LSU ECON 2035- FINAL Exam
Questions and All Correct Answers
2025-2026 Updated.
4% - Answer Suppose you have a fixed-rate mortgage with a nominal interest rate of 6% and
the expected annual inflation rate over the life of the mortgage is 2%. What is the expected real
interest rate?
savers to hold many assets - Answer the financial system provides risk sharing by allowing:
a lawsuit because the corporation produced a faulty product - Answer Which is the best
example of idiosyncratic risk?
an unsustainable increase in the price of a class of assets - Answer Which of the following
best describes a "bubble"?
risk neutral - Answer an investor who bases the decision to buy an asset solely on the
expected return of an asset is considered to be
the coupon divided by the market price of the bond - Answer the current yield is equal to
increases in expected inflation - Answer which of the following is NOT a reason that interest
rates remained low following the financial crisis?
anything that is generally accepted as payment for goods and services or in the settlement of
debts - Answer Money can BEST be described as
management of the money supply and interest rates to achieve macroeconomic objectives -
Answer monetary policy refers to the government's
they interest rate on other similar bonds must have risen - Answer If, while you are holding a
coupon bond, its market price falls, it is most likely that
savings account deposits - Answer Which of the following is NOT included in M1?
increase; right - Answer Higher government deficits _______ the supply of bonds and shift
the supply curve to the _____
,stock exchange - Answer Which of the following is NOT a financial intermediary?
more interest paid over the life of the loan - Answer Which of the following is a consequence
of extending the payback period of a student loan from 10 to 30 years?
decreases - Answer an increase in the time to the promised future payment
______________ the present value of the payment
liability to Intel and an asset to you - Answer If you buy a bond issued by Intel, the bond is
a(an)
present value of all future payments - Answer The price of a financial asset equals the
increased default risk - Answer which of the following will result in a decrease in the price of
an existing corporate bond?
the number of times each dollar in the money supply is used to buy goods and services included
in GDP - Answer The velocity of money can best be described as
our society's willingness to use dollar bills issued by the Federal Reserve as money - Answer
What determines the acceptability of dollar bills as a medium of exchange?
an increase in the price level - Answer Which of the following will cause the money demand
curve to shift to the right?
financial assets but not financial securities - Answer ordinary loans cannot be resold after
they have been granted by a bank or another lender. Therefore, these loans are
low; high - Answer When nominal interest rates on financial assets are low, the opportunity
cost of holding money is _____________, so the quantity of money demanded by households
and firms will be ____________.
inflation - Answer Research has shown that nations with highly independent central banks
tend to have low
either the quantity of money and /or the velocity of money must also increase - Answer
According to the equation of exchange, if nominal GDP increases then
money market mutual fund - Answer Which of the following assets is the most liquid?
,bond prices rise and interest rates fall - Answer as wealth increases in the economy, we
would expect to observe ____________
the yield to maturity must be less than the coupon rate - Answer If the current price of a
bond is greater than its face value :
only agricultural goods may be traded - Answer Which of the following is NOT a significant
cost that a barter system imposes on an economy?
the interest rate will fall - Answer If there is an excess demand for bonds at a given price of
bonds, then
short-term yields are higher than long-term yields - Answer When the yield curve is
downward-sloping
agencies charge firms for their services rather than investors, they have an incentive to give high
ratings to gain business - Answer Some claim that ratings agencies have a conflict of interest
since
borrowers know more than lenders - Answer Problems of asymmetric information usually
occur in financial markets because
lower demand for US products and layoffs of US workers - Answer A substantial appreciation
of the US dollar will likely result in, all else equal
stocks with high returns today to experience low returns in the future and for stocks with low
returns today to experience high returns in the future - Answer Mean reversion refers to the
tendency for
gathering information about the default risk of borrowers - Answer Banks deal with
problems of adverse selection by
increases; decreases - Answer Rising stock prices _______ household wealth, which
_________ consumption spending
slope upward - Answer under the expectations theory, if market participants expect that
future short-term rates will be higher than current short-term rates, the yield curve will
, investors require a larger term premium for a bond with a longer time to maturity - Answer
According to the liquidity premium theory, the yield curve normally has a positive slope because
moral hazard - Answer the purpose of restrictive covenants reduce ______________ in debt
contracts
equals its expected price plus a random error term - Answer In an efficient market with
rational exceptions, the actual price of an asset
the Japanese yen to depreciate against the British pound - Answer If inflation in Japan is
higher than inflation in Britain, we would expect
the good is not tradable - Answer An exception to the law of one price occurs if
a man with a bad heart condition buys a large life insurance policy - Answer Which of the
following is an example of adverse selection?
sell; lowering - Answer If investors are becoming concerned that investments in Argentina
are at increased risk of default, these investors would be inclined to _______________
Argentine pesos, ____________________ the value of the Argentine peso relative to other
currencies
the after-tax yield on municipal bonds is greater - Answer Many savers are willing to accept a
lower interest rate on municipal bonds than on comparable instruments
during a recession - Answer The risk premium of corporate bonds typically increases
increase; appreciate - Answer All else being equal, an increase in the foreign demand for US
goods causes the demand for dollars to __________________ and the dollar will
__________________ relative to foreign currencies
holders of common stock - Answer Which group of investors vote for a corporation's board
of directors?
reduces the value of a stock - Answer According to the Gordon growth model, an increase in
the required return on equity
borrowers have an incentive to act in ways that do not reflect the lender's interests - Answer
Moral hazard problems arise when
Questions and All Correct Answers
2025-2026 Updated.
4% - Answer Suppose you have a fixed-rate mortgage with a nominal interest rate of 6% and
the expected annual inflation rate over the life of the mortgage is 2%. What is the expected real
interest rate?
savers to hold many assets - Answer the financial system provides risk sharing by allowing:
a lawsuit because the corporation produced a faulty product - Answer Which is the best
example of idiosyncratic risk?
an unsustainable increase in the price of a class of assets - Answer Which of the following
best describes a "bubble"?
risk neutral - Answer an investor who bases the decision to buy an asset solely on the
expected return of an asset is considered to be
the coupon divided by the market price of the bond - Answer the current yield is equal to
increases in expected inflation - Answer which of the following is NOT a reason that interest
rates remained low following the financial crisis?
anything that is generally accepted as payment for goods and services or in the settlement of
debts - Answer Money can BEST be described as
management of the money supply and interest rates to achieve macroeconomic objectives -
Answer monetary policy refers to the government's
they interest rate on other similar bonds must have risen - Answer If, while you are holding a
coupon bond, its market price falls, it is most likely that
savings account deposits - Answer Which of the following is NOT included in M1?
increase; right - Answer Higher government deficits _______ the supply of bonds and shift
the supply curve to the _____
,stock exchange - Answer Which of the following is NOT a financial intermediary?
more interest paid over the life of the loan - Answer Which of the following is a consequence
of extending the payback period of a student loan from 10 to 30 years?
decreases - Answer an increase in the time to the promised future payment
______________ the present value of the payment
liability to Intel and an asset to you - Answer If you buy a bond issued by Intel, the bond is
a(an)
present value of all future payments - Answer The price of a financial asset equals the
increased default risk - Answer which of the following will result in a decrease in the price of
an existing corporate bond?
the number of times each dollar in the money supply is used to buy goods and services included
in GDP - Answer The velocity of money can best be described as
our society's willingness to use dollar bills issued by the Federal Reserve as money - Answer
What determines the acceptability of dollar bills as a medium of exchange?
an increase in the price level - Answer Which of the following will cause the money demand
curve to shift to the right?
financial assets but not financial securities - Answer ordinary loans cannot be resold after
they have been granted by a bank or another lender. Therefore, these loans are
low; high - Answer When nominal interest rates on financial assets are low, the opportunity
cost of holding money is _____________, so the quantity of money demanded by households
and firms will be ____________.
inflation - Answer Research has shown that nations with highly independent central banks
tend to have low
either the quantity of money and /or the velocity of money must also increase - Answer
According to the equation of exchange, if nominal GDP increases then
money market mutual fund - Answer Which of the following assets is the most liquid?
,bond prices rise and interest rates fall - Answer as wealth increases in the economy, we
would expect to observe ____________
the yield to maturity must be less than the coupon rate - Answer If the current price of a
bond is greater than its face value :
only agricultural goods may be traded - Answer Which of the following is NOT a significant
cost that a barter system imposes on an economy?
the interest rate will fall - Answer If there is an excess demand for bonds at a given price of
bonds, then
short-term yields are higher than long-term yields - Answer When the yield curve is
downward-sloping
agencies charge firms for their services rather than investors, they have an incentive to give high
ratings to gain business - Answer Some claim that ratings agencies have a conflict of interest
since
borrowers know more than lenders - Answer Problems of asymmetric information usually
occur in financial markets because
lower demand for US products and layoffs of US workers - Answer A substantial appreciation
of the US dollar will likely result in, all else equal
stocks with high returns today to experience low returns in the future and for stocks with low
returns today to experience high returns in the future - Answer Mean reversion refers to the
tendency for
gathering information about the default risk of borrowers - Answer Banks deal with
problems of adverse selection by
increases; decreases - Answer Rising stock prices _______ household wealth, which
_________ consumption spending
slope upward - Answer under the expectations theory, if market participants expect that
future short-term rates will be higher than current short-term rates, the yield curve will
, investors require a larger term premium for a bond with a longer time to maturity - Answer
According to the liquidity premium theory, the yield curve normally has a positive slope because
moral hazard - Answer the purpose of restrictive covenants reduce ______________ in debt
contracts
equals its expected price plus a random error term - Answer In an efficient market with
rational exceptions, the actual price of an asset
the Japanese yen to depreciate against the British pound - Answer If inflation in Japan is
higher than inflation in Britain, we would expect
the good is not tradable - Answer An exception to the law of one price occurs if
a man with a bad heart condition buys a large life insurance policy - Answer Which of the
following is an example of adverse selection?
sell; lowering - Answer If investors are becoming concerned that investments in Argentina
are at increased risk of default, these investors would be inclined to _______________
Argentine pesos, ____________________ the value of the Argentine peso relative to other
currencies
the after-tax yield on municipal bonds is greater - Answer Many savers are willing to accept a
lower interest rate on municipal bonds than on comparable instruments
during a recession - Answer The risk premium of corporate bonds typically increases
increase; appreciate - Answer All else being equal, an increase in the foreign demand for US
goods causes the demand for dollars to __________________ and the dollar will
__________________ relative to foreign currencies
holders of common stock - Answer Which group of investors vote for a corporation's board
of directors?
reduces the value of a stock - Answer According to the Gordon growth model, an increase in
the required return on equity
borrowers have an incentive to act in ways that do not reflect the lender's interests - Answer
Moral hazard problems arise when
