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Question
Describe in words the relationships established in the two equations used by the Federal Reserve to forecast the demand for M2.Answer
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An investor buys a stock for $10,000 and earns dividends of $250 during the course of the year. At the end of the year, the stock is worth $9,300. The dividend yield for the year isa. −2.5 percent. b. 5 percent. c. 5 percent. d. −7.0 percent.
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John bought an inflation-indexed security for $10,000 in January The security promises an annual interest rate of 5 percent and makes payments twice a year. If the value of the inflation index in January 2014 was 106 and its value in July 2014 was 105, John will receive an interest income of ____.a. $504.76b. $226.40c. $182.72d. $368.56
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If the expected inflation rate is 3 percent, the nominal interest rate is 5 percent, and the actual inflation rate turns out to be 4 percent, then the realized real interest rate is_____than the expected real interest rate and borrowers____relative to lenders.a. less; gainb. less; losec. greater; gaind. greater; lose
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When the Fed engages in an overnight reverse repoa. a bank agrees to hold a certain amount of clearing balances at the Fed. b. the fed sells securities and agrees to buy them back in one day.c. a primary government securities dealer agrees to sell a security to the Fed one day and buy it back the next day.d. The Fed repossesses property that a bank owns as punishment for the bank's failure to pay off a discount loan.
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In 2006, Chairman Greenspan left the Fed because a. President Bush wanted him to resign.b. he reached mandatory retirement age. c. his term as Governor expired.d. his term as Chairman expired.
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Suppose the exchange rate adjusts so that interest-rate parity holds. Also assume that the interest rate on a one-year Canadian bond is 3 percent and the interest rate on a one-year U.S. bond is 5 percent.a. If the exchange rate today is 1.40 Canadian dollars per U.S. dollar, what do you expect the exchange rate to be one year from now?b. Suppose relative purchasing-power parity holds, and the inflation rate in Canada is expected to be 1 percent over the next year. What is the expected inflation rate in the United States?
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The amount foreign citizens, firms, and governments invest in a country minus the amount that the country's citizens, firms, and governments invest abroad isa. the trade balance.b. the balance on current account. c. the capital-account balance.d. the balance on capital and financial account.
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The sum of net exports of goods and services plus net income from abroad plus net unilateral current transfers equalsa. the trade balance.b. the balance on current account. c. the capital account balance.d. the capital and financial account balance.
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If interest-rate parity holds and the interest rate in Japan is 3 percent while in France it is 5 percent, then we would expect the yen per euro exchange rate to percent.a. appreciate by 8 b. appreciate by 2 c. depreciate by 2 d. depreciate by 8
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Under absolute purchasing-power parity,a. the exchange rate equals 1 if both the countries have equal price indices.b. interest-rate parity holds.c. relative purchasing-power parity cannot hold.d. a currency depreciates relative to another currency by the amount by which the inflation rate is lower in the first country than in the second country.
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If only one good is traded between two countries and the price of the good is the same in both countries when expressed in units of the same currency, thena. people have rational expectations.b. both countries have the same monetary policy. c. there is interest-rate parity.d. the law of one price holds.
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A correlation of______between output growth in two regions would mean that output in the two regions are inversely related.a. 0b. 1c. 100d. less than 0
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A rise in wealth, everything else remaining unchanged, will cause household investment in housing to a. decline.b. not change. c. rise.d. fall at first, then rise later.
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Investment spending on physical capital is about of aggregate demand. a. 1/10b. 1/6 c. 1/4 d. 1/2
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A rise in income will cause consumer spending to a. decline.b. not change. c. rise.d. fall at first, then rise later.
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The total amount of physical capital in all firms and households is called the a. human capital.b. capital stock.c. household income. d. physical product.
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Suppose that a risk-neutral investor has a choice between buying a one-year bond paying 5 percent today, a two- year bond paying 4 percent today, a three-year bond paying 8 percent today, or a four-year bond paying 2 percent today, if a one-year bond purchased one year from now is expected to have an interest rate of 6 percent, a one-year bond purchased two years from now is expected to have an interest rate of 7 percent, and a one-year bond purchased three years from now is expected to have an interest rate of 8 percent. Explain with the help of suitable calculations, which of the following would the investor decide to do?a. The investor will purchase a one-year bond today, followed by three successive one-year bonds. b. The investor will purchase a two-year bond today, followed by two successive one-year bonds. c. The investor will purchase a three-year bond today, followed by a one-year bond.d. The investor will purchase a four-year bond today.
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Which of the following is a possible outcome of a negative or low term spread?a. A low of negative spread may indicate higher short-term interest rates in the future. b. A low or negative spread may cause the yield curve to slope upward.c. A low or negative spread may reduce lending by banks.d. A low or negative spread may indicate the early stages of economic expansions.
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What does a flat yield curve imply, according to the expectations theory of the term structure of interest rates?a. The price level will not change in the future. b. Future long-term rates are expected to rise. c. Future long-term rates are expected to fall.d. Future short-term rates are not expected to change.
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Which of the following is a possible outcome of a fall in the demand for a security?a. It will lead to an increase in the price and the yield to maturity of the security.b. It will lead to an increase in the price of the security and a fall in its yield to maturity.c. It will lead to a fall in the price of the security and a fall in its yield to maturity.d. It will lead to a fall in the price of the security and an increase in its yield to maturity.