Lecture 14 Flashcards
What is the present value of a bond that pays $121.00 one year from today if the interest rate is 10% per year?
A) $110.00
B) $100.00
C) $221.00
D) $133.10
E) $121.00
A
If the current market price of a bond is less than the present value of the income stream the bond will produce, the price will ________ due to excess ________ of/for the bond.
A) fall; demand
B) rise; supply
C) rise; demand
D) fall; supply
C
If there are just two assets, bonds and money, then an excess demand for money implies
A) nothing about conditions of demand for the other financial asset.
B) an excess demand for bonds.
C) an indeterminate equilibrium in the bond market.
D) equilibrium in the bond market.
E) an excess supply of bonds.
E
Consider the demand for money. If real GDP falls, other things being equal, we can expect
Question 4 options:
A)
an increase in the speculative demand for money.
B)
an increase in the total demand for money.
C)
an increase in transactions demand for money.
D)
a decrease in transactions demand for money.
E)
an increase in precautionary demand for money.
D
When the price level increases, ceteris paribus, it causes households and firms to try to
Question 5 options:
A)
increase money balances, which drives interest rates down.
B)
increase money balances, which drives interest rates up.
C)
reduce money balances, which drives interest rates down.
D)
reduce money balances, which drives national income up.
E)
reduce money balances, which drives interest rates up.
B
If the annual interest rate is 3%, $10 000 received today has the same present value as ________ received one year from now.
Question 6 options:
A)
$10 000
B)
$10 300
C)
$13 000
D)
$9707.74
E)
$300
B
Consider the demand for money curve. As we move up and to the left along the curve, the opportunity cost of holding money
Question 7 options:
A)
is increasing, so households and firms decrease their desired money holdings.
B)
is increasing, so households and firms increase their desired money holdings.
C)
is declining, so households and firms decrease their desired money holdings.
D)
is declining, so households and firms increase their desired money holdings.
A
If Robert expects interest rates to fall in the near future, he will probably be willing to
Question 8 options:
A)
buy bonds now, but only if their price falls.
B)
put his money under his mattress rather than buy bonds.
C)
maintain only the current holding of bonds.
D)
buy bonds now, and hold less money.
E)
sell bonds now, and hold less money.
D
If the annual interest rate is 8%, an asset that promises to pay $160 after each of the next two years has a present value of
Question 9 options:
A)
$320.00.
B)
$296.30.
C)
$300.00.
D)
$285.32.
E)
$178.32.
D
If the general price level were to increase, other things being equal, the money demand function would
Question 10 options:
A)
shift to the right.
B)
shift to the left.
C)
become steeper but not shift.
D)
not be affected.
E)
shift, but the direction of the shift cannot be predicted.
A
If a person is holding money for the purchase of goods and services, this demand for money is known as
Question 11 options:
A)
speculative demand.
B)
transactions demand.
C)
precautionary demand.
D)
real balance demand.
E)
nominal balance demand.
B
A decrease in the money supply is most likely to
Question 12 options:
A)
lower interest rates, raise investment, and raise aggregate expenditures.
B)
raise interest rates and investment, and lower aggregate expenditures.
C)
raise interest rates, lower investment, and lower aggregate expenditures.
D)
lower interest rates, investment, and aggregate expenditures.
E)
raise interest rates, investment, and aggregate expenditures.
C
