation declines by 2%,what should happen to nominal interest rates according to the Fisher effect?

Accepted Answer

A)  rise by 2% 
B)  fall by 2% 
C)  be cut in half 
D)  double in size 
A)  rise by 2% 
B)  fall by 2% 
C)  be cut in half 
D)  double in size

Question 20

Suppose there's an 80% chance of a stock rising by 20% and a 20% chance of it falling by 40%.Which type of investor would prefer an investment with a guaranteed return of 5%?

Accepted Answer

A)  risk loving investor 
B)  risk neutral investor 
C)  risk averse investor 
D)  risk is not relevant in this example 
A)  risk loving investor 
B)  risk neutral investor 
C)  risk averse investor 
D)  risk is not relevant in this example

Suppose there's a 50% chance of a stock rising by 20% and a 50% chance of it falling by 20%.What is the expected rate of return on the stock?

Why do CDs have lower rates of return than stocks?

The supply curve for loanable funds would decline due to

How can a global savings glut affect the United States?

In 2008,the liquidity of mortgage-backed securities declined significantly.Make use of a graph of the bond market to show how this affected the price of mortgage-backed securities.

As a result of higher expected inflation,

Which of the following would NOT cause the demand curve for bonds to shift?

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

In November 2010,concern was raised about Ireland's sovereign debt.Make use of a graph of the bond market to show how this would affect the price of Irish bonds.

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

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.

As wealth decreases,which of the following is likely to account for a larger fraction of a saver's portfolio?

If the government were to simultaneously cut the personal income tax and the corporate profits tax,the equilibrium interest rate

In an open economy,desired domestic lending

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% change of a 0% return.Which investment would you choose? Why?

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

In the bond market,the buyer is considered to be

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

If expected inflation declines by 2%,what should happen to nominal interest rates according to the Fisher effect?

Suppose there's an 80% chance of a stock rising by 20% and a 20% chance of it falling by 40%.Which type of investor would prefer an investment with a guaranteed return of 5%?

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

Suppose there's a 50% chance of a stock rising by 20% and a 50% chance of it falling by 20%.What is the expected rate of return on the stock?

Why do CDs have lower rates of return than stocks?

The supply curve for loanable funds would decline due to

How can a global savings glut affect the United States?

In 2008,the liquidity of mortgage-backed securities declined significantly.Make use of a graph of the bond market to show how this affected the price of mortgage-backed securities.

As a result of higher expected inflation,

Which of the following would NOT cause the demand curve for bonds to shift?

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

In November 2010,concern was raised about Ireland's sovereign debt.Make use of a graph of the bond market to show how this would affect the price of Irish bonds.

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

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.

As wealth decreases,which of the following is likely to account for a larger fraction of a saver's portfolio?

If the government were to simultaneously cut the personal income tax and the corporate profits tax,the equilibrium interest rate

In an open economy,desired domestic lending

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% change of a 0% return.Which investment would you choose? Why?

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

In the bond market,the buyer is considered to be

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

If expected inflation declines by 2%,what should happen to nominal interest rates according to the Fisher effect?

Suppose there's an 80% chance of a stock rising by 20% and a 20% chance of it falling by 40%.Which type of investor would prefer an investment with a guaranteed return of 5%?

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