Inicate that best completes the statement or answers the question. the answer ch
ID: 1109154 • Letter: I
Question
Inicate that best completes the statement or answers the question. the answer choice 1. How are Treasury bond prices affected when the interest rate falls? a. The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, b. The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, c. The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, d. The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must decrease. so the price of the bond must increase. so the price of the bond must decrease. so the price of the bond must increase. 2. The principal difference between income and money is that income is aand money is a a. schedule, curve b. point, line c. stock, flow d. flow, stock 3. Assume that Michaela purchases $12,000 worth of a stock. To do so she uses $2,000 of her own money and borrows the remaining $10,000 at an 8.0% interest rate. If the stock's value increases by 20% in one year and she sells the stock at that time, what is her rate of return? a. 13% b. 16% c. 20% d, 80% 4. The M2 definition of the money supply is based on the concept that a. Ml is a small number, and should be increased in size. b. many types of deposits can be used as both payments and stores of value. c. checking deposits are used for payments, and therefore, not part of MI. d. cash is not used for the majority of payments. 5. Which of the following were not actions taken by the Federal Reserve in order to stimulate the economy during the recession of 2007-2009? a. decreasing the discount rate b. suspending trading on the major stock exchanges c. massive lending to banks d. open market purchases of assets other than Treasury bills 6. The concept of "lender of last resort" is that when a. lending decreases, the Fed will be the last to resort to higher interest rates b. borrowing increases, the Fed will be the last to increase lending. c. commercial banks are hesitant to lend, the Fed will step in and increase reserves. d. a borrower has tried everyone else, the Fed will lend directly to them.Explanation / Answer
1.
B.
There is an inverse relationship between the bond prices and the interest rate. With decrease in interest rate, bond price will increase and buyers have to spend more.
2.
D.
Income flows as the part of circular flow of income and money can be stocked that stores value.
3.
D.
Working note:
Value of investment after one year = 12000*(1+20%) = $14400
Principal and interest to be paid at the end of one year = 10000+10000*8% = $10800
Net cash inflow after one year = 14400-10800 = $3600
Let, R = rate of return
Then,
2000 = 3600/(1+R)
R = 1.8 -1 = 80%
4.
B
M2 money includes M1 money as well as the saving deposits and other time deposits that can be used for payment and stores value.
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