practice_final

practice_final - ECON110B Summer II 2007 Professor Dong...

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1 ECON110B Summer II 2007 Professor Dong Heon Kim Practice Final PART A: Multiple Choice 1. Which of the following must occur for the nominal interest rate to be equal to the real interest rate? a) Expected inflation is equal to zero. b) The nominal and real interest rates can never be equal. c) Expected inflation is equal to the nominal interest rate. d) Expected inflation is negative. 2. The present discounted value of a future payment becomes smaller when: a) the payment itself decreases. b) the nominal interest rate decreases. c) the payment is made sooner rather than later d) all of the above. 3. A downward-sloping yield curve suggests that financial market participants expect short-term interest rates will a) fall in the future. b) be equal to zero in the future. c) rise in the future. d) not change in the future. 4. For this question, assume that there is perfect arbitrage in the stock market. Given this assumption, economists believe that: a) movements in stock prices are largely unpredictable. b) the rate of return on stocks will be equal to the rate of return on bonds. c) most stocks will diverge from their fundamental value. d) stocks will generally earn a lower rate of return than bonds. 5. Which of the following represents human wealth? a) the sum of financial and housing wealth b) total wealth minus housing wealth c) financial wealth minus housing wealth d) the present discounted value of expected future after-tax labor income. 6. Assume the following: (1) the real cost of a unit of capital is one; (2) the unit of capital is
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This note was uploaded on 09/18/2008 for the course ECON 100B taught by Professor Rauch during the Winter '07 term at UCSD.

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practice_final - ECON110B Summer II 2007 Professor Dong...

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