User Account

All Pages

Liquidity effect of an increase in the money supply

Assignment Help Microeconomics
Reference no: EM131022354

Practice Questions #1

Disclaimer: These practice questions are not comprehensive, nor are they intended to be. They are a strict subset of questions on the subject matter for which you are responsible.

Identifications:

Security / financial instrument
Financial intermediary
Factors of production
CPI
GDP deflator
Debt
Equity
Direct finance
Indirect finance
Maturity
Short/medium/long term debt instruments
Commercial paper
Repurchase agreement
Default
Mortgages
Convertible bonds
Eurobond / Eurodollar
Transaction costs
Adverse selection
Primary / secondary markets
Money / capital market instruments
T-Bills / T-Bonds
CD
Banker's acceptances
Fed Funds
Collateral
Mortgage-backed securities
Municipal bonds
Financial intermediation
Asymmetric information
Moral hazard
Regulation Q
Reserve requirements
Liquidity
Hyperinflation
Fiat money
Euro
ACH
CHIPS / SWIFT
Fedwire
EMOP
Monetary aggregates (M1, M2, etc.)
Coupon bond
Par value
Coupon rate
Discount bond
Present value
Yield to maturity
Simple interest rate
Consol
Current yield
Discount yield
Rate of return
Real interest rate
Fisher equation
Interest-rate risk
Default risk
Reinvestment risk
TIPS
Indexed bonds
Loanable funds (framework)
Business cycle
Fisher effect
Liquidity preference framework
Opportunity cost
Income effect
Price-level effect
Seignorage
Float
Electronic check truncation
Competitive devaluation

True/False/Uncertain:

1. Determinants of bond demand:
a. An increase in wealth increases the demand for bonds.
b. An increase in the expected interest rate increases the demand for bonds.
c. An increase in expected inflation increases the demand for bonds.
d. An increase in the riskiness of bonds relative to other assets increases the demand for bonds.
e. An increase in the liquidity of bonds relative to other assets increases the demand for bonds.

2. Determinants of bond supply:
a. A decrease in the profitability of other investments decreases the supply of bonds.
b. A decrease in the government budget deficit decreases the supply of bonds.

3. Interest-rate determinants:
a. An increase in income decreases the interest rate.
b. An increase in the price level decreases the interest rate.
c. An increase in money supply decreases the interest rate.
d. The effect of an increase in the rate of money growth will have a definite effect in the interest rate in the long run.

4. If the real interest rate increases people have incentive to increase their expenditures.

5. If the real interest rate increases people have incentive to increase their holdings of bonds.

6. Bond questions:
a. Volatility for long-term bonds is higher than that for short-term bonds.
b. The return of a bond is equal to the interest rate on that bond.
c. Current yield and yield to maturity are fancy names for the same thing, i.e. the interest rate.
d. The return on a bond will not necessarily equal the interest rate on that bond.
e. Bonds with a maturity that is as short as the holding period have no interest-rate risk.
f. Discount yield understates yield to maturity, and this understatement is increasing in maturity.

7. Diversification is always beneficial to the risk-averse investor.

8. Financial intermediaries increase the costs to borrowers and thereby diminish the amount of investment and capital formation in the economy.

Short Essays:

1. Discuss the importance of the interest rate to individuals; in particular, comment on how changes in the interest rate affect income allocation.

2. What is the relationship between interest rate risk and maturity?

3. Is the real interest rate as defined by the Fisher equation an accurate measure of the effective cost of borrowing for U.S. individuals and corporations?

4. What is the difference between current yield and yield to maturity for consols?

5. What are two benefits and one cost of indexed bonds? (Hint: the cost has to do with income taxes)

6. Under what circumstances does the yield to maturity equal the coupon rate of a coupon bond?

7. What is the relationship between the yield to maturity and the price of a coupon bond?

8. If mortgage rates rise from 5% to 10% but the expected rate of increase in housing prices rises from 2% to 9%, are people more or less likely to buy houses?

9. In Keynes' liquidity preference analysis, what two factors cause the demand curve for money to shift? How do these effects work?

10. What is the liquidity effect of an increase in the money supply? The income effect? Price-level effect? Expected-inflation effect?

11. Equity share of total assets vs. real-estate share
a. Does stock ownership figure much more importantly in the household portfolios of most Americans than it did in the past?
b. Why are the Flow of Funds Accounts statistics potentially misleading, with respect to this question?
c. Why has equity value held by households surpassed real estate value?
d. What might you expect the lice-cycle path of real estate assets as a fraction of total assets to look like? What does it actually look like, and why?
e. What is the probably cause for the real-estate share being so high for most households? What are the principal attendant risks? What are possible remedies?

12. Foreign $ holdings
a. Where is most of the U.S. currency, and why?
b. What are three policy implications of increased foreign holdings of U.S. currency?

13. Direct vs. indirect finance
a. What are they, which is more important, and why?

14. Money
a. How do the monetary aggregates relate to the amount of "money" in the economy?
b. Is money creation a tax?

15. EMOPs
a. What are the benefits of EMOPs?
b. Why are we not likely to move to a cashless society any time soon?

16. European Monetary Union
a. What are the costs of EMU?
b. What are the benefits?
c. Critically assess the wisdom of the Euro, comparing the costs and benefits from unification.

17. How can financial intermediaries shoulder more risk than an individual household or corporation?

Reference no: EM131022354

Questions Cloud

What is the investor''s total return in canadian dollars : An investor in Canada purchased 100 shares of IBM on January 1 at $93.00 per share. IBM paid an annual dividend of $0.72 on December 31st. The stock was sold that day as well for $100.25.
What frequency do the asymptotes meet : What is the slope of the high-frequency asymptote for the Bode magnitude plot for a first-order high pass filter? The low-frequency asymptote? At what frequency do the asymptotes meet?
Demonstrate familiarity with the major concepts : Demonstrate familiarity with the major concepts, theoretical perspectives, empirical findings, and historical trends in psychology. Understand and apply basic research methods in psychology, including research design, data analysis, and interpretat..
Draw asymptotic bode plot for transfer function magnitude : Assume that vout(t) = Acos(2π ft), and nd an expression for vin(t). Use the results of part (a) to find an expression for the transfer function H (f) = Vout/Vin for the system.
Liquidity effect of an increase in the money supply : What are three policy implications of increased foreign holdings of U.S. currency - How do the monetary aggregates relate to the amount of "money" in the economy?
Write an equation in slope intercept form for econoland ppf : Write an equation in slope intercept form for Econoland's PPF and an equation in slope intercept form for Free Enterprise's PPF. What is Econoland's opportunity cost of producing one additional airplane? What is Free Enterprise's opportunity cost of ..
What rate at which overall transfer function magnitude : Suppose that three filters, having identical first-order low pass transfer functions, are cascaded, what will be the rate at which the overall transfer function magnitude declines above the break frequency? Explain.
What is the moral responsibility of all participants : Please note that the video "Blood Money" contains graphic content which might be disturbing to some viewers.
What frequency do the asymptotes meet : What is the slope of the high-frequency asymptote for the Bode magnitude plot for a first-order low pass filter? The low-frequency asymptote? At what frequency do the asymptotes meet?

Reviews

Write a Review

Microeconomics Questions & Answers

  The free rider problem

Question: Explain why the free rider problem makes it difficult for perfectly competitive markets to provide the Pareto efficient level of a public good.

  Failure of the super committee is good thing for economy

Some commentators have argued that the failure of the “Super committee” is good thing for the economy?  Do you agree?

  Case study analysis about optimum resource allocation

Case study analysis about optimum resource allocation: -  Why might you suspect (even without evidence) that the economy might not be able to produce all the schools and clinics the Ministers want? What constraints are there on an economy's productio..

  Fixed cost and vairiable cost

Questions:  :   Which of the following are likely to be fixed costs and which variable costs for a chocolate factory over the course of a month?  Explain your choice.

  Problem - total cost, average cost, marginal cost

Problem - Total Cost, Average Cost, Marginal Cost: -  Complete the following table of costs for a firm.  (Note: enter the figures in the  MC   column  between  outputs of  0 and 1, 1 and 2, 2 and 3, etc.)

  Oligopoly and demand curve problem

Problem based on Oligopoly and demand curve,  Draw and explain the demand curve facing each firm, and given this demand curve, does this mean that firms in the jeans industry do or do not compete against one another?

  Impact of external costs on resource allocation

Explain the impact of external costs and external benefits on resource allocation;  Why are public goods not produced in sufficient quantities by private markets?  Which of the following are examples of public goods (or services)? Delete the incorrec..

  Shifts in demand and movements along the demand curve

Describe the differences between shifts in demand and movements along the demand curve. What are the main factors which can shift the demand curve? Explain why they cause the demand curve to shift. Use examples and draw graphs to support your discuss..

  Article review question

Article Review Question: Read the following excerpts from the article "Fruit, veg costs surge' by Todd, Dagwell, published in the Herald on January 25th 2011 and answer questions below:

  Long-term growth, international trade & globalization

Long-term Growth, International Trade & Globalization:- This question deals with concepts such as long-term growth, international trade and globalization. Questions related to trade deficit, trade surplus, gains from trade, an international trade sce..

  European monetary union (emu) in crisis

"Does the economic bailout of Spain and Greece spell the beginning of the end for the European Monetary Union (EMU)?"

  Development game “settlers of catan”

Read the rules of the game, the overview and the almanac for the Development Game "Settlers of Catan"

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd