Question 1

The random walk theory indicates that

Accepted Answer

A)  investors can make money by purchasing stocks that are widely expected to earn substantial profits in the future. 
B)  while changes in the prices of specific stocks are difficult to predict, experts are able to forecast the future direction of broad stock market indexes with a high degree of accuracy. 
C)  changes in stock prices are driven by surprise occurrences that are difficult for anyone to predict accurately. 
D)  managed mutual funds will persistently outperform indexed funds. 
A)  investors can make money by purchasing stocks that are widely expected to earn substantial profits in the future. 
B)  while changes in the prices of specific stocks are difficult to predict, experts are able to forecast the future direction of broad stock market indexes with a high degree of accuracy. 
C)  changes in stock prices are driven by surprise occurrences that are difficult for anyone to predict accurately. 
D)  managed mutual funds will persistently outperform indexed funds.

Question 2

The structure of the Social Security system is particularly advantageous to

Accepted Answer

A)  blacks. 
B)  those with life shortening diseases such as diabetes. 
C)  groups with below average earnings and above average life expectancy. 
D)  groups with above average earnings and below average life expectancy. 
A)  blacks. 
B)  those with life shortening diseases such as diabetes. 
C)  groups with below average earnings and above average life expectancy. 
D)  groups with above average earnings and below average life expectancy.

Question 3

During the last 20 years, what has happened to the marginal tax rates imposed on high-income taxpayers and the personal income tax revenues collected from them?

Accepted Answer

A)  Both the rates imposed and the revenues collected from the rich have increased. 
B)  Both the rates imposed and the revenues collected from the rich have declined. 
C)  The tax rates imposed on the rich have declined, but the revenues collected from them have increased. 
D)  The tax rates imposed on the rich have increased, but the revenues collected from them have declined. 
A)  Both the rates imposed and the revenues collected from the rich have increased. 
B)  Both the rates imposed and the revenues collected from the rich have declined. 
C)  The tax rates imposed on the rich have declined, but the revenues collected from them have increased. 
D)  The tax rates imposed on the rich have increased, but the revenues collected from them have declined.

Question 4

Consider a stock with a 50 percent probability of zero net earnings and a 50 percent probability of net earnings equal to $20 per share each year continuously in the future. Furthermore, assume that people are risk averse. That is, they will have to be compensated for uncertainty accompanying variation in their future wealth. If the interest rate were 5 percent, how much would people be willing to pay for a share of this stock?

Accepted Answer

A)  $10 
B)  $200 
C)  less than $200 
D)  more than $200 
E)  $400 
A)  $10 
B)  $200 
C)  less than $200 
D)  more than $200 
E)  $400

Question 5

Measured as a share of the economy, government spending

Accepted Answer

A)  has been between 10 and 15 percent of the U.S. economy since 1930. 
B)  has been between 20 and 25 percent of the U.S. economy since 1930. 
C)  rose from less than 10 percent in 1929 to approximately 40 percent in the most recent fiscal year. 
D)  declined from more than 50 percent in 1929 to approximately 25 percent in the most recent fiscal year. 
A)  has been between 10 and 15 percent of the U.S. economy since 1930. 
B)  has been between 20 and 25 percent of the U.S. economy since 1930. 
C)  rose from less than 10 percent in 1929 to approximately 40 percent in the most recent fiscal year. 
D)  declined from more than 50 percent in 1929 to approximately 25 percent in the most recent fiscal year.

Question 6

In 1980, the top 1 percent of earners paid 19.1 percent of the federal personal income tax. By 2013, the share of this tax collected from the top 1 percent of earners

Accepted Answer

A)  had declined to less than 15 percent. 
B)  was still slightly less than 20 percent. 
C)  had risen to approximately 25 percent. 
D)  had risen to over 35 percent. 
A)  had declined to less than 15 percent. 
B)  was still slightly less than 20 percent. 
C)  had risen to approximately 25 percent. 
D)  had risen to over 35 percent.

Question 7

Which of the following describes the relationship between interest rates and interest-sensitive goods, such as housing?

Accepted Answer

A)  As interest rates decline, the demand for interest-sensitive goods increases. 
B)  As interest rates decline, the demand for interest-sensitive goods decreases. 
C)  As interest rates increase, the demand for interest-sensitive goods increases, driving prices upward. 
D)  As interest rates increase, the demand for interest-sensitive goods decreases, driving prices upward. 
A)  As interest rates decline, the demand for interest-sensitive goods increases. 
B)  As interest rates decline, the demand for interest-sensitive goods decreases. 
C)  As interest rates increase, the demand for interest-sensitive goods increases, driving prices upward. 
D)  As interest rates increase, the demand for interest-sensitive goods decreases, driving prices upward.

Question 8

In 2008-2009, which of the following weakened the demand stimulus effects of expansionary fiscal policy?

Accepted Answer

A)  The unwillingness of the federal government to run budget deficits. 
B)  The heavy indebtedness of American households. 
C)  A high level of household spending on big-ticket items such as houses and cars, which do not promote economic growth. 
D)  The continuation of the high saving rates on the part of Americans. 
A)  The unwillingness of the federal government to run budget deficits. 
B)  The heavy indebtedness of American households. 
C)  A high level of household spending on big-ticket items such as houses and cars, which do not promote economic growth. 
D)  The continuation of the high saving rates on the part of Americans.

Question 9

The Social Security system is currently generating tax revenues that exceed the benefits paid to recipients. This surplus is

Accepted Answer

A)  being invested in foreign bonds, which will provide Americans with a source of income when the baby boom generation retires. 
B)  separated from other government revenue so politicians will not spend the money during the current period. 
C)  being channeled into earmarked private savings accounts. 
D)  invested in government bonds, the redemption of which will require an increase in taxes (or additional Treasury borrowing). 
A)  being invested in foreign bonds, which will provide Americans with a source of income when the baby boom generation retires. 
B)  separated from other government revenue so politicians will not spend the money during the current period. 
C)  being channeled into earmarked private savings accounts. 
D)  invested in government bonds, the redemption of which will require an increase in taxes (or additional Treasury borrowing).

Question 10

An analysis of housing prices between 1987 and 2008 indicates that prices

Accepted Answer

A)  increased sharply in the five years leading up to the housing bust in 2007. 
B)  were relatively stable before dropping sharply in 2001. 
C)  rose steadily during the 1990s, but declined sharply beginning in 2001. 
D)  were erratic, but there was no discernable trend during either the 1990s or 2000-2006. 
A)  increased sharply in the five years leading up to the housing bust in 2007. 
B)  were relatively stable before dropping sharply in 2001. 
C)  rose steadily during the 1990s, but declined sharply beginning in 2001. 
D)  were erratic, but there was no discernable trend during either the 1990s or 2000-2006.

Question 11

During 1979-2005, the mortgage default rate

Accepted Answer

A)  was less than the foreclosure rate. 
B)  soared to more than 5 percent during recessions but declined sharply during economic expansions. 
C)  soared to more than 5 percent during expansions but declined sharply during economic recessions. 
D)  was generally between 1 and 2 percent. 
A)  was less than the foreclosure rate. 
B)  soared to more than 5 percent during recessions but declined sharply during economic expansions. 
C)  soared to more than 5 percent during expansions but declined sharply during economic recessions. 
D)  was generally between 1 and 2 percent.

Question 12

The random walk theory of stock prices indicates that

Accepted Answer

A)  if they are willing to do a little research, even beginning investors will be able to pick the stocks that will increase most in price in the future. 
B)  managed mutual funds will persistently earn a higher rate of return than indexed funds. 
C)  current stock prices already reflect information about factors influencing future stock prices that can be forecast with any degree of accuracy. 
D)  stock market investors can expect to earn a steady real rate of return of about 7 percent annually. 
A)  if they are willing to do a little research, even beginning investors will be able to pick the stocks that will increase most in price in the future. 
B)  managed mutual funds will persistently earn a higher rate of return than indexed funds. 
C)  current stock prices already reflect information about factors influencing future stock prices that can be forecast with any degree of accuracy. 
D)  stock market investors can expect to earn a steady real rate of return of about 7 percent annually.

Question 13

During the 1970s, the price/earnings ratio of stocks in the S&P 500 was relatively low. This low P/E ratio was

Accepted Answer

A)  surprising because the inflation rate was high during the 1970s. 
B)  not surprising because interest rates were low during the inflationary 1970s. 
C)  not surprising because interest rates were high during the inflationary 1970s. 
D)  surprising because the inflation rate was low during the 1970s. 
A)  surprising because the inflation rate was high during the 1970s. 
B)  not surprising because interest rates were low during the inflationary 1970s. 
C)  not surprising because interest rates were high during the inflationary 1970s. 
D)  surprising because the inflation rate was low during the 1970s.

Question 14

Why do nations impose trade barriers, such as those instituted during the Great Depression, that make it difficult for their own citizens to trade with people in other countries?

Accepted Answer

A)  Trade restrictions are a good way for a country to increase the total employment and income level of its citizens. 
B)  As the experience during the 1930s illustrates, trade restrictions are an effective way to increase exports and tax revenues. 
C)  Trade restrictions provide gains to domestic residents at the expense of foreigners. 
D)  Trade restrictions often provide benefits to highly visible special interest groups while imposing a less visible cost on the general populace. 
A)  Trade restrictions are a good way for a country to increase the total employment and income level of its citizens. 
B)  As the experience during the 1930s illustrates, trade restrictions are an effective way to increase exports and tax revenues. 
C)  Trade restrictions provide gains to domestic residents at the expense of foreigners. 
D)  Trade restrictions often provide benefits to highly visible special interest groups while imposing a less visible cost on the general populace.

Question 15

When overall production is taken into account, trade restrictions, such as those enacted by the Smoot-Hawley trade bill,

Accepted Answer

A)  save good paying jobs. 
B)  neither create nor destroy jobs; they reallocate them. 
C)  increase employment in the domestic industries that are most productive. 
D)  reduce imports, without affecting the volume of exports. 
A)  save good paying jobs. 
B)  neither create nor destroy jobs; they reallocate them. 
C)  increase employment in the domestic industries that are most productive. 
D)  reduce imports, without affecting the volume of exports.

Question 16

Since 2002, the Fed has shifted to expansionary monetary policy, then to restrictive policy, and then back to expansionary monetary policy. Policy shifts of this type are most likely to

Accepted Answer

A)  promote economic stability and stimulate employment. 
B)  keep the general level of prices relatively stable because the periods of restrictive policy will just offset the periods of expansion. 
C)  help promote economic stability because changes in monetary policy can be counted on to exert a predictable impact on the economy quickly. 
D)  promote instability because the time lags of monetary policy are long and variable. 
A)  promote economic stability and stimulate employment. 
B)  keep the general level of prices relatively stable because the periods of restrictive policy will just offset the periods of expansion. 
C)  help promote economic stability because changes in monetary policy can be counted on to exert a predictable impact on the economy quickly. 
D)  promote instability because the time lags of monetary policy are long and variable.

Question 17

Increased spending on which of the following items is most likely to increase the size of government during the years following 2016?

Accepted Answer

A)  education 
B)  Social Security and Medicare 
C)  agricultural subsidies 
D)  transportation (roads and airports) 
A)  education 
B)  Social Security and Medicare 
C)  agricultural subsidies 
D)  transportation (roads and airports)

Question 18

The current Social Security System surplus of revenues relative to expenditures is used to purchase

Accepted Answer

A)  U.S. Treasury bonds. 
B)  bonds issued by domestic corporations. 
C)  U.S. stock. 
D)  U.S. and foreign stock. 
A)  U.S. Treasury bonds. 
B)  bonds issued by domestic corporations. 
C)  U.S. stock. 
D)  U.S. and foreign stock.

Question 19

What prompted the large increase in tax rates in 1932 in the midst of an economic recession?

Accepted Answer

A)  Concern that inflation would rise due to increases in real output and aggregate demand. 
B)  Expansionary fiscal policy designed to stimulate aggregate demand. 
C)  The Keynesian view that taxes should be increased during a recession. 
D)  The view that the federal government should maintain a balanced budget. 
A)  Concern that inflation would rise due to increases in real output and aggregate demand. 
B)  Expansionary fiscal policy designed to stimulate aggregate demand. 
C)  The Keynesian view that taxes should be increased during a recession. 
D)  The view that the federal government should maintain a balanced budget.

Question 20

Which of the following accurately describes the relationship between mortgage default rates and the 2008 recession?

Accepted Answer

A)  The recession of 2008 triggered the initial increase in the mortgage default rate. 
B)  The rise in the mortgage default rate preceded the recession and it was a major cause of the 2008 economic downturn. 
C)  Both the increase in the mortgage default rate and the economic recession were the result of the stock market crash of 2008. 
D)  The rise in the mortgage default rate and the economic recession were separate issues and there was no relationship between the two. 
A)  The recession of 2008 triggered the initial increase in the mortgage default rate. 
B)  The rise in the mortgage default rate preceded the recession and it was a major cause of the 2008 economic downturn. 
C)  Both the increase in the mortgage default rate and the economic recession were the result of the stock market crash of 2008. 
D)  The rise in the mortgage default rate and the economic recession were separate issues and there was no relationship between the two.

The random walk theory indicates that

The structure of the Social Security system is particularly advantageous to

During the last 20 years, what has happened to the marginal tax rates imposed on high-income taxpayers and the personal income tax revenues collected from them?

Measured as a share of the economy, government spending

In 1980, the top 1 percent of earners paid 19.1 percent of the federal personal income tax. By 2013, the share of this tax collected from the top 1 percent of earners

Which of the following describes the relationship between interest rates and interest-sensitive goods, such as housing?

In 2008-2009, which of the following weakened the demand stimulus effects of expansionary fiscal policy?

The Social Security system is currently generating tax revenues that exceed the benefits paid to recipients. This surplus is

An analysis of housing prices between 1987 and 2008 indicates that prices

During 1979-2005, the mortgage default rate

The random walk theory of stock prices indicates that

During the 1970s, the price/earnings ratio of stocks in the S&P 500 was relatively low. This low P/E ratio was

Why do nations impose trade barriers, such as those instituted during the Great Depression, that make it difficult for their own citizens to trade with people in other countries?

When overall production is taken into account, trade restrictions, such as those enacted by the Smoot-Hawley trade bill,

Since 2002, the Fed has shifted to expansionary monetary policy, then to restrictive policy, and then back to expansionary monetary policy. Policy shifts of this type are most likely to

Increased spending on which of the following items is most likely to increase the size of government during the years following 2016?

The current Social Security System surplus of revenues relative to expenditures is used to purchase

What prompted the large increase in tax rates in 1932 in the midst of an economic recession?

Which of the following accurately describes the relationship between mortgage default rates and the 2008 recession?

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

The random walk theory indicates that

The structure of the Social Security system is particularly advantageous to

During the last 20 years, what has happened to the marginal tax rates imposed on high-income taxpayers and the personal income tax revenues collected from them?

Measured as a share of the economy, government spending

In 1980, the top 1 percent of earners paid 19.1 percent of the federal personal income tax. By 2013, the share of this tax collected from the top 1 percent of earners

Which of the following describes the relationship between interest rates and interest-sensitive goods, such as housing?

In 2008-2009, which of the following weakened the demand stimulus effects of expansionary fiscal policy?

The Social Security system is currently generating tax revenues that exceed the benefits paid to recipients. This surplus is

An analysis of housing prices between 1987 and 2008 indicates that prices

During 1979-2005, the mortgage default rate

The random walk theory of stock prices indicates that

During the 1970s, the price/earnings ratio of stocks in the S&P 500 was relatively low. This low P/E ratio was

Why do nations impose trade barriers, such as those instituted during the Great Depression, that make it difficult for their own citizens to trade with people in other countries?

When overall production is taken into account, trade restrictions, such as those enacted by the Smoot-Hawley trade bill,

Since 2002, the Fed has shifted to expansionary monetary policy, then to restrictive policy, and then back to expansionary monetary policy. Policy shifts of this type are most likely to

Increased spending on which of the following items is most likely to increase the size of government during the years following 2016?

The current Social Security System surplus of revenues relative to expenditures is used to purchase

What prompted the large increase in tax rates in 1932 in the midst of an economic recession?

Which of the following accurately describes the relationship between mortgage default rates and the 2008 recession?

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