QUESTION 1
Suppose the nominal interest rate is going to be 10% per year for the next two years. The present discounted value of $500 to be received in two years is:
$480.00
$490.00
$350.00
$413.22
$454.45
QUESTION 2
An increase in consumer confidence will cause:
the neutral or medium-run real interest rate to rise
the neutral real interest rate to fall
ambiguous effects on the natural real interest rate
no effect on the neutral real interest rate
QUESTION 3
One reason that long-term interest rates change less than short-term rates is that:
the mathematical calculations are more difficult for analysts in the case of long-term bonds
long-term rates are always lower than short-term rates, so there is less room for them to change
financial markets assume that, in the future, the central bank will reverse part of any change in short-term rates
financial markets assume that the central bank will be passive as interest rates rise or fall
financial markets are often swept up by bubbles and fads
QUESTION 4
In the short run, higher money growth is associated with:
lower real interest rates and lower nominal interest rates
lower real interest rates and higher nominal interest rates
higher real interest rates and higher nominal interest rates
higher real interest rates and lower nominal interest rates
none of the above
QUESTION 6
If the nominal interest rate falls, and the expected inflation rate rises, then the real interest rate:
must rise
must fall
cannot be defined
will rise, but only if the drop in the nominal rate is greater than the increase in expected inflation
will fall, but only if the drop in the nominal rate is smaller than the increase in expected inflation
QUESTION 7
Assuming the nominal interest rate is greater than 0, rank the following three sequences of payments according to their present value:
Sequence "A": $90, $100, $110
Sequence "B": $100, $100, $100
Sequence "C": $110, $100, $90
A > B > C
A > C > B
C > B > A
C > A > B
B > A > C
QUESTION 8
Assume that the rate of depreciation is 10% per year, the population growth rate is 3% per year, and the growth rate of technology is 1% per year. Then the level of investment needed to maintain a constant capital stock (K) in this economy is:
0.01K
0.03K
0.04K
0.10K
0.14K
QUESTION 9
Suppose the production function is represented by the following: Y = F(K, AN). Given this production function, constant returns to scale means that output will increase by 10% when:
K or AN increase by 10%
K and N increase by 10%
N or A increase by 10%
N and A increase by 10%
all of the above
QUESTION 12
If the nominal interest rate is zero, then the present discounted value of a sequence of future payments is:
zero
undefined
equal to the last of the payments
equal to the sum of all payments
equal to the square of the sum of all payments
QUESTION 13
Suppose there is an increase in the saving rate. We know that this will cause an increase in which of the following in the steady state?
growth rate of output
level of output
growth rate of capital per worker
growth rate of output per effective worker
none of the above
QUESTION 14
For this question, ignore differences in risk between different bonds. If there is arbitrage between one-year bonds and two-year bonds, we know that the rate of return on one-year bonds:
must be identical to the expected rate of return from holding a two-year bond for one year
must be identical to the expected rate of return from holding a two-year bond for two years
must be larger than the expected rate of return from holding a two-year bond for one year
must be smaller than the expected rate of return from holding a two-year bond for one year
will be exactly half the rate of return on two-year bonds
QUESTION 16
Suppose the current one-year interest rate is 2%, and financial markets expect the one-year interest rate next year to be 6%. Given this information, the yield to maturity on a two-year bond will be approximately:
4%
6.66%
7.5%
8%
10%
QUESTION 18
Assume that the rate of depreciation is 10% per year, the population growth rate is 3% per year, and the growth rate of technology is 1% per year. Then the steady-state growth rate of output per worker in this economy is:
1%
3%
4%
10%
14%
QUESTION 19
Which of the following will increase the steady-state growth rate of capital?
an increase in the saving rate
an increase in the population growth rate
a temporary increase in technological progress
all of the above
none of the above
QUESTION 20
Contractionary monetary policy tends to cause:
lower nominal interest rates (i) in the medium run and no change in real interest rates (r) in the medium run
no change in i in the medium run and a reduction in r in the medium run
no change in i in the medium run and an increase in r in the medium run
an increase in i in the medium run and no change in r in the medium run