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Extra Credit Quiz Practice

Terms in this set (20)

What effect might a fall in stock prices have on business​ investment?
A fall in stock prices might cause businesses to decrease investment.
What effect might a rise in stock prices have on​ consumers' decisions to​ spend?
A rise in stock prices will generally lead to more
consumer spending.
When interest rates​ decrease, how might businesses and consumers change their economic​ behavior?
A. There will be more consumption spending on​ interest-sensitive items and more investment by businesses.
B. Consumers and businesses will spend less and save more.
C. Consumers and businesses will hold smaller​ (average) cash balances.
D. Consumers and businesses will invest in bonds or similar debt instruments.
A. There will be more consumption spending on​ interest-sensitive items and more investment by businesses.
If a coupon bond has two years to​ maturity, a coupon rate of 88​%, a par value of ​$1000​, and a yield to maturity of 12​%, then the coupon bond will sell for ​$
$932.40
The price of a bond and its yield to maturity are
negatively related
Which of the following statements is not​ true?
A. The longer to​ maturity, the greater is the change in the price of a bond from the same size change in the interest rate.
B. Bond prices vary inversely with the interest rate for both coupon bonds and discount bonds.Bond prices vary inversely with the interest rate for both coupon bonds and discount bonds.
C. Current yield is a worse approximation of yield to maturity for long dash term bonds when compared to short dash term bonds.
D. The coupon rate on a coupon bond is fixed once the bond is issued.
C. Current yield is a worse approximation of yield to maturity for long dash term bonds when compared to short dash term bonds.
The concept of​ ________ is based on the common−sense notion that a dollar paid to you in the future is less valuable to you than a dollar today.
A. interest
B. present value
C. future value
D. deflation
B. present value
Which of the following​ $1,000 face−value securities has the highest yield to​ maturity?
A. A 5 percent coupon bond with a price of​ $600
B. A 5 percent coupon bond with a price of​ $800
C. A 5 percent coupon bond with a price of​ $1,200
D. A 5 percent coupon bond with a price of​ $1,000
A. A 5 percent coupon bond with a price of​ $600
Everything else held​ constant, an increase in the riskiness of bonds relative to alternative assets causes the demand for bonds to​ ________ and the demand curve to shift to the​ ________.
A. rise; right
B. fall; left
C. fall; right
D. rise; left
B. fall; left
In a business cycle​ expansion, the​ ________ of bonds increases and the​ ________ curve shifts to the​ ________ as business investments are expected to be more​ profitable, everything else held constant.
A. supply; supply; left
B. demand; demand; left
C. supply; supply; right
D. demand; demand; right
C. supply; supply; right
If monetary policy becomes more transparent about the future course of interest​ rates, how would that affect stock​ prices, if at​ all?
A. Stock prices will decrease because investors are now aware of stock prices and​ won't overpay.
B. Stock prices will remain​ unchanged, as increased transparency will not affect investment decisions.
C. Stock prices will​ increase, as the risk and required return on the investment will be reduced.
D. Stock prices will be​ unaffected, as stock prices and transparent monetary policy are unrelated.
C. Stock prices will​ increase, as the risk and required return on the investment will be reduced.
If the required reserve ratio is 10​ percent, currency in circulation is​ $1,200 billion, checkable deposits are​ $1,600 billion, and excess reserves total​ $2,500 billion, then the M1 money multiplier is
A. 7.3.
B. 0.73.
C. 2.5.
D. 1.7.
B. 0.73.
Open market sales shrink the​ ________, thereby decreasing the​ _________.
A. money​ multiplier; monetary base and reserves
B. money​ multiplier; money supply
C. monetary base and​ reserves; money supply
D. money​ base; money multiplier
C. monetary base and​ reserves; money supply
An increase in the interest rate will cause
A. investment spending to fall and net exports to rise.
B. investment spending to rise and net exports to rise.
C. investment spending to fall and net exports to fall.
D. investment spending to rise and net exports to fall.
C. investment spending to fall and net exports to fall.
Everything else held​ constant, a decrease in net exports​ ________ aggregate​ ________.
A. increases; demand
B. decreases; demand
C. increases; supply
D. decreases; supply
B. decreases; demand
A​ "conservative" central​ banker:
A. is more tempted to pursue overly expansionary monetary policy.
B. uses conventional econometric models for his or her policy evaluation.
C. will risk inflation to reduce unemployment.
D. has a strong aversion to inflation.
D. has a strong aversion to inflation.
A contractionary monetary policy decreases net exports by​ ________ interest rates and​ ________ the value of the dollar.
A. lowering​ real; decreasing
B. raising​ real; increasing
C. raising​ nominal; increasing
D. lowering​ real; increasing
B. raising​ real; increasing
The economist Irving​ Fisher, after whom the Fisher effect is​ named, explained why interest rates​ ________ as the expected rate of inflation​ ________, everything else held constant.
A. rise; increases
B. rise; stabilizes
C. fall; stabilizes
D. fall; increases
A. rise; increases
A decrease in the liquidity of corporate bonds will​ ________ the yield of corporate bonds and​ ________ the yield of Treasury​ bonds, everything else held constant.
A. decrease; decrease
B. decrease; increase
C. increase; increase
D. increase; decrease
A. decrease; decrease
An expansionary monetary policy lowers the real interest​ rate, causing the domestic currency to​ ________, thereby​ ________ net exports.
A. appreciate; raising
B. depreciate; raising
C. depreciate; lowering
D. appreciate; lowering
B. depreciate; raising
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