Question 1

Which of the following will reduce the risk accompanying equity (stock) investments?

Accepted Answer

A)  the purchase of shares of a mutual fund that holds the stocks of many diverse corporations 
B)  the purchasing and holding of equities over a lengthy period of time 
C)  the purchase of shares in firms doing business in a wider variety of industries and markets 
D)  all of the above

Question 2

The share of new loans with a down payment of 5 percent or less extended by Freddie Mac and Fannie Mae

Accepted Answer

A)  declined substantially after 1999. 
B)  rose from 4 percent in 1998 to 12 percent in 2003 and 23 percent in 2007. 
C)  rose from 4 percent in 1998 to 23 percent in 2002, but declined to less than 10 percent in 2007. 
D)  never exceeded 10 percent of the new loans financed.

Question 3

Which of the following is most likely to result from a rising household debt/income ratio?

Accepted Answer

A)  Household income will rise rapidly. 
B)  Household consumption will fall as a share of income. 
C)  Households will be in a better position to deal with unexpected events that force major adjustments. 
D)  A larger share of household income will be required to meet interest payments on debt.

Question 4

Which of the following would be most likely to push stock prices higher?

Accepted Answer

A)  higher interest rates and the expectation of larger future corporate profits 
B)  higher interest rates and the expectation of smaller future corporate profits 
C)  lower interest rates and the expectation of larger future corporate profits 
D)  lower interest rates and the expectation of smaller future corporate profits

Question 5

When housing prices fell during 2007, the mortgage default rate

Accepted Answer

A)  declined as well. 
B)  responded in a similar manner as during other recent recessions. 
C)  increased substantially. 
D)  changed very little.

Question 6

Which of the following did not contribute to the severity of the Great Depression?

Accepted Answer

A)  A sharp reduction in the money supply during the early 1930s. 
B)  A large tax increase (to balance the budget) in the early 1930s. 
C)  Substantial increases in the tariff rates on imported goods. 
D)  A reduction in government expenditures and a substantial cut in personal income tax rates during 1932 and again in 1936.

Question 7

Detailed studies indicate that, on balance, the Social Security retirement system

Accepted Answer

A)  redistributes a substantial amount of income from the rich to the poor. 
B)  redistributes a substantial amount of income from whites to blacks. 
C)  is particularly advantageous to those with a shorter life expectancy. 
D)  is not particularly advantageous to the poor due to their shorter life expectancy.

Question 8

Which of the following is true about investments?

Accepted Answer

A)  Most stockholders own stock because they want to run the business. 
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)  Ownership of a corporate bond provides the bondholder with an ownership right to a fraction of the firm's future profits. 
D)  Stock ownership makes it possible for investors to own a fractional share of a firm's future profits even if they do not participate in the operation of the firm.

Question 9

Since 1960, the share of federal spending allocated to national defense

Accepted Answer

A)  declined sharply, while the share allocated to health care increased substantially. 
B)  rose sharply, while the share allocated to health care declined substantially. 
C)  was relatively constant, while the share allocated to health care declined modestly. 
D)  declined modestly, while the share allocated to health care was relatively constant.

Question 10

The Fed's low short-term interest rate policy from 2002-2004, along with housing regulations promoting low down-payment loans to sub-prime borrowers, encouraged

Accepted Answer

A)  conventional 30-year, fixed rate mortgages which have relatively high default and foreclosure rates. 
B)  conventional 30-year, fixed rate mortgages which have relatively low default and foreclosure rates. 
C)  adjustable rate mortgages which have relatively low default and foreclosure rates. 
D)  adjustable rate mortgages which have relatively high default and foreclosure rates.

Question 11

In the most recent fiscal year, federal expenditures on income transfers, health care, national defense, and interest on the national debt accounted for

Accepted Answer

A)  less than 20 percent of federal spending. 
B)  about 40 percent of federal spending. 
C)  approximately 50 percent of federal spending. 
D)  more than 85 percent of federal spending.

Question 12

Measured as a share of the economy, government expenditures on ____ have declined during the last four decades.

Accepted Answer

A)  health care 
B)  national defense 
C)  transfer payments 
D)  Social Security benefits

Question 13

What will the federal government have to do in order to redeem the bonds in the Social Security Trust Fund?

Accepted Answer

A)  raise taxes 
B)  cut expenditures on other government programs 
C)  borrow additional funds 
D)  Some combination of a, b, and c.

Question 14

How has the structure of the personal income tax changed and the share of taxes paid by various income groups changed in recent decades?

Accepted Answer

The answer of How has the structure of the personal...

Question 15

What impact did the National Industrial Recovery Act (NIRA) of 1933 have on industrial output?

Accepted Answer

A)  Industrial output had been declining, but it stabilized during the months following passage of the NIRA. 
B)  Industrial output increased sharply after the passage of the NIRA. 
C)  Industrial output had begun to increase, but it fell sharply following the passage of the NIRA. 
D)  Industrial output and employment declined during the months prior to passage of the NIRA, and the legislation was unable to stop the decline.

Question 16

Persons who die before age 65 or soon thereafter, receive little or nothing from their Social Security payroll tax payments. Which of the following groups is harmed the most by this attribute of the Social Security retirement system?

Accepted Answer

A)  High-income workers. 
B)  Hispanics. 
C)  Heavy cigarette smokers. 
D)  College graduates.

Question 17

When the government borrows funds in order to pay for its current expenditures,

Accepted Answer

A)  the government will have to repay the borrowed funds within five years. 
B)  the government can spend without having to increase taxes, either now or in the future. 
C)  future taxes will have to be higher in order to pay the interest on the borrowed funds. 
D)  the cost imposed on the private sector is virtually eliminated because taxes can remain constant.

Question 18

Which of the following investments is characterized by low risk, low fees, and high historic returns when held over a lengthy time period?

Accepted Answer

A)  A managed mutual fund that has performed well during the past two or three years. 
B)  A portfolio of technology stocks. 
C)  A mutual fund that holds stocks in the same proportion as a broad stock market index such as the S&P 500. 
D)  A mutual fund invested in medium-term bonds issued by the U.S. Treasury.

Question 19

Which of the following is a lesson that can be learned from monetary policy during the Great Depression?

Accepted Answer

A)  Monetary policy should be changed frequently in response to economic fluctuations. 
B)  Prolonged periods of monetary contraction will retard economic growth. 
C)  Low interest rates will direct an economy toward recovery. 
D)  Monetary policy should focus on variables such as output and employment.

Question 20

Which of the following about the stock market is true?

Accepted Answer

A)  Investment in the stock market is a relatively foolproof method for an investor to earn a high rate of return during the next five years. 
B)  Current stock prices already reflect information that is known with a high degree of certainty. 
C)  Experts are able to predict changes in the direction of the broad stock market indexes with a high degree of accuracy. 
D)  While changes in the prices of specific stocks are difficult to predict, it is relatively easy to predict the future direction of the broad stock market. 
E)  Both c and d are true.

Exam 20: Special Topics