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ECO4223 Final Exam Review Questions with 100% correct answers | verified | latest update 2024

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ECO4223 Final Exam Review Questions with 100% correct answers | verified | latest update 2024

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ECO4223 Final Exam Review
Which of the following contributes to GDP? - ANS-D) Value of all final goods and services.

Which of the following is true regarding GDP? - ANS-A) GDP does not include intermediate
goods, which are used to produce other final goods. (Example: Tires used to make a car)

If the CPI in 2004 is 200, and in 2005 the CPI is 180, the rate of inflation from 2004 to 2005 is -
ANS-D) -10%

If the Nominal GDP in 2001 is $9 trillion, and 2001 real GDP in 1996 price is $6 trillion, the GDP
deflator price index is - ANS-B) 150

If the CPI is 120 in 1996 and 180 in 2002, then between 1996 and 2002, prices have increased
by - ANS-D) 50%

What is the inflation rate if the GDP deflator in 2012 was 112, and the GDP deflator in 2013 was
115? - ANS-A) 2.68%

What is the nominal GDP in 2010, if real GDP in 2009 was $12 billion and the GDP deflator is
108? - ANS-D) $12.96 billion

If the expected inflation decreases, the real cost of borrowing _____________ and the supply of
bonds decreases causing the supply curve to shift ____________. - ANS-B) Rises, shifts to the
left

If the nominal rate of interest is 2 percent, and the expected inflation rate is -10 percent, the real
rate of interest is - ANS-C) 12%

If you expect the inflation rate to be 12% and a 1-year bond has a yield to maturity of 7%, then
the real interest rate on this bond is - ANS-C) -5%

If you expect the inflation rate to be 15% next year and a 1-year bond has a yield to maturity of
7%, then the real interest rate on this bond is - ANS-C) -8%

A zero coupon bond pays annual interest and has a future value of $1,000, matures in 4 years
and has a yield to maturity of 6.5%. What is the present value of this bond? - ANS-D) $777.32

The price of a zero coupon bond and the yield to maturity are ___________ related; that is, as
the yield to maturity ______________, the price of the bond ___________. - ANS-A) negatively,
rises, falls

, As the price of a coupon bond increases the YTM __________. - ANS-B) decreases

If the interest rate on a bond rises, and you want to sell it before maturity, you will most likely
experience a _____________. - ANS-D) loss

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. - ANS-C) present value

The problem created by asymmetric information before the transaction occurs is called
___________, while the problem created after the transaction occurred is called
_____________. - ANS-B) adverse selection, moral hazard

Dennis notices that jackets are on sale for $99. In this case money is functioning as a - ANS-C)
unit of account

High interest rates might __________ purchasing a house of car but at the same time high
interest rates might ___________ saving. - ANS-C) discourage, encourage

The bond markets are important because they are - ANS-D) the markets where interest rates
are determined

If bad credit risks are the ones who most actively seek loans then financial intermediaries face
the problem of - ANS-A) adverse selection

An example of _________ is when a corporation uses the funds raised from selling bonds to
fund corporate expansion to pay for a cruise for all of their employees and their family members.
- ANS-D) moral hazard

_____________ is the narrowest monetary aggregate that the Fed. reports. - ANS-D) M1

Monetary aggregates are - ANS-A) measures of the money supply reported by the Federal
Reserve.

Economists consider the ________ to be the most accurate measure of interest rates. - ANS-A)
yield to maturity

Compared to an economy that uses a medium of exchange, in a barter economy - ANS-C)
transaction costs are higher

When the holding period equals the maturity date, the YTM will be ___________ the RET. -
ANS-B) equal to

What is the return on a 5% coupon bond that initially sells for $1,000 and sells for $900 next
year? - ANS-B) -5%

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