Question 1

Which of the following stock market increases is best explained by the notion of a bubble?

Accepted Answer

A) The late 1982 rally in which the DJIA doubled in 4 months. 
B) The decade of the 1980s. 
C) The U.S. stock market in technology stocks the late 1990s. 
D) The U.S. stock market's growth in 2009. 
A) The late 1982 rally in which the DJIA doubled in 4 months. 
B) The decade of the 1980s. 
C) The U.S. stock market in technology stocks the late 1990s. 
D) The U.S. stock market's growth in 2009.

Question 2

Without some form of bankruptcy protection, it certainly would be in the general interest of all creditors as a group to let a company reorganize so that it could ultimately repay its debts,

Accepted Answer

A) and it certainly would be in every individual creditor's interest as well. 
B) it would be in the interest of each individual creditor to seek immediate payment. 
C) it would be easier for companies to repay their debts. 
D) it would be easier for creditors who most need their money to be repaid first. 
A) and it certainly would be in every individual creditor's interest as well. 
B) it would be in the interest of each individual creditor to seek immediate payment. 
C) it would be easier for companies to repay their debts. 
D) it would be easier for creditors who most need their money to be repaid first.

Question 3

If stock prices are in-line with their fundamental determinants and profit expectations do not change, then a change in the interest rate by one percentage point from 10% to 11%

Accepted Answer

A) will change the stock price by exactly ten percent regardless of the expected distribution of the earnings over time. 
B) will change the stock price by less than ten percent regardless of the expected distribution of the earnings over time. 
C) will change the stock price by more than ten percent regardless of the expected distribution of the earnings over time. 
D) will change the stock price by more or less than ten percent depending on the expected distribution of the earnings over time. 
A) will change the stock price by exactly ten percent regardless of the expected distribution of the earnings over time. 
B) will change the stock price by less than ten percent regardless of the expected distribution of the earnings over time. 
C) will change the stock price by more than ten percent regardless of the expected distribution of the earnings over time. 
D) will change the stock price by more or less than ten percent depending on the expected distribution of the earnings over time.

Question 4

If the expected earnings of a company are revised downward and all else is equal, the price of a stock will

Accepted Answer

A) fall. 
B) rise. 
C) remain unchanged. 
D) adjust to reflect a higher ratio of price to (current)earnings. 
A) fall. 
B) rise. 
C) remain unchanged. 
D) adjust to reflect a higher ratio of price to (current)earnings.

Question 5

The impact of accounting scandals of 2001 and 2002 was especially important because

Accepted Answer

A) it increased investor uncertainty about corporate fundamentals. 
B) the accounting industry had so many employees. 
C) the major accounting companies both consult and audit their clients, leading to a conflict of interest. 
D) it increased investor uncertainty about corporate fundamentals and the major accounting companies both consult and audit their clients, leading to a conflict of interest. 
A) it increased investor uncertainty about corporate fundamentals. 
B) the accounting industry had so many employees. 
C) the major accounting companies both consult and audit their clients, leading to a conflict of interest. 
D) it increased investor uncertainty about corporate fundamentals and the major accounting companies both consult and audit their clients, leading to a conflict of interest.

Question 6

When a company sells stock for the first time to raise money for a business expansion this is called a(n)

Accepted Answer

A) IPO (Initial Public Offering). 
B) FTO (First Time Offering). 
C) PPO (Preferred Public Offering). 
D) FSS (First Sale of Stock). 
A) IPO (Initial Public Offering). 
B) FTO (First Time Offering). 
C) PPO (Preferred Public Offering). 
D) FSS (First Sale of Stock).

Question 7

Swings in stock prices in a graph covering seventy years can be

Accepted Answer

A) imperceptible in the logarithmic scale but obvious in the level scale. 
B) imperceptible in the level scale but obvious in the logarithmic scale. 
C) understandable in the level scale but mystifying in the logarithmic scale. 
D) understandable in the logarithmic scale but mystifying in the level scale. 
A) imperceptible in the logarithmic scale but obvious in the level scale. 
B) imperceptible in the level scale but obvious in the logarithmic scale. 
C) understandable in the level scale but mystifying in the logarithmic scale. 
D) understandable in the logarithmic scale but mystifying in the level scale.

Question 8

During 2000, NASDAQ peaked above _____ but ended the year below _________.

Accepted Answer

A) 10,000; 1,000 
B) 5,000; 1,000 
C) 5,000; 2,500 
D) 100,000; 5,000 
A) 10,000; 1,000 
B) 5,000; 1,000 
C) 5,000; 2,500 
D) 100,000; 5,000

Question 9

If expected earnings of a company are revised upward and all else is equal, the price of a stock will

Accepted Answer

A) fall. 
B) rise. 
C) remain unchanged. 
D) adjust to reflect a lower ratio of price to (current)earnings. 
A) fall. 
B) rise. 
C) remain unchanged. 
D) adjust to reflect a lower ratio of price to (current)earnings.

Question 10

Suppose an efficient market has been operating with regard to stock in a particular company and that company announces that its profits were down 50% from the previous period but the stock price rises after getting the news on a day when all of the other stocks are barely moving. This is

Accepted Answer

A) absolutely illogical. 
B) at least potentially consistent with the efficient market hypothesis because investors may have been anticipating a 75% drop. 
C) at least potentially consistent with the efficient market hypothesis because investors may have been anticipating a 25% drop. 
D) at least potentially consistent with the efficient market hypothesis because investors may have been anticipating those 50% drop. 
A) absolutely illogical. 
B) at least potentially consistent with the efficient market hypothesis because investors may have been anticipating a 75% drop. 
C) at least potentially consistent with the efficient market hypothesis because investors may have been anticipating a 25% drop. 
D) at least potentially consistent with the efficient market hypothesis because investors may have been anticipating those 50% drop.

Question 11

Economic bubbles are created because of inflated (and in the short-term self-fulfilling)expectations of

Accepted Answer

A) interest rates. 
B) future asset prices. 
C) overall economic growth. 
D) earnings. 
A) interest rates. 
B) future asset prices. 
C) overall economic growth. 
D) earnings.

Question 12

The NASDAQ collapse of the year 2000 finally bottomed out in October, 2002, after

Accepted Answer

A) losing 23% of its value in 31 months. 
B) its merger with the New York Stock Exchange. 
C) moving its headquarters to London. 
D) losing 78% of its value in 31 months. 
A) losing 23% of its value in 31 months. 
B) its merger with the New York Stock Exchange. 
C) moving its headquarters to London. 
D) losing 78% of its value in 31 months.

Question 13

Most cases of corporate bankruptcy are part of the Chapter _____ variety.

Accepted Answer

A) 7 
B) 11 
C) 13 
D) 15 
A) 7 
B) 11 
C) 13 
D) 15

Question 14

The principal-agent problem exists when

Accepted Answer

A) owners of an asset and the managers of that asset are the same. 
B) owners of an asset and the managers of that asset are the not the same. 
C) owners have an interest in making a profit. 
D) managers are dedicated to making owners a profit. 
A) owners of an asset and the managers of that asset are the same. 
B) owners of an asset and the managers of that asset are the not the same. 
C) owners have an interest in making a profit. 
D) managers are dedicated to making owners a profit.

Question 15

Suppose an efficient market has been operating with regard to stock in a particular company and that company announces that its profits were up 50% from the previous period but the stock price falls after getting the news on a day when all of the other stocks are barely moving. This is

Accepted Answer

A) absolutely illogical. 
B) at least potentially consistent with the efficient market hypothesis because investors may have been anticipating 75% gains. 
C) at least potentially consistent with the efficient market hypothesis because investors may have been anticipating 25% gains. 
D) at least potentially consistent with the efficient market hypothesis because investors may have been anticipating those 50% gains. 
A) absolutely illogical. 
B) at least potentially consistent with the efficient market hypothesis because investors may have been anticipating 75% gains. 
C) at least potentially consistent with the efficient market hypothesis because investors may have been anticipating 25% gains. 
D) at least potentially consistent with the efficient market hypothesis because investors may have been anticipating those 50% gains.

Question 16

Under the efficient market hypothesis, it is advisable to spend at least an hour a day altering your portfolio to take advantage of profit opportunities.

Accepted Answer

A) True 
 B)False

Question 17

Stock market bubbles are

Accepted Answer

A) fiction. 
B) occur every 3 to 5 years. 
C) rare but do occur. 
D) an everyday experience. 
A) fiction. 
B) occur every 3 to 5 years. 
C) rare but do occur. 
D) an everyday experience.

Question 18

If the expected future price of a stock is revised downward and all else is equal, today's price of the stock will

Accepted Answer

A) fall. 
B) rise. 
C) remain unchanged. 
D) adjust to reflect a higher ratio of price to (current)earnings. 
A) fall. 
B) rise. 
C) remain unchanged. 
D) adjust to reflect a higher ratio of price to (current)earnings.

Question 19

The stock index that includes the stock prices of a disproportionate number of technology companies (sometimes referred to as "tech-heavy" or "tech-laden")is the

Accepted Answer

A) Dow Jones Industrial Average. 
B) Standard and Poor's 500. 
C) NASDAQ. 
D) Russell 2000. 
A) Dow Jones Industrial Average. 
B) Standard and Poor's 500. 
C) NASDAQ. 
D) Russell 2000.

Question 20

If interest rates rise and all else is equal, the price of a stock will

Accepted Answer

A) fall. 
B) rise. 
C) remain unchanged. 
D) adjust to reflect a higher ratio of price to (current)earnings. 
A) fall. 
B) rise. 
C) remain unchanged. 
D) adjust to reflect a higher ratio of price to (current)earnings.

Exam 44: The Stock Market Crashes

Which of the following stock market increases is best explained by the notion of a bubble?

Without some form of bankruptcy protection, it certainly would be in the general interest of all creditors as a group to let a company reorganize so that it could ultimately repay its debts,

If stock prices are in-line with their fundamental determinants and profit expectations do not change, then a change in the interest rate by one percentage point from 10% to 11%

If the expected earnings of a company are revised downward and all else is equal, the price of a stock will

The impact of accounting scandals of 2001 and 2002 was especially important because

When a company sells stock for the first time to raise money for a business expansion this is called a(n)

Swings in stock prices in a graph covering seventy years can be

During 2000, NASDAQ peaked above _____ but ended the year below _________.

If expected earnings of a company are revised upward and all else is equal, the price of a stock will

Suppose an efficient market has been operating with regard to stock in a particular company and that company announces that its profits were down 50% from the previous period but the stock price rises after getting the news on a day when all of the other stocks are barely moving. This is

Economic bubbles are created because of inflated (and in the short-term self-fulfilling)expectations of

The NASDAQ collapse of the year 2000 finally bottomed out in October, 2002, after

Most cases of corporate bankruptcy are part of the Chapter _____ variety.

The principal-agent problem exists when

Suppose an efficient market has been operating with regard to stock in a particular company and that company announces that its profits were up 50% from the previous period but the stock price falls after getting the news on a day when all of the other stocks are barely moving. This is

Under the efficient market hypothesis, it is advisable to spend at least an hour a day altering your portfolio to take advantage of profit opportunities.

Stock market bubbles are

If the expected future price of a stock is revised downward and all else is equal, today's price of the stock will

The stock index that includes the stock prices of a disproportionate number of technology companies (sometimes referred to as "tech-heavy" or "tech-laden")is the

If interest rates rise and all else is equal, the price of a stock will

Economics: the Study of Opportunity Cost

Supply and Demand

The Concept of Elasticity and Consumer and Producer Surplus

Firm Production, Cost, and Revenue

Perfect Competition, Monopoly, and Economic Versus Normal Profit

Every Macroeconomic Word You Ever Heard: Gross Domestic Product, Inflation, Unemployment, Recession, Depression

Interest Rates and Present Value

Aggregate Demand and Aggregate Supply

Fiscal Policy

Monetary Policy

Federal Spending

Federal Deficits, Surpluses, and the National Debt

The Housing Bubble

The Recession of 2007-2009: Causes and Policy Responses

Is Economic Stagnation the New Normal

Is the Fiscalsky Falling: An Examination of Unfunded Social Security, Medicare, and State and Local Pension Liabilities

International Trade: Does It Jeopardize American Jobs

International Finance and Exchange Rates

The European Debt Crisis

Economic Growth and Development

Nafta, Gatt, Wto: Are Trade Agreements Good for Us

The Line Between Legal and Illegal Goods

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Government-Provided Health Insurance: Medicaid, Medicare, and the Child Health Insurance Program

The Economics of Prescription Drugs

So You Want to Be a Lawyer: Economics and the Law

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Head Start

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If We Build It, Will They Come and Other Sports Questions

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Walmart: Always Low Prices and Low Wages- Always

The Economic Impact of Casino Gambling

The Economics of Terrorism

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During 2000, NASDAQ peaked above _ but ended the year below _____.