Question 1

If BP develops a fuel that eliminates noxious emissions but costs the same as gasoline, the efficient market hypothesis predicts that

Accepted Answer

A) the stock prices of companies building emissions-testing equipment will rise. 
B) all fuel company stock prices will rise. 
C) the prices of all fuel company stocks except BP stocks will rise. 
D) BP's stock price will rise immediately. 
E) BP's stock price will not change. 
A) the stock prices of companies building emissions-testing equipment will rise. 
B) all fuel company stock prices will rise. 
C) the prices of all fuel company stocks except BP stocks will rise. 
D) BP's stock price will rise immediately. 
E) BP's stock price will not change.

Question 2

The demand curve for capital shows

Accepted Answer

A) the total quantity of capital demanded at each price of the good produced. 
B) marginal revenue product of capital increasing as more capital is used. 
C) marginal revenue product of capital increasing as the price of capital increases. 
D) the marginal revenue product at each price of the good produced. 
E) the total quantity of capital demanded at each price of capital. 
A) the total quantity of capital demanded at each price of the good produced. 
B) marginal revenue product of capital increasing as more capital is used. 
C) marginal revenue product of capital increasing as the price of capital increases. 
D) the marginal revenue product at each price of the good produced. 
E) the total quantity of capital demanded at each price of capital.

Question 3

The marginal revenue product of capital is the

Accepted Answer

A) marginal product of capital multiplied by the price of capital. 
B) amount revenue changes when one more unit of capital is used. 
C) total cost of capital divided by the quantity of capital. 
D) amount profit is reduced by capital purchases. 
E) product of the price of capital and the quantity of capital. 
A) marginal product of capital multiplied by the price of capital. 
B) amount revenue changes when one more unit of capital is used. 
C) total cost of capital divided by the quantity of capital. 
D) amount profit is reduced by capital purchases. 
E) product of the price of capital and the quantity of capital.

Question 4

The stock of physical capital in the economy

Accepted Answer

A) depends only on the level of investment by private firms and the government, and the number of residential housing units. 
B) None of these answers is correct. 
C) depends only on the level of investment by private firms and the government. 
D) depends only on the level of investment by private firms and the number of residential housing units. 
E) depends only on the level of investment by private firms. 
A) depends only on the level of investment by private firms and the government, and the number of residential housing units. 
B) None of these answers is correct. 
C) depends only on the level of investment by private firms and the government. 
D) depends only on the level of investment by private firms and the number of residential housing units. 
E) depends only on the level of investment by private firms.

Question 5

The table below contains information about a firm's marginal revenue product of capital.
A)The firm should hire 3,000 units or, if fractional units are possible, less than 4,000 but more than 3,000 units.
B)The firm should hire 4,000 units or, if fractional units are possible, less than 5,000 but more than 4,000 units.
C)The firm should hire 5,000 units.
D)The firm should hire 6,000 units or, if fractional units are possible, less than 7,000 but more than 6,000 units.
E)The firm should hire 7,000 units or, if fractional units are possible, less than 6,000 but more than 7,000 units.

Accepted Answer

@#IMG-DLM& Suppose the rental price of capital is

Question 6

Seeking to own assets of many different kinds in many markets is an example of

Accepted Answer

A) portfolio diversification. 
B) portfolio rearrangement. 
C) risk aversion. 
D) risk neutrality. 
E) investment confusion. 
A) portfolio diversification. 
B) portfolio rearrangement. 
C) risk aversion. 
D) risk neutrality. 
E) investment confusion.

Question 7

The process of determining how much a sum paid or received in the future is worth in the present is called

Accepted Answer

A) appraisal. 
B) valuing. 
C) discounting. 
D) dealing. 
E) inflating. 
A) appraisal. 
B) valuing. 
C) discounting. 
D) dealing. 
E) inflating.

Question 8

In the United States, one of the agencies that regulates financial institutions is

Accepted Answer

A) the Office of the Comptroller of the Currency. 
B) a municipal government. 
C) the Central Intelligence Agency. 
D) the Internal Revenue Services. 
E) the White House. 
A) the Office of the Comptroller of the Currency. 
B) a municipal government. 
C) the Central Intelligence Agency. 
D) the Internal Revenue Services. 
E) the White House.

Question 9

For economists, the quick response of the stock market to new information about economic fundamentals is an example of

Accepted Answer

A) perfect information. 
B) market manipulation. 
C) market efficiency. 
D) market foolishness. 
E) amateurs running the market. 
A) perfect information. 
B) market manipulation. 
C) market efficiency. 
D) market foolishness. 
E) amateurs running the market.

Question 10

One common type of fraud in financial markets-securities fraud-occurs when managers lie or misreport facts about the firm's financial statements or the firm's profitability in order to entice investors to buy or hold their stock.

Accepted Answer

A) True 
 B)False

Question 11

The equilibrium risk-return relationship for a risk-averse individual shows

Accepted Answer

A) a relationship between risk and expected rate of return which is first positive and then negative. 
B) no relationship between risk and expected rate of return. 
C) a relationship between risk and expected rate of return which is first negative and then positive. 
D) a negative relationship between risk and expected rate of return. 
E) a positive relationship between risk and expected rate of return. 
A) a relationship between risk and expected rate of return which is first positive and then negative. 
B) no relationship between risk and expected rate of return. 
C) a relationship between risk and expected rate of return which is first negative and then positive. 
D) a negative relationship between risk and expected rate of return. 
E) a positive relationship between risk and expected rate of return.

Question 12

Explain how a firm decides how much capital to hire or purchase.

Accepted Answer

The firm compares the marginal revenue p

Question 13

Severe adverse selection and moral hazard problems can prevent the formation of business relationships between principals and agents. For example, people may be unwilling to buy stock in a firm because they believe that managers may use that money for their own benefit rather than for the company's interests.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is the best example of a debt contract?

Accepted Answer

A) Bank loans and stocks 
B) Bank loans 
C) Bank loans and bonds 
D) Bank loans, bonds, and stocks 
E) Stocks 
A) Bank loans and stocks 
B) Bank loans 
C) Bank loans and bonds 
D) Bank loans, bonds, and stocks 
E) Stocks

Question 15

The rate of return on a bond is equal to the dividend plus the change in the price of the bond as a percentage of the price.

Accepted Answer

A) True 
 B)False

Question 16

Systematic risk is reduced to zero as the number of different stocks in a portfolio increases.

Accepted Answer

A) True 
 B)False

Question 17

The formula that gives the relationship between the price and the yield for long-term bonds, where P is the price of the bond, R is the bond coupon, and i is the yield, is

Accepted Answer

A)   
B)   
C)   
D) P = R * i 
E) R = P + i 
A)   
B)   
C)   
D) P = R * i 
E) R = P + i

Question 18

The yields on bonds tend to rise when firms have higher earnings.

Accepted Answer

A) True 
 B)False

Question 19

There are obvious incentives to overcome adverse selection and moral hazard problems in the world of corporate finance. One way in which problems of moral hazard and adverse selection can be limited is through the use of programs in which managers and employees receive a share of profits earned by the firm. These programs are commonly known as

Accepted Answer

A) fair profit exchange agreements. 
B) profit sharing agreements. 
C) earnings compatibility constraints. 
D) corporate earnings fairness. 
E) the economy of communion. 
A) fair profit exchange agreements. 
B) profit sharing agreements. 
C) earnings compatibility constraints. 
D) corporate earnings fairness. 
E) the economy of communion.

Question 20

Government has a role to play in dealing with some corporate governance problems because these problems can be viewed as a form of market failure.

Accepted Answer

A) True 
 B)False

Exam 16: Capital and Financial Markets

If BP develops a fuel that eliminates noxious emissions but costs the same as gasoline, the efficient market hypothesis predicts that

The demand curve for capital shows

The marginal revenue product of capital is the

The stock of physical capital in the economy

Seeking to own assets of many different kinds in many markets is an example of

The process of determining how much a sum paid or received in the future is worth in the present is called

In the United States, one of the agencies that regulates financial institutions is

For economists, the quick response of the stock market to new information about economic fundamentals is an example of

One common type of fraud in financial markets-securities fraud-occurs when managers lie or misreport facts about the firm's financial statements or the firm's profitability in order to entice investors to buy or hold their stock.

The equilibrium risk-return relationship for a risk-averse individual shows

Explain how a firm decides how much capital to hire or purchase.

Which of the following is the best example of a debt contract?

The rate of return on a bond is equal to the dividend plus the change in the price of the bond as a percentage of the price.

Systematic risk is reduced to zero as the number of different stocks in a portfolio increases.

The formula that gives the relationship between the price and the yield for long-term bonds, where P is the price of the bond, R is the bond coupon, and i is the yield, is

The yields on bonds tend to rise when firms have higher earnings.

Government has a role to play in dealing with some corporate governance problems because these problems can be viewed as a form of market failure.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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