ECO 340 PRACTICE QUIZZES FOR SPRING 2007, THROUGH MARCH 16
Solutions appear at the bottom of this document.


Quiz #1 (Fri. 2/2)

1. Money is defined in this course as anything generally accepted as ___________________.

2. The money supply is roughly equal to cash in circulation plus ___________________.

3. The U.S. has about 8,000 of these financial institutions, and Oswego has at least one: __________________.

4. The central bank of the U.S. is the __________________________.

5. The first two of the five (“TRIMS”) principles of money and banking explain why loans and bonds must pay interest.  State either of them.
_______________________________________________________

E.C. (Extra credit): The middle syllable of the Fed Chairman’s last name (Bernanke) rhymes with __________.


Quiz #2 (Fri., 2/9/2007)

1. Using your debit card to pay for groceries is an example of money as a _______________________________. [3 words]

2. Noticing that Pop Tarts cost $1.99 and Raisin Bran costs $2.99 is an example of money as a
_______________________________. [3 words]

3. Keeping an extra $3,000 in your checking account for emergencies is an example of money as a
_______________________________. [3 words]

4. The smaller of the main measures of the money supply is ________.

5. If the money supply grows too fast, it will tend to cause high ______;
if its rate of growth falls suddenly, it may cause a _________________.


Quiz #3 (Fri., 2/16/2007)

1. Options and futures contracts to buy stock at a set price are examples of ___________________ financial instruments.

2. If the consumer price index was 100 in 1984 and 104 in 1985, then the inflation rate in 1985 was ______%.

3. If the consumer price index was 100 in 1984 and 200 in 2004, then prices were ________% higher in 2004 than in 1984.

4. What is the difference between a money-market instrument and a bond?

5. Financial markets where previously issued financial assets are bought and sold are called ___________________ markets.


Quiz #4 (Fri., 2/23/2007)

1. Mutual-fund companies and stock brokers are examples of this type of financial institution: _______________________________. [2 words]

2. $100 today, earning 10% interest over the next one year, has a future value of _______________________________.

3. A payment of $105 a year from now is worth $__________ today.

4. If $100 is invested at interest and grows to $121 two years later, the interest rate equals ________.

5. If the interest rate is 5% and the inflation rate is 2%, then the real interest rate equals _________________.

6. If the interest rate is 10% and the inflation rate is 13%, then the real interest rate equals ________________ and is probably an ex ______ real interest rate.


Quiz #5 (Fri., 3/16/2007)

1. Imagine a fair coin toss with this payout: heads, you win $20; tails, you lose $20.  The expected value of playing this game = $_____.

2. The expected return from playing this game is ________%.

3. If you are risk neutral, then your attitude toward playing this game would be one of _____________________.  [avoidance / indifference / eagerness]

4. Bonds with higher default risk must offer __________ interest rates than Treasury bonds do.

5. If the market interest rate is 5%, a one-year discount bond with a face value of $1000 has a market price of about ____________.

6. A coupon bond with a face value of $1000 and a coupon rate equal to the market interest rate has a market price of exactly _________, regardless of the interest rate or the bond’s term length.


Solutions to Quiz #1:
1. payment
2. bank deposits
3. banks
4. Federal Reserve (System)
5. Time has value. / Risk requires compensation.

Solutions to Quiz #2:
1. means of payment; medium of exchange
2. unit of measurement; unit of account
3. store of value
4. M1
5. inflation; recession

Solutions to Quiz #3:
1. derivative
2. 5% (can get % change by simple subtraction [105-100] if earlier year is the base year)
3. 100% (ditto)
4. maturity length:  less than a year for money-market instruments, 1 year or more for bonds
5. secondary

Solutions to Quiz #4:
1. securities firms
2. $110
3. $100/(1+i).  If i=5% (or .05), then the answer is $105/1.05 = $100.
4. 10%
5. 3% (= 5% - 2%)
6. -3% (= 10% - 13%); post (because presumably nobody would loan out money at negative 3% interest, but it's not uncommon for inflation to be much higher than expected.  An interest rate of 10% and an inflation rate of 13% are pretty close to the actual values around 1979-1980).

Solutions to Quiz #5:
1. $0
2. 0%
3. indifference
4. higher
5. $950
6. $1000