Question 1

Time deposits greater than $100,000 are included in M2.

Accepted Answer

A) True 
 B)False

Question 2

Which statement concerning the function of money is incorrect?

Accepted Answer

A)   Money gives us a yardstick for measuring the values of goods and services.
B)   Money helps us avoid the problem of lack of a double coincidence of wants.
C)   Money helps us save time in purchasing goods and services.
D)   Money does not lose value when inflation occurs.E) None of the above
F) A) and B)

Question 3

Which statement is TRUE regarding various instruments in financial markets?

Accepted Answer

A)   Compared with bonds, stocks provide equity and higher risk.
B)   Compared with bonds, stocks provide higher risk and lower returns.
C)   Compared with bonds, stocks provide lower risk and higher returns.
D)   Compared with bonds, stocks provide less equity and lower risk.E) B) and C)
F) A) and D)

Question 4

Suppose a perpetuity bond with a face value of $1,000 has a coupon rate of 8%. If market interest rates rise to 12%, the price of the bond:

Accepted Answer

A)   rises to $1,120.
B)   rises to $1,080.
C)   falls to $666.67.
D)   falls to $880.E) All of the above
F) A) and B)

Question 5

In the market for loanable funds, the government reduces tax breaks for saving and increases the penalties for corruption. What changes should be expected in the market for loanable funds due to these events?

Accepted Answer

A)   The interest rate will rise, but there is uncertainty about any change in the amount of borrowed funds.
B)   The interest rate will fall, but there is uncertainty about any change in the amount of borrowed funds.
C)   The amount of funds borrowed will rise but there is uncertainty about the direction of any change in interest rates.
D)   The amount of borrowed funds will fall but there is uncertainty about the direction of any change in interest rates.E) A) and B)
F) All of the above

Question 6

Suppose a one-year bond with a face value of $200 is sold for $188. What is the bond's yield?

Accepted Answer

A)   5.3%
B)   6.0%
C)   6.4%
D)   12.0%E) B) and C)
F) A) and D)

Question 7

Higher interest rates represent a lower opportunity cost of holding money.

Accepted Answer

A) True 
 B)False

Question 8

If the government offers firms investment tax credits for building new factories, the after-tax rate of return _____, causing the loanable funds _____ curve to shift _____, leading to _____ interest rates.

Accepted Answer

A)   rises; demand; rightward; higher
B)   rises; demand; leftward; higher
C)   falls; demand; leftward; lower
D)   rises; supply; rightward; lowerE) A) and B)
F) A) and C)

Question 9

Which of these assets is the LEAST liquid?

Accepted Answer

A)   money
B)   gold
C)   silver
D)   a farmE) A) and D)
F) A) and B)

Question 10

If saving falls during booming times in the economy, then the equilibrium real interest rate _____ and the quantity of loanable funds _____.

Accepted Answer

A)   falls; rises
B)   rises; falls
C)   falls; falls
D)   rises; risesE) B) and D)
F) A) and B)

Question 11

M1 includes:

Accepted Answer

A)   savings deposits.
B)   banknotes and coins.
C)   small-denomination time deposits.
D)   money market deposit accounts.E) None of the above
F) C) and D)

Question 12

Barter:

Accepted Answer

A)   works as well as money in all cases.
B)   satisfies the double coincidence of wants if an exchange takes place.
C)   serves as store of value in primitive societies.
D)   is any exchange, with or without the presence of money, in which the participants negotiate the terms of trade.E) B) and C)
F) B) and D)

Question 13

Student loans funded by the government typically offer lower interest rates than similar bank loans and they can be paid back later than bank loans.

Accepted Answer

A) True 
 B)False

Question 14

Financial intermediaries include all of these EXCEPT:

Accepted Answer

A)   commercial banks.
B)   insurance companies.
C)   pension funds.
D)   check cashing centers.E) A) and B)
F) A) and C)

Question 15

Which of the following assets is MOST liquid?

Accepted Answer

A)   a house
B)   a Picasso painting
C)   a corporate bond
D)   moneyE) None of the above
F) B) and D)

Question 16

When the price of bonds increases, general interest rates decrease.

Accepted Answer

A) True 
 B)False

Question 17

Which statement about M1 and M2 is correct?

Accepted Answer

A)   M1 is the broader measure of money.
B)   M2 is greater than M1.
C)   M1 includes savings deposits.
D)   M2 excludes currency.E) A) and D)
F) None of the above

Question 18

Joan begins the month with $100 in her checking account. When she receives a pay check for $1,200 on the 5th of the month, she uses that pay check to put $1,000 in her checking account, takes $80 in cash, and deposit $120 in her savings account. During the month, she spends $550 on rent and utilities, $30 on household items, $10 on a T-shirt, and $350 on food, leaving a balance of $240 in her checking account. Based on the given information, which statement accurately describes the function of Joan's money?

Accepted Answer

A)   Savings is a store of value measured in units of account.
B)   Her expenditures use funds as a medium of exchange but with no role for money as a unit of account.
C)   Buying goods and services uses money as a store of value and unit of account.
D)   Depositing money in savings is using it as a medium of exchange.E) C) and D)
F) B) and D)

Question 19

What is the likely chain of events if asset prices rise?

Accepted Answer

A)   People feel poorer, so their spending falls and their saving rises, causing interest rates to fall.
B)   People feel wealthier, so their spending falls and their saving rises, causing interest rates to fall.
C)   People feel wealthier, so their spending rises and their saving rises, causing interest rates to fall.
D)   People feel wealthier, so their spending rises and their saving falls, causing interest rates to rise.E) A) and B)
F) A) and C)

Question 20

If you are estimating the amount you plan to spend on a vacation, money is serving as a:

Accepted Answer

A)   unit of account.
B)   store of value.
C)   standard value.
D)   medium of exchange.E) None of the above
F) A) and D)

Exam 11: Saving, Investment, and the Financial System

When the price of bonds increases, general interest rates decrease.

Correct Answer
verified

Suppose a perpetuity bond with a face value of $1,000 has a coupon rate of 8%. If market interest rates rise to 12%, the price of the bond:

Correct Answer
verified

Higher interest rates represent a lower opportunity cost of holding money.

Correct Answer
verified

Financial intermediaries include all of these EXCEPT:

Correct Answer
verified

If saving falls during booming times in the economy, then the equilibrium real interest rate _ and the quantity of loanable funds _.

Correct Answer
verified

Which of the following assets is MOST liquid?

Correct Answer
verified

Time deposits greater than $100,000 are included in M2.

Correct Answer
verified

Suppose a one-year bond with a face value of $200 is sold for $188. What is the bond's yield?

Correct Answer
verified

Which of these assets is the LEAST liquid?

Correct Answer
verified

Which statement concerning the function of money is incorrect?

Correct Answer
verified

Which statement is TRUE regarding various instruments in financial markets?

Correct Answer
verified

Barter:

Correct Answer
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If the government offers firms investment tax credits for building new factories, the after-tax rate of return ___, causing the loanable funds _ curve to shift _, leading to ___ interest rates.

Correct Answer
verified

In the market for loanable funds, the government reduces tax breaks for saving and increases the penalties for corruption. What changes should be expected in the market for loanable funds due to these events?

Correct Answer
verified

Which statement about M1 and M2 is correct?

Correct Answer
verified

Student loans funded by the government typically offer lower interest rates than similar bank loans and they can be paid back later than bank loans.

Correct Answer
verified

If you are estimating the amount you plan to spend on a vacation, money is serving as a:

Correct Answer
verified

M1 includes:

Correct Answer
verified

What is the likely chain of events if asset prices rise?

Correct Answer
verified

Correct Answer
verified

Exam 11: Saving, Investment, and the Financial System

When the price of bonds increases, general interest rates decrease.

Correct AnswerverifiedShow Answer

Suppose a perpetuity bond with a face value of $1,000 has a coupon rate of 8%. If market interest rates rise to 12%, the price of the bond:

Correct AnswerverifiedShow Answer

Higher interest rates represent a lower opportunity cost of holding money.

Correct AnswerverifiedShow Answer

Financial intermediaries include all of these EXCEPT:

Correct AnswerverifiedShow Answer

If saving falls during booming times in the economy, then the equilibrium real interest rate _____ and the quantity of loanable funds _____.

Correct AnswerverifiedShow Answer

Which of the following assets is MOST liquid?

Correct AnswerverifiedShow Answer

Time deposits greater than $100,000 are included in M2.

Correct AnswerverifiedShow Answer

Suppose a one-year bond with a face value of $200 is sold for $188. What is the bond's yield?

Correct AnswerverifiedShow Answer

Which of these assets is the LEAST liquid?

Correct AnswerverifiedShow Answer

Which statement concerning the function of money is incorrect?

Correct AnswerverifiedShow Answer

Which statement is TRUE regarding various instruments in financial markets?

Correct AnswerverifiedShow Answer

Barter:

Correct AnswerverifiedShow Answer

If the government offers firms investment tax credits for building new factories, the after-tax rate of return _____, causing the loanable funds _____ curve to shift _____, leading to _____ interest rates.

Correct AnswerverifiedShow Answer

In the market for loanable funds, the government reduces tax breaks for saving and increases the penalties for corruption. What changes should be expected in the market for loanable funds due to these events?

Correct AnswerverifiedShow Answer

Which statement about M1 and M2 is correct?

Correct AnswerverifiedShow Answer

Student loans funded by the government typically offer lower interest rates than similar bank loans and they can be paid back later than bank loans.

Correct AnswerverifiedShow Answer

If you are estimating the amount you plan to spend on a vacation, money is serving as a:

Correct AnswerverifiedShow Answer

M1 includes:

Correct AnswerverifiedShow Answer

What is the likely chain of events if asset prices rise?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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If saving falls during booming times in the economy, then the equilibrium real interest rate _ and the quantity of loanable funds _.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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If the government offers firms investment tax credits for building new factories, the after-tax rate of return ___, causing the loanable funds _ curve to shift _, leading to ___ interest rates.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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