AP Macro - Unit 4

Which of the following is true for bonds but not 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

Which of the following is considered the most liquid asset?

• Stocks

• Bonds

• Currency

• Real Estate

Which of the following is true regarding financial assets?

• Bond prices increase when interest rates increase

• Checkable deposits are not a medium of exchange because they have low liquidity

• Money serves as a medium of exchange, unit of account, and a store of value

• Bonds are also called equities and represent ownership in a corporation

Which of the following statements describes a function of money?

I. Money is a medium of exchange.

II. Money is a store of value.

III. Money is a unit of account.

IV. Money is a factor of production.

• I and IV only.

• I, II and IV only.

• II, III and IV only.

• I, II, and III only.

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.

Fiat Money

• performs the function of money but has no other value or uses

• the total collection of assets

• performs the function of money and has intrinsic value

• anything that is generally accepted in payment for goods and services

Commodity Money

• a flow of earnings per unit of time

• performs the function of money but has no other value or uses

• the total collection of assets

• performs the function of money and has intrinsic value

• anything that is generally accepted in payment for goods and services

Liquidity

• acts as a measurement of value

• allows you to store purchasing power for the future

• ease with which an asset can be accessed and used as a medium of exchange

• used to buy goods and services with no complications of barter system

• before trade can occur, each trader has to have something the other wants

A Store of Value

• acts as a measurement of value

• allows you to store purchasing power for the future

• ease with which an asset can be accessed and used as a medium of exchange

• used to buy goods and services with no complications of barter system

• before trade can occur, each trader has to have something the other wants

The M1 category of money supply is best described as...

• Short term time deposits
• Long term time deposits
• Liquid assets
• Gold