Question

A federal deficit occurs when:​

Select one:

a. ​money supply in the market is low.

b. ​stock prices of private companies decrease.

c. ​social security benefits given to citizens are reduced.

d. ​a government's expenses are more than its tax revenues.

e. ​a government issues securities to the public.

A normal yield curve that is upward sloping implies that:​

Select one:

a. ​the returns on long-term securities are equal to the returns on short-term securities of similar risk.

b. ​the returns on short-term securities are lower than the returns on long-term securities of similar risk.

c. ​the returns on short-term securities are higher than the returns on long-term securities of similar risk.

d. ​the returns on bonds with a lower default risks are higher than the returns on bonds with higher default risks.

e. ​the returns on bonds with higher maturity risks are lower than the returns on bonds with lower maturity risks.

During periods of _____, the general tendency is toward higher interest rates.

Select one:

a. contraction

b. securitization

c. inflation

d. fiscal surplus

e. recession

The higher the expected rate of inflation:​

Select one:

a. ​the higher is the money supply in the economy.

b. ​the lower is the tax rate in the economy.

c. ​the higher is the required rate of return on investment.

d. ​the lower is the loss in purchasing power of investors.

e. ​the lower is the maturity premium required by the investors

Answer 1

Q1. Federal deficit

Federal deficit occurs when the expenses of government are more than the revenue. Hence option D is correct

Q2. Upward sloping curve

If the yield curve is upward sloping then it means that the interest on higher maturity bonds are higher than the short term maturity bonds. Hence option B is correct

Q3. When inflation are high in that case the interest rate would be high as government tries to contain the inflation by reducing the money supply by increasing the interest rates.

Hence correct option is C

Q4. If the expectations are that the inflation is going to be high then in that case the investor will seek higher required rate of return on the investment so that they can have higher real returns.

Hence option C is correct .