ap economics mcq IV

Explain how a well-functioning financial system promotes long-run economic growth
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Explain how a well-functioning financial system promotes long-run economic growth
By maximizing the total output production overtime and avoiding an excessive rates of production that crosses critical thresholds
Luke has $700 that he doesn't need to spend at the moment. However, when he has $1,500 he would like to buy a car. He's planning to have all the money within the next six months
savings account
Han is 25 years old and has $10,000 and his goal is to double the value of his money. He isn't worried if his money declines in value in the short term.
stocks
Rey has $5,000 that she can save. She would like her money to increase in value but she's very risk averse. She won't need access to this money for at least two years.
bonds
Lando has $10,000. He earns income by buying cars, fixing them up and selling them, so he needs access to his money because he always needs to be ready to buy a car when he finds a deal.
checking account/ cash
Leia received a $250,000 inheritance from her uncle. She wants an asset that will continue to generate passive income for her for several decades but she is worried that there is a bubble in the
stock market.
Certificates of deposit
Steve is 66 years old and has been retired for two years. He has saved well for retirement and is now happy to accept lower returns in favor of more security at this point in his life.
savings account
Explain why the opportunity cost of holding money depends on the interest rate.
As the demand for money increases, with no change in the supply of money, the nominal interest rate in the money market rises
Suppose the interest rate rises. What will happen to the price of bonds (in the short-run) that were issued previously at a lower interest rate? Explain.
if interest rates rise, the price of bonds will fall, and vice versa. this is known as interest rate risk
Assume the nominal interest rate was 5% and inflation was 3%. What was the real interest rate?
2%