Mods 4.1-4.2: Financial Assets & Nominal v Real Interest Rates

Which of the following is a task of the financial system?

• decreasing transaction costs

• increasing risk

• limiting liquidity

• creating capital outflow

• paying the budget deficit

Which of the following is a type of financial asset?

(CHOOSE ALL THAT APPLY)

• bonds

  (for the holder)

• loans

  (for the lender)

• stocks

  (for the owner)

• roads

  (for the driver)

• homes

  (for the owner)

Which of the following allows individuals to diversify their stock portfolio for less money?

• bank account

• stock certificate

• mutual fund

• bonds

• checks

The interest rate published by a bank in an advertisement is the:

• real interest rate

• nominal interest rate

• prime interest rate

• expected interest rate

• discount rate

The real interest rate will equal the nominal interest rate when inflation is equal to:

• zero

• the nominal interest rate

• the real interest rate

• expected inflation

• the expected rate of return

When lenders begin to expect inflation, nominal interest rates will:

• fall

• rise

• equal real interest rates

• equal zero

• be negative