Question 1

Stock market analysts often argue that lower interest rates are good for the stock market. Does this argument make sense?

Accepted Answer

A)  No; lower interest rates will tend to slow down the economy, and this will be bad for the stock market. 
B)  Yes; the lower rates of interest will increase the value of future income (and capital gains), and stock prices will rise to reflect this factor. 
C)  No; the lower rates of interest will reduce the value of future income (and capital gains), and this will cause stock prices to fall. 
D)  Yes; the lower interest rates will cause inflation, and inflation is generally good for the stock market. 
A)  No; lower interest rates will tend to slow down the economy, and this will be bad for the stock market. 
B)  Yes; the lower rates of interest will increase the value of future income (and capital gains), and stock prices will rise to reflect this factor. 
C)  No; the lower rates of interest will reduce the value of future income (and capital gains), and this will cause stock prices to fall. 
D)  Yes; the lower interest rates will cause inflation, and inflation is generally good for the stock market.

Question 2

Which of the following was a result of the many programs introduced as part of the New Deal?

Accepted Answer

A)  A business environment of uncertainty that reduced output and investment. 
B)  A speeding up of the economic recovery process once these programs were enacted. 
C)  An increase in trade, investment, and output within the business sector. 
D)  A steady decline in the unemployment rate. 
A)  A business environment of uncertainty that reduced output and investment. 
B)  A speeding up of the economic recovery process once these programs were enacted. 
C)  An increase in trade, investment, and output within the business sector. 
D)  A steady decline in the unemployment rate.

Question 3

During the last two centuries, after adjustment for inflation,

Accepted Answer

A)  corporate bonds have yielded a real return of approximately 7 percent annually, compared to a real return of about 3 percent for corporate stocks. 
B)  corporate stocks have yielded a real return of approximately 7 percent annually, compared to a real return of about 3 percent for bonds. 
C)  both corporate stocks and bonds have yielded a real rate of return of about 3 percent. 
D)  both corporate stocks and bonds have yielded a real rate of return of about 7 percent. 
A)  corporate bonds have yielded a real return of approximately 7 percent annually, compared to a real return of about 3 percent for corporate stocks. 
B)  corporate stocks have yielded a real return of approximately 7 percent annually, compared to a real return of about 3 percent for bonds. 
C)  both corporate stocks and bonds have yielded a real rate of return of about 3 percent. 
D)  both corporate stocks and bonds have yielded a real rate of return of about 7 percent.

Question 4

Historically, which of the following has had the highest average annual rate of return?

Accepted Answer

A)  corporate bonds 
B)  money market mutual funds 
C)  corporate stocks 
D)  U.S. Treasury bonds 
A)  corporate bonds 
B)  money market mutual funds 
C)  corporate stocks 
D)  U.S. Treasury bonds

Question 5

According to the data, was the stock-market crash of 1929 the primary cause of the Great Depression?

Accepted Answer

A)  No, the Great Depression actually began two years before the stock market crash of 1929. 
B)  Yes, after the stock market crash of October 1929 the market never recovered until the depression came to an end a decade later. 
C)  Yes, sharp reductions in stock prices like that of 1929 always result in prolonged depressions. 
D)  No, the stock market actually recovered to the level of October 1929 during the five months following the crash. 
A)  No, the Great Depression actually began two years before the stock market crash of 1929. 
B)  Yes, after the stock market crash of October 1929 the market never recovered until the depression came to an end a decade later. 
C)  Yes, sharp reductions in stock prices like that of 1929 always result in prolonged depressions. 
D)  No, the stock market actually recovered to the level of October 1929 during the five months following the crash.

Question 6

Stock analysts often argue that lower interest rates are good for the stock market. Does this argument make sense?

Accepted Answer

A)  No; lower interest rates will tend to slow down the economy and this will be bad for the stock market. 
B)  Yes; the lower rates of interest will increase the value of future income (and capital gains) and stock prices will rise to reflect this factor. 
C)  No; the lower rates of interest will reduce the value of future income (and capital gains) and this will cause stock prices to fall. 
D)  Yes; the lower interest rates will cause inflation and inflation is generally good for the stock market. 
A)  No; lower interest rates will tend to slow down the economy and this will be bad for the stock market. 
B)  Yes; the lower rates of interest will increase the value of future income (and capital gains) and stock prices will rise to reflect this factor. 
C)  No; the lower rates of interest will reduce the value of future income (and capital gains) and this will cause stock prices to fall. 
D)  Yes; the lower interest rates will cause inflation and inflation is generally good for the stock market.

Question 7

The share of Americans who pay no personal income tax

Accepted Answer

A)  has been relatively constant at approximately 33 percent throughout 1975-2000. 
B)  was relatively constant near 33 percent between 1975 and 2000, but it has increased during the past decade, reaching nearly 60 percent of adult Americans in 2013. 
C)  was relatively constant near 33 percent between 1975 and 2000, but it has fallen during the past decade, receding to only 18  percent in 2013. 
D)  rose steadily from 18 percent  in 1975 to nearly 50 percent of adult Americans in 2000, but it receded to less than 40 percent in 2013. 
A)  has been relatively constant at approximately 33 percent throughout 1975-2000. 
B)  was relatively constant near 33 percent between 1975 and 2000, but it has increased during the past decade, reaching nearly 60 percent of adult Americans in 2013. 
C)  was relatively constant near 33 percent between 1975 and 2000, but it has fallen during the past decade, receding to only 18  percent in 2013. 
D)  rose steadily from 18 percent  in 1975 to nearly 50 percent of adult Americans in 2000, but it receded to less than 40 percent in 2013.

Question 8

The random walk theory implies that stock prices

Accepted Answer

A)  go down, then up, and then down again. 
B)  follow systematic trends. 
C)  can be forecast accurately by experts who are knowledgeable about how the stock market works. 
D)  will change as the result of unexpected factors that are virtually impossible to forecast accurately. 
A)  go down, then up, and then down again. 
B)  follow systematic trends. 
C)  can be forecast accurately by experts who are knowledgeable about how the stock market works. 
D)  will change as the result of unexpected factors that are virtually impossible to forecast accurately.

Question 9

Regulatory policies requiring lenders to extend more low down-payment loans to higher-risk borrowers along with the Fed's low short-term interest rate policy during 2002-2004 caused

Accepted Answer

A)  an increase in demand for housing and higher housing prices. 
B)  an increase in demand for housing and lower housing prices. 
C)  a reduction in demand for housing and higher housing prices. 
D)  a reduction in demand for housing and lower housing prices. 
A)  an increase in demand for housing and higher housing prices. 
B)  an increase in demand for housing and lower housing prices. 
C)  a reduction in demand for housing and higher housing prices. 
D)  a reduction in demand for housing and lower housing prices.

Question 10

Residential mortgages historically carried a capital requirement of 4 percent.  Why did these mortgages, bundled as part of the mortgage-backed securities issued by investment banks, turn out to be far more risky than historically indicated?

Accepted Answer

A)  Rating agencies miscalculated the historical risk of traditional fixed-rate residential mortgages. 
B)  Investment banks leveraged these mortgage-backed securities more than was allowable under SEC rules. 
C)  Lower mortgage lending standards increased the likelihood that defaults would occur. 
D)  Investment banks held too much capital relative to these mortgage-backed securities. 
A)  Rating agencies miscalculated the historical risk of traditional fixed-rate residential mortgages. 
B)  Investment banks leveraged these mortgage-backed securities more than was allowable under SEC rules. 
C)  Lower mortgage lending standards increased the likelihood that defaults would occur. 
D)  Investment banks held too much capital relative to these mortgage-backed securities.

Question 11

Many personal finance magazines such as Money and Smart Money routinely give advice as to which stocks to buy. Should you take their advice?

Accepted Answer

Current stock prices will reflect all of

Question 12

Which of the following about Social Security is true?

Accepted Answer

A)  All of the current revenues flowing into the Social Security system are needed for benefit payments to current retirees. 
B)  If the Social Security surplus was used to pay down the privately held federal debt, this would reduce future taxes and, thereby, make it easier to deal with the retirement of the baby boomers. 
C)  During the 1980s and 1990s, most of the social security surplus was used to reduce the national debt. 
D)  When the Social Security surplus is used to cover the current operating expenses of the federal government, it will make it easier for future taxpayers to provide promised Social Security benefits to baby boomers. 
A)  All of the current revenues flowing into the Social Security system are needed for benefit payments to current retirees. 
B)  If the Social Security surplus was used to pay down the privately held federal debt, this would reduce future taxes and, thereby, make it easier to deal with the retirement of the baby boomers. 
C)  During the 1980s and 1990s, most of the social security surplus was used to reduce the national debt. 
D)  When the Social Security surplus is used to cover the current operating expenses of the federal government, it will make it easier for future taxpayers to provide promised Social Security benefits to baby boomers.

Question 13

"The Great Depression was caused by the 1929 stock market crash."  Which of the following is an indication that this statement is false?

Accepted Answer

A)  The stock market had regained most of its losses from the October 1929 crash by April 1930. 
B)  The recessionary conditions actually began in the mid-1920s before the stock market crash. 
C)  The Great Depression was a result of government failure to intervene in market activity. 
D)  Economic theory indicates that a reduction in stock prices would reduce the consumer price index and thereby stimulate output and employment. 
A)  The stock market had regained most of its losses from the October 1929 crash by April 1930. 
B)  The recessionary conditions actually began in the mid-1920s before the stock market crash. 
C)  The Great Depression was a result of government failure to intervene in market activity. 
D)  Economic theory indicates that a reduction in stock prices would reduce the consumer price index and thereby stimulate output and employment.

Question 14

Which of the following provides the bulk of revenue for the federal government?

Accepted Answer

A)  corporate income taxes and grants from state and local governments 
B)  personal income and payroll taxes 
C)  user charges and funds borrowed from the general public 
D)  corporate income and sales taxes 
A)  corporate income taxes and grants from state and local governments 
B)  personal income and payroll taxes 
C)  user charges and funds borrowed from the general public 
D)  corporate income and sales taxes

Question 15

From the viewpoint of the entire economy, the cost of government is

Accepted Answer

A)  equal to the amount of taxes collected. 
B)  greater than the amount of taxes collected. 
C)  less than the amount of taxes collected. 
D)  equal to the level of government expenditures. 
A)  equal to the amount of taxes collected. 
B)  greater than the amount of taxes collected. 
C)  less than the amount of taxes collected. 
D)  equal to the level of government expenditures.

Question 16

Compared to other investments such as bonds, historically a diverse set of stocks held over a lengthy time period (for example, 30 or 40 years) has yielded a

Accepted Answer

A)  low average real rate of return, and the variation in that return has been extremely high. 
B)  high average real rate of return, and the variation in that return has been relatively small. 
C)  low average real rate of return, and the variation in that return has been relatively small. 
D)  high average real rate of return, and the variation in that return has been extremely high. 
A)  low average real rate of return, and the variation in that return has been extremely high. 
B)  high average real rate of return, and the variation in that return has been relatively small. 
C)  low average real rate of return, and the variation in that return has been relatively small. 
D)  high average real rate of return, and the variation in that return has been extremely high.

Question 17

Which of the following contributed to the rising mortgage default and foreclosure rates and the eventual economic crisis of 2008?

Accepted Answer

A)  Tightened mortgage lending standards and the reduction of loanable funds during 2001-2005. 
B)  The increase in the greed of Wall Street bankers and other commercial lenders. 
C)  The substantial increase in sub-prime and adjustable rate mortgages as a share of the total during 2001-2006. 
D)  The increase in the household savings rate during the two decades following 1985. 
E)  The increase in fixed rate mortgages as a share of the total during the decade prior to the crisis. 
A)  Tightened mortgage lending standards and the reduction of loanable funds during 2001-2005. 
B)  The increase in the greed of Wall Street bankers and other commercial lenders. 
C)  The substantial increase in sub-prime and adjustable rate mortgages as a share of the total during 2001-2006. 
D)  The increase in the household savings rate during the two decades following 1985. 
E)  The increase in fixed rate mortgages as a share of the total during the decade prior to the crisis.

Question 18

Expansion in the size of government relative to the market sector will eventually retard economic growth because

Accepted Answer

A)  larger governments will be more involved in activities for which they are ill-suited. 
B)  the higher taxes to finance a bigger government will lead to larger and larger deadweight losses from taxation. 
C)  the incentive to engage in innovative activities and respond to change is weaker in government than in the market sector. 
D)  all of the above are correct. 
A)  larger governments will be more involved in activities for which they are ill-suited. 
B)  the higher taxes to finance a bigger government will lead to larger and larger deadweight losses from taxation. 
C)  the incentive to engage in innovative activities and respond to change is weaker in government than in the market sector. 
D)  all of the above are correct.

Question 19

Which of the following was an underlying cause of the economic crisis of 2008?

Accepted Answer

A)  A failure of government to impose regulations on Fannie Mae, Freddie Mac, and other mortgage lenders. 
B)  The imposition of government regulations on Fannie Mae, Freddie Mac, and other lending institutions that eroded the conventional lending standards in place prior to the mid-1990s. 
C)  Greedy mortgage lenders who extended risky loans to sub-prime borrowers even though the regulators were trying to limit these loans. 
D)  Federal housing regulations that made it difficult for Fannie Mae, Freddie Mac, and other lending institutions to obtain sufficient loanable funds for the finance of housing construction. 
A)  A failure of government to impose regulations on Fannie Mae, Freddie Mac, and other mortgage lenders. 
B)  The imposition of government regulations on Fannie Mae, Freddie Mac, and other lending institutions that eroded the conventional lending standards in place prior to the mid-1990s. 
C)  Greedy mortgage lenders who extended risky loans to sub-prime borrowers even though the regulators were trying to limit these loans. 
D)  Federal housing regulations that made it difficult for Fannie Mae, Freddie Mac, and other lending institutions to obtain sufficient loanable funds for the finance of housing construction.

Question 20

If the interest rate were 10 percent, how much would people be willing to pay for a stock that was certain to yield a $2 per share stream of net earnings continuously in the future?

Accepted Answer

A)  $2 
B)  $10 
C)  $20 
D)  $100 
A)  $2 
B)  $10 
C)  $20 
D)  $100

Stock market analysts often argue that lower interest rates are good for the stock market. Does this argument make sense?

Which of the following was a result of the many programs introduced as part of the New Deal?

During the last two centuries, after adjustment for inflation,

Historically, which of the following has had the highest average annual rate of return?

According to the data, was the stock-market crash of 1929 the primary cause of the Great Depression?

Stock analysts often argue that lower interest rates are good for the stock market. Does this argument make sense?

The share of Americans who pay no personal income tax

The random walk theory implies that stock prices

Regulatory policies requiring lenders to extend more low down-payment loans to higher-risk borrowers along with the Fed's low short-term interest rate policy during 2002-2004 caused

Residential mortgages historically carried a capital requirement of 4 percent. Why did these mortgages, bundled as part of the mortgage-backed securities issued by investment banks, turn out to be far more risky than historically indicated?

Many personal finance magazines such as Money and Smart Money routinely give advice as to which stocks to buy. Should you take their advice?

Which of the following about Social Security is true?

"The Great Depression was caused by the 1929 stock market crash." Which of the following is an indication that this statement is false?

Which of the following provides the bulk of revenue for the federal government?

From the viewpoint of the entire economy, the cost of government is

Compared to other investments such as bonds, historically a diverse set of stocks held over a lengthy time period (for example, 30 or 40 years) has yielded a

Which of the following contributed to the rising mortgage default and foreclosure rates and the eventual economic crisis of 2008?

Expansion in the size of government relative to the market sector will eventually retard economic growth because

Which of the following was an underlying cause of the economic crisis of 2008?

If the interest rate were 10 percent, how much would people be willing to pay for a stock that was certain to yield a $2 per share stream of net earnings continuously in the future?

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

Stock market analysts often argue that lower interest rates are good for the stock market. Does this argument make sense?

Which of the following was a result of the many programs introduced as part of the New Deal?

During the last two centuries, after adjustment for inflation,

Historically, which of the following has had the highest average annual rate of return?

According to the data, was the stock-market crash of 1929 the primary cause of the Great Depression?

Stock analysts often argue that lower interest rates are good for the stock market. Does this argument make sense?

The share of Americans who pay no personal income tax

The random walk theory implies that stock prices

Regulatory policies requiring lenders to extend more low down-payment loans to higher-risk borrowers along with the Fed's low short-term interest rate policy during 2002-2004 caused

Residential mortgages historically carried a capital requirement of 4 percent. Why did these mortgages, bundled as part of the mortgage-backed securities issued by investment banks, turn out to be far more risky than historically indicated?

Many personal finance magazines such as Money and Smart Money routinely give advice as to which stocks to buy. Should you take their advice?

Which of the following about Social Security is true?

"The Great Depression was caused by the 1929 stock market crash." Which of the following is an indication that this statement is false?

Which of the following provides the bulk of revenue for the federal government?

From the viewpoint of the entire economy, the cost of government is

Compared to other investments such as bonds, historically a diverse set of stocks held over a lengthy time period (for example, 30 or 40 years) has yielded a

Which of the following contributed to the rising mortgage default and foreclosure rates and the eventual economic crisis of 2008?

Expansion in the size of government relative to the market sector will eventually retard economic growth because

Which of the following was an underlying cause of the economic crisis of 2008?

If the interest rate were 10 percent, how much would people be willing to pay for a stock that was certain to yield a $2 per share stream of net earnings continuously in the future?

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