Question Details

What mix of monetary and fiscal policy is required to increase income 


1. Suppose the interest rate is 7 percent, and a bond with an annual coupon of $75 matures in one year's time, paying its face value of $1000. This bond's current price is 
a) less than $930 b) $930 or more, but less than $970 
c) $970 or more, but less than $1000 d) $1000 or more 
2. Consider a bond with a face value of $1000, due to mature in one year's time. Its current price is $1035, and the current interest rate is 5.8 percent. Its coupon is 
a) $35 or less b) more than $35 but less than $55 
c) more than $55 but less than $75 d) more than $75 
3. Suppose "the" multiplier is 3, the income multiplier with respect to the money supply is 4, the money multiplier is 5 and a Fed purchase of $4 billion of bonds during a recession drops the interest rate by one percentage point. Suppose that to fight a recession monetary policy is undertaken to lower the interest rate by one-half a percentage point. The income level should increase by 64 
a) $15b or less b) more than $15b but not more than $25b 
c) more than $25b but not more than $35b d) more than $35b 
4. Suppose the impact on the interest rate of a $3 increase in government spending can be eliminated by a $2 increase in the money supply. If the income multiplier with respect to government spending is 4 and the income multiplier with respect to the money supply is 3, What mix of monetary and fiscal policy is required to increase income by $9000 without changing the interest rate? 
a) increase government spending by $900 and the money supply by $1800 
b) increase government spending by $1200 and the money supply by $800 
c) increase government spending by $1500 and the money supply by $1000 
d) increase government spending by $3000 and the money supply by $2000 
5. A bond due to mature and pay $1000 in one year's time has a coupon of $85 and a current price of $1025. The interest rate is about 
a) 5.85% b) 6.00% c) 8.29% d) 8.50%




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