REE4204 1 FINAL EXAM QUESTIONS
WITH VERIFIED ANSWERS
Velocity of circulation refers to:
a. how fast the average person spends his paycheck
b. how fast the current interest rate doubles
c. the average number of times one dollar turns over in one year
d. the total annual dollar transactions divided by the current interest rate
- ✔✔c.* the average number of times one dollar turns over in one year
In the equation of exchange:
a. M = marginal revenue, V = velocity of trade. P = price level, T = trade value
b. M = money, V = volume of trade, P = price level, T = Time value of money
c. M = market yield, V = variability of circumstances, P = population growth,
T time value of money
d. M = money supply, T = velocity of circulation, P = general price level, T = volume
of trade - ✔✔d.* M = money supply, T = velocity of circulation, P = general
price level, T = volume of trade
,Other things being equal, the greater the rate of growth of money:
a. the better off we are
b. the greater the rate of inflation
c. the higher the standard of living for the general population
d. the higher the poverty level - ✔✔b.* the greater the rate of inflation
Economists agree:
a. inflation stops growing after it reaches double digits
b. inflation cannot continue year after year
c. inflation, especially if it is consistent year after year, creates expectations
of future inflation
d. inflation doesn't play an important role in the determination of market
interest rates - ✔✔c.* inflation, especially if it is consistent year after year,
creates expectations of future inflation
The line of causation: of money> inflation> interest rate mechanism is:
a. money, economy, inflation, inflationary expectation, credit markets,
interest rates
b. interest rate, credit markets, inflationary expectations, inflation,
economy, money
c. inflationary expectations, inflation, economy, interest rate
d. credit market, inflationary expectations, interest rate - ✔✔a.*
money, economy, inflation, inflationary expectation, credit markets,
interest rates
,Liquidity, income, and price-anticipation effects:
a. are related to the money supply increase
b. are related to the interest rate increase
c. are related to the bond market increases
d. operate autonomously in the market and are not related to each other -
✔✔a.* are related to the money supply increase
The liquidity effect:
a. refers to the initial short-term effect of a decrease in the money supply when
interest rates rise
b. refers to the initial short-run effect of an increase in the money supply on
interest rates
c. decreases the amount of excess cash individuals hold when interest rates drop
d. has no effect on the demand for bonds - ✔✔b.* refers to the initial
short-run effect of an increase in the money supply on interest rates
The income effect comes into play when:
a. the lower levels of income cause an increase in the demand for credit
b. the lower levels of income cause a decrease in the demand for credit
c. the higher levels of income cause an increase in the demand for credit
d. the higher levels of income cause a decrease in the demand for credit -
✔✔c.* the higher levels of income cause an increase in the demand for
credit
, The price-anticipation effect on interest rates:
a. reflects the decrease in the supply of credit as a result of future
expected inflation
b. reflects the increase in the supply of credit as a result of future
expected inflation
c. reflects the decrease in the supply of credit as a result of future expected
inflation rate
d. reflects the increase in the supply of credit on inflation and future expected
inflation - ✔✔a.* reflects the decrease in the supply of credit as a result
of future expected inflation
Risk characteristics of securities include:
a. future growth, default, risk and callability
b. bond rate, marketability, future growth, maturity
c. default, callability, marketability and maturity
d. future growth, bond rate, default, and callability - ✔✔c.* default,
callability, marketability and maturity
Default risk:
a. is the risk the bond issuer will be unable to pay the interest and principal on
the obligation
b. means a high percentage yield (11% or higher)
WITH VERIFIED ANSWERS
Velocity of circulation refers to:
a. how fast the average person spends his paycheck
b. how fast the current interest rate doubles
c. the average number of times one dollar turns over in one year
d. the total annual dollar transactions divided by the current interest rate
- ✔✔c.* the average number of times one dollar turns over in one year
In the equation of exchange:
a. M = marginal revenue, V = velocity of trade. P = price level, T = trade value
b. M = money, V = volume of trade, P = price level, T = Time value of money
c. M = market yield, V = variability of circumstances, P = population growth,
T time value of money
d. M = money supply, T = velocity of circulation, P = general price level, T = volume
of trade - ✔✔d.* M = money supply, T = velocity of circulation, P = general
price level, T = volume of trade
,Other things being equal, the greater the rate of growth of money:
a. the better off we are
b. the greater the rate of inflation
c. the higher the standard of living for the general population
d. the higher the poverty level - ✔✔b.* the greater the rate of inflation
Economists agree:
a. inflation stops growing after it reaches double digits
b. inflation cannot continue year after year
c. inflation, especially if it is consistent year after year, creates expectations
of future inflation
d. inflation doesn't play an important role in the determination of market
interest rates - ✔✔c.* inflation, especially if it is consistent year after year,
creates expectations of future inflation
The line of causation: of money> inflation> interest rate mechanism is:
a. money, economy, inflation, inflationary expectation, credit markets,
interest rates
b. interest rate, credit markets, inflationary expectations, inflation,
economy, money
c. inflationary expectations, inflation, economy, interest rate
d. credit market, inflationary expectations, interest rate - ✔✔a.*
money, economy, inflation, inflationary expectation, credit markets,
interest rates
,Liquidity, income, and price-anticipation effects:
a. are related to the money supply increase
b. are related to the interest rate increase
c. are related to the bond market increases
d. operate autonomously in the market and are not related to each other -
✔✔a.* are related to the money supply increase
The liquidity effect:
a. refers to the initial short-term effect of a decrease in the money supply when
interest rates rise
b. refers to the initial short-run effect of an increase in the money supply on
interest rates
c. decreases the amount of excess cash individuals hold when interest rates drop
d. has no effect on the demand for bonds - ✔✔b.* refers to the initial
short-run effect of an increase in the money supply on interest rates
The income effect comes into play when:
a. the lower levels of income cause an increase in the demand for credit
b. the lower levels of income cause a decrease in the demand for credit
c. the higher levels of income cause an increase in the demand for credit
d. the higher levels of income cause a decrease in the demand for credit -
✔✔c.* the higher levels of income cause an increase in the demand for
credit
, The price-anticipation effect on interest rates:
a. reflects the decrease in the supply of credit as a result of future
expected inflation
b. reflects the increase in the supply of credit as a result of future
expected inflation
c. reflects the decrease in the supply of credit as a result of future expected
inflation rate
d. reflects the increase in the supply of credit on inflation and future expected
inflation - ✔✔a.* reflects the decrease in the supply of credit as a result
of future expected inflation
Risk characteristics of securities include:
a. future growth, default, risk and callability
b. bond rate, marketability, future growth, maturity
c. default, callability, marketability and maturity
d. future growth, bond rate, default, and callability - ✔✔c.* default,
callability, marketability and maturity
Default risk:
a. is the risk the bond issuer will be unable to pay the interest and principal on
the obligation
b. means a high percentage yield (11% or higher)
