Question 1

Which of the following provides the strongest argument for young people making regular payments into a retirement program that invests these funds in a diverse set of stocks?

Accepted Answer

A)  The prices of stocks tend to fluctuate more than the prices of bonds. 
B)  Over short periods of time, variation in the real rate of return of stocks is greater than bonds. 
C)  When held over lengthy periods like 30 or 40 years, historically, the rate of return on stocks has been both higher and less variable than that of bonds. 
D)  Lower interest rates will lead to higher bond prices. 
A)  The prices of stocks tend to fluctuate more than the prices of bonds. 
B)  Over short periods of time, variation in the real rate of return of stocks is greater than bonds. 
C)  When held over lengthy periods like 30 or 40 years, historically, the rate of return on stocks has been both higher and less variable than that of bonds. 
D)  Lower interest rates will lead to higher bond prices.

Question 2

The bundling of mortgages together and the issuing of securities for their financing made it possible for investment banks to

Accepted Answer

A)  reduce their exposure to risk in the event that the overall mortgage default rate rose. 
B)  reduce the amount of capital required to back these bundled securities. 
C)  build up large reserves so they would be able to meet their obligations even if the mortgage default rate rose substantially. 
D)  quickly access funds to meet short-term debt obligations. 
A)  reduce their exposure to risk in the event that the overall mortgage default rate rose. 
B)  reduce the amount of capital required to back these bundled securities. 
C)  build up large reserves so they would be able to meet their obligations even if the mortgage default rate rose substantially. 
D)  quickly access funds to meet short-term debt obligations.

Question 3

Currently, about ____ of U.S. households own stock, either directly or through an equity mutual fund.

Accepted Answer

A)  10 percent 
B)  20 percent 
C)  50 percent 
D)  80 percent 
A)  10 percent 
B)  20 percent 
C)  50 percent 
D)  80 percent

Question 4

During 1929-1933, monetary policy was

Accepted Answer

A)  highly expansionary and this led to an increase in the general level of prices. 
B)  characterized by steady monetary growth, which resulted in price stability. 
C)  characterized by a sharp reduction in the supply of money, which led to downward pressure on prices and a decline in output. 
D)  highly expansionary and this led to a reduction in the general level of prices. 
A)  highly expansionary and this led to an increase in the general level of prices. 
B)  characterized by steady monetary growth, which resulted in price stability. 
C)  characterized by a sharp reduction in the supply of money, which led to downward pressure on prices and a decline in output. 
D)  highly expansionary and this led to a reduction in the general level of prices.

Question 5

Which of the following makes it possible for even a small investor to hold a diverse set of stocks and still keep the cost of purchasing additional stock holdings low?

Accepted Answer

A)  A real world savings account. 
B)  An equity (stock) mutual fund. 
C)  A bond mutual fund. 
D)  A checking account at a local bank. 
A)  A real world savings account. 
B)  An equity (stock) mutual fund. 
C)  A bond mutual fund. 
D)  A checking account at a local bank.

Question 6

Fannie Mae and Freddie Mac's rapid increase in the percentage of all mortgages held encouraged mortgage lenders to

Accepted Answer

A)  tighten credit standards and decrease the number of sub-prime loans extended to borrowers. 
B)  offer lower rates than what Fannie Mae and Freddie Mac could offer. 
C)  lower credit standards and offer terms acceptable to Fannie Mae and Freddie Mac. 
D)  scrutinize the credit-worthiness of borrowers and require higher down payments on mortgages. 
A)  tighten credit standards and decrease the number of sub-prime loans extended to borrowers. 
B)  offer lower rates than what Fannie Mae and Freddie Mac could offer. 
C)  lower credit standards and offer terms acceptable to Fannie Mae and Freddie Mac. 
D)  scrutinize the credit-worthiness of borrowers and require higher down payments on mortgages.

Question 7

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 downturn. 
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 depth of the economic plunge, if not its onset, was the result of monetary, fiscal, and regulatory  policies. 
A)  even though monetary and fiscal policies were highly expansionary, they were unable to offset the economic downturn. 
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 depth of the economic plunge, if not its onset, was the result of monetary, fiscal, and regulatory  policies.

Question 8

Which of the following best describes the impact of fiscal policy during the Great Depression?

Accepted Answer

A)  Despite the large increases in government spending as a share of GDP when the New Deal policies were initiated, the expansionary fiscal policy failed to stimulate demand. 
B)  Fiscal policy was focused on monetary expansion, when it should have focused on maintaining a balanced budget. 
C)  It is difficult to link expansionary fiscal policy with economic recovery because government spending and budget deficits were a relatively small portion of GDP prior to the beginning of World War II. 
D)  There is a direct correlation between increases in government spending as a share of GDP and increases in output and employment. 
A)  Despite the large increases in government spending as a share of GDP when the New Deal policies were initiated, the expansionary fiscal policy failed to stimulate demand. 
B)  Fiscal policy was focused on monetary expansion, when it should have focused on maintaining a balanced budget. 
C)  It is difficult to link expansionary fiscal policy with economic recovery because government spending and budget deficits were a relatively small portion of GDP prior to the beginning of World War II. 
D)  There is a direct correlation between increases in government spending as a share of GDP and increases in output and employment.

Question 9

If higher tariffs, such as those enacted by the Smoot-Hawley trade bill, reduce the imports of the United States, which of the following will be most likely to occur?

Accepted Answer

A)  U.S. employment will increase. 
B)  The unemployment rate of the United States will decline. 
C)  U.S. exports will increase because foreigners will want to buy more from U.S. producers. 
D)  U.S. exports will decline because foreigners will be earning fewer of the dollars needed to purchase goods and services from Americans. 
A)  U.S. employment will increase. 
B)  The unemployment rate of the United States will decline. 
C)  U.S. exports will increase because foreigners will want to buy more from U.S. producers. 
D)  U.S. exports will decline because foreigners will be earning fewer of the dollars needed to purchase goods and services from Americans.

Question 10

Which of the following resulted from the Smoot-Hawley trade bill of 1930?

Accepted Answer

A)  The stock market began a steady recovery from the crash of October 1929. 
B)  Many countries responded by imposing higher tariffs on American products, and the volume of international trade fell sharply. 
C)  Imports decreased, while exports increased, resulting in an overall increase in GDP and tariff revenues. 
D)  The unemployment rate, which had been rising, began to steadily decline as jobs were protected by the trade restrictions. 
A)  The stock market began a steady recovery from the crash of October 1929. 
B)  Many countries responded by imposing higher tariffs on American products, and the volume of international trade fell sharply. 
C)  Imports decreased, while exports increased, resulting in an overall increase in GDP and tariff revenues. 
D)  The unemployment rate, which had been rising, began to steadily decline as jobs were protected by the trade restrictions.

Question 11

Which of the following about investments is true?

Accepted Answer

A)  People who invest in the stock market are virtually certain to make money. 
B)  Investors in the stock market can reduce their risk if they hold shares of specific stocks for only short periods of time. 
C)  The risk of stock market investments can be reduced through the holding of a diverse portfolio of unrelated stocks over long periods of time. 
D)  In the long run, corporate bonds can be expected to yield a higher real rate of return than ownership of stocks. 
A)  People who invest in the stock market are virtually certain to make money. 
B)  Investors in the stock market can reduce their risk if they hold shares of specific stocks for only short periods of time. 
C)  The risk of stock market investments can be reduced through the holding of a diverse portfolio of unrelated stocks over long periods of time. 
D)  In the long run, corporate bonds can be expected to yield a higher real rate of return than ownership of stocks.

Question 12

During the last four decades, defense expenditures have

Accepted Answer

A)  accounted for approximately one-half of federal expenditures. 
B)  accounted for less than 10 percent of federal expenditures. 
C)  been increasing as a share of federal expenditures. 
D)  been declining as a share of federal expenditures. 
A)  accounted for approximately one-half of federal expenditures. 
B)  accounted for less than 10 percent of federal expenditures. 
C)  been increasing as a share of federal expenditures. 
D)  been declining as a share of federal expenditures.

Question 13

Which of the following is an advantage of an indexed equity mutual fund relative to a managed equity fund?

Accepted Answer

A)  Indexed funds generally have better stock pickers. 
B)  Indexed funds engage in more detailed research. 
C)  Indexed funds have lower operating costs because they engage in less stock trading. 
D)  Indexed funds earn a significantly higher rate of return than a broad portfolio that represents the entire stock market. 
A)  Indexed funds generally have better stock pickers. 
B)  Indexed funds engage in more detailed research. 
C)  Indexed funds have lower operating costs because they engage in less stock trading. 
D)  Indexed funds earn a significantly higher rate of return than a broad portfolio that represents the entire stock market.

Question 14

Which of the following is the largest source of revenue for the federal government?

Accepted Answer

A)  Corporate income tax. 
B)  Payroll tax. 
C)  Personal income tax. 
D)  User charges. 
A)  Corporate income tax. 
B)  Payroll tax. 
C)  Personal income tax. 
D)  User charges.

Question 15

The National Industrial Recovery Act, passed in 1933,

Accepted Answer

A)  broke up monopolies and cartels, and introduce competition into several different industries. 
B)  fixed prices, wages, and quotas for several industries in an effort to keep prices high. 
C)  lowered corporate taxes and removed collusive behavior in an effort to keep U.S. firms competitive with foreign manufacturers. 
D)  created a stable economic environment that encouraged investment and expansion in the industrial sector of the economy. 
A)  broke up monopolies and cartels, and introduce competition into several different industries. 
B)  fixed prices, wages, and quotas for several industries in an effort to keep prices high. 
C)  lowered corporate taxes and removed collusive behavior in an effort to keep U.S. firms competitive with foreign manufacturers. 
D)  created a stable economic environment that encouraged investment and expansion in the industrial sector of the economy.

Question 16

The share of the personal income tax paid by the bottom half of earners

Accepted Answer

A)  rose to an all-time high in 2013. 
B)  was substantially higher in 2013 than during the 1960s and 1970s. 
C)  was substantially lower in 2013 than during the 1960s and 1970s. 
D)  has been relatively constant during the last four decades. 
A)  rose to an all-time high in 2013. 
B)  was substantially higher in 2013 than during the 1960s and 1970s. 
C)  was substantially lower in 2013 than during the 1960s and 1970s. 
D)  has been relatively constant during the last four decades.

Question 17

Which of the following resulted from Fed policy that first kept short-term interest rates extremely low during 2002-2004, and then pushed them up substantially during 2005-2006?

Accepted Answer

A)  a reduction in housing prices because variable rate mortgages were unattractive throughout this period 
B)  upward pressure on housing prices when the interest rates were low, but downward pressure on the price of housing as the interest rates rose 
C)  lower default rates on adjustable rate mortgages as the interest rates peaked during 2006 
D)  downward pressure on housing prices when the interest rates were low, but upward pressure on the price of housing as the interest rates rose 
A)  a reduction in housing prices because variable rate mortgages were unattractive throughout this period 
B)  upward pressure on housing prices when the interest rates were low, but downward pressure on the price of housing as the interest rates rose 
C)  lower default rates on adjustable rate mortgages as the interest rates peaked during 2006 
D)  downward pressure on housing prices when the interest rates were low, but upward pressure on the price of housing as the interest rates rose

Question 18

Which of the following provides young people with a strong incentive to make regular payments into a retirement program and invest these funds in a diverse set of stocks?

Accepted Answer

A)  The prices of stocks tend to fluctuate more than the prices of bonds. 
B)  Over short periods of time, variation in the real rate of return of stocks is greater than bonds. 
C)  When held over lengthy periods like 30 or 40 years, historically the rate of return on stocks has been both higher and less variable than that of bonds. 
D)  Lower interest rates will lead to higher bond prices. 
A)  The prices of stocks tend to fluctuate more than the prices of bonds. 
B)  Over short periods of time, variation in the real rate of return of stocks is greater than bonds. 
C)  When held over lengthy periods like 30 or 40 years, historically the rate of return on stocks has been both higher and less variable than that of bonds. 
D)  Lower interest rates will lead to higher bond prices.

Question 19

Which of the following about Social Security is true?

Accepted Answer

A)  The regressive nature of the Social Security benefit formula works to the disadvantage of blacks and other groups with below-average earnings. 
B)  Social Security works to the disadvantage of blacks and other groups with below-average life expectancy. 
C)  Blacks derive a higher rate of return from their Social Security taxes than whites. 
D)  Hispanics derive a lower rate of return from their Social Security taxes than both whites and blacks. 
A)  The regressive nature of the Social Security benefit formula works to the disadvantage of blacks and other groups with below-average earnings. 
B)  Social Security works to the disadvantage of blacks and other groups with below-average life expectancy. 
C)  Blacks derive a higher rate of return from their Social Security taxes than whites. 
D)  Hispanics derive a lower rate of return from their Social Security taxes than both whites and blacks.

Question 20

Which of the following tends to increase the attractiveness of a retirement system based on savings and investment rather than pay-as-you-go principles?

Accepted Answer

A)  A persistent increase in the number of workers relative to the number of retirees. 
B)  A large number of workers relative to the number of retirees. 
C)  A reduction in the number of workers relative to the number of retirees. 
D)  A persistent increase in the life expectancy of retirees. 
A)  A persistent increase in the number of workers relative to the number of retirees. 
B)  A large number of workers relative to the number of retirees. 
C)  A reduction in the number of workers relative to the number of retirees. 
D)  A persistent increase in the life expectancy of retirees.

Which of the following provides the strongest argument for young people making regular payments into a retirement program that invests these funds in a diverse set of stocks?

The bundling of mortgages together and the issuing of securities for their financing made it possible for investment banks to

Currently, about ____ of U.S. households own stock, either directly or through an equity mutual fund.

During 1929-1933, monetary policy was

Which of the following makes it possible for even a small investor to hold a diverse set of stocks and still keep the cost of purchasing additional stock holdings low?

Fannie Mae and Freddie Mac's rapid increase in the percentage of all mortgages held encouraged mortgage lenders to

Analysis of the Great Depression indicates that

Which of the following best describes the impact of fiscal policy during the Great Depression?

If higher tariffs, such as those enacted by the Smoot-Hawley trade bill, reduce the imports of the United States, which of the following will be most likely to occur?

Which of the following resulted from the Smoot-Hawley trade bill of 1930?

Which of the following about investments is true?

During the last four decades, defense expenditures have

Which of the following is an advantage of an indexed equity mutual fund relative to a managed equity fund?

Which of the following is the largest source of revenue for the federal government?

The National Industrial Recovery Act, passed in 1933,

The share of the personal income tax paid by the bottom half of earners

Which of the following resulted from Fed policy that first kept short-term interest rates extremely low during 2002-2004, and then pushed them up substantially during 2005-2006?

Which of the following provides young people with a strong incentive to make regular payments into a retirement program and invest these funds in a diverse set of stocks?

Which of the following about Social Security is true?

Which of the following tends to increase the attractiveness of a retirement system based on savings and investment rather than pay-as-you-go principles?

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 provides the strongest argument for young people making regular payments into a retirement program that invests these funds in a diverse set of stocks?

The bundling of mortgages together and the issuing of securities for their financing made it possible for investment banks to

Currently, about ____ of U.S. households own stock, either directly or through an equity mutual fund.

During 1929-1933, monetary policy was

Which of the following makes it possible for even a small investor to hold a diverse set of stocks and still keep the cost of purchasing additional stock holdings low?

Fannie Mae and Freddie Mac's rapid increase in the percentage of all mortgages held encouraged mortgage lenders to

Analysis of the Great Depression indicates that

Which of the following best describes the impact of fiscal policy during the Great Depression?

If higher tariffs, such as those enacted by the Smoot-Hawley trade bill, reduce the imports of the United States, which of the following will be most likely to occur?

Which of the following resulted from the Smoot-Hawley trade bill of 1930?

Which of the following about investments is true?

During the last four decades, defense expenditures have

Which of the following is an advantage of an indexed equity mutual fund relative to a managed equity fund?

Which of the following is the largest source of revenue for the federal government?

The National Industrial Recovery Act, passed in 1933,

The share of the personal income tax paid by the bottom half of earners

Which of the following resulted from Fed policy that first kept short-term interest rates extremely low during 2002-2004, and then pushed them up substantially during 2005-2006?

Which of the following provides young people with a strong incentive to make regular payments into a retirement program and invest these funds in a diverse set of stocks?

Which of the following about Social Security is true?

Which of the following tends to increase the attractiveness of a retirement system based on savings and investment rather than pay-as-you-go principles?

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