Question 1

Which of the following would be most likely to cause the price/earnings ratio of stocks to rise?

Accepted Answer

A)  the expectation of a recession in the near future 
B)  the expectation of inflation in the near future 
C)  higher interest rates 
D)  lower interest rates 
A)  the expectation of a recession in the near future 
B)  the expectation of inflation in the near future 
C)  higher interest rates 
D)  lower interest rates

Question 2

The random walk theory implies that stock prices

Accepted Answer

A)  go down, then up, and then down again. 
B)  go up and then down in a predictable pattern. 
C)  follow systematic trends. 
D)  are unpredictable based on past trends. 
A)  go down, then up, and then down again. 
B)  go up and then down in a predictable pattern. 
C)  follow systematic trends. 
D)  are unpredictable based on past trends.

Question 3

The increase in the share of loans extended to borrowers with little or no down payment contributed to the financial crisis of 2008 because these loans

Accepted Answer

A)  initially  depressed housing prices. 
B)  were extended only to borrowers with prime credit status. 
C)  had much higher default rates than loans to borrowers making larger down payments. 
D)  were unavailable to low-income borrowers, who would have profited the most from such loans. 
A)  initially  depressed housing prices. 
B)  were extended only to borrowers with prime credit status. 
C)  had much higher default rates than loans to borrowers making larger down payments. 
D)  were unavailable to low-income borrowers, who would have profited the most from such loans.

Question 4

Investment in a broad portfolio of stocks is most attractive for

Accepted Answer

A)  short-term investors. 
B)  long-term investors. 
C)  investors seeking a steady rate of return. 
D)  investors who will need the funds for other purposes in about 10 years. 
A)  short-term investors. 
B)  long-term investors. 
C)  investors seeking a steady rate of return. 
D)  investors who will need the funds for other purposes in about 10 years.

Question 5

Economic analysis indicates that the monetary policy of the 1930s, which shifted back and forth between restrictive monetary policy and expansionary monetary policy, would likely result in

Accepted Answer

A)  economic stability and growth in real levels of output. 
B)  keeping the general level of prices relatively stable because the periods of restrictive policy would just offset the periods of expansion. 
C)  an environment of uncertainty, which would lead to economic instability. 
D)  economic stability, because changes in monetary policy can be counted on to exert a predictable impact on the economy quickly. 
A)  economic stability and growth in real levels of output. 
B)  keeping the general level of prices relatively stable because the periods of restrictive policy would just offset the periods of expansion. 
C)  an environment of uncertainty, which would lead to economic instability. 
D)  economic stability, because changes in monetary policy can be counted on to exert a predictable impact on the economy quickly.

Question 6

Government expenditures as a share of the U.S. economy are

Accepted Answer

A)  the largest in the world. 
B)  the smallest in the world. 
C)  smaller than most Western European countries but larger than a number of high-growth Asian economies. 
D)  larger than Canada, France, and the United Kingdom but slightly smaller than Germany and Italy. 
A)  the largest in the world. 
B)  the smallest in the world. 
C)  smaller than most Western European countries but larger than a number of high-growth Asian economies. 
D)  larger than Canada, France, and the United Kingdom but slightly smaller than Germany and Italy.

Question 7

Which of the following about Social Security is true?

Accepted Answer

A)  Labor participation tends to increase as spousal earnings increase. 
B)  Social Security works to the disadvantage of low-wage workers due to their shorter life expectancy. 
C)  Low-wage workers derive a higher rate of return from their Social Security taxes than high-wage workers. 
D)  High-wage workers generally begin full-time work at younger ages than low-wage workers. 
A)  Labor participation tends to increase as spousal earnings increase. 
B)  Social Security works to the disadvantage of low-wage workers due to their shorter life expectancy. 
C)  Low-wage workers derive a higher rate of return from their Social Security taxes than high-wage workers. 
D)  High-wage workers generally begin full-time work at younger ages than low-wage workers.

Question 8

Did the fiscal policy of the 1930s bring an end to the Great Depression?

Accepted Answer

A)  No, government spending and budget deficits as a share of GDP were relatively small during the 1930s, and there is little evidence that fiscal policy did much to stimulate output. 
B)  No, even though budget deficits steadily rose from 2 percent of GDP in the early 1930s to more than 10 percent of GDP in 1939, this expansionary fiscal policy had little effect on output. 
C)  Yes, even though the spending programs of the New Deal led to budget deficits, they also led to a steady reduction in the rate of unemployment during the latter half of the 1930s. 
D)  Yes, the fiscal policy that kept the federal budget balanced throughout the 1930s created a stable business climate and eventually stimulated investment. 
A)  No, government spending and budget deficits as a share of GDP were relatively small during the 1930s, and there is little evidence that fiscal policy did much to stimulate output. 
B)  No, even though budget deficits steadily rose from 2 percent of GDP in the early 1930s to more than 10 percent of GDP in 1939, this expansionary fiscal policy had little effect on output. 
C)  Yes, even though the spending programs of the New Deal led to budget deficits, they also led to a steady reduction in the rate of unemployment during the latter half of the 1930s. 
D)  Yes, the fiscal policy that kept the federal budget balanced throughout the 1930s created a stable business climate and eventually stimulated investment.

Question 9

Which of the following is true about government spending?

Accepted Answer

A)  Real federal spending per person was approximately 50 times higher in 1900 than 1800. 
B)  Real federal spending per person was approximately 75 times higher in the most recent fiscal year than 1916. 
C)  Real federal spending per person grew slowly under the Reagan Administration during the 1980s, but it increased rapidly under the Clinton administration in the 1990s. 
D)  In recent years, government expenditures at the state and local levels have been greater than government spending at the federal level. 
A)  Real federal spending per person was approximately 50 times higher in 1900 than 1800. 
B)  Real federal spending per person was approximately 75 times higher in the most recent fiscal year than 1916. 
C)  Real federal spending per person grew slowly under the Reagan Administration during the 1980s, but it increased rapidly under the Clinton administration in the 1990s. 
D)  In recent years, government expenditures at the state and local levels have been greater than government spending at the federal level.

Question 10

Jane is a 22-year-old college graduate. She has just started working at a job that pays her $75,000 per year. Since you have had an economics course, Jane asks you for advice on where to invest the money she is saving for her retirement. What do you recommend?

Accepted Answer

History indicates that the stock market

Question 11

Buying shares of corporate stock tends to be more risky when

Accepted Answer

A)  the stock of a single corporation is purchased. 
B)  the stock may have to be sold within a few months. 
C)  all stocks bought are in the same industry. 
D)  all of the above are true. 
A)  the stock of a single corporation is purchased. 
B)  the stock may have to be sold within a few months. 
C)  all stocks bought are in the same industry. 
D)  all of the above are true.

Question 12

The payments made to the beneficiaries of the Social Security program are financed by

Accepted Answer

A)  insurance premiums previously paid into the system by the beneficiaries. 
B)  current receipts derived from the Social Security payroll tax. 
C)  income derived from funds that were previously invested in stocks and bonds. 
D)  governmental savings accounts based on the amount of funds the recipient previously paid into the system. 
A)  insurance premiums previously paid into the system by the beneficiaries. 
B)  current receipts derived from the Social Security payroll tax. 
C)  income derived from funds that were previously invested in stocks and bonds. 
D)  governmental savings accounts based on the amount of funds the recipient previously paid into the system.

Question 13

Fannie Mae and Freddie Mac's dominance of the secondary mortgage market during 1995-2008 encouraged mortgage originators to

Accepted Answer

A)  extend only 30-year, fixed-rate mortgages. 
B)  require higher down payments in order to obtain a home mortgage. 
C)  loosen lending standards as long as the mortgages were  acceptable to Fannie Mae and Freddie Mac. 
D)  scrutinize the credit-worthiness of borrowers more carefully. 
A)  extend only 30-year, fixed-rate mortgages. 
B)  require higher down payments in order to obtain a home mortgage. 
C)  loosen lending standards as long as the mortgages were  acceptable to Fannie Mae and Freddie Mac. 
D)  scrutinize the credit-worthiness of borrowers more carefully.

Question 14

The market for new issues of stock is called the

Accepted Answer

A)  primary market. 
B)  secondary market. 
C)  The New York Stock Exchange (NYS
E) . 
D)  The Chicago Board of Trade. 
A)  primary market. 
B)  secondary market. 
C)  The New York Stock Exchange (NYS
E) . 
D)  The Chicago Board of Trade.

Question 15

Analysis of the Great Depression indicates that

Accepted Answer

A)  even though monetary and fiscal policies were highly expansionary, they were unable to offset the economic plunge. 
B)  even though monetary policy was expansionary, restrictive fiscal policy dominated during the 1930s. 
C)  a reduction in tax rates could not prevent the economic downturn from spiraling into a depression. 
D)  the severity of the economic decline, if not its onset, was the result of perverse monetary, fiscal and regulatory  policies. 
A)  even though monetary and fiscal policies were highly expansionary, they were unable to offset the economic plunge. 
B)  even though monetary policy was expansionary, restrictive fiscal policy dominated during the 1930s. 
C)  a reduction in tax rates could not prevent the economic downturn from spiraling into a depression. 
D)  the severity of the economic decline, if not its onset, was the result of perverse monetary, fiscal and regulatory  policies.

Question 16

The Agriculture Adjustment Act of the Roosevelt Administration attempted to boost prices of agriculture products by

Accepted Answer

A)  increasing the money supply from year to year at a constant rate. 
B)  decreasing the money supply through a policy of monetary contraction. 
C)  increasing demand through lower taxes and budget deficits. 
D)  reducing supply through the planned destruction of agricultural crops and livestock. 
A)  increasing the money supply from year to year at a constant rate. 
B)  decreasing the money supply through a policy of monetary contraction. 
C)  increasing demand through lower taxes and budget deficits. 
D)  reducing supply through the planned destruction of agricultural crops and livestock.

Question 17

The Agricultural Adjustment Act, passed in 1933, was an effort to

Accepted Answer

A)  keep agricultural prices high by increasing supply. 
B)  keep agricultural prices low by increasing supply. 
C)  keep agricultural prices high by decreasing supply. 
D)  keep agricultural prices low by decreasing supply. 
A)  keep agricultural prices high by increasing supply. 
B)  keep agricultural prices low by increasing supply. 
C)  keep agricultural prices high by decreasing supply. 
D)  keep agricultural prices low by decreasing supply.

Question 18

If the interest rate were 5 percent, how much would people be willing to pay for a stock that was certain to yield a $10 per share stream of net earnings continuously in the future?

Accepted Answer

A)  $10 
B)  $20 
C)  $200 
D)  $400 
E)  $2,000 
A)  $10 
B)  $20 
C)  $200 
D)  $400 
E)  $2,000

Question 19

The Social Security program is primarily a

Accepted Answer

A)  compulsory retirement income program set up on sound insurance principles. 
B)  forced-savings program where workers save during their working years and receive the principal and interest on these savings at retirement. 
C)  program designed to tax current workers in order to provide benefits for current retirees. 
D)  voluntary savings program run by the government. 
A)  compulsory retirement income program set up on sound insurance principles. 
B)  forced-savings program where workers save during their working years and receive the principal and interest on these savings at retirement. 
C)  program designed to tax current workers in order to provide benefits for current retirees. 
D)  voluntary savings program run by the government.

Question 20

When the number of families with someone employed by the government is added to those receiving income from transfer programs, the share of American families receiving income from the government is

Accepted Answer

A)  less than 20 percent 
B)  approximately 50 percent of the total 
C)  approximately 62 percent of the total 
D)  a little more than 75 percent of the total 
A)  less than 20 percent 
B)  approximately 50 percent of the total 
C)  approximately 62 percent of the total 
D)  a little more than 75 percent of the total

Which of the following would be most likely to cause the price/earnings ratio of stocks to rise?

The random walk theory implies that stock prices

The increase in the share of loans extended to borrowers with little or no down payment contributed to the financial crisis of 2008 because these loans

Investment in a broad portfolio of stocks is most attractive for

Economic analysis indicates that the monetary policy of the 1930s, which shifted back and forth between restrictive monetary policy and expansionary monetary policy, would likely result in

Government expenditures as a share of the U.S. economy are

Which of the following about Social Security is true?

Did the fiscal policy of the 1930s bring an end to the Great Depression?

Which of the following is true about government spending?

Jane is a 22-year-old college graduate. She has just started working at a job that pays her $75,000 per year. Since you have had an economics course, Jane asks you for advice on where to invest the money she is saving for her retirement. What do you recommend?

Buying shares of corporate stock tends to be more risky when

The payments made to the beneficiaries of the Social Security program are financed by

Fannie Mae and Freddie Mac's dominance of the secondary mortgage market during 1995-2008 encouraged mortgage originators to

The market for new issues of stock is called the

Analysis of the Great Depression indicates that

The Agriculture Adjustment Act of the Roosevelt Administration attempted to boost prices of agriculture products by

The Agricultural Adjustment Act, passed in 1933, was an effort to

If the interest rate were 5 percent, how much would people be willing to pay for a stock that was certain to yield a $10 per share stream of net earnings continuously in the future?

The Social Security program is primarily a

When the number of families with someone employed by the government is added to those receiving income from transfer programs, the share of American families receiving income from the government is

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

Which of the following would be most likely to cause the price/earnings ratio of stocks to rise?

The random walk theory implies that stock prices

The increase in the share of loans extended to borrowers with little or no down payment contributed to the financial crisis of 2008 because these loans

Investment in a broad portfolio of stocks is most attractive for

Economic analysis indicates that the monetary policy of the 1930s, which shifted back and forth between restrictive monetary policy and expansionary monetary policy, would likely result in

Government expenditures as a share of the U.S. economy are

Which of the following about Social Security is true?

Did the fiscal policy of the 1930s bring an end to the Great Depression?

Which of the following is true about government spending?

Jane is a 22-year-old college graduate. She has just started working at a job that pays her $75,000 per year. Since you have had an economics course, Jane asks you for advice on where to invest the money she is saving for her retirement. What do you recommend?

Buying shares of corporate stock tends to be more risky when

The payments made to the beneficiaries of the Social Security program are financed by

Fannie Mae and Freddie Mac's dominance of the secondary mortgage market during 1995-2008 encouraged mortgage originators to

The market for new issues of stock is called the

Analysis of the Great Depression indicates that

The Agriculture Adjustment Act of the Roosevelt Administration attempted to boost prices of agriculture products by

The Agricultural Adjustment Act, passed in 1933, was an effort to

If the interest rate were 5 percent, how much would people be willing to pay for a stock that was certain to yield a $10 per share stream of net earnings continuously in the future?

The Social Security program is primarily a

When the number of families with someone employed by the government is added to those receiving income from transfer programs, the share of American families receiving income from the government is

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