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ECO 4223 TEST 1 QUESTIONS AND ANSWERS WITH SOLUTIONS 2024
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ECO 4223 TEST 1 QUESTIONS AND ANSWERS WITH SOLUTIONS 2024
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ECO 4223 TEST 1 QUESTIONS ANDANSWERS WITH SOLUTIONS 2024
A bond pays its ________ at the time of ________ . - ANSWER face value; maturity
Corporations issue stocks to - ANSWER raise funds for investments
Economists call the situation where one side of an economic transaction has more information than the
other - 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 are made up 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 the price of a guitar is 200 boxes of cereal in Kirk's Store and in Jimmy's Store the exact same guitar can
be purchased for 100 CDs, what is the price of one CD in terms of cereal? - ANSWER two boxes
M1 equals - ANSWER currency + checking deposits + traveler's checks
Money demand is: - ANSWER the amount of wealth a person chooses to hold as money
Reindeer were once used as money in Finland. Using reindeer as money is an example of: - ANSWER
commodity money.
If firms believe 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
, If the interest rate is 5 percent and you put $100 into a savings account for 5 years, what is the future
value of today's $100? - ANSWER $127.63
The introduction 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. Assuming that the short-term (1 period) interest
rate today is 2 percent, and that the short-term (1 period) interest rates are expected to be 3 percent
and 4 percent in the next 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 financial institution that helps firms issue new securities is a - ANSWER investment bank
Banks reduce adverse selection by - ANSWER screening potential borrowers
Economic growth is defined as the growth of - ANSWER real gross domestic product
Microfinance - ANSWER provides small loans to poor people to start businesses
Interest is a payment - ANSWER for the use of funds
A cause of the financial crisis beginning in 2007 was - ANSWER losses on subprime mortgages
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