IHW13ANS

IHW13ANS - Ihw13 Question1 - Single Correct 1.0 Point Real...

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Ihw13 Question1 - Single Correct 1.0 Point Real interest rates in the long-run are determined by A the supply and demand for money B the supply and demand for loanable funds C the supply and demand for assets D the supply and demand for saving FACT. S&D FOR LOANABLE FUNDS = SAVING AND INVESTMENT DETERMINE LR REAL INTEREST RATE (SR NOMINAL RATE DETERMINED BY S&D FOR MONEY, LARGELY CONTROLLED BY FED) Question2 - Single Correct 1.0 Point Generally, other things equal, long-term interest rates are A higher than short-term rates B lower than short-term rates C similar to short-term rates D indeterminate FACT – TERM STRUCTURE AND LIQUIDITY PREMIUM ARGUMENTS – LT RATES ARE AVERAGE OF CURRENT AND EXPECTED FUTURE SHORT- TERM RATES. GENERALLY, ONE REQUIRES A HIGHER INTEREST RATE TO BE ‘LOCKED-IN’ FOR A LONGER PERIOD OF TIME Question3 - Single Correct 1.0 Point According to the theory of liquidity preference, the money supply is A positively related to the interest rate. B negatively related to the interest rate. C independent of the interest rate. D negatively related to both the interest rate and the price level. TRICKY WORDING – MONEY SUPPLY CONTROLLED BY FED, REGARDLESS OF INTEREST RATE. ONCE THEY ‘SET’ THE MONEY SUPPLY, THE DEMAND FOR MONEY DETERMINES THE SR NOMINAL INTEREST RATE. (IN FACT, THE SUPPLY OF MONEY DOES DEPEND ON INTEREST RATES – MORE IN MONEY AND BANKING). LIQUIDITY PREFERENCE IS VIEWED AS A KEYNESIAN DEMAND FOR MONEY IDEA (NOT SUPPLY) Question5 - Single Correct 1.0 Point
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Nominal interest rates in the long-run change primarily due to A the supply and demand for money B the supply and demand for loanable funds C the supply and demand for assets D inflation NOMINAL INT RATE = REAL RATE + EXPECTED INFLATION. WITH REAL RATE DETERMINED BY SAVING AND INVESTMENT (AND NOT CHANGING MUCH), NOMINAL RATE MOVES WITH INFLATION IN LR Question6 - Single Correct 1.0 Point Which of the following is correct? A Lenders sell bonds and borrowers buy them. B Long-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier. C Junk bonds refer to bonds that have been resold many times. D None of the above are correct. LENDERS BUY BONDS / SEE ABOVE LT RATES GENERALLY HIGHER THAN SHORT-TERM/ JUNK BONDS ARE HIGH YIELD, HIGH RISK BONDS Question10 - Single Correct 1.0 Point One discounts future dollar amounts due to A inflation B interest C money D scarcity VERY IMPORTANT FACT. DISCOUNTING MEANS ‘REMOVING’ FROM $ AMOUNTS TO BE RECEIVED IN THE FUTURE, THE INTEREST THAT WOULD HAVE BEEN EARNED. I.E. $110 IN 1 YEAR IS ONLY ‘WORTH’ $100 NOW (ASSUMING 10% INTEREST RATE) BECAUSE I CAN PUT $100 IN BANK NOW AND IT WILL GROW TO $110 IN 1 YEAR Question12 - Single Correct
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This document was uploaded on 10/31/2011 for the course 202 101 at Rutgers.

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IHW13ANS - Ihw13 Question1 - Single Correct 1.0 Point Real...

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