ECO 10 question

1.   You work for a research firm.  Your current project wants to study the measure of money that best exemplifies how people purchase goods and services.  You uncover the following data:

Cash is $250
Checking account balances are $400
Savings accounts are $100
Travelers' checks are $40

The relevant monetary aggregate totals $_____.

You will use this information for the next two questions.

2. Once a week, you faithfully buy a lottery ticket, not really hoping to win - just for fun.  But this week you've hit the jackpot: $450,000!

To keep things more simple, let's say the lottery official tells you that you can have one of two options: wait 10 years and get the full $450,000, or get some other amount today.  If the interest rate is reliably expected to be 3.2% over the next 10 years, what amount received today would make you indifferent between (equally happy with) both options?

(Enter only numbers, a decimal point, and/or a negative sign as needed.  Round any intermediate steps to four decimal places and your final answer to the nearest penny.)

3. Continue with the information from the last question. 

Your answer to the last question would have been bigger if interest rates were _____________ and, if you waited, you were to get the money in ________ than 10 years.

1.   [removed]

A. higher; more

2.   [removed]

B. higher; less

3.   [removed]

C. lower; more

[removed]

D. lower; less

4. This is oversimplifying a bit, but let's say that in general checking accounts don't pay interest and savings accounts do.  When interest rates rise, then, we would expect M1 to ______ and M2 to ______.

1.   [removed]

A. fall; rise

2.   [removed]

B. fall; remain unchanged

3.   [removed]

C. fall; fall

4.   [removed]

D. rise; fall

5.   [removed]

E. remain unchanged; rise

I can guess that a car that costs twice as much as another is roughly valued twice as much as the lower-price car because of money's _____ function.

1.   [removed]

A. fiat

2.   [removed]

B. store of value

3.   [removed]

C. unit of account

4.   [removed]

D. medium of exchange

When Bill looked back on it, he realized that he flunked ECON 530 because of a series of small, bad decisions - he didn't get up for class one day (which turned into two, and three, and ten), he decided not to do a homework assignment (and then another, and another).  Bill's sad situation illustrates the economic idea that

1.   [removed]

A. people are rational

2.   [removed]

B. people respond to incentives

3.   [removed]

C. government intervention generally helps markets

4.   [removed]

D. people make marginal decisions

Put the following four stages in the development of money in modern economies in order from earliest to latest:

I. Unbacked money that gets its value by decree and faith in the issuer
II. Direct trade requiring a double coincidence of wants
III. Fully backed paper certificates
IV. Money with equal worth as a good or as money

1.   [removed]

A. II, I, III, IV

2.   [removed]

B. IV, II, I, III

3.   [removed]

C. I, III, IV, II

4.   [removed]

D. II, IV, III, I

When price rises, yield _____; we proved this in the PowerPoints via the ________ formula.

1.   [removed]

A. rises; future value

2.   [removed]

B. falls; future value

3.   [removed]

C. rises; present value

4.   [removed]

D. falls; present value

You find the most awesome shirt ever on Ebay and pay for it using Paypal (an electronic funds transfer from your checking account).  In doing so you are spending

1.   [removed]

A. M1

2.   [removed]

B. M2

3.   [removed]

C. M1 and M2

4.   [removed]

D. neither M1 nor M2

A zero coupon bond sells for $450 and can be redeemed at maturity for $470.  Therefore, we can say that

1.   [removed]

A. its price is $470

2.   [removed]

B. we can subtract its face value from its price to calculate its interest

3.   [removed]

C. it pays interest in the amount of $20

4.   [removed]

D. all of the above are true