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Exam 9: Saving and Capital Formation

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Question 51

Multiple Choice

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In Macroland there is $1,000,000 in currency that can either be held by the public as currency or deposited into banks. Banks' desired reserve/deposit ratio is 10%. If the public of Macroland decides to hold more currency, increasing the proportion they hold from 50% to 75%, the money supply in Macroland will ______.

A) increase.
B) decrease.
C) remain the same.
D) either increase or decrease.

E) A) and D)
F) B) and D)

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Question 52

Multiple Choice

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If the money supply equals 2,000, velocity equals 3, and real GDP equals 4,000, then the price level equals:

A) 1.5.
B) 2.
C) 3.
D) 6,000.

E) C) and D)
F) None of the above

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Question 53

Multiple Choice

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Extremely rapid rates of money growth are usually the result of:

Pat pays $10,000 for a newly issued two-year government bond with a $10,000 face value and a 6 percent coupon rate. One year later, after receiving the first coupon payment, Pat sells the bond. If the current one-year interest rate on government bonds is 5 percent, then the price Pat receives is:

The coupon rate on newly issued bonds is usually ______ for bonds with favorable tax treatment, such as municipal bonds, and ______ for bonds that are very risky, such as junk bonds.

You expect a share of EconNews.Com to sell for $65 a year from now and to pay a $2 dividend per share in one year. What should you pay (rounded to the nearest dollar) for the stock today if you require an 8% return?

If banks' desired reserve ratio increases from 0.10 to 0.15, the public still desires to hold the same amount of currency, and the Fed takes no actions, the money supply will:

The coupon rate on newly issued bonds is usually higher for bonds with ______ terms and ______ risk that the borrower will go bankrupt.

A bond is a(n) :

If the desired reserve/deposit ratio equals 0.10, then every dollar of currency in bank vaults supports ______ of the money supply, while every dollar of currency held by the public contributes ______ to the money supply.

The quantity equation states that:

The money supply in Econland is 1,000, and currency held by the public equals bank reserves. The desired reserve/deposit ratio is 0.25. Bank reserves equal _____.

Commercial banks create new money:

The M2 measure of money consists of the sum of:

You expect a share of EconNews.Com to sell for $65 a year from now. If you are willing to pay $61.06 for one share of the stock today, you expect a dividend payment of $4, and the rate of return on safe assets is 5%, how much is your risk premium?

An open-market purchase of government securities by the Fed will:

If you use $1,000 to purchase silver bullion, which you plan to keep in a safe, you are using money as:

When a baker exchanges a pie for dollars, this is an example of dollars serving as:

One year before maturity the price of a bond with a principal amount of $1,000 and a coupon rate of 5% paid annually fell to $981. The one year interest rate must be:

A rapidly growing supply of money will lead to: