If the probability of a bond default increases because corporations begin to suffer large losses, then the default risk on corporate bonds will ________ and the expected return on these bonds will ________, everything else held constant. A) decrease; increase B) decrease; decrease C) increase; increase D) increase; decrease ANSWER D
The international financial organization created at the Bretton Woods conference in 1944 that helps developing countries obtain low-interest loans is called the: A) World Bank. B) International Monetary Fund. C) U.S. Treasury. D) U.S. Agency for International Development. ANSWER A
When we say that money is a stock variable, we mean that A) the quantity of money is measured at a given point in time. B) we must attach a time period to the measure. C) it is sold in the equity market. D) money never loses purchasing power. ANSWER A
A bond with default risk will always have a ________ risk premium and an increase in its default risk will ________ the risk premium. A) positive; raise B) positive; lower C) negative; raise D) negative; lower ANSWER A
When the exchange rate is allowed to shift gradually over time, or within an exchange rate band which may also shift over time, this is considered a(n): A) fixed exchange rate. B) managed float. C) flexible exchange rate. D) none of the above. ANSWER B
Promotional pricing would best be categorized as a form of: A) first-degree price discrimination. B) second-degree price discrimination. C) third-degree price discrimination. D) no price discrimination. ANSWER C
In order to maximize its profits, a price-taking firm should produce the level of output at which: A) total revenue = total cost. B) average revenue = average cost. C) variable revenue = variable cost. D) marginal revenue = marginal cost. ANSWER D
What are the determinants of investment spending? What will be an ideal response? ANSWER Investment spending is positively related to real income, expected business profits and confidence, and capacity utilization rates. Investment spending is negatively related to the real interest rate and business taxes.
The difference between money and income is that A) money is a flow and income is a stock. B) money is a stock and income is a flow. C) there is no difference—money and income are both stocks. D) there is no difference—money and income are both flows. ANSWER B
The coefficient of determination is defined as the: A) ratio of the total sum of squared errors to the sum of squared errors. B) ratio of the regression sum of squares to the sum of the squared errors. C) ratio of the sum of squared errors to the total sum of squared errors. D) none […]
