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Q:
A person with a very high positive time preference for consumption
a. will have a high savings rate.
b. will have a low savings rate.
c. prefers savings to consumption.
d. is not as likely to borrow money as other people with lower positive time preference.
Q:
The lower a consumer's positive time preference for consumption,
a. the more savings they will accumulate.
b. the lower the level of interest rates.
c. the greater the supply of loanable funds.
d. all of the above.
Q:
On any given day if the market interest rate is above the equilibrium interest rate level,
a. the Fed will declare a monetary policy.
b. there will be a shortage of loanable funds and interest rates will increase.
c. there will be a surplus of loanable funds at that rate and rates will decline to the equilibrium rate.
d. there will be a shortage of loanable funds at that rate and rates will increase to the equilibrium rate.
Q:
A decrease in the money stock by the Federal Reserve
a. shifts the supply of loanable funds to the left, decreasing interest rates.
b. shifts the demand for loanable funds to the left, increasing interest rates.
c. shifts the supply of loanable funds to the left, increasing interest rates.
d. shifts the supply of loanable funds to the right, increasing interest rates.
Q:
Which of the following is best associated with interest rate movements and inflation?
a. Interest rates move inversely with inflation.
b. Interest rates vary directly with expected inflation.
c. Interest rates vary directly with past inflation rates.
d. Inflation is impacted by expected interest rates.
Q:
Which of the following best explains why public interest rate forecasts have a low rate of accuracy?a. Accurate forecasters do not make their forecasts public.b. Reasonably efficient financial markets preclude a forecaster from consistently outguessing the direction of interest rates.c. The level of training of forecasters is lagging an evermore sophisticated economy.d. and (b) above (d)
Q:
The flow of funds approach to interest rate forecasting is associated with all but one of the following:
a. the National Income Accounts.
b. the Flow of Funds Accounts.
c. the loanable funds theory of interest
rate determination.
d. the Federal Reserve System.
Q:
The Federal Reserve Bank of St. Louis develops quarterly forecasts of a number of key economic statistics using only eight equations. The is an example of
a. a naive forecasting model.
b. the flow of funds approach.
c. a hedged forecast.
d. an economic forecasting model.
Q:
Economic models predict interest rates by estimating the statistical relationships between the and the resulting .
a. level of interest rates; measures of economic output
b. past level of interest rates; future level of interest rates
c. measures of economic output; level of interest rates
d. prior level of GNP; future level of interest rates
Q:
Basic approaches to forecasting interest rates include
a. economic models
b. flow-of-funds
c. both of the above
d. none of the above
Q:
Negative realized real rates of interest are associated with periods where
a. inflation forecasts significantly underestimate inflation.
b. nominal interest rates were too high relative to actual inflation.
c. prior inflation forecasts overestimated inflation.
d. bond prices were priced too low relative to actual inflation.
Q:
Which of the following is more likely to adversely affect long-term bond prices?
a. a forecast of lower inflation in the future.
b. a forecast of a slower economy next year.
c. a forecast of higher inflation in the future.
d. a forecast of lower government budget deficits.
Q:
Which of the following is more likely to affect long-term bond yields?
a. announcement of the last year's inflation rate
b. announcement of this month's inflation rate
c. a forecast of next month's inflation rate
d. a forecast of inflation for the next five years
Q:
An investor earned 12 percent last year, a year when actual inflation was 9 percent and was expected to have been 6 percent. The investor realized real rate of return was:
a. 3%
b. 6%
c. 18%
d. 12%
Q:
An investor received an 8 percent coupon rate last year on a $1000 bond purchased at par. The inflation rate during the year was 4 percent and is expected to be 5 percent next year. The realized real rate earned by the investor last year was:
a. 8%
b. 3%
c. 4%
d. -1 percent.
Q:
A decrease in interest rates may best be related to
a. a recession and a decline in inflationary expectations.
b. an acceleration in the growth rate of M1.
c. decreased real investment opportunities.
d. all of the above
Q:
Interest rates should decease if
a. The economy is in a boom.
b. Inflationary expectations have decreased.
c. The Federal Reserve has decreased M1 and the supply of loanable funds.
d. Business investment demand has decreased significantly.
Q:
If expected inflation in a period exceeds actual inflation
a. borrowers will benefit.
b. savers will lose purchasing power.
c. SSUs will benefit at the expense of DSUs.
d. interest rates are likely to increase in the future.
Q:
If the actual rate of inflation is less than the rate expected during a period,
a. borrowers benefited at the expense of lenders.
b. lenders benefited at the expense of borrowers.
c. both borrowers and lenders benefited.
d. neither borrowers nor lenders benefited.
Q:
If the real rate of interest is 4% and the expected inflation rate is 7%, a loan at 12%
a. would reward the lender at the borrower's expense
b. would reward the borrower at the lender's expense
c. would penalize the lender at the borrower's expense
d. none of the above
Q:
An increase (shift to right) in the supply of loanable funds (SL) may be related to all but one of the following:
a. an increase in the money supply.
b. an increase in household thriftiness.
c. an increase in household income.
d. an increase in personal income taxes.
Q:
The realized rate of return may be negative if
a. investors' expected rate of inflation (Pe) was less than actual inflation (Pa).
b. investors' expected rate of inflation (Pe) was greater than actual inflation (Pa).
c. investors over-anticipated the level of inflation.
d. investors expected more inflation than was realized.
Q:
Increased government budget deficits
a. shifts the demand for loanable funds to the left, reducing interest rates.
b. shifts the supply of loanable funds to the right, reducing interest rates.
c. shifts the demand for loanable funs to the right, increasing interest rates.
d. shifts the supply of loanable funds to the left, reducing interest rates.
Q:
An economic recession would be represented in loanable funds theory as
a. a shift in the demand for loanable funds to the right associated with reduced business investment demand and a decline in interest rates.
b. a shift in the demand for loanable funds to the left as real investment weakens, a shift to the right of the supply of loanable funds as the Fed expands the money supply, and a decrease in interest rates.
c. a movement along the demand for loanable funds as interest rates decline.
d. an increase in the supply of loanable funds as the level of savings increases accompanied with an increase in the demand for loanable funds as housing investment is increased, and a decrease in interest rates.
Q:
Deficit spending units (DSU) are represented in loanable funds theory as
a. suppliers of loanable funds.
b. demanders of financial claims.
c. demanders of loanable funds.
d. DSUs are not represented in the loanable funds theory of interest rate determination.
Q:
An increase in the rate of expected inflation will
a. shift the demand for loanable funds to the left (down).
b. shift the supply of loanable funds to the left (down).
c. shift demand and supply for loanable funds to the right (up) decreasing interest rates.
d. shifts demand and supply for loanable funds to the right (up) increasing interest rates.
Q:
All but one of the following affects the supply of loanable funds?
a. the level of income
b. the investment opportunities in the economy.
c. the savings rate
d. Federal Reserve monetary policy actions.
Q:
Interest rates will decline when the demand for loanable funds
a. shifts to the left.
b. shifts to the right.
c. anticipates reduced growth in the economy.
d. "a" and "c" above.
Q:
The demand for loanable funds may shift upward (increase) from
a. a decline in the supply of loanable funds.
b. a decline in business prospects.
c. an improvement in technology.
d. an expectation of an upcoming recession.
Q:
If current market rates on Treasury bonds are 6 percent and the real growth of the economy has and will be expected to grow at 3 percent. According to the Fisher effect, what is the expected rate of inflation?
a. 3%
b. 9%
c. higher than 6%
d. close to zero
Q:
If the real rate of interest is 4%, actual inflation for the last year was 5%, and expected inflation is 8%, the Fisher effect predicts what current level of nominal interest rates?
a. 9%
b. 8%
c. 13%
d. 12%
Q:
If nominal interest rates are 10% and expected inflation is 5%, according to Fisher equation,
a. actual inflation exceeds 10%.
b. the real rate of interest is 5%.
c. market rates are expected to increase to 15%.
d. expected interest rates are 5%.
Q:
The Fisher effect is a theory which holds that
a. nominal rates include the real rate of interest plus past annual inflation rates.
b. nominal rates include the real rate of interest plus expected annual inflation rates.
c. real rates are always positive.
d. inflation has no impact upon interest rates.
Q:
Which one of the following statements about interest rates is incorrect?
a. Bond prices and interest rates change inversely with one another.
b. The expected rate of inflation affects current market interest rates.
c. Short-term interest rates are not as volatile as long-term interest rates.
d. Interest rates are directly related to the level of output in the economy.
Q:
Which statement is true about interest rate movements?
a. Interest rates move counter-cyclically with the business cycle.
b. Long-term interest rates have greater swings than short-term rates.
c. The expected rate of inflation impacts the level of interest rates.
d. Bond prices and interest rates move directly with one another.
Q:
________ real rates are almost always positive; _______real rates may be negative.
a. Realized; expected
b. Expected; realized
c. Government; private
d. Expected; expected
Q:
All but one of the following factors influences the real rate of interest?
a. the rate of inflation
b. investor positive time preference for current versus future consumption.
c. the return on alternative real investments.
d. the real level of output in the economy.
Q:
Which of the following factors influence the real rate of interest?
a. investor's positive time preference
b. the gold supply
c. return on capital investments
d. the rate of inflation
e. both a and c
Q:
Which one of the following is NOT an explanation for paying interest on borrowed money?
a. Interest is the rental cost of purchasing power.
b. Interest is the penalty paid for consuming income before it is earned.
c. Interest is always paid at the maturity of a loan.
d. Interest is the time value of delayed consumption.
Q:
Interest is
a. the price of money.
b. the rent on money.
c. time value of delayed consumption.
d. all of the above.
Q:
For a investment project to be accepted by management, its return must exceed the firm's cost of capital.
Q:
In 2010 and 2011, Federal Reserve announced quantitative easing's, or QEs, which is to create money. This would lead to interest rates increase.
Q:
If a security's realized return is negative, the expected return was smaller than the required return.
Q:
Nominal rates generally exceed the real rate.
Q:
Interest rate forecasting using economic models assumes that financial markets are very efficient.
Q:
The flow of funds forecasting method utilizes the concept of supply and demand of loanable funds.
Q:
Economic models forecast interest rates then estimate measures of economic output.
Q:
Economic models and flow-of-funds are two ways of forecasting interest rates.
Q:
The Fisher Effect holds that nominal interest rates include an expected inflation rate.
Q:
If yields on thirty-year U. S. Treasury bonds are 8% and the real rate of interest is estimated at 3%, the historical rate of inflation is 5%.
Q:
Deficit spending units supply loanable funds.
Q:
An increase in the desired saving rate will increase real interest rates.
Q:
An increase in rates of return on real capital investment will increase real interest rates.
Q:
An upward shift in the supply of loanable funds is likely to increase interest rates.
Q:
Interest rates are directly related to inflation expectations and inversely related to the level of economic activity.
Q:
Expected increased inflation usually drives up bond prices.
Q:
Nominal interest rates reflect anticipated inflation.
Q:
An increase in desired investment shifts the desired savings supply line upward to higher real rates of interest.
Q:
The realized real rate of interest can be negative if expected inflation is less than actual inflation.
Q:
The expected real rate of interest is likely to be negative.
Q:
Declining interest rates can be caused by an upward shift in the demand for loanable funds relative to the supply of loanable funds.
Q:
The market rate of interest can be viewed as the real rate of interest plus a premium for the expected rate of inflation.
Q:
The current rate of inflation affects the expected level of interest rates.
Q:
The real rate of interest can be viewed as the time value of not consuming.
Q:
Which of the following tools of monetary policy has the greatest impact?
a. discount rate
b. Regulation Q
c. open market operations
d. bank examination
Q:
The money supply
a. is exclusively controlled by the Fed.
b. is smaller than the monetary base
c. excludes any interest-bearing deposits
d. none of the above.
Q:
Ordinarily the money supply will decrease if:
a. the Fed makes fewer loans at its discount window.
b. the Fed sells securities on the open market.
c. the Fed raises reserve requirements.
d. all of the above.
Q:
The velocity of money measures:
a. the rate of growth of the money supply.
b. the relationship between the monetary base and the money supply.
c. the relationship between the money supply and economic activity.
d. all of the above.
Q:
An increase in excess reserves will cause
a. the Fed Funds rate to rise.
b. planned inventory investment to fall.
c. depository institutions to lend more freely.
d. foreign investors to buy more T-Bills.
Q:
Deposits tend to expand whenever:
a. reserve requirements decrease.
b. the public holds more cash.
c. reserve requirements increase.
d. monetary policy "tightens".
Q:
The monetary base will decrease when:
a. banks withdraw currency from the Fed.
b. the Fed makes loans at the discount window.
c. the Fed sells securities on the open market.
d. the Fed buys securities on the open market.
Q:
The Federal Open Market Committee (FOMC) is the major monetary policy making body of the U.S. Federal Reserve System.
Q:
The expected effect of quantitative easing (QE) in 2010 and 2011 is to lower long-term interest rates to boost the economy.
Q:
If the Fed was instead targeting interest rates and money demand dropped the Fed would likely increase the money supply.
Q:
The primary policy tool used by the Fed to meet its monetary policy goals are to
change reserve requirements, to devaluing the US$, and to change bank regulations.
Q:
The goals of U.S. monetary policy were set by Congress.
Q:
High stock prices are a goal of monetary policy.
Q:
The Fed is powerless against "technical factors".
Q:
Reserve requirements are not useful for "fine tuning."
Q:
"Cash drains" are an example of a "technical factor".