Which of the answer choices best explains why an individual might want to include TIPS in an investment portfolio?

Treasury Inflation-Protected Securit Show more QUESTION 1 In 1997 the U.S. Treasury Department began issuing Treasury Inflation-Protected Securities commonly called TIPS. TIPS are bonds whose interest rates and principal payments are adjusted upward for increases in the price level. For example if inflation increases 2 percent in a given year then TIPS increase by say 3 percent. Which of the answer choices best explains why an individual might want to include TIPS in an investment portfolio? A. Investors prefer other assets that unlike TIPS promise to pay a much higher real interest rate. B. TIPS provide a low-risk inflation-proof asset guaranteeing real purchasing power in the future. C. Issued and backed by the U.S. government TIPS have a significant default risk meaning the expected return on the investment is low. D. Since annual inflation in the U.S. is usually less than 2 percent interest rates on TIPS are low. This enables the Treasury Department to borrow more easily at a lower current cost. 2.5 points QUESTION 2 The quantity theory of money states that the money supply (M) velocity of money (V) price level (P) and real GDP (Y) are related by the equation . According to this equation if velocity and real GDP are constant and the Federal Reserve decreases the money supply then the price level _____. A. decreases B. increases C. does not change D. increases rapidly then decreases slowly 2.5 points QUESTION 3 After the Civil War the United States government moved the economy back to the gold standard meaning that dollars could be redeemed for gold. As a result of the gold standard the supply of dollars in the U.S. was determined by the supply of available gold. Since gold is a rare metal this meant that the supply of dollars in the post-Civil War period was limited. The major consequence of the gold standard was frequent periods of deflation. For farmers and workers in the U.S. the gold standard and the resulting deflation caused tremendous hardships. In the late-19 th century Silverites advocated a silver standard which would have increased the supply of dollars in the economy and caused inflation. Which of the answer choices best explains why Silverites disliked deflation and wanted a silver standard for the U.S.? A. Deflation caused farmers and workers to receive less for what they produced and so made it harder to pay off debts whose values decreased as prices increased. B. Deflation caused farmers and workers to receive more for what they produced and so made it easier to pay off debts whose values decreased as prices increased. C. Deflation caused farmers and workers to receive less for what they produced and so made it harder to pay off debts whose values increased as prices decreased. D. Deflation caused farmers and workers to receive more for what they produced and so made it easier to pay off debts whose values increased as prices decreased. 2.5 points QUESTION 4 Use the following information to answer questions 4 and 5. Below is a table showing the values for the purchasing power of the dollar price level (CPI) and inflation in the U.S. for the given months of 2014. [Click here to open a PDF version of the table in another browser window.] On March 1 Emily loaned Billy $1000. Emily charged a monthly interest rate of 0.10 percent on the loan. Billy repaid all of the loan principal and interest on the agreed upon date March 31. During the month Emily decided that once Billy repaid the loan she wanted to buy a new Sony Handycam HD Camcorder from BestBuy. If the price of the camcorder on March 1 was $1000 and followed the data in the table did Emily have enough money to purchase the Sony Handycam? A. Yes. The Sony Handycam cost $1000 on March 31 and Emily had $1010 from the principal and interest paid by Billy. B. Yes. The Sony Handycam cost $900 on March 31 and Emily had $1000 from the principal paid by Billy. C. No. The Sony Handycam cost $1002 on March 1 but Emily only had $1001 from the principal and interest paid by Billy. D. No. The Sony Handycam cost $1200 on March 1 but Emily only had $1000 from the principal and interest paid by Billy. 2.5 points QUESTION 5 During the given months of 2014 the Federal Reserve has continued its bond-buying program called Quantitative Easing 3 (QE3). During April the Fed purchased $40 billion worth of bonds. Because of QE3 which of the answer choices gives correct possible values for the purchasing power of the dollar price level and inflation X Y and Z respectively for April 2014? A. X: 0.4237; Y: 235.993; Z: +0.15% B. X: 0.4255; Y: 236.276; Z: +0.27% C. X: 0.4229; Y: 235.451; Z: D. X: 0.4254; Y: 235.013; Z: 2.5 points QUESTION 6 Macroeconomists are asked routinely to make predictions about real GDP inflation and unemployment. They often use two important concepts: the sacrifice ratio and the Phillips curve. The sacrifice ratio is defined as the number of percentage points annual real GDP decreases for each percentage point decrease in inflation. The Phillips curve describes the negative relationship between inflation and unemployment. In 2013 Chinas annual real GDP increased by 9 percent its inflation was 5 percent and its unemployment rate was 4 percent. Chinas central bank the Bank of China has set a target inflation for 2014 of 3 percent two percentage points lower than 2013s value of 5 percent. Suppose that Chinas sacrifice ratio is 2. Using this information which of the answer choices could most likely be Chinas real GDP and unemployment for 2014? A. Real GDP: 4%; unemployment: 3% B. Real GDP: 5%; unemployment: 3% C. Real GDP: 4%; unemployment: 5% D. Real GDP: 5%; unemployment: 5% 2.5 points QUESTION 7 Use the following information to answer questions 7 through 10. In 2007 the United States and Vietnam concluded a Trade and Investment Framework Agreement (TIFA) which normalized trade between the two countries. Prior to this agreement trade between the U.S. and Vietnam was virtually nonexistent owing to the reluctance of the U.S. to engage the communist country with which it fought a brutal war from 1965 to 1973. TIFA sets parameters on the types of goods that each country can export to and import from the other country. For example TIFA allows the trade of black pepper and cotton. The graphs below show the (hypothetical) production of black pepper (in pounds) and cotton (in bales) for the U.S. and Vietnam. The line in each graph is called a Production Possibilities Frontier (PPF) which shows the various combinations of output that an economy can produce. Assume that these PPFs have not changed over time. [Click here to open a PDF version of the graph in another browser window.] Suppose that prior to TIFA implementation the U.S. and Vietnam used their resources to produce half of the maximum of each good given by points (1) and (2) on the graphs. At these points what is the total production of black pepper and cotton? A. 75 pounds of black pepper and 50 bales of cotton B. 150 pounds of black pepper and 125 bales of cotton C. 225 pounds of black pepper and 175 bales of cotton D. 300 pounds of black pepper and 250 bales of cotton 2.5 points QUESTION 8 The opportunity costs of black pepper and cotton for the U.S. and Vietnam are given in the table below. Which of the answer choices correctly gives the comparative advantage? A. The U.S. has a comparative advantage in the production of black pepper and Vietnam has a comparative advantage in the production of cotton. B. The U.S. has a comparative advantage in the production of cotton and Vietnam has a comparative advantage in the production of black pepper. C. The U.S. has a comparative advantage in the production of both black pepper and cotton. D. Vietnam has a comparative advantage in the production of both black pepper and cotton. 2.5 points QUESTION 9 Suppose that after TIFA implementation the U.S. and Vietnam specialize in the good in which each has a comparative advantage. Because of this specialization what is now the total production of black pepper and cotton? A. 300 pounds of black pepper and 250 bales of cotton B. 300 pounds of black pepper and 350 bales of cotton C. 450 pounds of black pepper and 250 bales of cotton D. 450 pounds of black pepper and 350 bales of cotton 2.5 points QUESTION 10 Trade agreements such as TIFA are designed so that each country gains from trade. Suppose that after TIFA implementation the U.S. trades 100 units of its comparative advantage good to Vietnam in exchange for 100 units of Vietnams comparative advantage good. The graph below shows the PPF for the U.S. with additional points. Using this information which of the points correctly shows the benefit the U.S. gains from trading with Vietnam after the implementation of TIFA? A. Point (A) where U.S. consumption is 75 pounds of black pepper and 25 bales of cotton. B. Point (B) where U.S. consumption is 50 pounds of black pepper and 100 bales of cotton. C. Point (C) where U.S. consumption is 100 pounds of black pepper and 150 bales of cotton. D. Point (D) where U.S. consumption is 125 pounds of black pepper and 225 bales of cotton. 2.5 points QUESTION 11 Use the following information to answer questions 11 through 14. Below is a Foreign Exchange (forex) table showing the values of currencies for several countries per U.S. dollars for the given days of 2014. [Click here to open a PDF version of the table in another browser window.] According to the forex table which of the answer choices is correct? A. On March 3 one Swedish krona exchanged for 6.7981 U.S. dollars. B. On April 7 41.615 U.S. dollars exchanged for one Philippine peso. C. On May 5 4.0404 Israeli shekels exchanged for 4.0404 U.S. dollars. D. On June 8 one U.S. dollar exchanged for 30.623 Thai baht. 2.5 points QUESTION 12 On Monday June 8 Pilgrims Pride made a $6.5 billion bid to purchase Hillshire Brands Company maker of Jimmy Dean sausage and Ball Park hot dogs. Pilgrims Pride the largest chicken producer in the U.S. is owned by JBS Holdings a So Paulo Brazil food processing company. Which of the answer choices gives the approximate value of the purchase price in Brazilian reals on June 8? A. 14.75 billion Brazilian reals B. 13.20 billion Brazilian reals C. 8.60 billion Brazilian reals D. 3.25 billion Brazilian reals 2.5 points QUESTION 13 Purchasing power parity (PPP) is a theory in macroeconomics which states that a unit of any given currency should be able to purchase the same quantity of goods in all countries. PPP implies that the movement (i.e. appreciation or depreciation) of Country Xs currency equals the difference between Country Ys rate of inflation and Country Xs rate of inflation. During a Monday-to-Monday time period the rate of inflation in the U.S. was 0.6 percent and the rate of inflation in Sweden was 1.4 percent. Which of the answer choices gives the correct time span depicting the movement of the exchange rate of the U.S. dollar against the Swedish krona? A. From March 3 to April 7 only. B. From April 7 to May 5 only. C. From March 3 to Apirl 5 and from May 5 to June 8. D. From April 7 to May 5 and from May 5 to June 8. 2.5 points QUESTION 14 Which of the answer choices correctly represents the exchange rate movement of the given currencies as demonstrated by the data in the forex table? A. B. C. D. 2.5 points QUESTION 15 In March 2014 Canada and South Korea completed a free-trade agreement. In the agreement South Korea eliminated its 20.5 percent tariff on Canadian live lobsters. Prior to the trade agreement Canada exported 8500 kilograms of live lobsters to South Korea per year with an average selling price per kilogram in South Korea of 42000 won (the currency used in South Korea). With the elimination of the live-lobster tariff which of the answer choices gives a correct prediction of the amount of live lobsters exported by Canada to South Korea and the average selling price respectively? A. 8800 kilograms and 44000 won B. 9400 kilograms and 39500 won C. 8200 kilograms and 45600 won D. 7900 kilograms and 41750 won 2.5 points QUESTION 16 The U.S. imposes an annual quota of 1117195 tons of raw sugar entering the U.S. from other countries. If the current world price is approximately $0.29 per pound of raw sugar then how much tax revenue does the U.S. Federal government receive because of this quota? A. $0 B. $0.29 C. Greater than $1 million but less than $10 million D. Greater than $10 million 2.5 points QUESTION 17 For the month of March 2014 the U.S. purchased $234 billion of foreign-produced goods and services and sold $193 billion of domestically-produced goods and services to foreign countries. For March 2014 the U.S. had ____. A. exports of $234 billion and a trade surplus of $41 billion B. exports of $234 billion and a trade deficit of $41 billion C. exports of $193 billion and a trade surplus of $41 billion D. exports of $193 billion and a trade deficit of $41 billion 2.5 points QUESTION 18 Use the following information to answer questions 18 and 19. Based in Ruhr Germany ThyssenKrupp is one of the worlds largest steelmakers. In 2007 ThyssenKrupp built the largest and most technologically advanced steel plant in the U.S. Located in Alabama and costing $5 billion this steel plant imports steel slabs made in Brazil and processes them into high-grade sheets for car and appliance makers. However citing high production and transportation costs in March 2014 ThyssenKrupp sold the Alabama plant for $1.55 billion. The currency used in Brazil is the real. ThyssenKrupps strategy to use its Alabama plant to process steel slabs into high-grade sheets is a common one for manufacturers: importing unfinished goods from a low-cost country to the U.S. for final value-added work. ThyssenKrupp had planned for the Alabama plant to purchase and import 5 million tons of steel slabs from Brazil. However ThyssenKrupps strategy failed and the company never reached this capacity. On March 1 2007 one Brazilian real was worth $0.4857. On March 1 2014 one Brazilian real was worth $0.5609. How did this exchange rate movement contribute to the failure of ThyssenKrupps strategy? A. Depreciation of the real against the dollar made steel slabs imported from Brazil into the U.S. less expensive resulting in more than 5 million steel slabs imported by the Alabama plant. B. Appreciation of the real against the dollar made steel slabs imported from Brazil into the U.S. more expensive resulting in fewer than 5 million steel slabs imported by the Alabama plant. C. Depreciation of the dollar against the real made steel slabs imported from Brazil into the U.S. less expensive resulting in more than 5 million steel slabs imported by the Alabama plant. D. Appreciation of the dollar against the real made steel slabs imported from Brazil into the U.S. more expensive resulting in fewer than 5 million steel slabs imported by the Alabama plant. 2.5 points QUESTION 19 ThyssenKrupp had expected multiple offers from most of the worlds steelmakers when the company listed its Alabama plant for sale. However South Korean Japanese Indian and Chinese steelmakers did not make an offer for the Alabama plant. Which of the answer choices best explains why these Asian steelmakers did not want to purchase ThyssenKrupps Alabama steel plant? A. Intense competition among the worlds steelmakers has put downward pressure on raw steel prices. Prices of steel in the U.S. have decreased to $620 a ton from more than $800 during the summer of 2013. At these lower steel prices it is not possible to earn a profit by operating a steel plant in the U.S. B. Expansionary monetary policy in the U.S. has caused an appreciation of the U.S. dollar. As a result Asian companies had difficulty obtaining the cash necessary to meet ThyssenKrupps $1.55 billion asking price. C. Steel is categorized as a national commodity meaning that its production is a high priority for national interests. Consequently foreign firms producing national commodities must join into a partnership with a U.S. company. It is unlikely an Asian steelmaker would have been able to join with a U.S. steelmaker. D. While depreciation of the dollar against Asian currencies makes it easier to purchase assets in the U.S

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