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

Which of the following is a type of financial asset?

• bonds

  (for the company)

• loans

  (for the borrower)

• stocks

  (for the owner)

• roads

  (for the driver)

• homes

  (for the owner)

What is the opportunity cost of holding assets in cash?

• inflation

• deflation

• interest rate

• deficits

• debt

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

Who benefits from and is hurt by unexpectedly high inflation?

• benefit: banks,

  hurt: borrowers

• benefit: government,

  hurt: borrowers

• benefit: businesses,

  hurt: stock holders

• benefit: borrowers,

  hurt: banks

• benefit: owners,

  hurt: borrowers