Questions:
Question 1
1. If real rates were higher than nominal rates in 2009, the implication is that:
A. inflation was greater than the real rate.
B. inflation was less than the real rate.
C. the nominal rate was equal to the real rate.
D. inflation was negative (deflation was occurring).
E. the real rate was equal to the rate of inflation.
Question 2
1. Savings represents:
A. the demand for loanable funds.
B. the supply of loanable funds.
C. the minimum interest rate people are willing to accept (i.e., the "reservation" interest rate).
D. only funds supplied by foreigners, because Americans don't save.
E. the willingness of firms to borrow.
Question 3
1. In financial markets, savers looking for opportunities to earn a return on their savings would be the:
A. banks.
B. buyers and sellers.
C. financial intermediaries.
D. buyers.
E. sellers.
Question 4
In the figure, line 1 represents ___________, line 2 represents ___________, and 5% represents ___________:
A. savings; the supply of loanable funds; a surplus of loanable funds
B. savings; the demand for loanable funds; the equilibrium interest rate
C. investment; the supply of loanable funds; a shortage of loanable funds
D. investment; the demand for loanable funds; the equilibrium interest rate
E. foreign savings; the supply of loanable funds; a surplus of loanable funds
Question 5
1. Which of the following is an advantage of the S&P 500 index?
A. The S&P 500 tracks the price of the stock, not just the value of the company.
B. The S&P 500 tracks the overall value of a company, not just the price of the stock.
C. The S&P 500 provides more historical data than the Dow Jones Industrial Average.
D. The S&P 500 resets to 1,000 at the beginning of each year.
E. The S&P 500 tracks fewer companies than the Dow Jones Industrial Average, making it less complicated.
Question 6
1. Inflation reached its peak (of at least 14%) in the late 1970s/early 1980s. If this statement is true, then:
A. it is certain the real rate of interest was greater than the nominal rate.
B. it is certain the nominal rate of interest was greater than the real rate.
C. borrowers would borrow more because, automatically, real rates would fall.
D. the real rate of interest must have been constant, even if the nominal rate varied because of consumption smoothing.
E. if higher nominal rates were charged, it would be certain that higher real rates would be received.
Question 7
1. After a Treasury security is sold for the first time:
A. it can no longer be sold.
B. it must be sold to someone in a secondary market before it hits its maturity date.
C. it loses its initial value.
D. anyone can buy it in the large and active secondary market for U.S. Treasury securities.
E. only large financial firms can buy it through auctions.
Question 8
1. The two different paths through the loanable funds market are:
A. indirect finance and security finance.
B. internal finance and external finance.
C. saver finance and borrower finance.
D. indirect finance and direct finance.
E. bond finance and stock finance.
Question 9
1.
Assuming the figure represents the market for loanable funds, which of the following would represent the government running a larger budget deficit?
A. a shift from line 1 to line 4
B. a shift from line 4 to line 1
C. a shift from line 2 to line 3
D. a shift from line 3 to line 2
E. a new shortage of loanable funds represented by the distance from C to D
Question 10
1. A bond is:
A. the creation of a new security by combining otherwise separate loan agreements.
B. an ownership of a firm.
C. a security that represents a debt to be paid.
D. a market in which securities are traded after their first sale.
E. a private firm that accepts deposits and extends loans.