Econ 330 Test 1 UofA

A key factor in producing high economic growth is

well-functioning financial markets

Everything else held constant, a decline in interest rates will cause spending on housing to

rise

A financial crisis is

a major disruption in the financial markets

Financial institutions that accept deposits and make loans are called _________.

Banks

During a recession, output declines result in

higher unemployment in the economy

The management of money and interest rates is called _____________ policy and is conducted by a nation's _____________ bank

monetary; central

Which of the following is most likely to result from a stronger dollar?

U.S. goods exported aboard will cost more in foreign countries and so foreigners will buy less of them

Everything else held constant, a decrease in the value of the dollar relative to all foreign currencies means that the price of foreign goods purchased by Americans

Increases

The most comprehensive measure of aggregate output is

gross domestic product (GDP)

Nominal GDP is output measured in __________ prices while real GDP is output measured in ____________ prices.

current; fixed

Every financial market has the following characteristic:

It channels funds from lenders - savers to borrowers - spenders

Which of the following can be described as involving indirect finance?

you buy shares in a mutual fund

When I purchase ______, I own a portion of a firm and have the right to vote on issues important to the firm and to elect its directors

stocks

When secondary market buyers and sellers of securities meet in one central location to conduct trades the market is called a(n)

exchange

______ are short term loans in which Treasury bills serve as collateral

Repurchase agreements

Which of the following instruments are trade din a money market?

U.S. Treasury bills

Equity of U.S. companies can be purchased by

U.S. citizens and foreign citizens

Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which it is sold are known as

Eurobonds

Financial intermediaries provide customers with liquidity services. Liquidity services

make it easier for customers to conduct transactions

An example of the problem of _______ is when a corporation uses the funds raised from selling bonds to fund corporate expansion to pay for Caribbean cruises for all of its employees and their families

Moral hazard

Which of the following is not a contractual savings institution?

A savings and loan association

An investment bank purchases securities form a corporation at a predetermined price and then resells them in the market. This process is called

underwriting

Increasing the amount of information available to investors helps to reduce the problems of __________ and __________ in the financial markets

Adverse selection; moral hazard

In order to reduce risk and increase the safety of financial institutions, commercial banks and other depository institutions are prohibited from

owning common stock.

Currency includes

paper money and coins

When we say that money is a stock variable, we mean that

the quantity of money is measured at a given point in time

Kevin purchasing concert tickets with a $100 bill is an example of the ________ function of money

Medium of exchange

_____________ is the relative ease and speed with which an asset can be converted into a medium of exchange

Liquidity

The payment system is

the method of conducting transactions in the economy

An electronic payments system has not completely replaced the paper payments system because of all of the following reasons except

Transportation costs

Which of the following is included in both M1 and M2

Currency

If an individual moves money from a savings deposit account to a money market deposit account

M1 stays the same and M2 stays the same

A __________ is bought at a price below its face value, and the _________ value is repaid at the maturity date.

Discount bond; face

The yield to maturity for a discount bond is _________ related to the current bond price

negatively

the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $950 next year is

0%

There is _______ for any bond whose time to maturity matches the holding period.

no interest - rate risk

The ____ interest rate is adjusted for expected changes in the price level

ex ante real

If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is

-8%

If fluctuations in interest rates become smaller, then, other things equal, the demand for stocks ______________ and the demand for long-term bonds _________.

Decreases; increases

Holding all other factors constant, the quantity demanded of an asset is

Positively related to wealth

In the bond market, the bond demanders are the __________ and the bond suppliers are the ____________.

Lenders; borrowers

When the interest rate on a bond is​ ________ the equilibrium interest​ rate, in the bond market there is excess​ ________ and the interest rate will​ ________.

​above; demand; fall

Everything else held constant, when stock prices become less volatile, the demand curve for bonds shifts to the ____________ and the interest rate _____________

Left; rises

The interest rate falls when either the demand for bonds​ ________ or the supply of bonds​ ________.

increase; decreases

In Keynes's liquidity preference framework, individuals are assumed to hold their wealth in two forms:

Money and bonds.

In Keyness's liquidity preference framework, as the expected return on bonds increases (holding everything else unchanged), the expected return on money __________, causing the demand for ______________ to fall.

falls; money

In the market for money, when the price level falls, the ______________ curve for nominal money _____________, and interest rates ____________, everything else held constant.

demand; decreases; fall

​________ in the money supply in the market for money creates excess​ ________ money, causing interest rates to​ ________, everything else held constant.

A​ decrease; demand​ for; rise

Of the four effects on interest rates form an increase in the money supply, the initial effect is, generally, the

Liquidity effect

In the figure, illustrates the effect of an increased rate of money supply growth at time period 0. From the figure, one can conclude that the

liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.

If the possibility of a default increases because corporations begin to suffer losses, then the default risk on corporate bonds will ___________, and the bonds' returns will become __________ uncertain, meaning that the expected return on these bonds will decrease, everything else held constant

increase; more

Which of the following bonds would have the highest default risk?

Junk bonds

According to the liquidity premium theory of the term structure a slightly upward sloping yield curve indicates that short-term interest rates are expected to

remain unchanged in the future

The mound-shaped yield curve indicates that the inflation rate is expected to

rise moderately in the near-term and fall later on.