Question

1) Which bond should have the highest interest rate?

	A.	Low quality bonds
	B.	Medium quality bonds
	C.	High quality bonds

2) Which of the following statements is NOT true?

	A.	Stock prices tend to be very volatile
	B.	Common stocks are not securities
	C.	Higher stock prices allow companies access to more capital
	D.	Stock owners benefit from stock price increases

3) What is the expected impact of a decline in the money supply to the US economy?

	A.	There is no general relationship between the money supply and inflaton
	B.	Lower aggregate prices (deflation)
	C.	Higher aggregate prices (inflation)

4) Which of the following is NOT a component of federal fiscal policy?

	A.	Federal tax revenues
	B.	Federal government expenditures
	C.	Federal budget deficit
	D.	All of the above are components of federal fiscal policy

Answer 1

1. High-quality bonds are the bonds that pay higher interest rates as they have lower credit ratings than investment-grade bonds. High-quality bonds are more likely to default and thus bound to pay a higher interest rate than the other category of bonds.

Thus, Option C is the correct answer.

2. Common stocks are also considered securities. Common stock is a kind of security that represents ownership in a corporation.

Thus, Option B is the correct answer.

3. As per the quantity theory of money, a decline in money supply to any economy can lead to deflation in the economy in proportion to the decrease in the supply of money.

Thus, the impact of a decline in the money supply to the US economy can lead to lower aggregate prices or deflation.

Thus, option B is the correct answer.

4. Federal fiscal policy would include everything related to tax structure, government budget, and government's income and expenditures.

Thus, All the given are components of federal fiscal policy.

Thus, Option D is the correct answer.