MA Unit 4: Financial Sector

Of the following, the most liquid asset is

• mutual funds
• currency
• time deposits
• demand deposits
• savings deposits

Which of the following is true for bonds but not for stocks?

• Bonds are the least liquid form of assets.
• Bonds represent partial ownership in a company.
• Bonds earn variable rates of return
• Bonds are interest-bearing assets
• Bonds have zero opportunity cost.

Which of the following will happen when interest rates increase in an economy?

• The cost of borrowing will decrease.

• The spending multiplier will decrease.

• Investment spending will increase.

• The price of previously issued bonds will increase.

• The opportunity cost of holding money will increase.

Which of the following describes a major difference between stocks and bonds?

• Stocks represent ownership in a corporation, and bonds represent a loan to a corporation
• Bonds represent ownership in a corporation, and stocks represent a loan to a corporation.
• Stocks are counted in gross domestic product, and bonds are not counted.
• Bonds are counted in gross domestic product, and stocks are not counted.
• Bonds pay dividends, and stocks earn interest.

Which of the following best describes the nominal interest rate on a mortgage loan that a bank offers to a customer?

• It is the real interest rate divided by the price level.
• It is the real interest rate minus the expected inflation rate.
• It is the interest rate charged by the bank.
• It is the interest rate charged by the bank minus the expected inflation rate
• It is the interest rate charged by the bank minus the interest rate the bank pays to its depositors.

Sam pays monthly installments on a five-year fixed interest rate auto loan. If the expected inflation rate increases, which of the following will happen?

• Sam will pay a lower nominal interest rate
• Sam will pay a higher nominal interest rate.
• Sam will pay a lower real interest rate.
• Sam will pay a higher real interest rate.
• Sam will pay higher monthly installments.

In the country of Agronomia, banks charge 10 percent interest on all loans. If the general price level has been increasing at the rate of 4 percent per year, the real rate of interest in Agronomia is

• 14%
• 10%
• 6%
• 4%
• 2.5%

On the island of Mabera, the local money is called “favoli.” The price of every good in Mabera is expressed as the number of favolis needed to buy the good. The use of favolis to express the price of goods describes which function of money?

• Store of value
• Medium of exchange
• Means of payment
• Unit of account
• Store of wealth

Pat deposits a portion of her wages into a personal savings account every week. The saved money can be considered to be primarily a

• means of payment
• unit of account
• store of value
• measure of value
• medium of exchange

The table gives the value of various monetary measures, in millions of dollars. Based on the table, what is the value of M1, a measure of the money supply?

• $100 million

• $102 million

• $110 million

• $1,000 million

• $1,120 million