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ECO 561 Week 5 Knowledge Check / (UOP)




Question;1. The Classical Theory of Asset Prices assumes which of the following;ideas?;?;A. The interest rate;to use is the nominal rate, assets are the discounted sum of their future;values, and expected income is the best information available.;?;B. Actual past income;is the best information available, assets are the discounted sum of their;future values, and the interest rate is the safe interest rate plus a risk;premium.;?;C. The value of an asset;is the discounted present value of expected cash flows, expected income is the;best information available, and the interest rate is the safe interest rate;plus a risk premium.;?;D. The interest rate;to use is the real rate, expected income is the best information available, and;the assets are the discounted sum of their future values.;2. Economists use two principle interest rates: nominal and real. The;purpose of this distinction is to;?;A. use nominal;interest rates during periods when the economy is growing and real interest;rates during economic down turns;?;B. adjust for the;influences that inflation may have on business profits;?;C. account for and;factor the influences that inflation may have on the behavior that consumers;and firms use to determine how much to save out of their incomes;3. During periods of increasing inflationary pressure, the Federal;Reserve should;?;A. buy member bank's;bonds to encourage increased lending to the public;?;B. sell bonds to;member banks to discourage lending to the public;?;C. reduce the discount;rate to make it easier for small businesses to borrow money;4. What is the increased moral hazard associated with the too big to;fail (TBTF) bailouts of the largest of financial institutions?;?;A. Financial;institutions might misuse the bailout funds and continue the same practices;that lead to the original failure.;?;B. Depositors will;lose their deposits.;?;C. Employees of the;financial institutions will lose their jobs.;5. The Federal Reserve?s primary tool for managing the money flow is;?;A. discount rate;?;B. reserve ratio;?;C. open-market;operations;?;D. term auction;facility;6. Which of the following is a major drawback of a flexible exchange;rate?;?;A. Government;intervention in the form of reserves;?;B. Use of exchange;controls;?;C. Discouraging the;flow of trade due to risks and uncertainties;7. The major advantage to a flexible exchange-rate policy is;?;A. automatic;adjustments to balance of payments;?;B. relative interest;rates between countries are automatically adjusted;?;C. increased foreign;investment;?;D. increased overall;wealth;8. _____________suggests that a country will engage in trade and export;products that it can produce at a lower-opportunity cost than a competing;nation.;?;A. Comparative;advantage;?;B. Absolute advantage;?;C. Arbitrage;?;D. Heckscher-Ohlin;theory;9. Absolute advantage encourages a country to;?;A. enact protective;tariffs;?;B. specialize and;trade with other countries;?;C. export the;technology that gives it an absolute advantage;10. The _____________________ explains that long-run trends in exchange;rates are based on a predictable relationship between product price levels and;exchange rates.;?;A. monetary approach;to exchange rates;?;B. asset market;approach to exchange rates;?;C. purchasing power;parity;11. A business traveler to Germany who, upon deplaning in Berlin, uses;an airport ATM to withdraw 100 Euros from her U.S. bank would receive which;kind of exchange rate?;?;A. Spot;?;B. Forward;?;C. Fixed;?;D. Flexible;12. Suppose Nation A can produce 2 million pounds of sugar per week OR 1;million pounds of rice in a week and Nation B can produce 10 million pounds of;sugar per week OR 3 million pounds of rice in a week. If this is a two-good;two nation model, what would Nation B?s best choice in regards to trade and specialization?;?;A. Nation B should;produce both rice and sugar.;?;B. Nation B should;produce only sugar and trade for rice.;?;C. Nation B should;produce sugar, produce rice, and trade some sugar for rice.;?;D. Nation B should;produce sugar, produce rice, and trade some rice for sugar.


Paper#55321 | Written in 18-Jul-2015

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