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Exam 9: Saving and Capital Formation

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Question 31

Multiple Choice

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When the coupon rate on newly-issued bonds increases from 5% to 6%, the prices of existing bonds:

A) increase.
B) decrease.
C) remain unchanged.
D) increase only if the coupon rate is less than 6%.

E) A) and C)
F) B) and C)

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Question 32

Multiple Choice

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You originally required a risk premium of 6 percent in addition to the rate of return on safe assets before you would purchase shares of Techno Company stock. If you and other investors reduce the risk premium you require to 4 percent, the price of Techno Company stock will:

A) increase.
B) decrease.
C) equal the old risk premium plus the new risk premium.
D) equal the new risk premium plus the rate of return on safe assets.

E) B) and D)
F) C) and D)

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Question 33

Multiple Choice

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When the central bank sells $1,000,000 worth of government bonds to the public, the money supply:

Suppose you have $200 with which you can buy shares of stock from two companies: ABC Hot Chocolate Company and XYZ Lemonade. Each company's stock currently sells for $100 per share. If the temperature next year is lower than average, the stock price for ABC will increase by $20, and the stock price for XYZ will not change. If the temperature next year is higher than average, the stock price for XYZ will increase by $20, and the stock price for ABC will not change. There is a 50% chance that it will be colder than average next year, and a 25% chance that it will be warmer than average. If you purchase two shares of XYZ stock and no shares of ABC stock, there is a ______ chance that your gain will be $40. Otherwise, your gain will be ______.

If the Central Bank of Macroland puts an additional 1,000 units of currency into the economy, the public deposits all currency into the banking system, and banks have a desired reserve/deposit ratio of 0.10, then the banks will eventually make new loans totaling ______ and the money supply will increase by _______.

Money serves as a basic yardstick for measuring economic value (a unit of account) , allowing:

When an individual deposits currency into a checking account:

According to the quantity equation, if velocity and output are constant, then an increase in the money supply leads to ______ in inflation.

Velocity is determined by:

If real GDP equals 5,000, nominal GDP equals 10,000, and the price level equals 2, then what is velocity if the money stock equals 2,000?

In an open-market purchase the Federal Reserve ______ government bonds and the supply of bank reserves ______.

Decentralized market-based financial systems improve the allocation of saving by:

The link between the money supply and prices is strongest in:

An increase in interest rates results in a(n) ______ in the required rate of return to hold stocks and ______ current stock prices.

The M1 measure of money consists of the sum of:

Privately-owned firms that accept deposits from individuals and businesses and use those deposits to make loans are called:

Double coincidence of wants is avoided if money is used as a:

When the actual reserve/deposit ratio exceeds the desired reserve/deposit ratio banks:

You own shares in a start-up internet company. If large swings in the stock market increase financial investors' concerns about market risk, then the price of your shares will _____, holding other factors constant.

The money supply in Macroland is currently 2,500, bank reserves are 200, currency held by public is 500, and banks' desired reserve/deposit ratio is 0.10. Assuming the values of the currency held by the public and the desired reserve/deposit ratio do not change, if the Central Bank of Macroland wishes to increase the money supply to 3,000, then it should conduct an open-market ______ government bonds.