ECON 2035 Final Stahl (Exams 1-3) With
Complete Solutions
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
Complete Solutions
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
