HW 6 - ihw6 Return to Assessment List Part 1 of 1 -...

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Unformatted text preview: ihw6 Return to Assessment List Part 1 of 1 - Question 1 of 64 Current U.S. currency is 56.0/ 64.0 Points 1.0/ 1.0 Points A. fiat money with intrinsic value. B. fiat money with no intrinsic value. C. commodity money with intrinsic value. D. commodity money with no intrinsic value. Answer Key: B Feedback: fiat money with no intrinsic value. Question 2 of 64 Paper money 0.0/ 1.0 Points A. has a high intrinsic value. B. is used in a barter economy. C. is valuable because it is generally accepted in trade. D. is valuable only because of the legal tender requirement. Answer Key: C Feedback: is valuable because it is generally accepted in trade. Question 3 of 64 0.0/ 1.0 Points The Fed can lower interest rates in the short-run by conducting open market A. sales and raising money supply B. sales and lowering the money supply C. purchases and raising the money supply D. purchases and lowering the money supply Answer Key: C Feedback: purchases and lowering the discount rate. Question 4 of 64 A mutual fund 1.0/ 1.0 Points A. is a financial market where small firms mutually agree to sell stocks and bonds to raise funds. B. is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community. C. sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. D. is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds. Answer Key: D Feedback: is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds. Question 5 of 64 1.0/ 1.0 Points Which of the following is the correct way to state the rule of 70 (or 72)? A variable with a growth rate of X percent A. doubles every 70/x years. B. doubles every 70(1 - 1/x) years. 2 C. doubles every 70/x years. D. doubles every 70/(1 - x) years. Answer Key: A Feedback: doubles every 70/x years. Question 6 of 64 1.0/ 1.0 Points The interest rate banks charge each other for short-term reserve loans is A. the prime rate. B. the federal funds rate. C. the discount rate. D. the LIBOR. Answer Key: B Feedback: the discount rate. Question 7 of 64 When a bank loans out $1,000, the money supply 1.0/ 1.0 Points A. does not change. B. decreases. C. increases. D. may do any of the above. Answer Key: C Feedback: increases. Question 8 of 64 1.0/ 1.0 Points Today, bank runs are A. uncommon because of the high required reserve ratio. B. uncommon because of FDIC deposit insurance. C. common because of the low required reserve ratio. D. common because the FDIC is nearly bankrupt. Answer Key: B Feedback: uncommon because of FDIC deposit insurance. Question 9 of 64 Which of the following is correct? 1.0/ 1.0 Points A. The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who serve 7-year terms. B. The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms. C. The Federal Reserve has 12 regional banks. The Board of Governors has 14 members who serve 7-year terms. D. None of the above is correct. Answer Key: B Feedback: The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms. Question 10 of 64 1.0/ 1.0 Points Which of the following is both a store of value and a common medium of exchange? A. corporate bonds B. mutual funds C. checking account balances D. All of the above are correct. Answer Key: C Feedback: checking account balances Question 11 of 64 The legal tender requirement means that 1.0/ 1.0 Points A. people are more likely to accept the dollar as a medium of exchange. B. the government must hold enough gold to redeem all currency. C. people may not make trades with anything else. D. All of the above are correct. Answer Key: A Feedback: people are more likely to accept the dollar as a medium of exchange. Question 12 of 64 1.0/ 1.0 Points If stock prices follow a random walk, it means that, based on publicly available information, changes in stock prices A. are impossible to consistently predict. B. can be consistently predicted by fundamental analysis. C. are random and never reflect fundamentals such as dividend payments, demand for the firm's product, and the like. D. are irrational. Answer Key: A Feedback: are impossible to consistently predict. Question 13 of 64 Bank runs 0.0/ 1.0 Points A. will affect neither the money supply nor the money multiplier. B. are only a problem for insolvent banks. C. can be neither prevented nor stopped by the Federal Reserve. D. are a problem because banks only hold a fraction of deposits as reserves. Answer Key: D Feedback: are a problem because banks only hold a fraction of deposits as reserves. Question 14 of 64 The Federal Open Market Committee is made up of 1.0/ 1.0 Points A. 5 of the 12 presidents of the Federal Reserve Regional banks, and the 7 members of the Board of Governors. B. 7 of the 12 presidents of the Federal Reserve Regional banks, and the 5 members of the Board of Governors. C. the 12 presidents of the Federal Reserve Regional banks, and the Chair of the Board of Governors. D. the 12 presidents of the Federal Reserve Regional banks, and the 7 members of the Board of Governors. Answer Key: A Feedback: 5 of the 12 presidents of the Federal Reserve Regional banks, and the 7 members of the Board of Governors. Question 15 of 64 M1 includes 1.0/ 1.0 Points A. currency. B. demand deposits. C. travelers' checks. D. All of the above are correct. Answer Key: D Feedback: All of the above are correct. Question 16 of 64 1.0/ 1.0 Points The Federal Reserve does all except which of the following? A. control the supply of money B. control the value of money C. make loans to individuals D. regulate the banking system Answer Key: C Feedback: make loans to individuals Question 17 of 64 The nominal interest rate is the 1.0/ 1.0 Points A. interest rate corrected for inflation. B. interest rate as usually reported by banks. C. real rate of return to the lender. D. real cost of borrowing to the borrower. Answer Key: B Feedback: interest rate as usually reported by banks. Question 18 of 64 Stock indexes are 1.0/ 1.0 Points A. the average of a group of stock prices. B. the average of a group of stock yields. C. reports in the newspaper that report on the price of the stock and earnings of the corporation. D. measures of the risk relative to the profitability of corporations. Answer Key: A Feedback: the average of a group of stock prices. Question 19 of 64 When the Fed conducts open market purchases, 1.0/ 1.0 Points A. it buys outstanding (previously issued) Treasury securities from the public, which increases the money supply. B. it buys outstanding (previously issued) Treasury securities from the public,which decreases the money supply. C. it borrows from member banks, which increases the money supply. D. it lends money to member banks, which decreases the money supply. Answer Key: A Feedback: it buys Treasury securities, which increases the money supply. Question 20 of 64 1.0/ 1.0 Points What is the present value of a payment of $100 one year from today if the interest rate is 10 percent? A. $10 B. $90 C. $91 D. 110 Answer Key: C Feedback: $95.24 Question 21 of 64 Economists use the word "money" to refer to 1.0/ 1.0 Points A. income generated by the production of goods and services. B. those assets regularly used to buy goods and services. C. the value of a person's assets. D. the value of stocks and bonds. Answer Key: B Feedback: those assets regularly used to buy goods and services. Question 22 of 64 1.0/ 1.0 Points The price of stock traded on exchanges are determined by A. the Corporate Stock Administration. B. NASDAQ. C. the supply and demand for the stock. D. All of the above are correct. Answer Key: C Feedback: the supply and demand for the stock. Question 23 of 64 1.0/ 1.0 Points Which of the following best illustrates the medium of exchange function of money? A. You keep some money hidden in your shoe. B. You keep track of the value of your assets in terms of currency. C. You pay for your double latte using currency. D. None of the above is correct. Answer Key: C Feedback: You pay for your double latte using currency. Question 24 of 64 Liquidity refers to 1.0/ 1.0 Points A. the ease with which an asset is converted to the medium of exchange. B. a measurement of the intrinsic value of commodity money. C. the suitability of an asset to serve as a store of value. D. how many time a dollar circulates in a given year. Answer Key: A Feedback: the ease with which an asset is converted to the medium of exchange. Question 25 of 64 A low P/E for a stock indicates that 0.0/ 1.0 Points A. people may expect earnings to fall in the future perhaps because the firm will be faced with increased competition. B. its dividends have been low so that no one is willing to pay very much for it. C. the corporation is possibly overvalued. D. All of the above are correct. Answer Key: A Feedback: people may expect earnings to fall in the future perhaps because the firm will be faced with increased competition. Question 26 of 64 0.0/ 1.0 Points Which of the following is included in M2 but not in M1? A. currency B. demand deposits C. savings deposits D. All of the above are included in both M1 and M2 Answer Key: C Feedback: savings deposits Question 27 of 64 1.0/ 1.0 Points Which of the following is the correct way to figure the future value of $1 put in an account that earns 5 percent for 20 years? A. $1(1 + .05) 20 B. $1(1 + .05 20) 20 C. $1(1 + .05 20) D. $1(1 + 20/.05) 20(.05 Answer Key: A Feedback: $1(1 + .05)20 Question 28 of 64 Which of the following is a financial intermediary? 1.0/ 1.0 Points A. a mutual fund B. the stock market C. a U.S. government bond D. None of the above are correct. Answer Key: A Feedback: a mutual fund Question 29 of 64 A fall in the rate of interest will 1.0/ 1.0 Points A. reduce investment primarily because it will reduce the present value of future revenues expected from investment projects. B. reduce investment primarily because it will increase the present value of current construction costs. C. increase investment primarily because it will increase the present value of future revenues expected from investment projects. D. increase investment primarily because it will reduce the present value of current construction costs. Answer Key: C Feedback: increase investment primarily because it will increase the present value of future revenues expected from investment projects. Question 30 of 64 1.0/ 1.0 Points The price of a bond is equal to the sum of the present value of its future payments. Suppose further that this bond pays $50 in one year and $1,050 in two years. What is the price of the bond if the interest rate is 5 percent? A. $1,050.00 B. $1,045.35 C. $1,000.00 D. $945.35 Answer Key: C Feedback: $1,000.00 Question 31 of 64 The Board of Governors 1.0/ 1.0 Points A. is currently chaired by Paul Volcker. B. are appointed by the president and confirmed by the Senate. C. has twelve members. D. All of the above are correct. Answer Key: B Feedback: are appointed by the president and confirmed by the Senate. Question 32 of 64 Stock represents 1.0/ 1.0 Points A. a claim to the profits of a firm. B. ownership in a firm. C. equity finance. D. All of the above are correct Answer Key: D Feedback: All of the above are correct Question 33 of 64 1.0/ 1.0 Points Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate? A. store of value B. medium of exchange C. unit of account D. None of the above is correct. Answer Key: A Feedback: store of value Question 34 of 64 1.0/ 1.0 Points What is the present value of a payment of $100 to be made one year from today? A. $100*(1 + r) B. $100/(1 + r) C. $100 - $100 r D. $100 - (1 + r)/$100 Answer Key: B Feedback: $100/(1 + r) Question 35 of 64 1.0/ 1.0 Points The interest rate the Fed charges on loans it makes to banks is called A. the prime rate. B. the federal funds rate. C. the discount rate. D. the LIBOR. Answer Key: C Feedback: the discount rate. Question 36 of 64 1.0/ 1.0 Points If the nominal interest rate is 5 percent and the rate of inflation is 2 percent, then the real interest rate is A. 7 percent. B. 3 percent. C. 2.5 percent. D. 2/5 percent. Answer Key: B Feedback: 3 percent. Question 37 of 64 1.0/ 1.0 Points If you put $100 in an account paying 10 percent annual compounded interest, what is the future value of this account in two years? A. $10 B. $100 C. $120 D. $121 Answer Key: D Feedback: $312.12 Question 38 of 64 1.0/ 1.0 Points The agency responsible for regulating the money supply in the United States is A. the Comptroller of the Currency. B. the U.S. Treasury. C. the Federal Reserve. D. the U.S. Bank. Answer Key: C Feedback: the Federal Reserve. Question 39 of 64 Members of the Board of Governors 1.0/ 1.0 Points A. are appointed by the U.S. president, while presidents of the Federal Reserve regional banks are appointed by the banks' boards of directors. B. are appointed by the banks' boards of directors while the presidents of the Federal Reserve regional banks are appointed by the U.S. president. C. and the presidents of the Federal Reserve regional banks are appointed by the U.S. president. D. and the presidents of the Federal Reserve regional banks are appointed by the banks' boards of directors. Answer Key: A Feedback: are appointed by the U.S. president, while presidents of the Federal Reserve regional banks are appointed by the banks' boards of directors. Question 40 of 64 Which list ranks assets from most to least liquid? 1.0/ 1.0 Points A. currency, fine art, stocks B. currency, stocks, fine art C. fine art, currency, stocks D. fine art, stocks, currency Answer Key: B Feedback: currency, stocks, fine art Question 41 of 64 The efficient markets hypothesis says that 1.0/ 1.0 Points A. individual investors with no insider information can make no money in the stock market. B. it should be difficult to find stocks that are not correctly valued. C. stock prices do not follow a random walk. D. All of the above. Answer Key: B Feedback: it should be difficult to find stocks that are not correctly valued. Question 42 of 64 0.0/ 1.0 Points If you deposit $100 into a demand deposit at a bank, this action by itself A. does not change the money supply. B. increases the money supply. C. decreases the money supply. D. has an indeterminate effect on the money supply. Answer Key: A Feedback: does not change the money supply. Question 43 of 64 Money 1.0/ 1.0 Points A. is more efficient than barter. B. makes trades easier. C. allows greater specialization. D. All of the above are correct. Answer Key: D Feedback: All of the above are correct. Question 44 of 64 1.0/ 1.0 Points If the annual compound interest rate is 36%, approximately how many years will it take youir money to double? A. 1 year B. 2 years C. 3 years D. 33 years Answer Key: B Feedback: 6 years Question 45 of 64 Compared to bonds, stocks offer the holder 1.0/ 1.0 Points A. lower risk. B. partial ownership. C. the likelihood of a lower return. D. All of the above are correct. Answer Key: B Feedback: partial ownership. Question 46 of 64 1.0/ 1.0 Points Institutions in the economy that help to match one person's saving with another person's investment are collectively called the A. Federal Reserve system. B. banking system. C. monetary system. D. financial system. Answer Key: D Feedback: financial system. Question 47 of 64 1.0/ 1.0 Points Which of the following is a store of value? A. currency B. U.S. government bonds C. fine art D. All of the above are correct. Answer Key: D Feedback: All of the above are correct. Question 48 of 64 0.0/ 1.0 Points If the public decides to hold more currency and fewer deposits in banks, bank reserves A. decrease and the money supply eventually decreases. B. decrease but the money supply does not change. C. increase and the money supply eventually increases. D. increase but the money supply does not change. Answer Key: A Feedback: decrease and the money supply eventually decreases. Question 49 of 64 Debit cards 1.0/ 1.0 Points A. defer payments. B. are equivalent to credit cards. C. are included in M2. D. are used as a method of payment. Answer Key: D Feedback: are used as a method of payment. Question 50 of 64 1.0/ 1.0 Points Suppose that the reserve ratio is 10 percent and that a bank has $1,000 in deposits. Its required reserves are A. $10. B. $100. C. $900. D. $1000 Answer Key: B Feedback: $50. Question 51 of 64 1.0/ 1.0 Points When Arnold use dollars to record his income and expenses, he is using money as a A. unit of account. B. means of payment. C. store of value. D. medium of exchange. Answer Key: A Feedback: unit of account. Question 52 of 64 Credit cards are 1.0/ 1.0 Points A. used as a method of payment. B. part of the M1 money supply. C. a method of deferring payment. D. a unit of account. Answer Key: C Feedback: a method of deferring payment. Question 53 of 64 1.0/ 1.0 Points What part of the Fed meets every six weeks to discuss changes in the economy and determine monetary policy? A. the Board of Governors B. the FOMC C. the regional Federal Reserve Bank presidents D. the Central Bank Policy Commission. Answer Key: B Feedback: the FOMC Question 54 of 64 A bond is a 1.0/ 1.0 Points A. financial intermediary. B. certificate of indebtedness. C. certificate of partial ownership in an enterprise. D. None of the above are correct. Answer Key: B Feedback: certificate of indebtedness. Question 55 of 64 1.0/ 1.0 Points According to the efficient markets hypothesis, better than expected news about a corporation will A. have no effect on it's stock price. B. raise the price of the stock. C. lower the price of the stock. D. change the price of the stock in a random direction. Answer Key: B Feedback: raise the price of the stock. Question 56 of 64 The New York Federal Reserve Bank 1.0/ 1.0 Points A. president always gets to vote at the FOMC meetings. B. conducts open market transactions. C. is located in the traditional financial center of the United States. D. All of the above are correct. Answer Key: D Feedback: All of the above are correct. Question 57 of 64 Under a fractional reserve banking system, banks 1.0/ 1.0 Points A. hold more reserves than deposits. B. generally lend out a majority of the funds deposited. C. cause the money supply to fall by lending out reserves. D. All of the above are correct. Answer Key: B Feedback: generally lend out a majority of the funds deposited. Question 58 of 64 On a bank's T-account, 1.0/ 1.0 Points A. both deposits and reserves are assets. B. both deposits and reserves are liabilities. C. deposits are assets, reserves are liabilities. D. reserves are assets, deposits are liabilities. Answer Key: D Feedback: reserves are assets, deposits are liabilities. Question 59 of 64 Barter 1.0/ 1.0 Points A. requires a double-coincidence of wants. B. is less efficient than money. C. is the trading of goods for goods. D. All of the above are correct. Answer Key: D Feedback: All of the above are correct. Question 60 of 64 Profits paid out to stockholders are 1.0/ 1.0 Points A. retained earnings. B. dividends. C. the denominator in the price-earnings ratio. D. All of the above are correct. Answer Key: B Feedback: dividends. Question 61 of 64 1.0/ 1.0 Points People who buy newly issued stock in a corporation such as Rockwood Pottery provide A. debt finance and so become part owners of Rockwood. B. debt finance and so become creditors of Rockwood. C. equity finance and so become part owners of Rockwood. D. equity finance and so become creditors of Rockwood. Answer Key: C Feedback: equity finance and so become part owners of Rockwood. Question 62 of 64 During the Great Depression in the early 1930s, 1.0/ 1.0 Points A. bank runs closed many banks. B. the Fed decreased reserve requirements. C. the money supply rose sharply. D. both a and c are correct. Answer Key: A Feedback: bank runs closed many banks. Question 63 of 64 0.0/ 1.0 Points Fed policy decisions have an important influence on A. both the rate of inflation and the level of employment in the short run. B. the rate of inflation in the long run and the level of employment in the short run. C. the rate of inflation in the short run and the level of employment in the long run. D. both the rate of inflation and the level of employment in both the short run and the long run. Answer Key: B Feedback: the rate of inflation in the long run and the level of employment in the short run. Question 64 of 64 1.0/ 1.0 Points If the reserve ratio is 10 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million of government bonds, bank reserves A. increase by $20 million and the money supply eventually increases by $200 million. B. decrease by $20 million and the money supply eventually increases by $200 million. C. increase by $20 million and the money supply eventually decreases by $200 million. D. decrease by $20 million and the money supply eventually decreases by $200 million. Answer Key: A Feedback: increase by $20 million and the money supply eventually increases by $200 million. ...
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