Eco 340-800 Quizzes, Spring 2006, complete set, with solutions at end

(Does not include the diagnostic first-day quiz or the April 10 Semi-Makeup Quiz.)
(Quiz #9 was our only quiz after the 3rd midterm.)

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Quiz #1 / Fri., Feb. 3, 2006
1. ___________________ = anything generally accepted as payment
2. ___________________ = a financial institution that accepts deposits and makes loans.
3. Give an example of a financial instrument.
4. State one of the five core principles of money and banking (a.k.a. "TRIMS").
5. Ben S. Bernanke is the new chair of ___________________________.
E.C. Exactly what happened to the overnight lending rate between banks on Jan. 31? (Include a number in your answer.)

Quiz #2 / Fri., Feb. 10, 2006
1. Generally speaking, the ____________________ is cash in circulation plus bank deposits. [2 words]
2. If I keep my savings as cash in a tree trunk, figuring that the money is safe and easy to access, then I am using money as a ___________ of ___________.
3. U.S. dollars today are _________ money, as they have no intrinsic value and the government will not give you gold in exchange for them.
4. Fast rates of ____________ growth tend to cause high rates of inflation.
5. The inflation rate is the yearly percentage increase in the __________________ [2-3 words].
E.C. Tightening labor markets and other possibly inflationary signs have prompted speculation that the Fed will raise its federal funds rate target to ________% (according to the Reuters news agency).

Quiz #3 / Fri., Feb. 17, 2006
1. Options and futures contracts involving future stock sales are examples of ___________________ financial instruments.
2. High transactions costs and information costs are two key reasons why ________________________________ is much more common than borrowing money from individuals. [2 words]
3. If the interest rate is 5%, then $100 today has a future value, a year from now, of $____.
4. Applying the Rule of 72 (or 70), that $100, left alone at 5% interest, will double in value to $200 in roughly ___________ years.
5. The Rule of 72 is an application of the powerful force known as ___________________ interest.
E.C. A man named ___________________________ testified for the first time before Congress on the state of the economy and monetary policy this week.

Eco 340 / Quiz #4 / Fri., March 3, 2006
1. The present-day value of a share of stock is its yearly dividend / i , if the stock's price and dividend are _____________.
2. The PDV of getting paid $10 a year forever, if the interest rate is 10%, is $___________.
3. If market interest rates go up, then the PDV's of old bonds and stocks _____________.
4. The real interest rate is equal to the nominal interest rate minus the _______________ rate.
5. An unanticipated inflation is bad for _________________________ but good for ________________________.
E.C. As of this week, all seven members of the Federal Reserve Board of Governors are appointees of the same person, __________________________________.

Eco 340 / Quiz #5 / Fri., March 10, 2006
1. & 2. Draw a supply-and-demand diagram of the bond market, carefully labeling all axes and curves and the market equilibrium.
3. An increase in the demand for bonds will cause the equilibrium price of bonds to ___________ and the equilibrium interest rate to ________________.
4. If companies become more optimistic in their expectations of the profitability of new investment projects, then in the bond market the ____________ curve will shift out.
5. Higher expected inflation rates will cause the equilibrium (nominal) interest rate to _____________________; this is known as the Fisher effect.

Eco 340 / Quiz #6 / Fri., March 24, 2006
1. & 2. Draw a typical yield curve, carefully labeling both axes.
3. One way to measure of the riskiness of an asset is to calculate the ______________________________ of the asset's returns in a number of different years.
4.  The extra return that a risky asset must pay, compared with a Treasury bond's return, is the risk _______________________ on that asset.
5. The expected return on a coin toss (heads you win $20, tails you lose $20) is $________.
E.C. ______________________________ told the Economic Club of New York this week that he did not think the currently flat yield curve spelled trouble for the economy.

Eco 340 / Quiz #7 / Fri., April 7, 2006
1. One of the simpler ways of valuing a stock is as the PDV of its future ______________.
2. A leading alternative approach to stock valuation is _____________________________.
3. As residual claimants, stockholders of a failing company get paid ______________ the company's bondholders and other creditors get paid.
4. Stockholders have limited liability, so the most they can possibly lose from their initial investment is _______%.
5. An example of a more comprehensive stock-market index than the Dow Jones average is __________________________________________________.
E.C. The Chicago Fed president expressed concern yesterday (4/6) that Asian investors might _______________________________________.

Eco 340 Quiz #8 / Fri. 4/21/2006
1. The Fisher effect is the tendency of an increase in the ________________ inflation rate to cause an increase in the nominal interest rate.
2. If the actual inflation rate increases but the expected inflation rate does not, then the nominal interest rate will ____________ change.
3. In a recession, the nominal interest rate falls because corporations have lower expectations of the profitability of new investment projects, so they _______________ fewer bonds.
4. _____________________ exchange is all currencies except the domestic currency.
5. If the British pound's exchange rate is 2 U.S. dollars, then the dollar's exchange rate (in pounds) is __________________.

QUIZ #9

Eco 340 / Fri., May 12, 2006
1. In _____________________ reserve banking, commercial banks keep only a small portion of the money deposited with them as reserves.
2. Currently the required reserve ratio on checking deposits is ______%.
3. The Fed's most commonly used policy tool is _____________________________ or OMO.
4. When the Fed conducts OMO, it affects the federal funds rate by altering the __________ of bank reserves.
5. The Phillips curve shows the "dismal tradeoff" between unemployment and ______________.
E.C. This week the Federal Open Market Committee          [raised/lowered]           its target for the federal funds rate to _____%.

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Solutions to Quiz #1
1. money
2. bank
3. stock / bond / loan / etc.
4. Time has value. / Risk requires compensation. / Information is the basis for decisions. / Markets set prices and allocate resources. / Stability improves welfare.
5. the Federal Reserve System
E.C. The Fed raised its target for that rate, from 4.25% to 4.50%.

Solutions to Quiz #2
1. money supply
2. store of value
3. fiat
4. M2 (or money supply)
5. price level (or consumer price index, or GDP price deflator)
E.C. 5%

Solutions to Quiz #3
1. derivative
2. financial intermediation, or indirect finance
3. $105
4. 14
5. compounded
E.C. Ben S. Bernanke

Solutions to Quiz #4
1. stable, or constant
2. $100
3. fall
4. inflation
5. savers/creditors; borrowers/debtors
E.C. George W. Bush

Solutions to Quiz #5
1. & 2. [Drawing of S&D diagram of bond market, w/ equil.]
3. rise; fall
4. supply
5. rise

Solutions to Quiz #6
1. & 2. [Drawing of typical, upward-sloping yield curve, with "i" on vertical axis, "term (years until maturity" on horizontal axis.]
3. standard deviation; variance
4. premium; spread
5. $0 [ = (.5*($20) + .5*(-$20) ]
E.C. Ben Bernanke

Solutions to Quiz #7
1. dividends (or earnings) per share
2. technical analysis (of trends); "noise trading" based on investor psychology
3. after
4. 100
5. S&P 500; Wilshire 5000
E.C. dump their U.S. assets.

Solutions to Quiz #8
1. expected
2. not
3. supply; sell; issue
4. ½ pound (.50 pound, or 50 pence)
5. stronger; tighter; better

Solutions to Quiz #9
1. fractional
2. 10%
3. open market operations
4. supply (or level)
5. inflation
E.C. raised; 5%