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Part 1: Multiple Choice Questions [! point each] 1. Tom tries to borrow money for his tuition from Arshdeep, He, however, plans to go to a casino with the money. Arshdeep faces the problem of A) moral hazard B) adverse selection C) free riding D) Evil borrower 2. Everything else constant, an appreciation of the Canadian dollar against the pound will mean that A) vacationing in England becomes more expensive B) vacationing in England becomes less expensive C) French cheese becomes more expensive D) Japanese cars become more expensive 3. If you know that the interest rates on all bonds will continue to fall in the future, which bond would you prefer to have been holding? A) A bond with one year to maturity B) A bond with five years to maturity C) A bond with ten years to maturity D) A bond with twenty years to maturity 4. If the real interest rate on a bond is 5 percent and the nominal interest rate on another bond of similar maturity is 2 percent, then the expected rate of inflation is equal to A) -3 percent B) 7 percent C) 3 percent D) 2 percent 5. A $10000 10 percent coupon bond that sells for $10000 has a yield to maturity of A) 8 percent B) 10 percent C) 0 percent D) 5 percent 6. When tax revenues are less than government expenditures, the government A) sells more bonds ECON 210 - 2 B) borrows less C) has a budget surplus D) is not affected 7. If the car manufacturer, BMW, sells a curo-denominated bond in Germany, the bond is a A) Eurobond. B) foreign bond. C) currency bond. D) bond