Question 1

Since 1995, federal regulations have

Accepted Answer

A)  tightened mortgage lending standards and therefore made it difficult to obtain a loan to purchase a house. 
B)  increased the down payment housing buyers are required to make in order to obtain a mortgage loan. 
C)  loosened lending standards and made it possible for many buyers to purchase a house with little or no down payment. 
D)  required investment banks to maintain more capital against their holdings of mortgage loans. 
A)  tightened mortgage lending standards and therefore made it difficult to obtain a loan to purchase a house. 
B)  increased the down payment housing buyers are required to make in order to obtain a mortgage loan. 
C)  loosened lending standards and made it possible for many buyers to purchase a house with little or no down payment. 
D)  required investment banks to maintain more capital against their holdings of mortgage loans.

Question 2

During the last two decades, most of the surplus generated by the Social Security system was

Accepted Answer

A)  used to finance current government expenditures. 
B)  invested in government bonds that will make it possible for the federal government to pay future retirement benefits without an increase in federal taxes. 
C)  used to pay down the national debt. 
D)  invested in bonds offered by foreign governments and businesses that will provide a stream of future income for the finance of retirement benefits. 
A)  used to finance current government expenditures. 
B)  invested in government bonds that will make it possible for the federal government to pay future retirement benefits without an increase in federal taxes. 
C)  used to pay down the national debt. 
D)  invested in bonds offered by foreign governments and businesses that will provide a stream of future income for the finance of retirement benefits.

Question 3

Based on the rising housing prices of 2000-2005, many buyers opted for interest-only loans and variable rate mortgages with little or no down payment because

Accepted Answer

A)  they expected short-term interest rates to fall substantially in the future and this would reduce their monthly mortgage payment in the years ahead. 
B)  variable rate mortgages are a good way to reduce the risk accompanying your investment when you plan to stay in the house for a long time. 
C)  they thought housing prices would continue to rise and therefore they would be able to sell the house for a profit within a couple of years. 
D)  they could easily recoup their investment, even if there was a downturn in housing prices in the future. 
A)  they expected short-term interest rates to fall substantially in the future and this would reduce their monthly mortgage payment in the years ahead. 
B)  variable rate mortgages are a good way to reduce the risk accompanying your investment when you plan to stay in the house for a long time. 
C)  they thought housing prices would continue to rise and therefore they would be able to sell the house for a profit within a couple of years. 
D)  they could easily recoup their investment, even if there was a downturn in housing prices in the future.

Question 4

What percentage of the total government expenditures of the United States is undertaken at the federal level?

Accepted Answer

A)  Approximately 20 percent. 
B)  Approximately 40 percent. 
C)  Approximately 60 percent. 
D)  Approximately 80 percent. 
A)  Approximately 20 percent. 
B)  Approximately 40 percent. 
C)  Approximately 60 percent. 
D)  Approximately 80 percent.

Question 5

What percentage of federal spending was financed by borrowing during 2009-2010?

Accepted Answer

A)  approximately 10 percent 
B)  approximately 20 percent 
C)  approximately 40 percent 
D)  more than 50 percent 
A)  approximately 10 percent 
B)  approximately 20 percent 
C)  approximately 40 percent 
D)  more than 50 percent

Question 6

Which of the following is an implication of the random walk theory?

Accepted Answer

A)  Experts will be able to make money by picking and choosing the best stocks. 
B)  There is a systematic pattern to the movement of prices in the stock market. 
C)  Stock market investors can expect to earn a fairly steady real rate of return of about 7 percent annually. 
D)  Even experts will be unable to predict the future movement of stock prices with any degree of accuracy. 
A)  Experts will be able to make money by picking and choosing the best stocks. 
B)  There is a systematic pattern to the movement of prices in the stock market. 
C)  Stock market investors can expect to earn a fairly steady real rate of return of about 7 percent annually. 
D)  Even experts will be unable to predict the future movement of stock prices with any degree of accuracy.

Question 7

The private sector cost of tax revenues is equal to the

Accepted Answer

A)  tax revenue collected by government from individuals in the economy. 
B)  income that could have been earned by government employees if they had worked in the private sector. 
C)  difference between government expenditures and tax revenues. 
D)  tax revenue plus the cost of tax compliance and the excess burden of taxation. 
A)  tax revenue collected by government from individuals in the economy. 
B)  income that could have been earned by government employees if they had worked in the private sector. 
C)  difference between government expenditures and tax revenues. 
D)  tax revenue plus the cost of tax compliance and the excess burden of taxation.

Question 8

Prolonged periods of monetary contraction, as was the case during the Great Depression, will likely result in

Accepted Answer

A)  an increase in real output and employment. 
B)  an increase in loanable funds and upward pressure on the rate of inflation. 
C)  a decrease in output and downward pressure on prices. 
D)  a decrease in unemployment and upward pressure on prices. 
A)  an increase in real output and employment. 
B)  an increase in loanable funds and upward pressure on the rate of inflation. 
C)  a decrease in output and downward pressure on prices. 
D)  a decrease in unemployment and upward pressure on prices.

Question 9

Which one of the following was a secondary effect of the stock market crash of 1929?

Accepted Answer

A)  An increase in the money supply in the early 1930s. 
B)  A decline in consumption expenditures because of the reduction in the wealth of stockholders. 
C)  An increase in the supply of loanable funds as people transferred funds from the stock market into savings accounts. 
D)  An increase in tax revenues as the sellers of stocks paid the capital gains tax on stocks that had appreciated during the 1920s. 
A)  An increase in the money supply in the early 1930s. 
B)  A decline in consumption expenditures because of the reduction in the wealth of stockholders. 
C)  An increase in the supply of loanable funds as people transferred funds from the stock market into savings accounts. 
D)  An increase in tax revenues as the sellers of stocks paid the capital gains tax on stocks that had appreciated during the 1920s.

Question 10

Which of the following was most responsible for bringing the Great Depression to an end?

Accepted Answer

A)  The increase in industrial demand due to the military build-up prior to World War II. 
B)  The expansionary monetary policy of the Fed during the 1930s. 
C)  The New Deal policies that expanded government spending, stimulated demand, and  increased output. 
D)  The increase in import tariffs that saved jobs and expanded total employment. 
A)  The increase in industrial demand due to the military build-up prior to World War II. 
B)  The expansionary monetary policy of the Fed during the 1930s. 
C)  The New Deal policies that expanded government spending, stimulated demand, and  increased output. 
D)  The increase in import tariffs that saved jobs and expanded total employment.

Question 11

Total government spending (federal, state, and local) sums to approximately

Accepted Answer

A)  10 percent of the U.S. economy. 
B)  20 percent of the U.S. economy. 
C)  40 percent of the U.S. economy. 
D)  50 percent of the U.S. economy. 
A)  10 percent of the U.S. economy. 
B)  20 percent of the U.S. economy. 
C)  40 percent of the U.S. economy. 
D)  50 percent of the U.S. economy.

Question 12

Discuss how size of government can negatively affect economic growth.

Accepted Answer

First, higher taxes and/or additional bo

Question 13

Suppose that monetary policy becomes more expansionary, and as a result, the future rate of inflation is higher. Will this be good for the stock market?

Accepted Answer

A)  Yes; the inflation will lead to higher wages, and this will be good for both the economy and the stock market. 
B)  No; the inflation will lead to higher nominal interest rates, and this will reduce the present value of the future net earnings derived from stocks. 
C)  Yes; the inflation rate will reduce the long-run rate of unemployment, and this will be good for the stock market. 
D)  No; the expansionary monetary policy will lead to lower real interest rates, and this is generally bad for both the economy and the stock market. 
A)  Yes; the inflation will lead to higher wages, and this will be good for both the economy and the stock market. 
B)  No; the inflation will lead to higher nominal interest rates, and this will reduce the present value of the future net earnings derived from stocks. 
C)  Yes; the inflation rate will reduce the long-run rate of unemployment, and this will be good for the stock market. 
D)  No; the expansionary monetary policy will lead to lower real interest rates, and this is generally bad for both the economy and the stock market.

Question 14

To the extent that current profits are directly related to future profits, a high price/earnings ratio would indicate that stocks are

Accepted Answer

A)  inexpensive. 
B)  expensive. 
C)  going to increase in value in the future. 
D)  most likely to fall in value if interest rates decline. 
A)  inexpensive. 
B)  expensive. 
C)  going to increase in value in the future. 
D)  most likely to fall in value if interest rates decline.

Question 15

In 1960, more than half (52 percent) of federal expenditures were for national defense. Today national defense accounts for approximately

Accepted Answer

A)  60 percent of the federal budget. 
B)  44 percent of the federal budget. 
C)  29 percent of the federal budget. 
D)  16 percent of the federal budget. 
A)  60 percent of the federal budget. 
B)  44 percent of the federal budget. 
C)  29 percent of the federal budget. 
D)  16 percent of the federal budget.

Question 16

Will a large quantity of bonds held in the Social Security Trust Fund make it easier to deal with the retirement of the baby boomers?

Accepted Answer

A)  Yes; the federal government will be able to redeem these bonds in the future without raising taxes or increasing its borrowing. 
B)  Yes; the interest on these bonds will provide the federal government with a stream of net revenue in the future. 
C)  Yes, but only if the federal government holds these bonds until they mature. 
D)  No; the federal government cannot redeem the bonds without raising revenues for their redemption from other sources. 
A)  Yes; the federal government will be able to redeem these bonds in the future without raising taxes or increasing its borrowing. 
B)  Yes; the interest on these bonds will provide the federal government with a stream of net revenue in the future. 
C)  Yes, but only if the federal government holds these bonds until they mature. 
D)  No; the federal government cannot redeem the bonds without raising revenues for their redemption from other sources.

Question 17

During the Great Depression of 1929-1933,

Accepted Answer

A)  the Fed allowed the money supply to contract substantially. 
B)  the Fed increased the money supply sharply. 
C)  Congress cut tax rates sharply. 
D)  Congress cut tariffs substantially. 
A)  the Fed allowed the money supply to contract substantially. 
B)  the Fed increased the money supply sharply. 
C)  Congress cut tax rates sharply. 
D)  Congress cut tariffs substantially.

Question 18

The net value to the federal government of the bonds currently held in the Social Security Trust Fund is

Accepted Answer

A)  approximately $1 trillion. 
B)  now approaching $2 trillion. 
C)  greater than $2.5 trillion. 
D)  zero, because the federal government is both the payee and recipient of the interest and principal represented by these bonds. 
A)  approximately $1 trillion. 
B)  now approaching $2 trillion. 
C)  greater than $2.5 trillion. 
D)  zero, because the federal government is both the payee and recipient of the interest and principal represented by these bonds.

Question 19

Does it ever make sense to purchase a stock that has never paid a dividend? Explain.

Accepted Answer

Yes. If a firm does not pay out its prof

Question 20

Which of the following would be the best strategy for a long-term investor wanting to earn an attractive rate of return?

Accepted Answer

A)  Pick stocks that have done well in the past. 
B)  Buy shares of an equity mutual fund indexed to the S&P 500. 
C)  Purchase shares of a money market mutual fund. 
D)  Buy shares of an actively managed equity mutual fund. 
A)  Pick stocks that have done well in the past. 
B)  Buy shares of an equity mutual fund indexed to the S&P 500. 
C)  Purchase shares of a money market mutual fund. 
D)  Buy shares of an actively managed equity mutual fund.

Since 1995, federal regulations have

During the last two decades, most of the surplus generated by the Social Security system was

Based on the rising housing prices of 2000-2005, many buyers opted for interest-only loans and variable rate mortgages with little or no down payment because

What percentage of the total government expenditures of the United States is undertaken at the federal level?

What percentage of federal spending was financed by borrowing during 2009-2010?

Which of the following is an implication of the random walk theory?

The private sector cost of tax revenues is equal to the

Prolonged periods of monetary contraction, as was the case during the Great Depression, will likely result in

Which one of the following was a secondary effect of the stock market crash of 1929?

Which of the following was most responsible for bringing the Great Depression to an end?

Total government spending (federal, state, and local) sums to approximately

Discuss how size of government can negatively affect economic growth.

Suppose that monetary policy becomes more expansionary, and as a result, the future rate of inflation is higher. Will this be good for the stock market?

To the extent that current profits are directly related to future profits, a high price/earnings ratio would indicate that stocks are

In 1960, more than half (52 percent) of federal expenditures were for national defense. Today national defense accounts for approximately

Will a large quantity of bonds held in the Social Security Trust Fund make it easier to deal with the retirement of the baby boomers?

During the Great Depression of 1929-1933,

The net value to the federal government of the bonds currently held in the Social Security Trust Fund is

Does it ever make sense to purchase a stock that has never paid a dividend? Explain.

Which of the following would be the best strategy for a long-term investor wanting to earn an attractive rate of return?

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

Since 1995, federal regulations have

During the last two decades, most of the surplus generated by the Social Security system was

Based on the rising housing prices of 2000-2005, many buyers opted for interest-only loans and variable rate mortgages with little or no down payment because

What percentage of the total government expenditures of the United States is undertaken at the federal level?

What percentage of federal spending was financed by borrowing during 2009-2010?

Which of the following is an implication of the random walk theory?

The private sector cost of tax revenues is equal to the

Prolonged periods of monetary contraction, as was the case during the Great Depression, will likely result in

Which one of the following was a secondary effect of the stock market crash of 1929?

Which of the following was most responsible for bringing the Great Depression to an end?

Total government spending (federal, state, and local) sums to approximately

Discuss how size of government can negatively affect economic growth.

Suppose that monetary policy becomes more expansionary, and as a result, the future rate of inflation is higher. Will this be good for the stock market?

To the extent that current profits are directly related to future profits, a high price/earnings ratio would indicate that stocks are

In 1960, more than half (52 percent) of federal expenditures were for national defense. Today national defense accounts for approximately

Will a large quantity of bonds held in the Social Security Trust Fund make it easier to deal with the retirement of the baby boomers?

During the Great Depression of 1929-1933,

The net value to the federal government of the bonds currently held in the Social Security Trust Fund is

Does it ever make sense to purchase a stock that has never paid a dividend? Explain.

Which of the following would be the best strategy for a long-term investor wanting to earn an attractive rate of return?

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