1)Which of the following would be most likely to result in a decrease in nominal interest rates?

a)A recovery in the housing market coupled with a decrease in the unemployment rate.

b)Lenders become more "risk-averse."

c)A recession.

d)Lenders expect a sharp economic expansion in the near future.

2)Which of the following would not be beneficial to real asset holders?

a)Rapid economic growth in countries around the world.

b)A higher rate of inflation.

c)A bursting of the housing bubble.

d)An increase in stock and real estate prices, causing households to feel richer and spend more.

3) In our nominal interest rate stack, the risk free rate is missing which of the following blocks?

a) Cost of inflation

b) Cost of operations

c) Cost of default

d)Cost of inventory

4) Which of the following best describes what happens with nominal assets during inflation?

a. The real value of the nominal asset will remain the same during inflation.

b. The real value of a nominal asset will tend to rise during inflation, sometimes by a rate greater than inflation.

c. The market value of a nominal asset will rise by an amount that is always precisely equal to the rate of inflation.

d. The real value of a nominal asset will fall.