The following questions are about mutual funds: i. What are ...

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The following questions are about mutual funds:
 
  i. What are index funds?
  ii. What is an expense ratio? How do expense ratios affect the value of an investor's portfolio?

Question 2

Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP is less than potential GDP, then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal funds
 
  rate.
  A) will be less than B) will be greater than
  C) will be the same as D) may be greater than or less than

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Answer to Question 1

i. An index fund is a mutual fund that is passively managed, which means that the mutual fund manager simply tries to track the return of an index, like the Standard & Poor's 500 stock index.
A-head: INVESTMENT ACCOUNTS
Concept:Mutual funds
ii. Expense ratios are annual fees charged by mutual funds in order to pay mutual fund managers and to pay other record-keeping and marketing costs of the fund. Expense ratios make a very big difference in the long-run performance of investments. Paying an annual fee of even 1 percent will reduce the annual rate of return on the investment from say, 10 percent to 10  1 = 9 percent.
A-head: INVESTMENT ACCOUNTS; CHOICE AND CONSEQUENCE: OVERLOOKING FEES
Concept: Expense ratios

Answer to Question 2

A

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TYSM

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Excellent