1. Which type of money is the most difficult to counterfeit?
A. fiat
B. commodity
C. representative
D. credit
2. Cash is at least as liquid as any asset in M2.
True
False
3. Receipts for store tobacco are NOT an example of _____ money.
A. commodity
B. representative
C. credit
D. none of the above
4. A falling real interest rate means nominal rates are falling as well.
True
False
5. An advantage of commodity money is that prices cannot rise indefinitely.
True
False
6. Money
A. is anything generally accepted for trade.
B. does not have to be valuable except as a means of trade.
C. can allow people to save more easily.
D. all of the above.
7. A two-year coupon bond has a face value of $1,000, a coupon rate of 5% and a yield to maturity of 5%. What is the price of the bond?
A. $944.21.
B. $1,000.
C. $1,058.25.
D. $1,078.43.
8. The current yield is the most accurate measure of the return on a bond.
True
False
9. Slips representing gold deposits with a bank are NOT an example of _____ money.
A. fiat
B. representative
C. credit
D. none of the above
10. A bond is bought at par and market yields rise after purchase. If the bond is held to maturity, the rate of return at maturity will be _____ the yield at purchase.
A. greater than
B. less than
C. equal to
D. cannot be determined
11. Checking accounts are part of the money supply defined by M0.
True
False
12. An advantage of credit money is
A. elasticity of supply.
B. default risk.
C. indivisibility.
D. none of the above.
13. Sand would not be able to function as money since it is not
A. divisible.
B. uniform.
C. scarce.
D. all of the above.
14. A disadvantage of credit money is
A. elasticity of supply.
B. weight to value ratio
C. indivisibility.
D. none of the above.
15. Rocks would not make very good money because they are not easily
A. divisible.
B. uniform.
C. portable
D. all of the above.
16. Brittany and Christina both buy bonds with yield to maturity of 4% but Brittany's bond has 2 years to maturity and Christina's has 5. After one year, yields for these bonds rise.
A. The rate of return on both bonds is above 4% but Brittany's is higher.
B. The rate of return on both bonds is above 4% but Christina's is higher.
C. The rate of return on both bonds is below 4% but Brittany's is lower.
D. The rate of return on both bonds is below 4% but Christina's is lower.
17. Checkable mutual funds are at least as liquid as any asset in M3.
True
False
18. The price of a bond is directly related to
A. the face value.
B. the yield to maturity.
C. both of the above.
D. neither of the above.
19. The chance that a bond issuer won't make promised payments is called
A. default risk.
B. credit risk.
C. interest rate risk.
D. representation risk.
20. If the nominal interest rate is less than expected inflation, the real interest rate is positive.
True
False
21. The present value of a future payment is always greater than the payment.
True
False
22. Deflation (falling prices) means that real rates are greater than nominal rates.
True
False
23. Arrowheads are an example of _____ money.
A. fiat
B. representative
C. credit
D. none of the above
24. A two-year coupon bond has a face value of $1,000, a coupon rate of 5% and a yield to maturity of 2%. What is the price of the bond?
A. $944.21.
B. $1,000.
C. $1,058.25.
D. $1,078.43.
25. Longer maturity bonds have greater interest rate risk.
True
False
26. The present value of a discount bond with one year to maturity, face value $1,000 and yield to maturity 5% is
A. $952.38.
B. $1,000.00.
C. $1,005.00.
D. $1,050.00.
27. As measures of the money supply, M2 is more liquid than M3.
True
False
28. The current yield and the yield to maturity for a consol are the same.
True
False
29. A three-year coupon bond has a face value of $1,000, a coupon rate of 7% and a yield to maturity of 10%. The price of the bond must be _____ $1,000.
A. greater than
B. less than
C. equal to
D. cannot be determined
30. A difficulty with gold is that it does not function well as a unit of account.
True
False
31. After three years, a deposit of $1,000 that compounds annually at an interest rate of 20% returns
A. $1,000.
B. $1,200.
C. $1,440.
D. $1,728.
32. The price of a coupon bond is inversely related to
A. the face value.
B. the coupon rate.
C. both of the above.
D. neither of the above.
33. The accuracy of the current yield increases with the time to maturity of a bond.
True
False
34. The biggest problem with credit money is
A. its weight-to-value ratio.
B. elasticity of supply.
C. default risk.
D. none of the above.
35. The relationship between real and nominal rates is called the
A. inflation relation.
B. Keynes equation.
C. Friedman equation.
D. none of the above.
36. In the absence of money, people
A. must barter to trade.
B. produce a smaller variety of goods themselves.
C. are unable to borrow or lend.
D. all of the above.
37. Commodity money can never act as representative money.
True
False
38. Shorter maturity bonds have greater default risk.
True
False
39. Which of the following is/are desirable attributes of a medium of exchange?
A. edibility
B. elasticity of demand
C. divisibility
D. all of the above
40. Fiat money is less elastic than credit money.
True
False