CLEP Macroeconomics chapter practice4 questions

12 Money, Financial Assets, Bonds, and the Time Value of Money

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 4

Prices in a market economy are all quoted in the same units. Which of the following uses of money illustrates the unit-of-account function?

Quoting every price in the same units is what lets a buyer compare a shirt with a sandwich, and that comparison is the unit of account. Choice B is the medium of exchange, C the store of value, and D the standard of deferred payment. Choice E names a place a balance sits, not a job it does.
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A. It states the price of a good.

Quoting every price in the same units is what lets a buyer compare a shirt with a sandwich, and that comparison is the unit of account. Choice B is the medium of exchange, C the store of value, and D the standard of deferred payment. Choice E names a place a balance sits, not a job it does.

Question 2

Question 2 of 4

Of the five assets below, the most liquid is

Currency is already a means of payment, so nothing stands between holding it and spending it. Choices C and D can be sold, but only at whatever price the market gives that day and after a fee. Choices A and E, a house and a factory machine, take weeks and heavy transaction cost to convert.
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B. currency held in cash

Currency is already a means of payment, so nothing stands between holding it and spending it. Choices C and D can be sold, but only at whatever price the market gives that day and after a fee. Choices A and E, a house and a factory machine, take weeks and heavy transaction cost to convert.

Question 3

Question 3 of 4

A corporation issues common stock to raise funds for expansion. What does each share represent for the purchaser?

A share is a residual claim: the holder owns whatever is left once every creditor has been paid. Choice A treats the purchase as debt, B assumes the dividend is contractual when directors declare it, and E reverses priority, since creditors are paid first. Choice D borrows the protection of an insured bank deposit.
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C. An ownership claim on the corporation

A share is a residual claim: the holder owns whatever is left once every creditor has been paid. Choice A treats the purchase as debt, B assumes the dividend is contractual when directors declare it, and E reverses priority, since creditors are paid first. Choice D borrows the protection of an insured bank deposit.

Question 4

Question 4 of 4

Market interest rates rise after a bond with fixed coupon payments has been issued. On the secondary market that bond's price

Buyers can get the new, higher coupon elsewhere, so the older bond sells only at a discount deep enough to match that return. Choice A reverses the adjustment. Choice B mistakes face value for market price, C postpones a repricing that happens at once, and E confuses the bond's price with the coupon it pays.
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D. falls immediately

Buyers can get the new, higher coupon elsewhere, so the older bond sells only at a discount deep enough to match that return. Choice A reverses the adjustment. Choice B mistakes face value for market price, C postpones a repricing that happens at once, and E confuses the bond's price with the coupon it pays.

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