Department of Economics
Spring 2003
Economics 353: Section 2
Money, Banking and Financial Institutions
1) Evidence from the
A) there is a strong positive association between inflation
and growth rate of money over long periods of time.
B) there is little support for the assertion that "inflation
is always and everywhere a monetary phenomenon."
C) countries with low monetary growth rates tend to experience
higher rates of inflation, all else being constant.
D) money growth is clearly unrelated to inflation.
Answer: A
2) If the aggregate price level at time t is denoted by Pt,
the inflation rate from time t - 1 to t is defined as
A) pt = (Pt - Pt-1)/Pt-1
B)
pt = (Pt+1 - Pt-1)/Pt-1
C) pt = (Pt+1 - Pt)/Pt
D) pt = (Pt - Pt-1)/Pt
Answer: A
3) Prior to recessions in this century, there has been a
drop in
A) inflation.
B) the money stock.
C) the growth rate of the money stock.
D) interest rates.
Answer: C
4) The price paid for the rental of borrowed funds (usually
expressed as a percentage of the rental of $100 per year) is commonly referred
to as the
A) inflation rate.
B) exchange rate.
C) interest rate.
D) aggregate price
level.
Answer: C
5) The organization responsible for the conduct of monetary
policy in the
A) Comptroller of
the Currency. B)
C) Federal Reserve
System. D) Bureau of Monetary Affairs.
Answer: C
6) Banks are important to the study of money and the economy
because they
A) provide a channel for linking those who want to save
with those who want to invest.
B) have been a source of rapid financial innovation that
is expanding the alternatives available to those wanting to invest their money.
C) play an important role in determining the quantity of
money in the economy.
D) do each of the above.
E) do only (a) and (b) of the above.
Answer: D
7) Economists group commercial banks, savings and loan associations,
credit unions, mutual funds, mutual savings banks, insurance companies, pension
funds, and finance companies together under the heading financial intermediaries. Financial intermediaries
A) act as middlemen, borrowing funds from those who have
saved and lending these funds to others.
B) produce nothing of value and are therefore a drain on
society's resources.
C) help promote a more efficient and dynamic economy.
D) do each of the above.
E) do only (a) and (c) of the above.
Answer: E
8) The bond markets are important because
A) they are easily the most widely followed financial markets
in the
B) they are the markets where foreign exchange rates are
determined.
C) they are the markets where interest rates are determined.
D) of each of the above.
E) of only (a) and (b) of the above.
Answer: C
9) Budgets deficits can be a concern because they might
A) ultimately lead to higher inflation. B) lead to a higher rate of money growth.
C) lead to higher interest rates.
D) cause all of the
above to occur.
Answer: D
10) The price of one country's currency in terms of another's
is called
A) the exchange rate.
B) the interest rate.
C) the Dow Jones industrial average.
D) none of the above.
Answer: A
11) Everything else constant, a stronger dollar will mean that
A) vacationing in
B) vacationing in
C) French cheese
becomes more expensive.
D) Japanese cars
become more expensive.
Answer: B
12) Which of the following is most likely to result from a stronger
dollar?
A)
B)
C)
D) Americans will
purchase fewer foreign goods.
Answer: C
13) Which of the following are true statements?
A) Those countries
with the highest inflation rates are also the ones with the highest money
growth rates.
B) The average price
of goods and services in an economy is called the inflation rate.
C) When the average
price of goods and services in an economy increases, the inflation rate
increases.
D) All of the above
are true statements.
E) Only (a) and
(b) of the above are true statements.
Answer: A
14) Complete Milton Friedman's famous statement, "Inflation
is always and everywhere a _____ phenomenon."
A) recessionary B) discretionary
C) repressionary D) monetary
Answer: D
15) Changes in stock prices
A) affect people's wealth and their willingness to spend
B) affect firms' decisions to sell stock to finance investment
spending.
C) are characterized by considerable fluctuations.
D) all of the above.
E) only (a) and (b) of the above.
Answer: D
16) A stronger dollar benefits _____ and hurts _____.
A) American businesses;
American consumers
B) American businesses;
foreign businesses
C) American consumers;
American businesses
D) foreign businesses; American consumers
Answer: C
17) From 1980 to 1985 the dollar appreciated relative to the
British pound. Holding
everything else constant, one would expect
that, when compared to 1980,
A) more Americans traveled to
B) Americans imported
more Shetland sweaters from
C) Britons imported
more wine from
D) all of the above.
E) only (a) and (b) of the above.
Answer: E
18) In 1980 a Shetland sweater would have cost $120. With a stronger dollar, the same Shetland sweater would
have cost
A) less than $120.
B) more than $120.
C) $120, since the
exchange rate does not affect the prices that American consumers pay for
foreign goods.
D) $120, since the
demand for Shetland sweaters will decrease to prevent an increase in price
due to the stronger dollar.
Answer: A
19) When the total value of final goods and services is calculated
using current prices, the resulting measure is referred to as
A) real GDP.
B) the GDP deflator.
C) nominal GDP.
D) the index of leading
indicators.
Answer: C
20) GDP measured with constant prices is referred to as
A) real GDP.
B) nominal GDP.
C) the GDP deflator.
D) industrial production.
Answer: A
1) Every financial market has the following characteristic:
A) It determines
the level of interest rates.
B) It allows common
stock to be traded.
C) It allows loans
to be made.
D) It channels funds
from lenders-savers to borrowers-spenders.
Answer: D
2) Which of the following can be described as involving direct
finance?
A) A corporation
takes out a loan from a bank.
B) People buy shares
in a mutual fund.
C) A corporation
buys commercial paper issued by another corporation.
D) An insurance
company buys shares of common stock in the over-the-counter markets.
E) None of the above.
Answer: C
3) Which of the following can be described as involving indirect
finance?
A) You make a loan
to your neighbor.
B) A corporation
buys a share of common stock issued by another corporation.
C) You buy a U.S.
Treasury bill from the U.S. Treasury.
D) You make a deposit
at a bank.
Answer: D
4) Which of the following can be described as involving indirect
finance?
A) A corporation
issues new shares of stock.
B) A corporation
buys commercial paper issued by another corporation.
C) A pension fund
manager buys commercial paper in the secondary market.
D) Both (a) and
(b) of the above.
Answer: C
5) Which of the following are long-term financial instruments?
A) A negotiable
certificate of deposit B) A banker's acceptance
C) A U.S. Treasury
bond D) A U.S. Treasury bill
Answer: C
6) Which of the following are short-term financial instruments?
A) A negotiable
certificate of deposit
B) A bankers acceptance
C) A six-month loan
D) A U.S. Treasury
bill
E) All of the above
Answer: E
7) Which of the following statements about the characteristics
of debt and equity are true?
A) They can both
be long-term financial instruments.
B) They can both
be short-term financial instruments.
C) Debt is a claim
on the issuer's assets, but equity is a claim on the issuer's income.
D) Both (a) and
(b) of the above.
E) Both (a) and
(c) of the above.
Answer: A
8) Which of the following instruments is not traded in a
money market?
A) Banker's acceptances
B)
C) Eurodollars
D) Commercial paper
E) Residential
mortgages
Answer: E
9) Which of the following instruments are traded in a money
market?
A) State and local
government bonds B) U.S. Treasury bills
C) Corporate bonds
D) All of the above
Answer: B
10) Which of the following instruments are traded in a capital
market?
A) U.S. Government
agency securities
B) Negotiable bank
CDs
C) Repurchase agreements
D) Banker's acceptances
E) None of the above
Answer: A
11) Which of the following is a depository institution?
A) A life insurance
company B) A credit union
C) A pension fund
D) A mutual fund
Answer: B
12) Which of the following is not a contractual savings institution?
A) A life insurance
company
B) A pension fund
C) A savings and
loan association
D) A fire and casualty
insurance company
Answer: C
13) Bonds that are sold in a foreign country and are denominated
in the country's currency in which they are sold are known as
A) foreign bonds. B) Eurobonds.
C) equity bonds. D) country bonds
Answer: A
14) Securities are _____ for the person who buys them, but are
_____ for the individual or firm that issues them.
A) assets; liabilities
B) liabilities; assets
C) negotiable; nonnegotiable
D) nonnegotiable; negotiable
Answer: A
15) A corporation acquires new funds only when its securities
are sold
A) in the primary market by an investment bank.
B) in the primary market by a stock exchange broker.
C) in the secondary market by a securities dealer.
D) in the secondary market by a commercial bank.
Answer: A
16) American businesses get their external funds primarily
from
A) bank loans.
B) bonds and commercial
paper issues.
C) stock issues.
D) other loans.
Answer: A
17) A potential borrower usually has better information about
the potential returns and risk of the investment projects he plans to undertake
than does the lender. This inequality of information
is called
A) moral hazard.
B) asymmetric information.
C) reverse causation.
D) adverse selection.
Answer: B
18) The problem created by asymmetric information before
the transaction occurs is called _____, while the problem created after the
transaction occurs is called _____.
A) adverse selection; moral hazard
B) moral hazard; adverse selection
C) costly state verification; free-riding D) free-riding; costly state
verification
Answer: A
19) Adverse selection is a problem associated with equity
and debt contracts arising from
A) the lender's relative lack of information about the
borrower's potential returns and risks of his investment activities.
B) the lender's inability to legally require sufficient
collateral to cover a 100% loss if the borrower defaults.
C) the borrower's lack of incentive to seek a loan for
highly risky investments.
D) none of the above.
Answer: A
20) The presence of transaction costs in financial markets
explains, in part, why
A) financial intermediaries and indirect finance play such
an important role in financial markets.
B) equity and bond financing play such an important role
in financial markets.
C) corporations get more funds through equity financing
than they get from financial intermediaries.
D) direct financing is more important than indirect financing
as a source of funds.
Answer: A
1) There is no single precise measure of money or the money
supply for economists because
A) the government considers money supply statistics to
be confidential and refuses to publish them.
B) deciding what is generally accepted in payment for goods
and services or in the repayment of debt is difficult to determine.
C) economists cannot agree if currency should be considered
money.
D) of each of the above.
E) of both (a) and (b) of the above.
Answer: B
2) The difference between money and income is that
A) money is a flow and income is a stock.
B) money is a stock and income is a flow.
C) there is no difference--money and income are both stocks.
D) there is no difference--money and income are both flows.
Answer: B
3) The conversion of a barter economy to one that uses money
increases efficiency by reducing
A) the need to exchange goods.
B) the need to specialize.
C) the need to employ team production methods.
D) transactions costs.
Answer: D
4) When compared to exchange systems that rely on money,
disadvantages of the barter system include:
A) the requirement of a double coincidence of wants.
B) lowering the cost of exchanging goods over time.
C) lowering the cost of exchange to those who would specialize.
D) all of the above.
Answer: A
5) Of money's three functions, the one that distinguishes
money from other assets is its function as a
A) store of value.
B) unit of account.
C) standard of deferred payment
D) medium of exchange.
Answer: D
6) When economists say that money promotes efficiency, they
mean that money
A) reduces transactions costs.
B) encourages specialization and the division of labor.
C) is inexpensive
to produce.
D) does both (a) and (b) of the above.
Answer: D
7) Checkable deposits are money because
A) federal regulations mandate that they be so considered.
B) they serve the functions of money.
C) only banks, and not savings and loan associations, can
issue checkable deposits.
D) of both (a) and (b) of the above.
E) of both (a) and (c) of the above.
Answer: B
8) If the price level doubles, the value of money
A) doubles.
B) more than doubles, due to scale economies.
C) rises but does not double, due to diminishing returns.
D) falls by 50 percent.
Answer: D
9) Which of the following statements best explains how the
use of money in an economy increases economic efficiency?
A) Money increases
economic efficiency because it is costless to produce.
B) Money increases
economic efficiency because it encourages specialization.
C) Money increases
economic efficiency because it increases transactions costs.
D) Money cannot
have an effect on economic efficiency.
Answer: B
10) Recent financial innovation makes the Federal Reserve's
job of conducting monetary policy
A) easier, since the Fed now knows what to consider money.
B) more difficult, since the Fed now knows what to consider
money.
C) easier, since the Fed no longer knows what to consider
money.
D) more difficult, since the Fed no longer knows what to
consider money.
Answer: D
11) The narrowest measure of money that the Fed reports is
A) M0. B) M1. C) M2. D) M3.
Answer: B
12) Which of the following is not included in the measure of
M1?
A) Traveler's checks
B) demand deposits
C) currency
D) gold coins issued by the U.S. Treasury
Answer: D
13) Which of the following is included in M2 but not in M1?
A) NOW accounts
B) Demand deposits
C) Currency
D) Money market
mutual fund shares (noninstitutional)
E) gold coins issued by the U.S. Treasury
Answer: D
14) An examination of revised money supply statistics, when
compared to the initial statistics, suggests that
A) the initial statistics are pretty good.
B) the initial statistics do not provide a good guide to
short-run movements in the money supply.
C) the initial statistics provide a poor guide of monetary
policy because they are usually underestimates of the revised statistics.
D) the initial statistics provide a good guide of monetary
policy, though they are usually underestimates of the revised statistics.
Answer: B
15) The components of the U.S. M1 money supply are demand and
checkable deposits plus
A) currency.
B) currency plus savings deposits.
C) currency plus travelers checks.
D) currency plus travelers checks plus money market deposits.
Answer: C
16) The evolution of the payments system from barter to precious
metals, then to fiat money, then to checks can best be understood as a consequence
of
A) government regulations designed to improve the efficiency
of the payments system.
B) government regulations designed to promote the safety
of the payments system.
C) innovations that reduced the costs of exchanging goods
and services.
D) all of the above.
E) only (a) and (c) of the above.
Answer: C
17) Which of the following is not included in the M1 measure
of money but is included in the M2 measure of money?
A) currency
B) traveler's checks
C) demand deposits
D) small denomination time deposits
Answer: D
18) The M1 measure of money includes
A) small denomination time deposits.
B) savings deposits.
C) money market deposit accounts.
D) money market mutual fund shares.
E) traveler's checks.
Answer: E
19) Because inflation in
A) deflation. B) disinflation. C) hyperinflation. D) superdeflation.
Answer: C
20) Although not a unique store of value, people find money
a convenient store of value because
A) it does not decline in value when prices rise.
B) its value remains fixed to the price level; that is,
if prices double so does the value of money.
C) it is the most liquid asset.
D) of all of the above.
E) of none of the above.
Answer: C
21) If there are five goods in a barter economy, one needs to
know ten prices in order to exchange one good for another.
If, however, there are ten goods in a barter economy, then one needs
to know _____ prices in order to exchange one good for another.
A) 20 B) 25 C) 30
D) 45
Answer: D
22) Because it is a medium of exchange, money
A) does not earn interest.
B) eliminates the requirement for a double coincidence
of wants.
C) must be currency.
D) cannot be a durable asset.
Answer: B
23) Because it is a unit of account, money
A) increases transaction costs.
B) reduces the number of prices that need to be calculated.
C) does not earn interest.
D) does all of the above.
Answer: B
24) Which of the following statements accurately describes the
three different measures of the money supply--M1, M2, and M3?
A) The three measures
do not move together, so they cannot be used interchangeably by policymakers.
B) The three measures'
movements closely parallel each other, even on a month-to-month basis.
C) Short-run movements
in the money supply are extremely reliable.
D) Both (a) and
(c) of the above.
Answer: A
25) Assets such as bonds, common stock, art, land, furniture,
cars, or houses function as stores of value, but
A) are not generally accepted in the payment for goods
and services.
B) do not generate flows of income for their owners.
C) are not considered as wealth.
D) all of the above.
E) only (a) and (b) of the above.
Answer: A
26) The problem of the double coincidence of wants can be
avoided if
A) trade is organized in a central market. B) money
is used to facilitate exchanges.
C) barter trades are encouraged.
D) both (a) and (b)
of the above.
Answer: B
27) Money reduces transaction costs, allowing people to specialize
in what they do best. Money, therefore, promotes
A) greed and avarice.
B) inefficiency.
C) the division of labor.
D) competition.
Answer: C
28) Money reduces transaction costs, allowing people to specialize
in what they do best. Money, therefore,
A) decreases specialization.
B) improves economic
efficiency.
C) frustrates exchange.
D) only (a) and (b)
of the above.
Answer: B
29) In a barter economy the number of prices in an economy
with N goods is
A) [N(N-1)]/2. B) N(N/2). C) 2N. D) N(N/2)-1.
Answer: A
30) One can be confident that money must promote efficiency
because
A) almost every society except the most primitive uses
it.
B) people generally prefer using it in exchanges.
C) both (a) and (b) of the above.
D) neither (a) nor (b) of the above.
Answer: C
31) If an individual moves money from a money market deposit
account to currency,
A) M1 increases
and M2 stays the same.
B) M1 stays the
same and M2 increases.
C) M1 stays the
same and M2 stays the same.
D) M1 increases
and M2 decreases.
Answer: A
1) A loan that requires the borrower to make the same payment
every period until the maturity date is called a
A) simple loan.
B) fixed-payment
loan.
C) discount loan.
D) a same-payment loan.
E) none of the above.
Answer: B
2) 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 $1,000.
D) A 5 percent coupon
bond with a price of $1,200.
E) A 5 percent coupon
bond with a price of $1,500.
Answer: A
3) Of the following measures of interest rates, which is
considered by economists to be the most accurate?
A) The yield to
maturity B) The coupon rate
C) The current yield
D) The yield on a discount basis.
Answer: A
4) The current yield, which equals the coupon payment divided
by the price of a coupon bond, is a less accurate measure of the yield to
maturity the ______ the maturity of the bond and the ______ the price is from/to
the par value.
A) shorter; closer B) shorter; farther
C) longer; closer D) longer;
farther
Answer: B
5) The nominal interest rate minus the expected rate of inflation
A) defines the real interest rate.
B) is a less accurate measure of the incentives to borrow
and lend than is the nominal interest rate.
C) is a less accurate indicator of the tightness of credit
market conditions than is the nominal interest rate.
D) defines the discount rate.
Answer: A
6) A credit market instrument that pays the owner a fixed
coupon payment every year until the maturity date and then repays the face
value is called a
A) simple loan.
B) fixed-payment loan.
C) coupon bond.
D) discount bond.
Answer: C
7) A credit market instrument that pays the owner the face
value of the security at the maturity date and nothing prior to then is called
a
A) simple loan.
B) fixed-payment loan.
C) coupon bond.
D) discount bond.
Answer: D
8) A ______ pays the owner a fixed coupon payment every year
until the maturity date, when the ______ value is repaid.
A) coupon bond; discount
B) discount bond; discount
C) coupon bond; face
D) discount bond; face
Answer: C
9) For simple loans, the simple interest rate is _____ the
yield to maturity.
A) greater than
B) less than
C) equal to
D) not comparable to
Answer: C
10) If a $10,000 coupon bond has a coupon rate of 8 percent,
then the coupon payment every year is
A) $40.
B) $80.
C) $400.
D) $800.
E) none of the above.
Answer: D
11) A $4,000 coupon bond with a $480 coupon payment every year
has a coupon rate of
A) 2 percent. B) 6 percent. C) 8 percent. D) 12 percent.
Answer: D
12) With an interest rate of 4 percent, the present value of
$100 next year is approximately
A) $104. B) $100. C) $96.
D) $92.
Answer: C
13) The _____ is a better approximation for the _____, the nearer
the bond's price is to the bond's par value and the longer the maturity of
the bond.
A) current yield; yield to maturity
B) current yield; coupon rate
C) yield to maturity; current yield
D) yield to maturity; coupon rate
Answer: A
14) The return on a 10 percent coupon bond that initially sells
for $1,000 and sells for $950 next year is
A) -10 percent.
B) -5 percent. C) 0 percent.
D) 5 percent.
Answer: D
15) If you expect the inflation rate to be 5 percent next year
and a one year bond has a yield to maturity of 7 percent, then the real interest
rate on this bond is
A) -12 percent.
B) -2 percent. C) 2 percent.
D) 12 percent.
Answer: C
16) 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) present value B) future value
C) interest D) deflation
Answer: A
17) The interest rate that equates the present value of payments
received from a debt instrument with its value today is the
A) simple interest
rate. B) discount rate.
C) yield to maturity.
D) real interest
rate.
Answer: C
18) Economists consider the ______ to be the most accurate
measure of interest rates.
A) simple interest
rate. B) discount rate.
C) yield to maturity.
D) real interest
rate.
Answer: C
19) Which of the following are true for a coupon bond?
A) When the coupon
bond is priced at its face value, the yield to maturity equals the coupon
rate.
B) The price of
a coupon bond and the yield to maturity are positively related.
C) The yield to
maturity is greater than the coupon rate when the bond price is above the
par value.
D) All of the above
are true.
E) Only (a) and
(b) of the above are true.
Answer: A
20) Which of the following are true for the current yield?
A) The current yield
is defined as the yearly coupon payment divided by the price of the security.
B) The formula for
the current yield is identical to the formula describing the yield to maturity
for a discount bond.
C) The current yield
is always a poor approximation for the yield to maturity.
D) All of the above
are true.
E) Only (a) and
(b) of the above are true.
Answer: A
21) Which of the following are true concerning the distinction
between interest rates and return?
A) The rate of return
on a bond will not necessarily equal the interest rate on that bond.
B) The return can
be expressed as the difference between the current yield and the rate of capital
gains.
C) The rate of return
will be greater than the interest rate when the price of the bond falls between
time t and time t+1.
D) All of the above
are true.
E) Only (a) and
(b) of the above are true.
Answer: A
22) Which of the following are generally true of all bonds?
A) The longer a
bond's maturity, the greater is the rate of return that occurs as a result
of the increase in the interest rate.
B) Even though a
bond has a substantial initial interest rate, its return can turn out to be
negative if interest rates rise.
C) Prices and returns
for short term bonds are more volatile than those for longer term bonds.
D) All of the above
are true.
E) Only (a) and
(b) of the above are true.
Answer: B
23) The _____ states that the nominal interest rate equals
the real interest rate plus the expected rate of inflation.
A) Fisher equation.
B)
Keynesian equation.
C) Monetarist equation.
D)
Answer: A
1) If the expected return on CBS stock rises from 5
to 10 percent and the expected return on NBC stock rises from 12 to 18 percent,
then the expected return of holding CBS stock _____ relative to NBC stock
and the demand for CBS stock _____.
A) rises; rises B) rises; falls
C) falls; rises D) falls; falls
Answer: D
2) If fluctuations in interest rates become smaller,
then, other things equal, the demand for stocks _____ and the demand for long-term
bonds _____.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
Answer: D
3) If wealth increases, the demand for stocks _____
and that of long-term bonds _____.
A) increases; increases B) increases;
decreases
C) decreases; decreases
D) decreases; increases
Answer: A
4) If the price of gold becomes less volatile, then,
other things equal, the demand for stocks will _____ and the demand for antiques
will _____.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Answer: C
5) If housing prices are suddenly expected to shoot
up, then, other things equal, the demand for houses will _____ and that of
Treasury bills will _____.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Answer: B
6) If interest rates on Treasury bonds are suddenly
expected to shoot up, then, other things equal, the demand for houses will
_____ and that of Treasury bonds will _____.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Answer: B
7) The demand for Charles M. Russell paintings declines
(holding everything else equal) when:
A) stocks become easier to sell.
B) people expect a boom in real estate prices.
C) people suddenly expect gold prices to rise.
D) all of the above occur.
E) both (a) and (b) of the above occur.
Answer: D
8) You would be more willing to purchase U.S. Treasury
bonds, other things equal, if
A) you inherit $1 million from your Uncle Harry.
B) you expect interest rates to rise.
C) gold becomes more liquid.
D) any of the above occurs.
E) either (b) or (c) of the above occurs.
Answer: A
9) You would be less willing to buy AT&T bonds
(holding everything else constant) if
A) the brokerage commissions on bond sales rise.
B) interest rates are expected to rise.
C) you expected jewelry to appreciate sharply in value.
D) any of the above occurs.
E) either (a) or (c) of the above occurs.
Answer: D
10) Holding everything else constant,
A) if an asset's risk rises relative to that of alternative
assets, the demand will fall.
B) the less liquid an asset, relative to alternative assets,
the greater will be the demand.
C) the lower the expected return relative to alternative
assets, the greater will be the demand.
D) only (a) and (b) of the above.
Answer: A
11) If interest rates become more stable, then, other
things equal, the demand for common stocks _____ and that of long term bonds
_____.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
Answer: D
12) You would be less willing to purchase U.S. Treasury
bonds, other things equal, if
A) you expect interest rates to fall.
B) gold becomes more
liquid.
C) you expect bond prices to rise.
D) either (a) or
(b) of the above occurs.
Answer: B
13) When the price of a bond is above the equilibrium
price, there is an excess _____ for (of) bonds and price will _____.
A) demand; rise B) demand; fall
C) supply; fall D) supply; rise
Answer: C
14) When the interest rate on a bond is _____ the equilibrium
interest rate, in the bond market there is excess _____ and the interest rate
will _____.
A) below; demand; rise
B) below; demand; fall
C) below; supply; fall
D) above; supply; rise
E) below; supply; rise
Answer: E
15) When the interest rate falls, either the demand for
bonds ______ or the supply of bonds _____.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
Answer: B
16) When stock prices become more volatile, the ______
curve for bonds shifts to the _____.
A) demand; right B) demand; left
C) supply; left D) supply; right
Answer: A
17) When the federal government's budget deficit increases,
the _____ curve for bonds shifts to the _____.
A) demand; right B) demand; left
C) supply; left D) supply; right
Answer: D
18) When bonds become more widely traded, and as a consequence
the market becomes more liquid, the demand curve for bonds shifts to the _____
and the interest rate _____.
A) right; rises B) right; falls
C) left; falls D) left; rises
Answer: B
19) When prices in the art market become more uncertain,
A) the demand curve for bonds shifts to the left and the
interest rate rises.
B) the demand curve for bonds shifts to the left and the
interest rate falls.
C) the demand curve for bonds shifts to the right and the
interest rate falls.
D) the supply curve for bonds shifts to the right and the
interest rate falls.
Answer: C
20) When prices in the stock market become less uncertain,
the demand curve for bonds shifts to the _____ and the interest rate _____.
A) right; rises B) right; falls
C) left; falls D) left; rises
Answer: D