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ECO 4223 Test 1 Questions And Correct Answers
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ECO 4223 Test 1 Questions And Correct AnswersA bond pays its ________ at the time of ________. - Answer face value; maturity
Stocks are issued by corporations to - Answer raise funds for investments
Economists refer to the situation when one side in an economic transaction has more
information than another as - Answer asymmetric information
The problem of moral hazard arises when the seller of a security has - Answer little
incentive to behave prudently after selling its security
Financial markets consist of people and firms that ________ assets. - Answer buy and sell
Money serves an economy as a - Answer medium of exchange
unit of account
store of value
If a guitar costs 200 boxes of cereal in Kirk's Store, if Jimmy's Store sells the same
guitar for 100 CDs, how many boxes of cereal does one CD cost? - Answer two boxes
M1 = - Answer cash + checkable deposits + travelers checks
Demand for Money: - Answer the fraction of one's wealth that an individual chooses to
hold in the form of money
Reindeer once functioned as money in Finland. The use of reindeer as money is an
example of: - Answer commodity money.
, If firms believe that the economy will begin to pick up in the future, the ________ of(for)
loanable funds will shift from ________ and the real interest rate will ________. - Answer
demand; D2 to D1; rise
Suppose the interest rate is 5 percent and you deposit $100 into a savings account for 5
years. What is the future value of today's $100? Answer $127.63
The advent of Internet banking has made it easier to transfer funds from one account to
the next. The result of this is that the ________ in Figure 4.3 shifts from ________. Answer
money demand; D1 to D2
Consider the expectations theory of the term structure. Suppose the short-term (1
period) interest rate today is 2 percent, and the short-term (1 period) interest rates are
expected to be 3 percent and 4 percent in the succeeding years. What is the 3-period
interest rate today? - Answer 3 percent
If the n 1-year interest rates are expected to remain constant and the term premium
rises with maturity, the yield curve would - Answer Slope upwards
Suppose you read in the paper that Pfizer has a new drug to cure diabetes. Using
________ you expect the stock price to ________ because ________. - Answer rational
expectations; rise; earnings will grow
A bank - Answer accepts deposits and makes private loans
The investment bank is the financial intermediary that helps firms issue new securities
Banks mitigate adverse selection by screening borrowers before making a loan
Economic growth is defined as the growth of real gross domestic product
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