Multiple Choice Answers

For central bankers to alter the real interest rate by changing the nominal interest rate, which of the following must be true?

The rate of inflation has to remain constant
Inflation expectations do not change
The expected rate of inflation has to change
The change in the expected rate of inflation must equal the change in the nominal interest rate

In the U.S., most of the recessions are the result of:

Ill-timed fiscal policy
Decreasing net exports
Decreases in investment
Large decreases in consumption

If an economy is initially at a state of long-run equilibrium, the short-run effect(s) from a decrease in aggregate demand will include:

An expansionary gap
A higher rate of inflation
A higher level of potential output
A recessionary gap

In practice, it is difficult to keep inflation and output from fluctuating when aggregate expenditures change because:

It takes time for policymakers to recognize that shifts have occurred
Changes in interest rates do not have an immediate impact on the economy
Changes in consumer or business confidence can be very difficult to recognize as they are occurring
All of the answers given are correct

During the Great Moderation experienced in the United States during the 1990s the volatility of inflation and growth:

Moved in opposite directions
Both dropped significantly
Both increased but only slightly.
Disappeared.

10. Given a firm’s liabilities, an increase in interest rates reduces the firm’s net worth because:

Profits will be lower due to higher interest costs
Asset values will increase
The principal amount of the loans will increase
All of the answers given are correct

During the 1990s, the Japanese recession did not respond to the continual interest rate reductions implemented by monetary policymakers. Which of the following contributing to this lack of response?

Many banks that continued to make loans were actually insolvent
The Japanese stock market collapsed
Property values fell dramatically
All of the answers given are correct

Asset-backed securities include:

Mortgage-backed securities held by government-sponsored enterprises
Car loans and student loans
Credit card debt
All of the answers given are correct

Which best describes money as a means of payment?

Money provides an immediate double coincidence of wants
Money makes sure a double coincidence of wants never occurs
Money requires at least two transactions to obtain the double coincidence of wants
To obtain a double coincidence of wants without money is impossible

Suppose Mary receives an $8,000 loan from First National Bank. Mary repays $8,480 to First National Bank at the end of one year. Assuming the simple calculation of interest, the interest rate on Mary’s loan was:

8.00%
5.66%
$480
6.00%

Interest-rate risk would not matter to which of the following bondholders?

A holder of a U.S. government bond
A holder of a U.S. government bond indexed for inflation
A holder of a U.S. government bond that plans on holding it until it matures
A holder of a U.S. government bond who plans on selling it in one year

Financial instruments are used to channel funds from:

Savers to borrowers in financial markets and via financial institutions
Savers to borrowers in financial markets but not through financial institutions
Borrowers to savers in financial markets but not through financial institutions
Borrowers to savers through financial institutions, but not in financial markets

Which of the following statements is most correct?

All banks are financial intermediaries, but not all financial intermediaries are banks
Financial intermediaries must be public corporations
All financial intermediaries are insurance companies
Financial intermediaries are government agencies

As inflation increases, for any fixed nominal interest rate, the real interest rate:

Also increases
Remains the same, that’s why it is real
Decreases
Decreases by less than the increase in inflation

If a lender wants to earn a real interest rate of 3% and expects inflation to be 3%, he/she should charge a nominal interest rate that:

Is at least 7%
Is anything above 0%
Equals the real rate desired plus expected inflation
Equals the real rate desired less expected inflation