ECO349H1 Lecture Notes - Lecture 4: Interest Rate, Expected Return, Income Tax

32 views5 pages

salmonspider855

16 May 2019

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Determinants of asset (ie. bonds, land, gold, etc) demand: wealth: total resources owned by the individual, including assets wealth = demand p rivate savings. Lower price higher interest rate increase quantity demanded of bonds. Lower prices higher interest rates decrease quantity supplied of bonds. Shifts in demand for bonds: wealth = b d shift right, expected future interest rate = b d shift left. Better off to wait and buy later for higher return: expected inflation rate = b d shift left. Lender does not like inflation because paid back less ( expected return: risk = b d shift left, liquidity = b d shift right. Shifts in supply of bonds: expected profitability of investment opportunities = b s shift right, expected inflation = b s shift right. Borrower likes inflation because pay back less in future: budget deficit = b s shift right. Government decides to spend more so needs more money.

Related Questions

14) Globalization refers to

A) the process of establishing a common world currency.

B) the willingness of individuals within a given country to share knowledge.

C) the process of countries becoming more open to foreign trade and investment.

D) the reduction in growth rates of real GDP per capita as a result of trade with foreign

countries.

15) According to a study by economists Raymond Fisman and Edward Miguel, as the level of corruption in a country increases,

A) so does the number of parking violations by the country's United Nations delegates.

B) so does the size of the country's population.

C) the levels of foreign direct investment and foreign portfolio investment decrease.

D) the levels of real GDP per capita and real income per capita increase.

16) Which of the following best describes the "wealth effect"?

A) When the price level falls, the real value of household wealth falls.

B) When the price level falls, the nominal value of household wealth falls.

C) When the price level falls, the nominal value of household wealth rises.

D) When the price level falls, the real value of household wealth rises.

17) The "interest rate effect" can be described as an increase in the price level that raises the interest 17) rate and chokes off

A) government spending.

B) government spending and unplanned investment.

C) investment and consumption spending.

D) net exports.

18) Which of the following is one explanation as to why the aggregate demand curve slopes downward?

A) Decreases in the price level raise the interest rate and increase consumer spending.

B) Decreases in the price level raise the interest rate and increase investment spending.

C) Decreases in the U.S. price level relative to the price level in other country's lower net exports.

D) Decreases in the price level to raise real wealth and increase consumer spending.

19) Higher personal income taxes

A) increase in aggregate demand.

B) increase disposable income.

C) decrease aggregate demand.

D) both B and C

20) If the U.S. dollar decreases in value relative to other currencies, how does this affect the aggregate demand curve?

A) This will move the economy up along a stationary aggregate demand curve.

B) This will move the economy down along a stationary aggregate demand curve.

C) This will shift the aggregate demand curve to the left.

D) This will shift the aggregate demand curve to the right.

21) How do lower taxes affect aggregate demand?

A) They increase disposable income, consumption, and aggregate demand.

B) They reduce disposable income, consumption, and aggregate demand.

C) they increase corporate investment and aggregate demand.

D) They increase aggregate supply and thus increase aggregate demand as well.

sangriagoat830

1. The opportunity cost of money is

a) growth rate of prices.

b) real GDP.

c) interest rate.

d) none of the above

2. Household wealth affects the equilibrium yield on bonds due to its impact on

a) the supply of bonds

b) the demand for bonds.

c) inflation has no effect on bond yields.

d) the supply and demand for bonds.

3. A bank takes deposits and uses the funds to make home loans. Hence, the _____ increases.

a) level of capital

b) ROA

c) quantity of reserves

d) none of the above

4. A decrease in the government budget deficit causes the _____ bonds to shift and equilibrium interest rates to _____.

a) demand for, rise

b) supply of, rise

c) demand for, fall

d) supply of, fall

5.The yield on a one-year bond is currently 4% and the expected yield on one-year bonds for the next two years is 5% and 6%. If the liquidity premium is 0.5%, what is the yield on a bond with two years to maturity?

a) 5.5%

b) 5%

c) 6%

d) 4.5%

6. The too big to fail policy exacerbates the moral hazard problem between:

a) banks and borrowers.

b) regulators and banks

c) politicians and regulators

d) the public and politicians.

7. ARMs

a) force lenders to assume interest rate risk

b) became more prevalent during the Great Inflation.

c) both of the above.

d) neither of the above

8. Which of the following types of money are not self-equilibrating?

a) commodity

b) representative

c) all are self-equilibrating

d) fiat

9. Technology has helped to make possible which of the following innovations?

a) ATM

b) credit cards

c) mortgage-backed securities

d) all of the above

10. All of the following EXCEPT one would have a strong propensity to initiate a financial crisis. Which is the exception?

a) banking panics

b) government fiscal deficits

c) exchange rate appreciation

d) increases in interest rates

amethystyellowjacket106

6. If there is a shortage of loanable funds, then

a.	the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium.
b.	the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium.
c.	the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium.
d.	the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium.

7. We associate the term debt finance with

a.	the bond market and we associate the term equity finance with the stock market.
b.	the stock market and we associate the term equity finance with the bond market.
c.	financial intermediaries and we associate the term equity finance with financial markets.
d.	financial markets and we associate the term equity finance with financial intermediaries.

8. If the demand for loanable funds shifts to the right, then the equilibrium interest rate

a.	and the quantity of loanable funds rises.
b.	and the quantity of loanable funds falls.
c.	rises and the quantity of loanable funds falls.
d.	falls and the quantity of loanable funds rises.

9. Long-term bonds are

a.	riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds.
b.	riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.
c.	less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds.
d.	less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

10. Compared to bondholders, stockholders

a.	face higher risk and have the potential for higher returns.
b.	face higher risk but receive a fixed payment.
c.	face lower risk and have the potential for higher returns.
d.	face lower risk but receive a fixed payment.

11. The old adage, 'don't put all your eggs in one basket', is very similar to a modern bit of advice concerning financial matters:

a.	Buy low-risk bonds.
b.	Use a medium of exchange.
c.	Diversify.
d.	Intermediate.

12. A budget surplus is created if

a.	the government sells more bonds than it buys back.
b.	the government spends more than it receives in tax revenue.
c.	private saving is greater than zero.
d.	None of the above is correct.

greenwildebeest673

ECO349H1 Lecture Notes - Lecture 4: Interest Rate, Expected Return, Income Tax

Document Summary

Get access

Related textbook solutions

Principles of Economics

Principles of Macroeconomics

Principles of Microeconomics

Related Documents

ECON 3430 Lecture Notes - Lecture 5: Demand Curve, Economic Equilibrium, Shortage

ECO 301 Lecture Notes - Lecture 7: Exxonmobil, Demand Curve, Excess Supply

ECON-3076EL Lecture Notes - Lecture 5: Fiscal Policy, Aggregate Demand, Financial Economics

Related Questions