midterm1-f08_white - KEY

midterm1-f08_white - KEY - Midterm 1 Version A(White EC370...

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1 Midterm 1 ; Version A (White) Name___________________________________ EC370 - Fall 2008 (50 pts) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Write your answers in CAPITAL LETTERS in the space provided. 1) The price paid for the rental of borrowed funds (usually expressed as a percentage of the rental of $100 per year) is commonly referred to as the 1) _______ A) aggregate price level. B) inflation rate. C) exchange rate. D) interest rate. 2) Everything else constant, a stronger dollar will mean that 2) _______ A) French cheese becomes more expensive. B) Japanese cars become more expensive. C) vacationing in England becomes less expensive. D) vacationing in England becomes more expensive. 3) Suppose you buy a stock which increases in price by 5% on the first day you own it. On the second day, the stock price decreases by 5%. After the second day, the stock price 3) _______ A) Is equal to your original purchase price. B) Is greater than your original purchase price. C) Is lower than your original purchase price. D) May be more or less than your original purchase price, depending on whether the stock costs less than $1 when you buy it. 4) You can borrow $8000 to finance a new business venture. This new venture will generate annual earnings of $1201. The maximum interest rate that you would pay on the borrowed funds and still increase your income is 4) _______ A) 12.5%. B) 15%. C) 17.5%. D) 20%. 5) Which of the following can be described as involving direct finance? 5) _______ A) People buy shares in a mutual fund. B) An insurance company buys shares of common stock in the over - the - counter markets. C) A pension fund manager buys a short - term corporate security in the secondary market. D) A corporation issues new shares of stock. 6) If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries, then financial intermediaries face the problem of 6) _______ A) costly state verification. B) moral hazard. C) adverse selection. D) free - riding. 7) The opportunity cost of holding currency (which causes the money demand curve to slope down) is the 7) _______ A) interest rate B) inflation rate C) dividend yield D) federal funds rate
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2 8) When the ________ interest rate is low, there are greater incentives to ________ and fewer incentives to ________. 8) _______ A) market; lend; borrow B) real; borrow; lend C) nominal; lend; borrow D) real; lend; borrow 9) When compared to exchange systems that rely on money, disadvantages of the barter system include: 9) _______ A) the requirement of a double coincidence of wants. B) lowering the cost of exchange to those who would specialize. C)
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midterm1-f08_white - KEY - Midterm 1 Version A(White EC370...

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