ECON 2035 Final Stahl (Exams 1-3)
Questions and All Correct Answers.
Suppose a new production technology is introduced in the US that will greatly INCREASE labor
productivity. Further assume that, at the same time, the real interest rate in Canada is expected
to DECREASE sharply in the near future. Everything else held constant, the cumulative effect of
these changes will cause the real interest rate in the US to _____________ - Answer Either
increase, decrease, or remain the same.
Which of the following situations would be the most advantageous for a bond issuer? - Answer
a nominal interest rate of 30% and an expected inflation rate of 32%.
A bank lending depositors' money to a local business and a pension fund investing contributions
in the shares of a company are similar financial activities in that _____________. - Answer
both involve funds being channeled from savers to borrowers through financial intermediaries
If the Fed INCREASES the money supply and as a result, households and firms BUY MORE SHORT
TERM FINANCIAL ASSETS, the prices of those assets will __________ and the interest rates on
those assets will ___________. - Answer rise; fall
For a specific change in the yield to maturity _________. - Answer the longer the time until a
bond matures, the greater will be the change in its price.
Securitization is the process of ___________. - Answer converting loans into securities
Suppose nominal GDP is $14 trillion and the money supply is $2 trillion. What is the velocity of
money? - Answer 7
Suppose that everyone's income rose nationwide and the central bank decided to sell bonds.
According to the Liquidity Preference Theory and everything else held constant, this would
cause the nominal interest rate to ______________. - Answer increase
Which of the following 10-year bonds with a FV of $1000 has the LOWEST YTM? - Answer A
coupon rate of 2% and selling for $1100
ATM machines and debit cards are examples of - Answer Electronic funds transfer systems
, Which of the following will result in a decrease in the price of an existing corporate bond? -
Answer increased default risk
A security is a claim on ___________ of income. - Answer some future flow
Which of the following is NOT a key financial service provided by the financial system? - Answer
profitibility
Which of the following is NOT included in M1? - Answer savings account deposits
Suppose that the US Fed Govt INCREASES its spending. At the same time, domestic firms believe
that economic activity will sharply increase in the near future. Everything else held constant, the
combination of these two effects will cause the real interest rate in the US to ____________. -
Answer increase
Which of the following is NOT true of a fixed payment loan? - Answer The borrower is left
with a substantial unpaid principal at the maturity of the loan
Fannie Mae and Freddie Mac ______________. - Answer sell bonds to investors and use the
funds to purchase mortgages
Given that most investors tend to be risk averse ___________. - Answer there's a trade-off
between risk and return
The default risk premium is measured ____________. - Answer as the difference between
the yield on a non-treasury security and the yield on a US Treasury security of the same
maturity
Suppose the US Govt enacts and across-the-board increase in income tax rates. Everything else
held constant, this would cause the yields on US Treasury bonds to _________ and the yields on
municipal bonds to _________. - Answer increase;decrease
According to the Fisher effect, an increase in expected inflation results in ___________. -
Answer higher nominal interest rates
In an asset-price bubble, asset prices rise because ________. - Answer people expect them
to rise
Which of the following is NOT included in M2? - Answer savings bonds
Questions and All Correct Answers.
Suppose a new production technology is introduced in the US that will greatly INCREASE labor
productivity. Further assume that, at the same time, the real interest rate in Canada is expected
to DECREASE sharply in the near future. Everything else held constant, the cumulative effect of
these changes will cause the real interest rate in the US to _____________ - Answer Either
increase, decrease, or remain the same.
Which of the following situations would be the most advantageous for a bond issuer? - Answer
a nominal interest rate of 30% and an expected inflation rate of 32%.
A bank lending depositors' money to a local business and a pension fund investing contributions
in the shares of a company are similar financial activities in that _____________. - Answer
both involve funds being channeled from savers to borrowers through financial intermediaries
If the Fed INCREASES the money supply and as a result, households and firms BUY MORE SHORT
TERM FINANCIAL ASSETS, the prices of those assets will __________ and the interest rates on
those assets will ___________. - Answer rise; fall
For a specific change in the yield to maturity _________. - Answer the longer the time until a
bond matures, the greater will be the change in its price.
Securitization is the process of ___________. - Answer converting loans into securities
Suppose nominal GDP is $14 trillion and the money supply is $2 trillion. What is the velocity of
money? - Answer 7
Suppose that everyone's income rose nationwide and the central bank decided to sell bonds.
According to the Liquidity Preference Theory and everything else held constant, this would
cause the nominal interest rate to ______________. - Answer increase
Which of the following 10-year bonds with a FV of $1000 has the LOWEST YTM? - Answer A
coupon rate of 2% and selling for $1100
ATM machines and debit cards are examples of - Answer Electronic funds transfer systems
, Which of the following will result in a decrease in the price of an existing corporate bond? -
Answer increased default risk
A security is a claim on ___________ of income. - Answer some future flow
Which of the following is NOT a key financial service provided by the financial system? - Answer
profitibility
Which of the following is NOT included in M1? - Answer savings account deposits
Suppose that the US Fed Govt INCREASES its spending. At the same time, domestic firms believe
that economic activity will sharply increase in the near future. Everything else held constant, the
combination of these two effects will cause the real interest rate in the US to ____________. -
Answer increase
Which of the following is NOT true of a fixed payment loan? - Answer The borrower is left
with a substantial unpaid principal at the maturity of the loan
Fannie Mae and Freddie Mac ______________. - Answer sell bonds to investors and use the
funds to purchase mortgages
Given that most investors tend to be risk averse ___________. - Answer there's a trade-off
between risk and return
The default risk premium is measured ____________. - Answer as the difference between
the yield on a non-treasury security and the yield on a US Treasury security of the same
maturity
Suppose the US Govt enacts and across-the-board increase in income tax rates. Everything else
held constant, this would cause the yields on US Treasury bonds to _________ and the yields on
municipal bonds to _________. - Answer increase;decrease
According to the Fisher effect, an increase in expected inflation results in ___________. -
Answer higher nominal interest rates
In an asset-price bubble, asset prices rise because ________. - Answer people expect them
to rise
Which of the following is NOT included in M2? - Answer savings bonds
