The nominal interest rate

Reference no: EM13752996

QUESTION 1

Suppose the nominal interest rate is going to be 10% per year for the next two years. The present discounted value of $500 to be received in two years is:

$480.00

$490.00

$350.00

$413.22

$454.45

QUESTION 2

An increase in consumer confidence will cause:

the neutral or medium-run real interest rate to rise

the neutral real interest rate to fall

ambiguous effects on the natural real interest rate

no effect on the neutral real interest rate

QUESTION 3

One reason that long-term interest rates change less than short-term rates is that:

the mathematical calculations are more difficult for analysts in the case of long-term bonds

long-term rates are always lower than short-term rates, so there is less room for them to change

financial markets assume that, in the future, the central bank will reverse part of any change in short-term rates

financial markets assume that the central bank will be passive as interest rates rise or fall

financial markets are often swept up by bubbles and fads

QUESTION 4

In the short run, higher money growth is associated with:

lower real interest rates and lower nominal interest rates

lower real interest rates and higher nominal interest rates

higher real interest rates and higher nominal interest rates

higher real interest rates and lower nominal interest rates

none of the above

QUESTION 6

If the nominal interest rate falls, and the expected inflation rate rises, then the real interest rate:

must rise

must fall

cannot be defined

will rise, but only if the drop in the nominal rate is greater than the increase in expected inflation

will fall, but only if the drop in the nominal rate is smaller than the increase in expected inflation

QUESTION 7

Assuming the nominal interest rate is greater than 0, rank the following three sequences of payments according to their present value:

Sequence "A": $90, $100, $110

Sequence "B": $100, $100, $100

Sequence "C": $110, $100, $90

A > B > C

A > C > B

C > B > A

C > A > B

B > A > C

QUESTION 8

Assume that the rate of depreciation is 10% per year, the population growth rate is 3% per year, and the growth rate of technology is 1% per year. Then the level of investment needed to maintain a constant capital stock (K) in this economy is:

0.01K

0.03K

0.04K

0.10K

0.14K

QUESTION 9

Suppose the production function is represented by the following: Y = F(K, AN). Given this production function, constant returns to scale means that output will increase by 10% when:

K or AN increase by 10%

K and N increase by 10%

N or A increase by 10%

N and A increase by 10%

all of the above

QUESTION 12

If the nominal interest rate is zero, then the present discounted value of a sequence of future payments is:

zero

undefined

equal to the last of the payments

equal to the sum of all payments

equal to the square of the sum of all payments

QUESTION 13

Suppose there is an increase in the saving rate. We know that this will cause an increase in which of the following in the steady state?

growth rate of output

level of output

growth rate of capital per worker

growth rate of output per effective worker

none of the above

QUESTION 14

For this question, ignore differences in risk between different bonds. If there is arbitrage between one-year bonds and two-year bonds, we know that the rate of return on one-year bonds:

must be identical to the expected rate of return from holding a two-year bond for one year

must be identical to the expected rate of return from holding a two-year bond for two years

must be larger than the expected rate of return from holding a two-year bond for one year

must be smaller than the expected rate of return from holding a two-year bond for one year

will be exactly half the rate of return on two-year bonds

QUESTION 16

Suppose the current one-year interest rate is 2%, and financial markets expect the one-year interest rate next year to be 6%. Given this information, the yield to maturity on a two-year bond will be approximately:

6.66%

7.5%

10%

QUESTION 18

Assume that the rate of depreciation is 10% per year, the population growth rate is 3% per year, and the growth rate of technology is 1% per year. Then the steady-state growth rate of output per worker in this economy is:

10%

14%

QUESTION 19

Which of the following will increase the steady-state growth rate of capital?

an increase in the saving rate

an increase in the population growth rate

a temporary increase in technological progress

all of the above

none of the above

QUESTION 20

Contractionary monetary policy tends to cause:

lower nominal interest rates (i) in the medium run and no change in real interest rates (r) in the medium run

no change in i in the medium run and a reduction in r in the medium run

no change in i in the medium run and an increase in r in the medium run

an increase in i in the medium run and no change in r in the medium run

Reference no: EM13752996

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