Question 1

If the price of a stock equals the present value of expected future dividend payments, then the price of the firm's stock would be expected to decrease when:

Accepted Answer

A)  competition increases. 
B)  the government intends to increase the tax collected from the firm. 
C)  firm predicts lower profits in the future. 
D)  All of the above can cause the price to decrease. 
A)  competition increases. 
B)  the government intends to increase the tax collected from the firm. 
C)  firm predicts lower profits in the future. 
D)  All of the above can cause the price to decrease.

Question 2

During the 1970s homeowners in California borrowed money at 10 percent interest rates per year. If housing prices were growing at 12 percent per year, then their real investments would grow by:

Accepted Answer

A)  12 percent per year. 
B)  - 22 percent per year. 
C)  2 percent per year. 
D)  22 percent per year. 
A)  12 percent per year. 
B)  - 22 percent per year. 
C)  2 percent per year. 
D)  22 percent per year.

Question 3

The investment rule states that you should invest in a project if the present value of the future payments from the project is less than or equal to the cost you incur today.

Accepted Answer

A) True 
 B)False

Question 4

Investment is highly procyclical because it decreases during booms and rises during recessions.

Accepted Answer

A) True 
 B)False

Question 5

When 7 of the 8 largest Japanese mortgage lenders in 1995 had gone bankrupt , which of the following events prevented the collapse of these institutions?

Accepted Answer

A)  The government's decision to let the surviving institution buy out the 7 bankrupt institutions. 
B)  The sudden rise in the home values in Japan. 
C)  The decision of U.S. banks to make loans to the 7 bankrupt institutions. 
D)  The government's decision to bail out all the 7 bankrupt mortgage lenders. 
A)  The government's decision to let the surviving institution buy out the 7 bankrupt institutions. 
B)  The sudden rise in the home values in Japan. 
C)  The decision of U.S. banks to make loans to the 7 bankrupt institutions. 
D)  The government's decision to bail out all the 7 bankrupt mortgage lenders.

Question 6

If Andrew is paid an interest rate of 10% on his savings account, but the inflation rate is 20%, the nominal value of his savings account is

Accepted Answer

A)  rising by the value of the inflation rate. 
B)  dropping. 
C)  constant. 
D)  rising. 
A)  rising by the value of the inflation rate. 
B)  dropping. 
C)  constant. 
D)  rising.

Question 7

Why was deposit insurance created in the United States?

Accepted Answer

During the Great Depression, there were

Question 8

What is liquidity?

Accepted Answer

Liquidity is the eas

Question 9

Which of the following is generally not procyclical?

Accepted Answer

A)  investment 
B)  interest rates 
C)  unemployment 
D)  consumption expenditures 
A)  investment 
B)  interest rates 
C)  unemployment 
D)  consumption expenditures

Question 10

Which of the following is not a financial intermediary?

Accepted Answer

A)  district bank of the Federal Reserve System 
B)  life insurance company 
C)  savings and loan association 
D)  commercial bank 
A)  district bank of the Federal Reserve System 
B)  life insurance company 
C)  savings and loan association 
D)  commercial bank

Question 11

The theory that considers real interest rates and taxes as the important determinants of investment spending is the:

Accepted Answer

A)  Q- theory of investment. 
B)  classical theory of investment. 
C)  neoclassical theory of investment. 
D)  Keynesian theory of investment. 
A)  Q- theory of investment. 
B)  classical theory of investment. 
C)  neoclassical theory of investment. 
D)  Keynesian theory of investment.

Question 12

Insurance companies such as Farmers Insurance are considered as financial intermediaries.

Accepted Answer

A) True 
 B)False

Question 13

Of the 4 components of GDP, which one is most volatile?

Accepted Answer

A)  Consumption Expenditures 
B)  Government Purchases 
C)  Net Exports 
D)  Investment Expenditures 
A)  Consumption Expenditures 
B)  Government Purchases 
C)  Net Exports 
D)  Investment Expenditures

Question 14

Recall Application 2, "Options for a Lottery Winner," to answer the following questions:
-The present value of annual payments depends primarily on the

Accepted Answer

A)  lumpsum value. 
B)  the number of annual payments received. 
C)  interest rate. 
D)  both B and C are correct. 
A)  lumpsum value. 
B)  the number of annual payments received. 
C)  interest rate. 
D)  both B and C are correct.

Question 15

According to the application, the reason why households were willing to take loans they could not afford was that households expected their incomes would increase in the near future.

Accepted Answer

A) True 
 B)False

Question 16

The present value of a payment to be received in the future is:

Accepted Answer

A)  the maximum amount a person is willing to pay today to get that payment later. 
B)  the interest rate equivalent to the foregone stream of income. 
C)  equal to the borrowed principal minus the total value of interest payments. 
D)  always larger than the current value of the repayment, once inflation is discounted. 
A)  the maximum amount a person is willing to pay today to get that payment later. 
B)  the interest rate equivalent to the foregone stream of income. 
C)  equal to the borrowed principal minus the total value of interest payments. 
D)  always larger than the current value of the repayment, once inflation is discounted.

Question 17

Recall Application 3, "Underwater Homes: Bets Gone Wrong" to answer the following questions:
-According to the application, a home is underwater as a result of:

Accepted Answer

A)  any natural disaster. 
B)  a flood. 
C)  a stock market crash. 
D)  a decrease in the value of the home. 
A)  any natural disaster. 
B)  a flood. 
C)  a stock market crash. 
D)  a decrease in the value of the home.

Question 18

Figure 12.2
-Refer to Figure 12.2 to answer the question. Which of the following components of GDP most closely resembles Series A (procyclical)?

Accepted Answer

A)  investment 
B)  budget deficit 
C)  autonomous consumption 
D)  government spending 
A)  investment 
B)  budget deficit 
C)  autonomous consumption 
D)  government spending

Question 19

Which of the following institutions was placed into government control following the turmoil in the market for securitized loans in the U.S. in September 2008?

Accepted Answer

A)  Fannie Mae and Freddie Mac 
B)  Wachovia 
C)  Merrill Lynch 
D)  All of the above were placed under government control in 2008. 
A)  Fannie Mae and Freddie Mac 
B)  Wachovia 
C)  Merrill Lynch 
D)  All of the above were placed under government control in 2008.

Question 20

According to the neoclassical theory of investment, the important determinant of investment spending is:

Accepted Answer

A)  taxes and the real interest rate. 
B)  government spending. 
C)  nominal interest rates and taxes. 
D)  the business climate. 
A)  taxes and the real interest rate. 
B)  government spending. 
C)  nominal interest rates and taxes. 
D)  the business climate.

If the price of a stock equals the present value of expected future dividend payments, then the price of the firm's stock would be expected to decrease when:

During the 1970s homeowners in California borrowed money at 10 percent interest rates per year. If housing prices were growing at 12 percent per year, then their real investments would grow by:

The investment rule states that you should invest in a project if the present value of the future payments from the project is less than or equal to the cost you incur today.

Investment is highly procyclical because it decreases during booms and rises during recessions.

When 7 of the 8 largest Japanese mortgage lenders in 1995 had gone bankrupt , which of the following events prevented the collapse of these institutions?

If Andrew is paid an interest rate of 10% on his savings account, but the inflation rate is 20%, the nominal value of his savings account is

Why was deposit insurance created in the United States?

What is liquidity?

Which of the following is generally not procyclical?

Which of the following is not a financial intermediary?

The theory that considers real interest rates and taxes as the important determinants of investment spending is the:

Insurance companies such as Farmers Insurance are considered as financial intermediaries.

Of the 4 components of GDP, which one is most volatile?

Recall Application 2, "Options for a Lottery Winner," to answer the following questions: -The present value of annual payments depends primarily on the

According to the application, the reason why households were willing to take loans they could not afford was that households expected their incomes would increase in the near future.

The present value of a payment to be received in the future is:

Recall Application 3, "Underwater Homes: Bets Gone Wrong" to answer the following questions: -According to the application, a home is underwater as a result of:

Figure 12.2 -Refer to Figure 12.2 to answer the question. Which of the following components of GDP most closely resembles Series A (procyclical)?

Which of the following institutions was placed into government control following the turmoil in the market for securitized loans in the U.S. in September 2008?

According to the neoclassical theory of investment, the important determinant of investment spending is:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Exam 12: Investment and Financial Markets

If the price of a stock equals the present value of expected future dividend payments, then the price of the firm's stock would be expected to decrease when:

During the 1970s homeowners in California borrowed money at 10 percent interest rates per year. If housing prices were growing at 12 percent per year, then their real investments would grow by:

The investment rule states that you should invest in a project if the present value of the future payments from the project is less than or equal to the cost you incur today.

Investment is highly procyclical because it decreases during booms and rises during recessions.

When 7 of the 8 largest Japanese mortgage lenders in 1995 had gone bankrupt , which of the following events prevented the collapse of these institutions?

If Andrew is paid an interest rate of 10% on his savings account, but the inflation rate is 20%, the nominal value of his savings account is

Why was deposit insurance created in the United States?

What is liquidity?

Which of the following is generally not procyclical?

Which of the following is not a financial intermediary?

The theory that considers real interest rates and taxes as the important determinants of investment spending is the:

Insurance companies such as Farmers Insurance are considered as financial intermediaries.

Of the 4 components of GDP, which one is most volatile?

Recall Application 2, "Options for a Lottery Winner," to answer the following questions: -The present value of annual payments depends primarily on the

According to the application, the reason why households were willing to take loans they could not afford was that households expected their incomes would increase in the near future.

The present value of a payment to be received in the future is:

Recall Application 3, "Underwater Homes: Bets Gone Wrong" to answer the following questions: -According to the application, a home is underwater as a result of:

Figure 12.2 -Refer to Figure 12.2 to answer the question. Which of the following components of GDP most closely resembles Series A (procyclical)?

Which of the following institutions was placed into government control following the turmoil in the market for securitized loans in the U.S. in September 2008?

According to the neoclassical theory of investment, the important determinant of investment spending is:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters