What Does The Inflation Rate Indicate?

33) The nominal interest rate is always ________ than the real interest rate when inflation is positive. A) g?

• 33) The nominal interest rate is always ________ than the real interest rate when inflation is positive. A) greater B) equal C) less D) equal or less 34) If the nominal interest rate is 5 percent and the rate of inflation is 1 percent, then the real interest rate is: A) 5 percent. B) 4 percent. C) 6 percent. D) 5.5 percent. 35) If you want to purchase a new sports car in four years for $75,000, how much would you need to have in your bank account now, so after four years you will have $75,000 to buy the car? Assume your bank pays 6 percent interest. A) $51,226 B) $59,408 C) $60,484 D) $70,755 36) At an interest rate of 4 percent, what would be the present value of receiving $4,000 four years from now? A) $3,420 B) $3,637 C) $3,704 D) $3,847 37) A rise in the interest rate: A) decreases the opportunity cost of investing. B) increases firms' desires to invest. C) increases the opportunity cost of investing. D) none of the above 38) Retained earnings are corporate earnings that are not: A) paid to owners in the form of dividends. B) taxed by the government. C) generated by higher government subsidies. D) declared to the IRS. 39) Financial intermediaries have more expertise than individual investors in: A) evaluating investment projects. B) monitoring investment projects. C) negotiating the terms of loans to be made to investors. D) all of the above 40) Which of the following assets is the least liquid? A) currency B) checking accounts C) stocks D) real estate 41) Mike makes excellent cheesecake and Sue is very good at changing the oil in a car. Sue agrees to change the oil in Mike's car if he makes her a cheesecake. This is an example of: A) legal tender. B) barter. C) commodity money. D) fiat money. 42) Dena won $1,000 at a bingo game. She deposits her $1,000 winnings into a money market fund so that she can use the money next year to pay for her tuition. This is an example of money serving as a (an): A) unit of account. B) medium of exchange. C) store of value. D) investment good. 43) Which of the following assets is the largest component of M1? A) currency B) checking deposits C) money market mutual funds D) small time deposits 44) Third National Bank has $750 million in deposits. The required reserve ratio is 15%. Third National Bank must keep ________ in reserves. A) $150.5 million B) $60.5 million C) $112..5 million D) $160.5 million 45) Suppose the required reserve ratio is 20%. A $5 million deposit allows commercial banks to create a maximum total of ________ in deposits. A) $25 million B) $20 million C) $10 million D) $50 million 46) The Federal Reserve System: A) is a private profit-making commercial banking system. B) is different than the central bank of the United States. C) implements fiscal policy. D) includes 12 district federal reserve banks. 47) When you pay your groceries with money because the supermarket does not accept stocks and certificates of deposits (CDs), then the reason why you are holding money is the: A) transactions demand for money. B) liquidity demand for money. C) speculative demand for money. D) All of the above are correct. 48) When inflation increases, the A) demand for money increases. B) the quantity demanded for money increases. C) the demand for money decreases. D) the quantity demanded for money decreases. 49) An open-market purchase of government bonds by the Fed results in ________ in bank reserves and ________ in the supply of money. A) an increase; a decrease B) a decrease; a decrease C) an increase; an increase D) a decrease; an increase 50) Which of the following represents an action by the Federal Reserve that is designed to increase the money supply? A) a decrease in the required reserve ratio B) an increase in the discount rate C) a decrease in federal tax rates D) selling government bonds in the open market

• Answer:

  33a 34b 35b 36a 37c 38d 39d 40d 41b 42d 43a 44c 45a 46d 47a 48a 49c 50a