QUESTION 1 Everything else equal, the Phillips-curve in a country will shift upwards when the unemployment rate falls the central bank cuts interest rates oil prices rise the government reduces tax rates on labour QUESTION 2 Consider a country with a flexible exchange rate. If the central bank of this country raises its interest rate by 0.5%-points, whereas observers had anticipated an increase of only 0.25%-points, one can expect that: Bond prices and stock prices rise, the country’s currency depreciates Bond prices rise, stock prices fall, the country’s currency appreciates Bond prices fall, stock prices rise, the country’s currency depreciates Bond prices and stock prices fall, the country’s currency appreciates QUESTION 3 We asked five students to give us three possible sources of an increase of the monetary base in the economy. Only one of the students came up with a completely correct list. This list included: an increase in central bank lending to banks, a purchase of government bonds by the central bank, a purchase of foreign currency by the central bank. an increase in central bank lending to banks, a sale of government bonds by the central bank, a sale of foreign currency by the central bank. a decrease in central bank lending to banks, a purchase of government bonds by the central bank, a purchase of foreign currency by the central bank an increase in central bank lending to banks, an increase in bank lending to firms and households, a purchase of government bonds by the central bank QUESTION 4 Denmark has chosen a fixed exchange rate for the Danish krone against the euro. At some point in time, the value of the krone reaches the limit of the permitted fluctuation band. The market supply of krone is then 280, while market demand is 230. What will happen? The Danish central bank intervenes on the exchange market and buys Danish krone worth 50. The money stock in Denmark will fall. The Danish central bank intervenes on the exchange market and buys Danish krone worth 50. The money stock in Denmark will rise. The Danish central bank intervenes on the exchange market and sells Danish krone worth 50. The money stock in Denmark will fall. The Danish central bank intervenes on the exchange market and sells Danish krone worth 50. The money stock in Denmark will rise. QUESTION 5 Imagine the following simple Keynesian macroeconomic model for a closed economy. TD = C + Ip + G (total demand) C = C0 + YD (aggregate household consumption) YD = Y − T (aggregate household disposable income) Ip = I0 + aY − bR (aggregate planned investment) Y = TD (output, equilibrium condition) BB = T – G (government budget balance) With: G government consumption, T taxes, R real interest rate (exogenous variables) C0) and I0 autonomous consumption and investment 0 < a, c, a+c < 1, b > 0 constant parameters Derive the equation for output and answer the following question. If the government in this model simultaneously increases its consumption G and its taxes T by the same amount, then total demand decreases, and equilibrium output declines. total demand decreases, and equilibrium output declines, but only if C > G. total demand increases, and equilibrium output rises. The rise of output is stronger the higher the households’ marginal propensity to consume. total demand increases, and equilibrium output rises. The rise of output is stronger the lower the households’ marginal propensity to consume.

QUESTION 1 Everything else equal, the Phillips-curve in a country will shift upwards when the unemployment rate falls the central bank cuts interest rates oil prices rise the government reduces tax rates on labour QUESTION 2 Consider a country with a flexible exchange rate. If the central bank of this country raises its interest rate by 0.5%-points, whereas observers had anticipated an increase of only 0.25%-points, one can expect that: Bond prices and stock prices rise, the country’s currency depreciates Bond prices rise, stock prices fall, the country’s currency appreciates Bond prices fall, stock prices rise, the country’s currency depreciates Bond prices and stock prices fall, the country’s currency appreciates QUESTION 3 We asked five students to give us three possible sources of an increase of the monetary base in the economy. Only one of the students came up with a completely correct list. This list included: an increase in central bank lending to banks, a purchase of government bonds by the central bank, a purchase of foreign currency by the central bank. an increase in central bank lending to banks, a sale of government bonds by the central bank, a sale of foreign currency by the central bank. a decrease in central bank lending to banks, a purchase of government bonds by the central bank, a purchase of foreign currency by the central bank an increase in central bank lending to banks, an increase in bank lending to firms and households, a purchase of government bonds by the central bank QUESTION 4 Denmark has chosen a fixed exchange rate for the Danish krone against the euro. At some point in time, the value of the krone reaches the limit of the permitted fluctuation band. The market supply of krone is then 280, while market demand is 230. What will happen? The Danish central bank intervenes on the exchange market and buys Danish krone worth 50. The money stock in Denmark will fall. The Danish central bank intervenes on the exchange market and buys Danish krone worth 50. The money stock in Denmark will rise. The Danish central bank intervenes on the exchange market and sells Danish krone worth 50. The money stock in Denmark will fall. The Danish central bank intervenes on the exchange market and sells Danish krone worth 50. The money stock in Denmark will rise. QUESTION 5 Imagine the following simple Keynesian macroeconomic model for a closed economy. TD = C + Ip + G (total demand) C = C0 + YD (aggregate household consumption) YD = Y − T (aggregate household disposable income) Ip = I0 + aY − bR (aggregate planned investment) Y = TD (output, equilibrium condition) BB = T – G (government budget balance) With: G government consumption, T taxes, R real interest rate (exogenous variables) C0) and I0 autonomous consumption and investment 0 < a, c, a+c < 1, b > 0 constant parameters Derive the equation for output and answer the following question. If the government in this model simultaneously increases its consumption G and its taxes T by the same amount, then total demand decreases, and equilibrium output declines. total demand decreases, and equilibrium output declines, but only if C > G. total demand increases, and equilibrium output rises. The rise of output is stronger the higher the households’ marginal propensity to consume. total demand increases, and equilibrium output rises. The rise of output is stronger the lower the households’ marginal propensity to consume.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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QUESTION 1
Everything else equal, the Phillips-curve in a country will shift upwards when

the unemployment rate falls
the central bank cuts interest rates
oil prices rise
the government reduces tax rates on labour

QUESTION 2
Consider a country with a flexible exchange rate. If the central bank of this country raises its interest rate by 0.5%-points, whereas observers had anticipated an increase of only 0.25%-points, one can expect that:

Bond prices and stock prices rise, the country’s currency depreciates
Bond prices rise, stock prices fall, the country’s currency appreciates
Bond prices fall, stock prices rise, the country’s currency depreciates
Bond prices and stock prices fall, the country’s currency appreciates

QUESTION 3
We asked five students to give us three possible sources of an increase of the monetary base in the economy. Only one of the students came up with a completely correct list. This list included:

an increase in central bank lending to banks, a purchase of government bonds by the central bank, a purchase of foreign currency by the central bank.
an increase in central bank lending to banks, a sale of government bonds by the central bank, a sale of foreign currency by the central bank.
a decrease in central bank lending to banks, a purchase of government bonds by the central bank, a purchase of foreign currency by the central bank
an increase in central bank lending to banks, an increase in bank lending to firms and households, a purchase of government bonds by the central bank

QUESTION 4
Denmark has chosen a fixed exchange rate for the Danish krone against the euro. At some point in time, the value of the krone reaches the limit of the permitted fluctuation band. The market supply of krone is then 280, while market demand is 230. What will happen?

The Danish central bank intervenes on the exchange market and buys Danish krone worth 50. The money stock in Denmark will fall.
The Danish central bank intervenes on the exchange market and buys Danish krone worth 50. The money stock in Denmark will rise.
The Danish central bank intervenes on the exchange market and sells Danish krone worth 50. The money stock in Denmark will fall.
The Danish central bank intervenes on the exchange market and sells Danish krone worth 50. The money stock in Denmark will rise.

QUESTION 5
Imagine the following simple Keynesian macroeconomic model for a closed economy.
TD = C + I_p + G (total demand)
C = C₀ + Y_D (aggregate household consumption)
Y_D = Y − T (aggregate household disposable income)
I_p = I₀ + aY − bR (aggregate planned investment)
Y = TD (output, equilibrium condition)
BB = T – G (government budget balance)

With:
G government consumption, T taxes, R real interest rate (exogenous variables)
C₀) and I0 autonomous consumption and investment
0 < a, c, a+c < 1, b > 0 constant parameters

Derive the equation for output and answer the following question. If the government in this model simultaneously increases its consumption G and its taxes T by the same amount, then

total demand decreases, and equilibrium output declines.
total demand decreases, and equilibrium output declines, but only if C > G.
total demand increases, and equilibrium output rises. The rise of output is stronger the higher the households’ marginal propensity to consume.
total demand increases, and equilibrium output rises. The rise of output is stronger the lower the households’ marginal propensity to consume.

QUESTION 1
Everything
else equal, the Phillips-curve in a country will shift upwards when
O the unemployment rate falls
O the central bank cuts interest rates
O oil prices rise
O the government reduces tax rates on labour
QUESTION 2
Consider a country with a flexible exchange rate. If the central bank of this country raises its interest rate by 0.5%-points, whereas observers had anticipated an increase of only 0.25%-points, one can expect that:
O Bond prices and stock prices rise, the country's currency depreciates
O Bond prices rise, stock prices fall, the country's currency appreciates
O Bond prices fall, stock prices rise, the country's currency depreciates
O Bond prices and stock prices fall, the country's currency appreciates
QUESTION 3
We asked five students to give us three possible sources of an increase of the monetary base in the economy. Only one of the students came up with a completely correct list. This list included:
O an increase in central bank lending to banks, a purchase of government bonds by the central bank, a purchase of foreign currency by the central bank.
O an increase in central bank lending to banks, a sale of government bonds by the central bank, a sale of foreign currency by the central bank.
O a decrease in central bank lending to banks, a purchase of government bonds by the central bank, a purchase of foreign currency by the central bank
O an increase in central bank lending to banks, an increase in bank lending to firms and households, a purchase of government bonds by the central bank
QUESTION 4
Denmark has chosen a fixed exchange rate for the Danish krone against the euro. At some point in time, the value of the krone reaches the limit of the permitted fluctuation band. The market supply of krone is then 280, while market demand is 230. What will happen?
O The Danish central bank intervenes on the exchange market and buys Danish krone worth 50. The money stock in Denmark will fall.
O The Danish central bank intervenes on the exchange market and buys Danish krone worth 50. The money stock in Denmark will rise.
O The Danish central bank intervenes on the exchange market and sells Danish krone worth 50. The money stock in Denmark will fall.
O The Danish central bank intervenes on the exchange market and sells Danish krone worth 50. The money stock in Denmark will rise.
QUESTION 5
Imagine the following simple Keynesian macroeconomic model for a closed economy.
TD = C + Ip + G (total demand)
C = Co + Yo (aggregate household consumption)
YD = Y - T (aggregate household disposable income)
Ip IoaYbR (aggregate planned investment)
Y = TD (output, equilibrium condition)
BB = T - G (government budget balance)
With:
G government consumption, T taxes, R real interest rate (exogenous variables)
Co) and 10 autonomous consumption and investment
0 <a, c, a+c < 1, b > 0 constant parameters
Derive the equation for output and answer the following question. If the government in this model simultaneously increases its consumption G and its taxes T by the same amount, then
O total demand decreases, and equilibrium output declines.
O total demand decreases, and equilibrium output declines, but only if C > G.
O total demand increases, and equilibrium output rises. The rise of output is stronger the higher the households' marginal propensity to consume.
O total demand increases, and equilibrium output rises. The rise of output is stronger the lower the households' marginal propensity to consume.

Definition Definition Relationship between the rate of unemployment and the rate of inflation that shows that the lower the initial rate of unemployment, the greater the rise in wage rate corresponding to a given rise in the rate of unemployment. The Phillips curve assumes that the ratio between prices and nominal wage rates is constant in the short run. Presented graphically, the Phillips curve shows an inverse relationship between the rate of unemployment and the rate of inflation.

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