If Gold Becomes Acceptable as a Medium of Exchange,the Demand

question 142

Multiple Choice

If gold becomes acceptable as a medium of exchange,the demand for gold will ________ and the demand for bonds will ________,everything else held constant.

• A)decrease;decrease
• B)decrease;increase
• C)increase;increase
• D)increase;decrease

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Definitions:

Discount Rate

The interest rate the Federal Reserve charges commercial banks for short-term loans, or a rate used to discount future cash flows to their present value.

IRR Method

The Internal Rate of Return method, a capital budgeting technique that calculates the rate of return at which the net present value of all the cash flows (both positive and negative) from a project or investment equals zero.

Nonconventional Flows

Atypical or irregular cash flows in an investment, complicating the assessment of an investment's value or project's profitability.

Profitability Index

A calculation that measures the relative profitability of an investment, by dividing the present value of future cash flows by the initial investment cost.