Question

**Answer all of these questions with the right question
number next to the correct choice. ANSWER ALL OR NONE**

**6)You ask your boss for a real productivity wage raise
of 1.5% knowing inflation is projected to be 2%. You receive a 3%
raise. If inflation holds true to the 1.5% forecast,**

A)Both a and b are correct.

B)You received a real raise of 1%.

C)You received a nominal raise of 4.5%.

D)You received a real raise of 1.5%.

**12-Overnight USD loans mostly among large US banks are
said to form the:**

A)Federal funds market

B)Capital market

C)Money market

D)Negotiable certificate of deposits market

**17-Which of the following are considered to determine
the real interest rate?**

A)Productive opportunities in the economy

B)Inflation

C)Consumer time preferences for consumption

D)Both consumer time preferences and productive economic opportunities are determinants of the real interest rate

**18-If a country’s real interest rate is 3% and its
inflation rate is 1%, what is the nominal risk-free rate for a
T-Bill?**

A)4%

B)1%

C)2%

D)3%

Answer #1

1. Option D is correct

real raise=raise percenatge-true inflation rate=3%-1.5%=1.5%

2. Option A is correct

In the United States, the federal funds rate is the interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight on an uncollateralized basis.

3. Option B is correct

We have to adjust the inflation to the nominal rate to arrive at the real interest rate.

4. Nominal risk free rate=real interest rate+inflation rate=3%+1%=4%

Option A is correct

Answer all of these questions with the right question
number next to the correct choice. ANSWER ALL OR NONE
8-If your invest $4,050 today, what interest rate would
you need to earn in order to have $5,500 at the end of 5
years?
A)5.79%
B)6.31%
C)0.06%
D)1.36%
9-When is the EAR equal to the APR?
A)When interest is compounded quarterly
B)When interest is compounded annually
C)When interest is compounded monthly
D)When interest is compounded semi-annually
10-The owner plans to invest...

Answer all of these questions with the right question
number next to the correct choice. ANSWER ALL OR NONE
1-What does f1,t+3 = 2.5% mean for a Treasury
issued asset?
A)This represents a forward rate that is meaningless today as we
cannot calculate it, even using the Expectations Theory
B)Today's 3 year T-Note pays 2.5% for three years, if held to
maturity
C)The 3year T-Note will offer 2.5% in 3 years
D)Today's expected 1-year rate three years from now is...

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number next to the correct choice. ANSWER ALL OR NONE
12)Due to the decrepit state of your 18-speed bicycle
and the resulting derisive comments from random bystanders, you
have opted to purchase new transportation. The local bike shop is
offering a promotional sale in which you pay $1000 now and the
remainder of the bike's price, i.e., $500, is due 5 years from now,
while you pedal away today on one...

Answer all of these questions with the right question number
next to the correct choice (letter).
7)Which of the following is NOT considered to be an example of
direct placement of securities?
A)You borrow $100 from your uncle Raymond and you write him an
IOU for good measure.
B)You buy 100 shares of Dell stock from your broker.
C)Dell places a new bond issue in the market through
Merryll-Lynch.
D)You borrow $25,000 from your bank to purchase a fully loaded...

Use the Fisher Effect to find the answer the following
questions.
a. Nominal interest rate = 9%, real interest rate = 5%, what is
inflation?
b. Nominal interest rate = 8%, inflation = 3%, what is the real
interest rate?
c. Real interest rate = 6%, inflation = 2%, what is the nominal
interest rate?

PART I: Numerical Exercises. You must show your work and
label all graphs carefully and legibly. Not showing your work will
get you zero points on the question, even if your answer is
correct. (26 points)
a. Assume the nominal interest rate is 17 percent
and the expected rate of inflation is
12 percent. Calculate real rate of
interest.
b. Now assume instead that
the nominal interest rate is 4 percent and the expected rate of
inflation is minus...

(Show all correct answers.) According to the long-run
macroeconomic theory of nominal variables discussed in class, the
price level increases if:
a. the quantity of money in the economy increases
b. the growth rate of the quantity of money in the economy
increases
c. there is a cut in taxes
d. there is an increase in government spending
(Show all correct answers.) Which of the following statements
about the Fisher effect are correct?
a. An x percent increase in inflation...

1)i) Use the following information to answer the next two
questions.
A Japanese investor notices the expected one year inflation rate
in Japan and Mexico is 7% and 5%, respectively. The current spot
rates for yen and pesos are as follows:
$.14/MP, JY100/$What should be the value of pesos in terms of
yen at the end of the year according to relative PPP? a).0728
b)13.3783 c).0701 d)14.266
ii)Suppose the spot rate at the end of the year is MP.065/JY.
Has...

1. In early 2008, the central bank of Zimbabwe announced the
inflation rate in that country had reached 24,000 percent, which of
the following statements is NOT correct?
A. Zimbabwe prints too much money to compensate its huge
government budget deficit.
B. Excessive money growth triggers this hyperinflation in
Zimbabwe.
C. Zimbabwe may experience extreme low level of nominal interest
rate and households are afraid to save in local banks, they prefer
to change for US dollars.
D. If Zimbabwe...

The nominal interest rate on your savings account is 9.14 %,
whereas the inflation rate is 7%. What is the real interest rate
when you calculate it with the "exact formula"?
A. 2.14% B. 2.30% C. 2% D. 1.5%

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