Question 1

The bonds held in the Social Security Trust Fund

Accepted Answer

A)  are a valuable asset of the federal government. 
B)  will generate a future stream of net income for the federal government. 
C)  are an IOU from one government agency (the U.S. Treasury) to another (the Social Security Administration). 
D)  are necessary to provide retirement benefits for future retirees. 
A)  are a valuable asset of the federal government. 
B)  will generate a future stream of net income for the federal government. 
C)  are an IOU from one government agency (the U.S. Treasury) to another (the Social Security Administration). 
D)  are necessary to provide retirement benefits for future retirees.

Question 2

When the Social Security system enters its deficit years and the bonds held in the trust fund are drawn down,

Accepted Answer

A)  overall taxes will be reduced as the trust funds are used to pay benefits to retirees. 
B)  the payroll taxes used to finance Social Security benefits can be reduced because the trust funds will be sufficient to pay the retirement benefits of the baby boom generation. 
C)  taxes will have to be raised (or additional funds will have to be borrowed) in order to redeem the bonds held in the trust fund. 
D)  income taxes will have to be reduced in order to keep the revenues and expenditures of the Social Security system in balance. 
A)  overall taxes will be reduced as the trust funds are used to pay benefits to retirees. 
B)  the payroll taxes used to finance Social Security benefits can be reduced because the trust funds will be sufficient to pay the retirement benefits of the baby boom generation. 
C)  taxes will have to be raised (or additional funds will have to be borrowed) in order to redeem the bonds held in the trust fund. 
D)  income taxes will have to be reduced in order to keep the revenues and expenditures of the Social Security system in balance.

Question 3

How has the share of the personal income tax paid by the top 1 percent of earners and the bottom half of earners changed during the last four decades?

Accepted Answer

A)  The top 1 percent now pay a larger share and the bottom half of earners pay a smaller share of the personal income tax. 
B)  The top 1 percent now pay a smaller share and the bottom half of earners pay a larger share of the personal income tax. 
C)  The share of the personal income tax paid by the top 1 percent increased between 1960 and 1980, but the share of the revenues collected from the top 1 percent has declined sharply since 1980. 
D)  The relative shares paid by the top 1 percent and the bottom half of earners have been virtually unchanged during the last four decades. 
A)  The top 1 percent now pay a larger share and the bottom half of earners pay a smaller share of the personal income tax. 
B)  The top 1 percent now pay a smaller share and the bottom half of earners pay a larger share of the personal income tax. 
C)  The share of the personal income tax paid by the top 1 percent increased between 1960 and 1980, but the share of the revenues collected from the top 1 percent has declined sharply since 1980. 
D)  The relative shares paid by the top 1 percent and the bottom half of earners have been virtually unchanged during the last four decades.

Question 4

Which of the following is most central to the understanding of the economic crisis of 2008?

Accepted Answer

A)  The decline of the stock market in late 2007. 
B)  The housing boom (2001-2005) and bust (2007-2008). 
C)  The sharp rise in oil prices in 2008. 
D)  Unethical investment practices beginning in 2000. 
A)  The decline of the stock market in late 2007. 
B)  The housing boom (2001-2005) and bust (2007-2008). 
C)  The sharp rise in oil prices in 2008. 
D)  Unethical investment practices beginning in 2000.

Question 5

The Great Depression was an era marked by

Accepted Answer

A)  steady growth in GDP and a decline in the rate of unemployment. 
B)  a prolonged period of high unemployment and output substantially below its potential. 
C)  a large decline in the stock market followed by a steady recovery. 
D)  a failure of expansionary monetary policy to stimulate output and employment. 
A)  steady growth in GDP and a decline in the rate of unemployment. 
B)  a prolonged period of high unemployment and output substantially below its potential. 
C)  a large decline in the stock market followed by a steady recovery. 
D)  a failure of expansionary monetary policy to stimulate output and employment.

Question 6

If Apple Computer Corporation constitutes a sizeable share of your current stock holdings, the purchase of which of the following stocks would provide you with the greatest reduction in risk?

Accepted Answer

A)  Hewlett-Packard 
B)  IBM 
C)  Dell Computer Corporation 
D)  Wal-Mart 
A)  Hewlett-Packard 
B)  IBM 
C)  Dell Computer Corporation 
D)  Wal-Mart

Question 7

Which of the following is true?

Accepted Answer

A)  Most stockholders own stock because they want to participate in the daily decision making of the firms that they own. 
B)  The shareholders of a large well-established firm can be reasonably sure that they will earn a real rate of return of about 7 percent in the future. 
C)  The potential losses of shareholders are limited to the amount of their investment. 
D)  Ownership of a corporate bond provides the bondholder with an ownership right to a fraction of the firm's future profits. 
A)  Most stockholders own stock because they want to participate in the daily decision making of the firms that they own. 
B)  The shareholders of a large well-established firm can be reasonably sure that they will earn a real rate of return of about 7 percent in the future. 
C)  The potential losses of shareholders are limited to the amount of their investment. 
D)  Ownership of a corporate bond provides the bondholder with an ownership right to a fraction of the firm's future profits.

Question 8

Government expenditures for Social Security and unemployment benefits are examples of

Accepted Answer

A)  government consumption. 
B)  government investment. 
C)  government purchases. 
D)  transfer payments. 
A)  government consumption. 
B)  government investment. 
C)  government purchases. 
D)  transfer payments.

Question 9

A firm's stock price will be higher when the interest rate is ____ and the value of the firm's expected future profits are ____.

Accepted Answer

A)  lower; larger 
B)  lower; smaller 
C)  higher; larger 
D)  higher; smaller 
A)  lower; larger 
B)  lower; smaller 
C)  higher; larger 
D)  higher; smaller

Question 10

When the Social Security system begins running a deficit, the bonds in the trust fund will be drawn down. The funds to redeem these bonds will have to come from

Accepted Answer

A)  higher taxes, spending reductions in other programs, or additional government borrowing. 
B)  the surplus funds deposited in governmental banking accounts. 
C)  equity capital being liquidated. 
D)  the sale of private equities and securities that the government has been purchasing with the funds. 
A)  higher taxes, spending reductions in other programs, or additional government borrowing. 
B)  the surplus funds deposited in governmental banking accounts. 
C)  equity capital being liquidated. 
D)  the sale of private equities and securities that the government has been purchasing with the funds.

Question 11

When the current Social Security surpluses end and the bonds in the trust funds are reduced in order to make payments to retirees, the financing for the redemption of the trust fund bonds will come from

Accepted Answer

A)  higher taxes or more government borrowing. 
B)  the surplus funds deposited in government banking accounts. 
C)  equity capital being liquidated. 
D)  the sale of private equities and securities that the government has been purchasing with the funds. 
A)  higher taxes or more government borrowing. 
B)  the surplus funds deposited in government banking accounts. 
C)  equity capital being liquidated. 
D)  the sale of private equities and securities that the government has been purchasing with the funds.

Question 12

Most economists believe the severity and duration of the Great Depression was primarily the result of

Accepted Answer

A)  the large budget deficits of the federal government. 
B)  the reduction in tariffs and the influx of foreign imports during the early 1930s. 
C)  the excessive use of credit cards. 
D)  a sharp contraction in the money supply. 
A)  the large budget deficits of the federal government. 
B)  the reduction in tariffs and the influx of foreign imports during the early 1930s. 
C)  the excessive use of credit cards. 
D)  a sharp contraction in the money supply.

Question 13

Regarding stocks and bonds, which of the following is true?

Accepted Answer

A)  Bond owners are entitled to the fraction of the firm's future revenues represented by their ownership shares. 
B)  As long as the organization issuing the stock is solvent, the stockholder can count on the funds being repaid with interest. 
C)  Bonds provide businesses, governments, and other organizations with a convenient way to borrow money. 
D)  All of the above are true. 
A)  Bond owners are entitled to the fraction of the firm's future revenues represented by their ownership shares. 
B)  As long as the organization issuing the stock is solvent, the stockholder can count on the funds being repaid with interest. 
C)  Bonds provide businesses, governments, and other organizations with a convenient way to borrow money. 
D)  All of the above are true.

Question 14

Which of the following was a contributing factor to the housing boom and bust and the financial crisis of 2008?

Accepted Answer

A)  An increase in the share of loans to sub-prime borrowers. 
B)  An increase in the share of loans extended to borrowers making only a small down payment. 
C)  An increase in  adjustable-rate mortgages (ARMs) as a share of the total. 
D)  All of the above. 
A)  An increase in the share of loans to sub-prime borrowers. 
B)  An increase in the share of loans extended to borrowers making only a small down payment. 
C)  An increase in  adjustable-rate mortgages (ARMs) as a share of the total. 
D)  All of the above.

Question 15

OECD data for 1960 through 1999 indicates that a 10 percent increase in government expenditures as a percent of GDP

Accepted Answer

A)  increases economic growth by about 5 percent. 
B)  increases economic growth by about 2 percent. 
C)  has no effect on economic growth. 
D)  reduces economic growth by about 1 percent. 
A)  increases economic growth by about 5 percent. 
B)  increases economic growth by about 2 percent. 
C)  has no effect on economic growth. 
D)  reduces economic growth by about 1 percent.

Question 16

The National Industrial Recovery Act essentially legalized

Accepted Answer

A)  labor unions. 
B)  business cartels. 
C)  minimum wage laws. 
D)  import tariffs. 
A)  labor unions. 
B)  business cartels. 
C)  minimum wage laws. 
D)  import tariffs.

Question 17

As unemployment rose during 1930 through 1932 and the economy plunged into the Great Depression, policy makers

Accepted Answer

A)  reduced tax rates and increased the money supply. 
B)  increased tax rates and reduced the money supply. 
C)  increased both tax rates and the money supply. 
D)  reduced both the tax rates and the money supply. 
A)  reduced tax rates and increased the money supply. 
B)  increased tax rates and reduced the money supply. 
C)  increased both tax rates and the money supply. 
D)  reduced both the tax rates and the money supply.

Question 18

How much does it cost to tax a dollar of revenue away from the private sector and transfer it to the government to finance a government program?

Accepted Answer

A)  One dollar. 
B)  Less than one dollar because the administration of and compliance with the tax laws creates jobs for people. 
C)  More than a dollar because collection of the taxes requires resources that would otherwise be available for private sector production. 
D)  More than a dollar because of the excess burden resulting from the elimination of productive exchanges by the taxes. 
E)  Both c and d are correct. 
A)  One dollar. 
B)  Less than one dollar because the administration of and compliance with the tax laws creates jobs for people. 
C)  More than a dollar because collection of the taxes requires resources that would otherwise be available for private sector production. 
D)  More than a dollar because of the excess burden resulting from the elimination of productive exchanges by the taxes. 
E)  Both c and d are correct.

Question 19

A sub-prime loan is a loan extended to borrowers

Accepted Answer

A)  at a subsidized interest rate below the prime rate normally offered to the most creditworthy borrowers. 
B)  with blemished credit or limited documentation of their income, employment history, and other indicators of credit worthiness. 
C)  seeking a 30-year, fixed rate mortgage. 
D)  who have a FICO score above 660. 
A)  at a subsidized interest rate below the prime rate normally offered to the most creditworthy borrowers. 
B)  with blemished credit or limited documentation of their income, employment history, and other indicators of credit worthiness. 
C)  seeking a 30-year, fixed rate mortgage. 
D)  who have a FICO score above 660.

Question 20

Which of the following will tend to result in the least variation in the expected real rate of return from the ownership of stocks?

Accepted Answer

A)  ownership of a single stock for a short period of time 
B)  ownership of a single stock over a lengthy period of time 
C)  ownership of stocks from a specific sector (for example, the automobile industry) over a lengthy period of time 
D)  ownership of a diverse set of stocks (the Standard & Poor's 500, for example) over a lengthy period of time 
A)  ownership of a single stock for a short period of time 
B)  ownership of a single stock over a lengthy period of time 
C)  ownership of stocks from a specific sector (for example, the automobile industry) over a lengthy period of time 
D)  ownership of a diverse set of stocks (the Standard & Poor's 500, for example) over a lengthy period of time

The bonds held in the Social Security Trust Fund

When the Social Security system enters its deficit years and the bonds held in the trust fund are drawn down,

How has the share of the personal income tax paid by the top 1 percent of earners and the bottom half of earners changed during the last four decades?

Which of the following is most central to the understanding of the economic crisis of 2008?

The Great Depression was an era marked by

If Apple Computer Corporation constitutes a sizeable share of your current stock holdings, the purchase of which of the following stocks would provide you with the greatest reduction in risk?

Which of the following is true?

Government expenditures for Social Security and unemployment benefits are examples of

A firm's stock price will be higher when the interest rate is and the value of the firm's expected future profits are .

When the Social Security system begins running a deficit, the bonds in the trust fund will be drawn down. The funds to redeem these bonds will have to come from

When the current Social Security surpluses end and the bonds in the trust funds are reduced in order to make payments to retirees, the financing for the redemption of the trust fund bonds will come from

Most economists believe the severity and duration of the Great Depression was primarily the result of

Regarding stocks and bonds, which of the following is true?

Which of the following was a contributing factor to the housing boom and bust and the financial crisis of 2008?

OECD data for 1960 through 1999 indicates that a 10 percent increase in government expenditures as a percent of GDP

The National Industrial Recovery Act essentially legalized

As unemployment rose during 1930 through 1932 and the economy plunged into the Great Depression, policy makers

How much does it cost to tax a dollar of revenue away from the private sector and transfer it to the government to finance a government program?

A sub-prime loan is a loan extended to borrowers

Which of the following will tend to result in the least variation in the expected real rate of return from the ownership of stocks?

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 bonds held in the Social Security Trust Fund

When the Social Security system enters its deficit years and the bonds held in the trust fund are drawn down,

How has the share of the personal income tax paid by the top 1 percent of earners and the bottom half of earners changed during the last four decades?

Which of the following is most central to the understanding of the economic crisis of 2008?

The Great Depression was an era marked by

If Apple Computer Corporation constitutes a sizeable share of your current stock holdings, the purchase of which of the following stocks would provide you with the greatest reduction in risk?

Which of the following is true?

Government expenditures for Social Security and unemployment benefits are examples of

A firm's stock price will be higher when the interest rate is ____ and the value of the firm's expected future profits are ____.

When the Social Security system begins running a deficit, the bonds in the trust fund will be drawn down. The funds to redeem these bonds will have to come from

When the current Social Security surpluses end and the bonds in the trust funds are reduced in order to make payments to retirees, the financing for the redemption of the trust fund bonds will come from

Most economists believe the severity and duration of the Great Depression was primarily the result of

Regarding stocks and bonds, which of the following is true?

Which of the following was a contributing factor to the housing boom and bust and the financial crisis of 2008?

OECD data for 1960 through 1999 indicates that a 10 percent increase in government expenditures as a percent of GDP

The National Industrial Recovery Act essentially legalized

As unemployment rose during 1930 through 1932 and the economy plunged into the Great Depression, policy makers

How much does it cost to tax a dollar of revenue away from the private sector and transfer it to the government to finance a government program?

A sub-prime loan is a loan extended to borrowers

Which of the following will tend to result in the least variation in the expected real rate of return from the ownership of stocks?

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

A firm's stock price will be higher when the interest rate is and the value of the firm's expected future profits are .