Knowledge Check Week 5 Study Guide
Knowledge Check Week 5 Study Guide
Concepts
Mastery
Score: 12 / 12
Questions
Monetary Policy
100%
1
Interest Rates
100%
2
Exchange Rates
100%
Trade and Specialization
100%
3
4
6
7
10
8
9
12
5
11
Concept: Monetary Policy
Mastery
100%
Questions
1
3
4
5
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.
Correct:
The Correct Answer is: C.
Investors purchase assets based on a rational expectation of a stream of future income. The interest rate is based on what investors would receive if they placed their capital in a risk-free investment, such as a government bond or certificate of deposit that is guaranteed by a government agency. However, each investor has a certain risk tolerance and may elect to incur some risk; this is known as a risk premium. 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
Correct:
The Correct Answer is: B.
Increasing inflationary pressures means that more dollars are in the economy than there are goods and services. This leads to a
Concepts
Mastery
Score: 12 / 12
Questions
Monetary Policy
100%
1
Interest Rates
100%
2
Exchange Rates
100%
Trade and Specialization
100%
3
4
6
7
10
8
9
12
5
11
Concept: Monetary Policy
Mastery
100%
Questions
1
3
4
5
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.
Correct:
The Correct Answer is: C.
Investors purchase assets based on a rational expectation of a stream of future income. The interest rate is based on what investors would receive if they placed their capital in a risk-free investment, such as a government bond or certificate of deposit that is guaranteed by a government agency. However, each investor has a certain risk tolerance and may elect to incur some risk; this is known as a risk premium. 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
Correct:
The Correct Answer is: B.
Increasing inflationary pressures means that more dollars are in the economy than there are goods and services. This leads to a