1. Financial assets and securities are key parts of rich countries. Which of the following is true?

A) securities are a type of financial asset

B) financial assets are a type of security

2. Governments and corporations sell trillions of dollars worth of bonds each year. The U.S. Treasury does this to borrow money from the public when federal expenditures are more than federal revenue and corporations sell bonds to the investing public when they need to raise money to buy capital. Remember how bonds offer fixed nominal payments for years in the future. For example a 2-year U.S. Treasury note with a $1,000 face value and 2% coupon would offer $1,000 in two years and 2% of the face value each year in two coupon payments of $10 each. Say that inflation was expected to be 1% but it ended up being 3%. Those who own bonds would be __ and those who issue bonds would be ___.

A) angry, pleased

B) angry, angry

C) pleased, pleased

D) pleased, angry

3. Recall how P is the price level, measured by the GDP deflator. We use our AD-SRAS model to understand the behavior of P in the real world. But, in our AD-SRAS graph, when do we keep P constant?

A) when we're in equilibrium

B) when we're moving to equilibrium

C) when we're working to understand why these curves shift right or left

D) when we're working to understand why these curves shift up or down

4. We use one-year U.S. Treasury Bills ("T-Bills") to illustrate key aspect of bonds, a key security. Say that you were considering buying one with a face value of $1,000 as an investment. Which of the following would you prefer for the current price of this T-Bill (that is, your purchase price)?

A) $900

B) $1,100

C) $2,000

5. T-Bills are a security whose price can vary in the market where they are bought and sold after they are auctioned to the investing public by the U.S. Treasury. This is much like stock prices -- their price varies over time (though, usually, bond prices are less volatile than stock prices). Say that you own a 1-year T-Bill that you purchased it 6 months ago and will hold it to maturity. Today, interest rates rose. Which one of the following is correct regarding the T-Bill that you own?

A) What you earn on this security would decline as a result of the change in interest rates.

B) What you earn on this security would rise as a result of the change in interest rates.

C) What you earn on this security would not change as a result of the change in interest rates.