Eco 561 Week 5 Quiz Free

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ECO 561 Week 5 Quiz
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** Important ** … ECO 561 Week 5 “FREE” Quiz w/ answers I see lots of views , but no one comments ….. : ( PLEASE COMMENT(add notes) at this site or .. go to ROGUEPHOENIX.39 fAcEb**K , and LET ME KNOW THAT THIS IS HELPING you . If no comments are made …. This will be my last post . -------------------------------------------------

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1. The Classical Theory of Asset Prices assumes which of the following ideas? Hint : Investors purchase assets based on a rational expectation of a stream of future income. A. The interest rate to use is the nominal rate, assets are the discounted sum of their future values, and expected income is the best information available. B. Actual past income is the best information available, assets are the discounted sum of their future values, and the interest rate is the safe interest rate plus a risk premium. [ C. The value of an asset is the discounted present value of expected cash flows, expected income is the best information available, and the interest rate is the safe interest rate plus a risk premium.] D. The interest rate to use is the real rate, expected income is the best information available, and the assets are the discounted sum of their future values. -------------------------------------------------

Investors purchase assets based on a rational expectation of a stream of future income. The interest rate is based on what investors would receive if they placed their capital in a risk-free investment, such as a government bond or certificate of deposit that is guaranteed by a government agency. However, each investor has a certain risk tolerance and may elect to incur some risk; this is known as a risk premium.

2. Economists use two principle interest rates: nominal and real. The purpose of this distinction is to Hint : In economics, nominal variables are often adjusted for changes in the prices, as prices change from year to year.

A. use nominal interest rates during periods when the economy is growing and real interest rates during economic down turns B. adjust for the influences that inflation may have on business profits [ C. account for and factor the influences that inflation may have on the behavior that consumers and firms use to determine how much to save out of their incomes ] Real interest rates adjust for the loss or increase in purchasing power that consumers and firms experience. Consumers and firms must adjust nominal or current values to account for the effects of inflation and to be able to impute their respective real purchasing power.

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3. During periods of increasing inflationary pressure, the Federal Reserve should Hint X When there are inflationary pressures, the Federal Reserve would likely contract the money supply. A. buy member bank's bonds to encourage increased lending to the public [ B. sell bonds to member banks to discourage lending to the public ] C. reduce the discount rate to make it easier for small businesses to borrow money Increasing inflationary pressures means that more dollars are in the economy than there are goods and services. This leads to a general price-level increase: inflation. When the Federal Reserve sells bonds, this restricts the amount of money an individual bank may loan to individuals and firms under the fractional reserve requirement, thereby reducing the amount of money in circulation. -------------------------------------------------

4. What is the increased moral hazard associated with the too big to fail (TBTF) bailouts of the largest of financial institutions? Hint X When private institutions are allowed to fail, the investors bear the burden for the loss; they are also the first to benefit when correct decisions are made related to pricing and risk. [ A. Financial institutions might misuse the bailout funds and...
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