ECON204 Quiz 4
Which of the following describes the attribute of a risk neutral investor?
An investor that makes decisions based on the advice of financial planners.
An investor that makes decisions based on the expected return of assets.
An investor that makes decisions based on the credit rating of assets.
An investor that makes decisions based on the expected return and the degree of risk of assets.
An investor that makes decisions based on the popularity of assets.
Suppose there is a real appreciation in favour of Australia. Which of the following must have occurred?
Foreign currency has become more expensive in Australian dollars.
Foreign currency has become less expensive in Australian dollars.
The foreign price level has increased relative to the Australian price level.
Foreign goods have become more expensive to Australians.
Foreign goods have become less expensive to Australians.
An increase in domestic demand will have which of the following effects in an open economy?
A smaller effect on output than in a closed economy and a negative effect on the trade balance.
A larger effect on output than in a closed economy and a negative effect on the trade balance.
A smaller effect on output than in a closed economy and a positive effect on the trade balance.
A smaller effect on output than in a closed economy and no effect on the trade balance.
A larger effect on output than in a closed economy and a positive effect on the trade balance.
Suppose policymakers pass a budget that reduces the budget deficit. A deficit reduction package such as this has a greater chance of increasing current output when:
Financial markets believe that output will not increase in the future.
The policy features larger cuts today and smaller cuts in the future.
Financial markets believe that taxes will not increase in the future.
Financial markets believe that RBA will raise interest rates in the future.
Financial markets believe the RBA will lower interest rates in the future.
Assume that the inflation rate is positive. Given this information, which of the following is always true?
The nominal interest rate must be greater than the real interest rate.
The real interest rate is positive.
The real interest rate is negative.
The nominal interest rate must be equal to the real interest rate.
The real interest rate is greater than the nominal interest rate.
Suppose current sales decrease by $150 million. Investment theory suggests that current investment must:
Decrease by less than $150 million.
Decrease by about $150 million.
Decrease by more than $150 million.
Increase, but by less than $150 million.
More information is required.
A change in which of the following variables would affect the cash flow for a firm?
Total sales revenue.
Total cost.
Current profit.
Expected future profit.
Current expenditure on plant and equipment.
Assume the following: (1) the real cost of a unit of capital is one; (2) the unit of capital is expected to increase a firm's real profit by $10,000 each year, and depreciate by 10% each year; and (3) the real interest rate is 2%. What is the "user cost" or "rental cost" of this unit of capital?
0.03.
0.18.
0.15.
0.09.
0.12.
Suppose policy makers pass a budget that results in a tax cut. This tax cut will have a greater impact on net exports when:
The marginal propensity to import is larger.
Investment is unaffected by changes in income.
The sensitivity of investment to income is smaller.
The marginal propensity to import is smaller.
The economy is closed.
Policy coordination is difficult because each country:
Prefers to be the one to increase taxes.
Prefers to be the one to increase demand.
Prefers to be the one to appreciate its currency.
Prefers that other countries increase taxes.
Prefers that other countries increase their demand.
Suppose you have one Australian dollar. Which of the following expressions represents the amount of foreign currency you can obtain with that one Australian dollar?
0%
0
0%
0
0%
0
0%
0
0%
0
When individuals make decisions about how much money and bonds to hold, which of the following variables will portfolio holders consider?
The nominal interest rate only.
The expected inflation rate only.
Both the nominal and real interest rates.
The real interest rate only.
Either the real interest rate or the expected inflation rate.
Suppose there is an increase in expected future output. This will cause which of the following to occur?
The IS curve to shift left in the current period.
The IS curve to shift right in the current period.
The LM curve to shift up in the current period.
The LM curve to shift down in the current period.
Both the IS and LM curves to shift right in the current period.
Which of the following will always cause a decrease in net exports?
An increase in domestic output.
A decrease in imports.
A decrease in government spending.
A decrease in the real exchange rate.
A decrease in investment.
Suppose that the nominal interest rate and expected inflation rate both increase by 3%. These equal increases in the nominal interest rate and expected inflation rate will cause:
A decrease in government spending.
A decrease in investment.
A decrease in money demand.
A decrease in the real interest rate.
An increase in the real interest rate.
Suppose output is growing at 3% and the nominal money stock is growing at 0%. Also assume that the economy has reached its medium-run equilibrium. Given this information, we know with certainty that:
Inflation is greater than 3%.
Deflation occurs.
Inflation is positive.
Inflation is equal to 3%.
The real interest rate is equal to the nominal interest rate.
Suppose policy makers want to reduce Y and keep NX constant. Which of the following policies would most likely achieve this?
Encourage the country's trading partners to implement policies that will decrease foreign income.
A decrease in government spending and an increase in the real exchange rate.
A decrease in government spending.
A real exchange rate appreciation.
A real exchange rate depreciation.
A common argument for fixed exchange rates is that they:
Forever free the central bank from have to adjust the exchange rate to fundamental changes in the economy.
Make trade more costly, and thus encourage domestic citizens to buy domestically produced output.
Give central banks greater freedom in adjusting their economy's level of output.
All of the above.
None of the above.
The IS curve becomes steeper when:
The income tax rate in the current period is relatively small.
Current changes in the real interest rate cause large changes in current real output.
Changes in the current real interest rate cause small changes in current demand.
Changes in the current nominal interest rate cause small changes in current demand.
Government spending is relatively small.
Which of the following best explains why the long-term interest rate will generally change by less than 1% when the short-term interest changes by 1%?
The mathematical calculations are more difficult for analysts in the case of long-term bonds.
Financial market participants will not expect this increase in the short-term interest rate to persist fully in the future.
Financial markets assume that the central bank will be passive as interest rates rise or fall.
Financial markets are often swept up by bubbles and fads.
Long-term rates are always lower than short-term rates, so there is less room for them to change.
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