The document contains an economics homework assignment with multiple choice questions about topics including interest rates, bonds, stocks, and economic growth. It asks the student to not use a calculator and choose the best answer for each question based on the information provided. The questions cover calculating present and future values, interpreting yield curves, and explaining concepts like how changes in savings rates impact long-run growth.

1. Econ 320 Ch 15 Homework Questions
Please, do not use a calculator or any other devices such as cell
phones or computers.
1. A bond with high default risk pays __ a bond with low
default risk.
A. a lower interest than.
B. a higher interest than
C. the same rate as
2. A long term bond pays ___ a short term bond.
A. a lower interest than.
B. a higher interest than
C. the same rate as
D. a higher or lower interest than
3. A two-year bond rate increases if one-year bond rate __.
A.increases
B. decreases.
C. is expected to decrease.
D. remains the same
4. The current 1-year rate is 6%, and the yield curve slopes
down. The 1-year rate expected 1 year from now would be __ %
(choose the best one, given the information available).
A.9

2. B. 8
C. 7
D. 6
E. 5
5. A downward-sloping yield curve suggests that financial
market participants expect short-term interest rates will ____ in
the future.
A. rise.
B. fall.
C. equal zero.
D. not change.
6. Assume that the current one-year rate is 6% and the two-year
rate is 10%. Given this information, the one-year rate expected
one year from now is __%.
A. 4
B. 6
C. 8
D. 14
E. 16
7. The fundamental value of a share of stock equals the present
value of

3. A. expected dividends.
B. expected real interest rate.
C. coupon payments.
D. expected nominal interest rate.
8. Which of the following does NOT represent a form of debt
finance?
A. loans
B. bonds
C. stock
9. If the current one-year interest rate increases by 4% while the
expected future one-year interest rate does not change, i2t will
A. decrease by 4%.
B. increase by 2%.
C. decrease by 2%.
D. increase by 4%.
10. Suppose the Fed (central bank), as expected, decreases the
money supply. As a result of this expected reduction in the

4. money supply, stock prices will
A. increase.
B. decrease.
C. not change.
D. have an ambiguous effect.
11. The government announces on 2/1/2017 that it will increase
taxes on 5/1/2017 (that is, the tax-increase policy will be
implemented on 5/1/2017), and this announcement is known to
everyone in the economy. The tax-increase policy will __ stock
prices on 5/1/2017. Assume that the Fed takes no action in
response to the announcement.
A. increase.
B. decrease.
C. not change.

5. D. have an ambiguous effect.
12. The government announces on 2/1/2017 that it will increase
taxes on 5/1/2017 (that is, the tax-increase policy will be
implemented on 5/1/2017), and this announcement is known to
everyone in the economy. This announcement would __ stock
prices on 2/1/2017. Assume that the Fed takes no action in
response to the announcement.
A. increase.
B. decrease.
C. not change.
D. have an ambiguous effect.
13. Suppose the current one-year interest rate is 4%. Also
assume that financial markets expect the one-year interest rate
in 2018 to be 5%, and expect the one-year interest in 2019 to be
6%. Given this information, the three-year interest rate will be
A. 2%

6. B. 3%
C. 4%
D. 5%
14. When choosing between one-year bonds and two-year
bonds, assume that investors care about the expected returns
and about uncertainty. In particular, they prefer a higher
expected return and prefer to have less uncertainty about the
return. The current one-year rate is 6% and the one-year rate
expected one year from now is 10%. Given this information,
the two-year rate is __%.(choose the best one, given the
information available).
A. 7
B. 8
C. 10
D. 14
E. 16
15. Lower income individuals are ___ likely to purchase high
grade municipal bonds than high grade corporate bonds.
A.more
B. less

7. C. equally
16. As a business person, explain why you would prefer equity
financing to debt financing
Answer keys
1. B
2. D
3. A
4. E
5. B
6. D
7. A
8. C
9. B
10. C.
11. C
12. D
13. D
14. A
15.B

8. 16. You can reduce the risk of paying the debt when you borrow
and your business loses.
Econ 320 Ch 14 Homework Questions
Please, do not use a calculator or any other devices such as cell
phones or computers.
1. If the nominal interest rate in year t is 10%, and the expected
inflation rate for year t+1 is 2%, then the real interest rate in
year t is approximately ___%.
A. 2
B. 3
C. 5
D. 8
E. 12
2. With a nominal interest rate of 20%, the present (discounted)
value of $600 to be received in one year (that is, 2018) is $
____.
A. 400.
B. 500
C. 600
D. 620

9. E. 720
For questions 3-4, consider the three sequences of incomes
below ( P, Q, and R). Each sequence provides a stream of
incomes for you, specified below, over the three years.
P
Q
R
2017
$520
$500
$480
2018
$500

10. $500
$500
2019
$480
$500
$520
3. Assume that the interest rate is 1%. If we rank the three
sequences of payments according to their present value of
sequence of payments over the three years,
A. P > Q > R.
B. R > Q > P.
C. P > R > Q.
D. R > P > Q.
4. Assume that the interest rate is 3%. If we rank the three
sequences of payments according to their present value of
sequence of payments over the three years,
A. P > Q > R.
B. R > Q > P.
C. P > R > Q.

11. D. R > P > Q.
…………………………………………………………………………
………………….
5. With a nominal interest rate of 3.75%, a deposit of $500 this
year will be $___ next year.
A. 435
B. 467
C. 487
D. 500
E. 519
6. A building generates a rental income of $1M per year,
starting from next year, forever. If the interest rate is 10%, the
fundamental value of this building is $___M.
A. 1
B. 10
C. 50
D. 100
7. A building generates a rental income of $1M per year,
starting from next year, forever. Assume that the interest rate
is 10%. You better purchase the building if the price of the

12. building is $___M.
A. 8
B. 12
C. 50
D. 100
8. In the short run, the real interest rate and the nominal interest
rate tend to move in the same direction, because inflation
expectation ___ in the short run.
A.increases.
B. decreases
C. does not change
9. The real interest rate is 5%, and expected inflation is 5%.
Assume that you deposit $100 in your savings account today for
one year. When you withdraw your money from your savings
account next year, the money you withdraw will enable you to
buy ____ goods and services next year than the $100 enables
you to buy today.
A.more
B. fewer
C. the same
10. You deposit $100 in your savings account today for one

13. year. You will receive more than $100 from your savings
account next year as long as
A. the nominal interest rate for the savings account is positive.
B. the real interest rate for the savings account is positive.
C. the expected inflation is positive.
D. the real interest rate for the savings account exceeds the
nominal rate for the savings account.
11. You have to pay a tax of $500 at any time between 1/1/2017
and 4/15/2017. It is your best interest to pay it at ____
A. 1/1/2017.
B. 4/15/2017.
C. any time.
12. In the short run, a tax cut causes ______ in the nominal
interest rate and ____ in the real interest rate.
A. an increase, an increase.
B. an increase, a decrease.
C. an increase, no change
D. a decrease, an increase.
E. a decrease, a decrease.
F. a decrease, no change
13. In the medium run, a tax cut causes ______ in the nominal
interest rate and ____ in the real interest rate.

14. A. an increase, an increase.
B. an increase, a decrease.
C. an increase, no change
D. a decrease, an increase.
E. a decrease, a decrease.
F. a decrease or an increase, a decrease
14. Suppose that the Fed cuts money supply. Discuss the effect
of this policy on the nominal interest rate, the real interest rate,
and output in the short run. In discussing, use an IS-LM graph
with correctly labeled curves and axes. If a curve or curves
shift in a certain way, explain why the curve or curves shift that
way.
15. Repeat question 14 in the medium run. Do not use a graph,
but use Y = C+I+G in your explanation.
16. Explain your answer to question 3. In your explanation, do
not calculate or use the present value.
Answer keys
1. D
2. B
3. A
4. A
5. E
6. B

15. 7. A
8. C.
9. A
10. A
11. B
12. A
13. A
14. The LM curve shifts up but the IS curve stays the same,
increasing both the nominal and real interest rates but
decreasing output in the short run. Thus, if we started from the
natural (real) interest rate rn and natural output Yn , the real
interest will be higher than the natural rate, but output will be
lower than the natural level.
15. The real interest rate and output both return to the natural
level. The nominal interest will be lower.
16. Choose P, and save 20 and enjoy 500 in 2016. The 20 you
save in 2016 will be more than 20 in 2018 due to the interest
rate, and P is better than Q. By an analogous argument, Q is
better than R. Thus, P must be better than Q and R by
transitivity.
Econ 320 Ch 11 Homework Questions
Please, do not use a calculator or any other devices such as cell
phones or computers.
1. An increase in the saving rate will not affect which of the
following variables in the long run?

16. A. the growth rate of output per worker.
B. capital per worker.
C. output per worker.
D. the amount of capital in the economy.
2. Which of the following variables will not change when the
economy reaches steady state equilibrium? Recall that the
population is assumed to be constant over time.
A. capital per worker.
B. capital.
C. output.
D. all of above
3. Suppose that Kt+1/N < Kt/N. The steady-state level of
capital per worker (K/N) will be ____ Kt/N.
A. greater than.
B. less than.
C. equal to.
4. In question 3, output per worker (Y/N) in period t is ____
period t-1.
A.greater than

17. B. less than
C. equal to
5. In question 3, the economy will reach or reached a steady-
state (long-run equilibrium) in period __ (choose the best one,
given the information available).
A. t-2.
B. t-1.
C. t
D. t+2
6. In question 3, depreciation per worker is _____ saving per
worker at time t-1.
A. less than.
B. greater than.
C. equal to.
7. If Kt+1/N = Kt/N,
A. output per worker grows at a positive rate in period t .
B. investment per worker equals depreciation per worker in
period t.

18. C. capital per worker grows at a positive rate in period t.
8. In the steady state,
A. consumption per worker is maximized.
B. the growth rate of output per worker equals zero.
C. investment per worker exceeds depreciation per worker.
D. capital per worker grows.
9. Countries X and Y are identical, except that the saving rate in
country X is lower than the saving rate in country Y. Then,
_____ in the long run.
A. the capital-labor ratios (K/N) will be the same in both
countries.
B. the growth rate of output per capita will be the same in both
countries.
C. the growth rate of output per capita will be greater in Y than
in X.
D. the growth rate of output per capita will be greater in X than
in Y.
10. Countries X and Y are identical, except that the saving rate
in country X is lower than the saving rate in country Y. Then,
_____ in the long run.
A. the capital-labor ratio (K/N) will be greater in X than in Y
B. the capital-labor ratio (K/N) will be less in X than in Y
C. the capital-labor ratio (K/N) in X will be the same as that in
Y

19. For questions 11-14, suppose that Kt+2/N < Kt+3/N.
11. The economy reaches the long-run equilibrium (steady-
state) in period __ (choose the best one, given the information
available).
A.t-3
B. t
C. t+2
D. t+4
12. The steady-state level of capital per worker (K/N) will be
____ Kt+1/N.
A. greater than.
B. less than.
C. equal to.
13. Output per worker (Y/N) in period t+2 is ____ period t+1.
A.greater than
B. less than
C. equal to
14. At time t+2, depreciation per worker is _____ saving per

20. worker.
A. less than.
B. greater than.
C. equal to.
For questions 15-17, assume that Countries x and y are
identical, except that the saving rate in country x is 20% while
the saving rate in country y is 10%. Assume further that in the
long run, the capital-labor ratio (K/N) in Country x is 5 and the
output per worker (Y/N) in Country x is 20.
15. In the long run, the capital-labor ratio (K/N) in Country y is
___ (choose the best one, given the information available).
A.3
B. 5
C. 8
D. 20
16. In the long run, the growth rate of capital per worker (K/N)
in Country x is ___ %.
A.0

21. B. 2
C. 5
D. 8
17. In the long run, output per worker (Y/N) in Country y is ___
(choose the best one, given the information available).
A.15
B. 20
C. 25
D. 30
…………………………………………………………………………
………………
18. If a rich country’s per capita GDP grows faster than a poor
country’s, the two countries will ___ in terms of per capita
GDP.
A.converge
B. diverge
C.have the same outcome.

22. 19. Which is an example of the aggregate production function,
Y = F(K, N), that exhibits constant returns to scale?
A.Y = KN
B. Y= 2K+N
C. Y = K/N
D. Y= (K+N)K
20. Explain your answer to question 3.
21. A famous economist, Thomas Malthus, argued in 1798 that
population growth would outpace agricultural (food)
production, forcing humans to return to subsistence-level
conditions. However, his prediction has not been supported by
data. Discuss his shortcomings in the context of economic
growth.
Answer Key
1. A.
2. D
3. B
4. B
5. D
6. B.
7. B
8. B

23. 9.B
10.B
11.D
12.A
13.A
14.A
15.A
16.A
17.A
18.B
19.B
20. Since Kt+1/N < Kt/N, it must be that at time t,
depreciation per worker exceeds saving per worker. As time
goes on, K/N continues to fall until depreciation per worker
equals saving per worker (this situation is called the steady-
state). Thus, K/N at the steady-state should be lower than Kt/N.
21. Even with the same amount of land, technologies allow us to
produce more agricultural output, helping humans survive.
Econ 320 Ch 10 Homework Questions
Please, do not use a calculator or any other devices such as cell
phones or computers.
1. According to a historical GDP data, among the OECD
countries

24. A. the poorer countries have had higher growth rates than the
richer ones.
B. the richer countries give away more of their output than the
poorer ones.
C. the richer countries have had higher growth rates than the
poorer ones
D. the procedures for measuring output per capita have been
changing.
2. As capital per worker increases, output per worker ___ .
A. increases.
.
B. decreases.
C. does not change.
3. An increase in the standard of living of citizens of a country
can be best measured by the growth rate of
A.nominal GDP
B. per capita nominal GDP
C. real GDP
D. per capita real GDP
4. What matters in the long run GDP is ____ while what
matters in the short run GDP is ____.

25. A.demand, capital
B. capital, demand
C. demand, demand
D. capital, capital
5. The standard of living in the long run depends on
A.inflation
B. monetary expansion
C. capital accumulation
D. consumption demand
6. Assume that there are constant returns to scale. Now suppose
that both capital and labor increase by 10%. Given this
information, output (Y) will
A. increase by less than 20% but more than 10%.
B. not change.
C. increase by less than 10%
D. increase by 10%.7. Economic growth concerns how to
A. get out of recession
B. reduce inflationC. improve economy for the next generation
D. increase money supply
8. Give an example of the aggregate production function, Y =
F(K, N), that exhibits constant returns to scale.

26. 9. It is expected that the U.S. Social Security will face a
financial problem in the future. Discuss the reason for the
expectation, based on demographic changes.
10. Discuss how economic growth can help in solving the
financial problem in question 9.
Answer Key
1. A.
2. A
3. D
4. B
5. C
6. D.
7.C
8. Y = √K √N
9. There will be fewer workers and more retirees.
10. Higher growth rates of GDP can increase incomes, which
can increase the tax revenues for social security benefits even if
the number of workers or the social security tax rate does not
increase.