Question 1

An indexed equity mutual fund

Accepted Answer

A)  is directly tied to either the consumer price index or the GDP deflator. 
B)  is a fund that hires a manager who will try to pick the stocks that will increase most in value in the future. 
C)  merely holds stocks in the same proportion as they exist in a broad stock market index like the Standard & Poor's 500. 
D)  will have high operating costs because these funds engage in a substantial amount of stock trading. 
A)  is directly tied to either the consumer price index or the GDP deflator. 
B)  is a fund that hires a manager who will try to pick the stocks that will increase most in value in the future. 
C)  merely holds stocks in the same proportion as they exist in a broad stock market index like the Standard & Poor's 500. 
D)  will have high operating costs because these funds engage in a substantial amount of stock trading.

Question 2

Concerning federal spending, which of the following is true?

Accepted Answer

A)  Real federal spending per person was approximately 50 times higher in 1900 than 1800. 
B)  Real federal spending per person grew more rapidly during the 19th century than during the 20th century. 
C)  Real federal spending per person was approximately 60 times greater in 1990 than in 1916. 
D)  Real federal spending per person has decreased significantly since 1964. 
A)  Real federal spending per person was approximately 50 times higher in 1900 than 1800. 
B)  Real federal spending per person grew more rapidly during the 19th century than during the 20th century. 
C)  Real federal spending per person was approximately 60 times greater in 1990 than in 1916. 
D)  Real federal spending per person has decreased significantly since 1964.

Question 3

Which of the following most clearly distinguishes government from a private business?

Accepted Answer

A)  Production of goods and services-private businesses produce things; governments do not. 
B)  The power to tax. 
C)  The hiring of law enforcement employees to protect property rights. 
D)  Selfishness-the owners and managers of private businesses are selfish; government officials are not. 
A)  Production of goods and services-private businesses produce things; governments do not. 
B)  The power to tax. 
C)  The hiring of law enforcement employees to protect property rights. 
D)  Selfishness-the owners and managers of private businesses are selfish; government officials are not.

Question 4

The rapid growth in stock prices during the 1920s was due in large part to

Accepted Answer

A)  the expansionary monetary policy of the Federal Reserve. 
B)  the wartime demand for military equipment and supplies. 
C)  the artificially high value of the dollar, which eventually led to the stock market crash of 1929. 
D)  the technological innovations of the decade, which spurred economic growth. 
A)  the expansionary monetary policy of the Federal Reserve. 
B)  the wartime demand for military equipment and supplies. 
C)  the artificially high value of the dollar, which eventually led to the stock market crash of 1929. 
D)  the technological innovations of the decade, which spurred economic growth.

Question 5

Which of the following is true of stock prices?

Accepted Answer

A)  An increase in the interest rate will tend to increase stock prices. 
B)  A reduction in the interest rate will tend to increase stock prices. 
C)  An increase in the inflation rate will tend to increase stock prices. 
D)  There is no reason to believe that changes in interest rates will influence stock prices. 
A)  An increase in the interest rate will tend to increase stock prices. 
B)  A reduction in the interest rate will tend to increase stock prices. 
C)  An increase in the inflation rate will tend to increase stock prices. 
D)  There is no reason to believe that changes in interest rates will influence stock prices.

Question 6

Which of the following is an example of a transfer payment?

Accepted Answer

A)  wages and salaries paid to the employees of the Internal Revenue Service 
B)  purchase of automobiles by a local police department 
C)  agriculture subsidies paid to farmers 
D)  salaries paid to the college professors of state-operated universities 
A)  wages and salaries paid to the employees of the Internal Revenue Service 
B)  purchase of automobiles by a local police department 
C)  agriculture subsidies paid to farmers 
D)  salaries paid to the college professors of state-operated universities

Question 7

Social Security, officially known as Old Age and Survivors Insurance (OASI),

Accepted Answer

A)  collects funds from current workers and invests them in order to provide these workers with a stream of income during the retirement phase of life. 
B)  is based on the same principles as private insurance programs. 
C)  is an intergenerational income transfer program. 
D)  is a voluntary savings program run by the government. 
A)  collects funds from current workers and invests them in order to provide these workers with a stream of income during the retirement phase of life. 
B)  is based on the same principles as private insurance programs. 
C)  is an intergenerational income transfer program. 
D)  is a voluntary savings program run by the government.

Question 8

In a democratic setting, debt financing is attractive to elected political officials because

Accepted Answer

A)  it makes it possible for them to spend on current projects favored by their constituents without having to levy current taxes. 
B)  it drives up interest rates, which encourages saving. 
C)  it leads to higher taxes in the future, which will tend to slow economic growth. 
D)  it makes the cost of government more visible, which will help voters allocate government spending more efficiently. 
A)  it makes it possible for them to spend on current projects favored by their constituents without having to levy current taxes. 
B)  it drives up interest rates, which encourages saving. 
C)  it leads to higher taxes in the future, which will tend to slow economic growth. 
D)  it makes the cost of government more visible, which will help voters allocate government spending more efficiently.

Question 9

John Maynard Keynes and Friedrich Hayek

Accepted Answer

A)  had similar views with regard to the cause of the Great Depression and what might be done to prevent it from happening again. 
B)  both believed that perverse monetary policy was the primary cause of the ups and downs of the business cycle. 
C)  both believed that budget deficits and surpluses  could be used to smooth the ups and downs of the business cycle. 
D)  had polar opposite views with regard to the underlying causes of economic booms and bust, but nonetheless their scholarly work commanded widespread respect among economists. 
A)  had similar views with regard to the cause of the Great Depression and what might be done to prevent it from happening again. 
B)  both believed that perverse monetary policy was the primary cause of the ups and downs of the business cycle. 
C)  both believed that budget deficits and surpluses  could be used to smooth the ups and downs of the business cycle. 
D)  had polar opposite views with regard to the underlying causes of economic booms and bust, but nonetheless their scholarly work commanded widespread respect among economists.

Question 10

When expansionary monetary policy pushes interest rates to artificially low levels,

Accepted Answer

A)  the demand for and prices of interest-sensitive goods, like housing, will increase. 
B)  people will delay their purchases of interest-sensitive goods, like housing, into the future. 
C)  the demand for interest-sensitive goods, like housing, will increase, but their prices will decline. 
D)  the demand for and prices of interest-sensitive goods, like housing, will decline. 
A)  the demand for and prices of interest-sensitive goods, like housing, will increase. 
B)  people will delay their purchases of interest-sensitive goods, like housing, into the future. 
C)  the demand for interest-sensitive goods, like housing, will increase, but their prices will decline. 
D)  the demand for and prices of interest-sensitive goods, like housing, will decline.

Question 11

As real incomes grow, what happens to federal tax revenues as a share of the economy?

Accepted Answer

The tax system of the United States is p

Question 12

The present value of $1 million to be received in the future will

Accepted Answer

A)  increase if the interest rate rises. 
B)  increase if the payment is received at a more distant time in the future. 
C)  be greater than $1 million. 
D)  increase if the interest rate were to fall from 8 percent to 4 percent. 
A)  increase if the interest rate rises. 
B)  increase if the payment is received at a more distant time in the future. 
C)  be greater than $1 million. 
D)  increase if the interest rate were to fall from 8 percent to 4 percent.

Question 13

Real (adjusted for inflation) federal spending per person in the United States

Accepted Answer

A)  has increased by approximately 10 percent per decade during the last 225 years. 
B)  increased more rapidly during the nineteenth century than during the twentieth century. 
C)  was approximately 75 times the level of 1916 in recent years. 
D)  increased rapidly during the first half of the twentieth century but has changed very little since 1950. 
A)  has increased by approximately 10 percent per decade during the last 225 years. 
B)  increased more rapidly during the nineteenth century than during the twentieth century. 
C)  was approximately 75 times the level of 1916 in recent years. 
D)  increased rapidly during the first half of the twentieth century but has changed very little since 1950.

Question 14

During a recession, the political incentive structure will encourage politicians to

Accepted Answer

A)  undertake sound economic policies that are consistent with stability and growth. 
B)  adopt any policies, even bad ones, that give the appearance of taking action. 
C)  undertake policies that promote long-term economic growth rather than short-term benefits. 
D)  do nothing and let the recession run its course. 
A)  undertake sound economic policies that are consistent with stability and growth. 
B)  adopt any policies, even bad ones, that give the appearance of taking action. 
C)  undertake policies that promote long-term economic growth rather than short-term benefits. 
D)  do nothing and let the recession run its course.

Question 15

Which of the following reforms would reduce the likelihood of a future financial crisis?

Accepted Answer

A)  Increased regulations that would make it more difficult for lenders to foreclose on borrowers who are delinquent on mortgage payments. 
B)  Expansion of government-sponsored lending in order to make loanable funds more readily available to sub-prime borrowers. 
C)  Institutional changes that would strengthen the property rights of shareholders and provide financial managers with a stronger incentive to pursue long-run objectives. 
D)  Frequent regulatory changes in order to search for and find the combination that would be most effective. 
A)  Increased regulations that would make it more difficult for lenders to foreclose on borrowers who are delinquent on mortgage payments. 
B)  Expansion of government-sponsored lending in order to make loanable funds more readily available to sub-prime borrowers. 
C)  Institutional changes that would strengthen the property rights of shareholders and provide financial managers with a stronger incentive to pursue long-run objectives. 
D)  Frequent regulatory changes in order to search for and find the combination that would be most effective.

Question 16

When the money supply declined by approximately 30 percent during the 1929 through 1933 period,

Accepted Answer

A)  real output increased. 
B)  the general level of prices increased. 
C)  the velocity of money increased by a proportional amount. 
D)  unemployment increased. 
A)  real output increased. 
B)  the general level of prices increased. 
C)  the velocity of money increased by a proportional amount. 
D)  unemployment increased.

Question 17

The General Theory of John Maynard Keynes exerted a major impact on macroeconomics during the 20th century primarily because

Accepted Answer

A)  it provided the only logically consistent view of what caused the Great Depression. 
B)  it provided a reasonable explanation of what went wrong during the Great Depression and what could be done to prevent it from happening again. 
C)  it explained how gross domestic product could be measured and why this was important. 
D)  it derived the conditions necessary for maximum efficiency of resource use and explained how these conditions could be achieved through central planning. 
A)  it provided the only logically consistent view of what caused the Great Depression. 
B)  it provided a reasonable explanation of what went wrong during the Great Depression and what could be done to prevent it from happening again. 
C)  it explained how gross domestic product could be measured and why this was important. 
D)  it derived the conditions necessary for maximum efficiency of resource use and explained how these conditions could be achieved through central planning.

Question 18

After a period of price stability in the 1990s, housing prices increased dramatically during 2002-2005 because

Accepted Answer

A)  regulations designed to make housing more affordable increased the demand for housing and drove housing prices upward. 
B)  regulations designed to make housing more affordable decreased the number of sub-prime loans and made home buying a safer investment. 
C)  mortgage lending standards tightened, and therefore mortgage loans for housing were only available to buyers purchasing highly expensive homes. 
D)  home buyers were putting more money down and requiring more return on their investment, driving housing prices up. 
A)  regulations designed to make housing more affordable increased the demand for housing and drove housing prices upward. 
B)  regulations designed to make housing more affordable decreased the number of sub-prime loans and made home buying a safer investment. 
C)  mortgage lending standards tightened, and therefore mortgage loans for housing were only available to buyers purchasing highly expensive homes. 
D)  home buyers were putting more money down and requiring more return on their investment, driving housing prices up.

Question 19

In his book The Road to Serfdom, Friedrich Hayek argued that the growth of government

Accepted Answer

A)  was essential if the ups and downs of the business cycle were going to be controlled. 
B)  must be increased if western democracies were going to survive. 
C)  could only be achieved if monetary policy-makers were willing to expand the supply of money more rapidly. 
D)  endangered freedom and moved Western democracies toward tyranny, just as it had done in Nazi Germany and the Soviet Union. 
A)  was essential if the ups and downs of the business cycle were going to be controlled. 
B)  must be increased if western democracies were going to survive. 
C)  could only be achieved if monetary policy-makers were willing to expand the supply of money more rapidly. 
D)  endangered freedom and moved Western democracies toward tyranny, just as it had done in Nazi Germany and the Soviet Union.

Question 20

In the latter half of the 1990s, the Department of Housing and Urban Development imposed regulations on Fannie Mae and Freddie Mac, requiring them to

Accepted Answer

A)  extend more mortgage loans to households with low and moderate incomes. 
B)  accept only mortgages with at least a 20 percent  down payment. 
C)  tighten lending standards and increase their holdings of low-risk, conventional mortgages. 
D)  extend more mortgage loans to households with middle and high incomes. 
A)  extend more mortgage loans to households with low and moderate incomes. 
B)  accept only mortgages with at least a 20 percent  down payment. 
C)  tighten lending standards and increase their holdings of low-risk, conventional mortgages. 
D)  extend more mortgage loans to households with middle and high incomes.

An indexed equity mutual fund

Concerning federal spending, which of the following is true?

Which of the following most clearly distinguishes government from a private business?

The rapid growth in stock prices during the 1920s was due in large part to

Which of the following is true of stock prices?

Which of the following is an example of a transfer payment?

Social Security, officially known as Old Age and Survivors Insurance (OASI),

In a democratic setting, debt financing is attractive to elected political officials because

John Maynard Keynes and Friedrich Hayek

When expansionary monetary policy pushes interest rates to artificially low levels,

As real incomes grow, what happens to federal tax revenues as a share of the economy?

The present value of $1 million to be received in the future will

Real (adjusted for inflation) federal spending per person in the United States

During a recession, the political incentive structure will encourage politicians to

Which of the following reforms would reduce the likelihood of a future financial crisis?

When the money supply declined by approximately 30 percent during the 1929 through 1933 period,

The General Theory of John Maynard Keynes exerted a major impact on macroeconomics during the 20^th century primarily because

After a period of price stability in the 1990s, housing prices increased dramatically during 2002-2005 because

In his book The Road to Serfdom, Friedrich Hayek argued that the growth of government

In the latter half of the 1990s, the Department of Housing and Urban Development imposed regulations on Fannie Mae and Freddie Mac, requiring them to

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Exam 20: Special Topics

An indexed equity mutual fund

Concerning federal spending, which of the following is true?

Which of the following most clearly distinguishes government from a private business?

The rapid growth in stock prices during the 1920s was due in large part to

Which of the following is true of stock prices?

Which of the following is an example of a transfer payment?

Social Security, officially known as Old Age and Survivors Insurance (OASI),

In a democratic setting, debt financing is attractive to elected political officials because

John Maynard Keynes and Friedrich Hayek

When expansionary monetary policy pushes interest rates to artificially low levels,

As real incomes grow, what happens to federal tax revenues as a share of the economy?

The present value of $1 million to be received in the future will

Real (adjusted for inflation) federal spending per person in the United States

During a recession, the political incentive structure will encourage politicians to

Which of the following reforms would reduce the likelihood of a future financial crisis?

When the money supply declined by approximately 30 percent during the 1929 through 1933 period,

The General Theory of John Maynard Keynes exerted a major impact on macroeconomics during the 20th century primarily because

After a period of price stability in the 1990s, housing prices increased dramatically during 2002-2005 because

In his book The Road to Serfdom, Friedrich Hayek argued that the growth of government

In the latter half of the 1990s, the Department of Housing and Urban Development imposed regulations on Fannie Mae and Freddie Mac, requiring them to

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

The General Theory of John Maynard Keynes exerted a major impact on macroeconomics during the 20^th century primarily because