Final Exam

Anya loaned Bran $500. Brian paid her back $550 one year later. The annual rate of inflation was 2%. What was the nominal interest rate that Anya earned on this loan?

• 2%

• 10%

• 8%

• 5%

Which of the following factors most contributes to the risk of a financial asset?

• The asset's liquidity

• The creditworthiness of the issuer

• The volatility of the asset's price

• The asset's total return

• The fees associated with buying and selling the asset

On a planet far away, a currency called the 'starbuck' is used by citizens. The starbuck is made of gold, but on the planet, gold has no intrinsic value. The only thing that gives the currency purchasing power is the trust that citizens have on their government for keeping the currency stable and strong. What type of currency is the 'starbuck'?

• Commodity money

• Barter money

• Fiat money

What is the relationship between unemployment and inflation as depicted by the Phillips Curve?

• Unemployment and inflation are directly proportional

• Unemployment and inflation are inversely proportional

• Unemployment and inflation are unrelated

• Unemployment and inflation are directly proportional at low unemployment levels and inversely proportional at high unemployment levels

• None of the above

If a recession occurs, what is the best option to lower the interest rate?

• Fed buys bonds

• Fed sells bonds

• Fed increases reserve rates

• None of the above

During a recession, based on historical trends, what is most likely happening to labor demand?

• Wage stays the same but unemployment increases

• Wage decreases and unemployment stays the same

• Wage increases and unemployment increases

• Cannot be determined based on current information

In Country A, banks were failing and people decided to save their money as personal cash. What will happen to GDP?

• GDP decreases

• GDP increases

• GDP does not change

• Cannot be determined with given information

Which of the following is a characteristic of the business cycle according to the real business cycle theory?

• Fluctuations in output are driven by changes in technology

• Monetary policy is the primary driver of economic fluctuations

• Sticky wages and prices are the main cause of recessions

• Government intervention is necessary to stabilize the economy

Under which circumstances is crowding out most likely to NOT be a concern?

• When near full employment

• A severe recession

• Government deficit

Select ALL the correct statements about monetary and fiscal policy (select all that apply)

• Monetary policy refers to changes in interest rates and money supply, while fiscal policy involves changes in taxation and government spending

• Monetary policy is primarily regulated by the FED while fiscal policy involves Congress

• Monetary policy primarily affects unemployment rates, while fiscal policy primarily affects inflation rates

• Monetary policy is used during recessions, while fiscal policy is used during periods of economic expansion