Question 1

With a nominal interest rate of 5%,the present discounted value of $100 to be received in one year is

Accepted Answer

A)  $90.91.
B)  $95.23.
C)  $181.82.
D)  $190.00.
E)  $220.00.

Question 2

For a given nominal interest rate,a reduction in expected inflation will cause

Accepted Answer

A)  a reduction in the real interest rate.
B)  an increase in the real interest rate.
C)  an increase in investment.
D)  an increase in money demand.

Question 3

Which of the following best defines the real interest rate (r) ?

Accepted Answer

A)  the amount of goods we must give up next year in order to consume more goods today
B)  the amount of dollars we must give up next year in order to consume more goods today
C)  the amount of dollars we must give up next year in order to have more dollars today
D)  the amount of dollars we must give up today in order to have more dollars next year
E)  the amount of dollars we must give up today in order to consume more goods today

Question 4

Explain what effect monetary policy will have on the nominal interest rate in the short run and in the medium run.

Accepted Answer

The central bank can affect the nominal ...

Question 5

Suppose the nominal interest rate is zero.In this situation,the present discounted value of a finite sequence of future payments is equal to which of the following?

Accepted Answer

A)  zero
B)  the sum of the all payments divided by the rate of inflation
C)  the average value of each payment
D)  the sum of all payments
E)  the square of the sum of all payments

Question 6

Suppose there is an increase in government spending.Such a fiscal policy action will cause

Accepted Answer

A)  the natural real interest rate to rise
B)  the natural real interest rate to fall
C)  ambiguous effects on the natural real interest rate
D)  no effect on the natural real interest rate A

Question 7

First,discuss what is meant by the "natural real interest rate." Second,explain what effect each of the following will have on the natural real interest rate: (1)a reduction in government spending; (2)an increase in the nominal money supply.

Accepted Answer

We know that the economy will move to th...

Question 8

Suppose households decide to increase consumption.This increase in consumption will cause which of the following to occur?

Accepted Answer

A)  the natural real interest rate to rise
B)  the natural real interest rate to fall
C)  ambiguous effects on the natural real interest rate
D)  no effect on the natural real interest rate A

Question 9

With a constant nominal interest rate equal to i,the present discounted value of $1.00 to be received 4 years from today is equal to

Accepted Answer

A)  1+i.
B)  i4.
C)   (1+i) 4.
D)  1 / (1+i) 4.
E)  4(1+i) .

Question 10

In the medium run,higher money growth causes

Accepted Answer

A)  lower real interest rates and lower nominal interest rates.
B)  lower real interest rates and higher nominal interest rates.
C)  higher real interest rates and higher nominal interest rates.
D)  higher real interest rates and lower nominal interest rates.
E)  none of the above E

Question 11

Suppose the central bank pursues contractionary monetary policy.Such an action will cause

Accepted Answer

A)  the natural real interest rate to rise.
B)  the natural real interest rate to fall.
C)  ambiguous effects on the natural real interest rate.
D)  no effect on the natural real interest rate.

Question 12

With a nominal interest rate of 5% per year,the present discounted value of $100 to be received in 10 years is

Accepted Answer

A)  $50.00.
B)  $61.39.
C)  $95.24.
D)  $150.00.
E)  $163.89.

Question 13

If the nominal interest rate is less than the real interest rate,we know that

Accepted Answer

A)  both the nominal or real interest rate must be negative.
B)  the nominal interest rate must be equal to expected inflation.
C)  expected deflation must be occurring.
D)  expected inflation must be positive.
E)  expected inflation must be zero.

Question 14

For a given nominal interest rate,an increase in expected inflation will cause

Accepted Answer

A)  an increase in the real interest rate.
B)  a reduction in the real interest rate.
C)  a reduction in investment.
D)  a reduction in money demand.

Question 15

Suppose the central bank engages in expansionary monetary policy that results in higher money growth.This higher money growth will cause which of the following in the short run?

Accepted Answer

A)  lower real interest rates and lower nominal interest rates
B)  lower real interest rates and higher nominal interest rates
C)  higher real interest rates and higher nominal interest rates
D)  higher real interest rates and lower nominal interest rates
E)  no change in either nominal or real interest rates

Question 16

What are the determinants of the nominal interest rate in the medium run? Based on your answer,to what extent can monetary policy affect the nominal interest rate in the medium run? Briefly explain.And finally,to what extent can fiscal policy affect the nominal interest rate in the medium run? Briefly explain.

Accepted Answer

The nominal real rate is determined by e...

Question 17

Because the nominal interest rate is always positive,the discount factor is always

Accepted Answer

A)  negative.
B)  greater than one.
C)  zero.
D)  less than one.

Question 18

Using the IS-LM model,graphically illustrate and explain what effect a reduction in expected inflation will have on the IS and LM curves in the short run.

Accepted Answer

A reduction in expected inflat...

Question 19

For this question,assume that the interest rate is equal to 0.Given this information and the information about the payments provided below,rank the following three sequences of payments according to their present value "A" "B" "C"
2005 $190 $200 $210
2006 $200 $200 $200
2007 $210 $200 $190

Accepted Answer

A)  A > B > C
B)  A > C > B
C)  C > B > A
D)  B > A > C
E)  none of the above

Question 20

With a nominal interest rate of 10% per year,the present discounted value of $200 to be received in two years is

Accepted Answer

A)  $82.64.
B)  $90.91.
C)  $165.29.
D)  $181.82.
E)  $220.00.

Exam 14: Expectations: the Basic Tools

With a nominal interest rate of 5%,the present discounted value of $100 to be received in one year is

Correct Answer
verified

For a given nominal interest rate,a reduction in expected inflation will cause

Correct Answer
verified

Which of the following best defines the real interest rate (r) ?

Correct Answer
verified

Explain what effect monetary policy will have on the nominal interest rate in the short run and in the medium run.

Correct Answer
verified
The central bank can affect the nominal ...
View Answer

Suppose the nominal interest rate is zero.In this situation,the present discounted value of a finite sequence of future payments is equal to which of the following?

Correct Answer
verified

Suppose there is an increase in government spending.Such a fiscal policy action will cause

Correct Answer
verified
A

First,discuss what is meant by the "natural real interest rate." Second,explain what effect each of the following will have on the natural real interest rate: (1)a reduction in government spending; (2)an increase in the nominal money supply.

Correct Answer
verified
We know that the economy will move to th...
View Answer

Suppose households decide to increase consumption.This increase in consumption will cause which of the following to occur?

Correct Answer
verified
A

With a constant nominal interest rate equal to i,the present discounted value of $1.00 to be received 4 years from today is equal to

Correct Answer
verified

In the medium run,higher money growth causes

Correct Answer
verified
E

Suppose the central bank pursues contractionary monetary policy.Such an action will cause

Correct Answer
verified

With a nominal interest rate of 5% per year,the present discounted value of $100 to be received in 10 years is

Correct Answer
verified

If the nominal interest rate is less than the real interest rate,we know that

Correct Answer
verified

For a given nominal interest rate,an increase in expected inflation will cause

Correct Answer
verified

Suppose the central bank engages in expansionary monetary policy that results in higher money growth.This higher money growth will cause which of the following in the short run?

Correct Answer
verified

Correct Answer
verified
The nominal real rate is determined by e...
View Answer

Because the nominal interest rate is always positive,the discount factor is always

Correct Answer
verified

Using the IS-LM model,graphically illustrate and explain what effect a reduction in expected inflation will have on the IS and LM curves in the short run.

Correct Answer
verified
A reduction in expected inflat...
View Answer

For this question,assume that the interest rate is equal to 0.Given this information and the information about the payments provided below,rank the following three sequences of payments according to their present value "A" "B" "C" 2005 $190 $200 $210 2006 $200 $200 $200 2007 $210 $200 $190

Correct Answer
verified

With a nominal interest rate of 10% per year,the present discounted value of $200 to be received in two years is

Correct Answer
verified

Exam 14: Expectations: the Basic Tools

With a nominal interest rate of 5%,the present discounted value of $100 to be received in one year is

Correct AnswerverifiedShow Answer

For a given nominal interest rate,a reduction in expected inflation will cause

Correct AnswerverifiedShow Answer

Which of the following best defines the real interest rate (r) ?

Correct AnswerverifiedShow Answer

Explain what effect monetary policy will have on the nominal interest rate in the short run and in the medium run.

Correct AnswerverifiedThe central bank can affect the nominal ...View AnswerShow Answer

Suppose the nominal interest rate is zero.In this situation,the present discounted value of a finite sequence of future payments is equal to which of the following?

Correct AnswerverifiedShow Answer

Suppose there is an increase in government spending.Such a fiscal policy action will cause

Correct AnswerverifiedA

First,discuss what is meant by the "natural real interest rate." Second,explain what effect each of the following will have on the natural real interest rate: (1)a reduction in government spending; (2)an increase in the nominal money supply.

Correct AnswerverifiedWe know that the economy will move to th...View AnswerShow Answer

Suppose households decide to increase consumption.This increase in consumption will cause which of the following to occur?

Correct AnswerverifiedA

With a constant nominal interest rate equal to i,the present discounted value of $1.00 to be received 4 years from today is equal to

Correct AnswerverifiedShow Answer

In the medium run,higher money growth causes

Correct AnswerverifiedE

Suppose the central bank pursues contractionary monetary policy.Such an action will cause

Correct AnswerverifiedShow Answer

With a nominal interest rate of 5% per year,the present discounted value of $100 to be received in 10 years is

Correct AnswerverifiedShow Answer

If the nominal interest rate is less than the real interest rate,we know that

Correct AnswerverifiedShow Answer

For a given nominal interest rate,an increase in expected inflation will cause

Correct AnswerverifiedShow Answer

Suppose the central bank engages in expansionary monetary policy that results in higher money growth.This higher money growth will cause which of the following in the short run?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe nominal real rate is determined by e...View AnswerShow Answer

Because the nominal interest rate is always positive,the discount factor is always

Correct AnswerverifiedShow Answer

Using the IS-LM model,graphically illustrate and explain what effect a reduction in expected inflation will have on the IS and LM curves in the short run.

Correct AnswerverifiedA reduction in expected inflat...View AnswerShow Answer

For this question,assume that the interest rate is equal to 0.Given this information and the information about the payments provided below,rank the following three sequences of payments according to their present value "A" "B" "C" 2005 $190 $200 $210 2006 $200 $200 $200 2007 $210 $200 $190

Correct AnswerverifiedShow Answer

With a nominal interest rate of 10% per year,the present discounted value of $200 to be received in two years is

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified
The central bank can affect the nominal ...
View Answer

Correct Answer
verified

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verified
A

Correct Answer
verified
We know that the economy will move to th...
View Answer

Correct Answer
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A

Correct Answer
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Correct Answer
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E

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The nominal real rate is determined by e...
View Answer

Correct Answer
verified

Correct Answer
verified
A reduction in expected inflat...
View Answer

Correct Answer
verified

Correct Answer
verified