Assignment 1 Solution

Assignment 1 Solution - Econ 500 Fall 2011 Z. Janko...

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1 DEPARTMENT OF ECONOMICS Econ 500 – Money and Banking Fall 2011 Assignment 1 Assignments are due at the beginning of class. Answer ALL questions as best as you can. TYPE your answers to the short answer problem questions (except for any equations or graphs). Covers Chapters 1, 2, 3, and 4. Part I. Multiple Choice: Circle the BEST answer. 1. Looking at interest rates over time, generally: a. short term interest rates usually rise when long term interest rates rise. b. short term interest rates usually do not change when long term interest rates rise. c. short term interest rates usually rise when long term interest rates fall. d. None of the above are correct. 2. A security is a. A financial instrument that promises to make payments periodically for a specified period of time b. A bond c. A financial instrument that represents a share of ownership in a corporation d. A claim on the borrower’s future income that is sold by the borrower to the lender NOTE: another name for a security is “financial instrument”. 3. Which of the following statements is true regarding interest rates on US government bonds? a. The interest rate on a 3 month Treasury Bill has been rising since the beginning of 2009 b. The interest rates on 10 year government bonds have remained low following the 2008 financial crisis (as compared to where they were prior to Sept 2008). c. Interest rates on government bonds have been rising as investors have been reluctant to lend to the government d. Short term interest rates have been higher as compared to long term interest rates Econ 500 Fall 2011 Z. Janko
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2 4. Which of the following statements about the US economy is true? a. The price level (as measured by the GDP deflator) has been rising steadily since 1950’s b. Core inflation has been below 2% since the end of 2008 c. Since 1960, US has experienced 8 recessions d. The money growth rate (as measured by M2) has been fluctuating between 0% and 15% since 1970, hence it has been rising steadily e. All are true.
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Assignment 1 Solution - Econ 500 Fall 2011 Z. Janko...

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