question

Scarcity exists when: A) making choices among two or more alternatives is not necessary. B) individuals can have more of any good. C) individuals can have more of one good but only at the expense of another. D) resources are unlimited.

answer

c. individuals can have more of one good but only at the expense of another.

question

Opportunity cost is: A) about half of the monetary cost of a product. B) the dollar payment for a product. C) the benefit derived from a product. D) the value of the best alternative forgone in making any choice.

answer

d. the value of the best alternative forgone in making any choice

question

Economic models are: A) created and used to duplicate reality. B) useless if they are simple. C) made generally of wood, plastic, and/or metal. D) often useful in forming economic policy.

answer

d. often useful in forming economic policy

question

As long as people have different ________, everyone has a comparative advantage in something. A) direct costs B) benefits C) utility D) opportunity costs

answer

d. opportunity cost

question

An economy is said to have a comparative advantage if it: A) can produce more of all goods than another economy. B) can produce less of all goods than another economy. C) has the highest cost for producing a particular good. D) has the lowest cost for producing a particular good.

answer

d. has the lowest cost for producing a particular good

question

A negative relationship between the quantity demanded and price is called the law of: A) demand. B) increasing returns. C) market clearing. D) supply.

answer

a. demand

question

eople demand more of product A when the price of B falls, then A and B are: A) not related. B) substitutes. C) complements. D) inferior goods.

answer

c. complements

question

Which of the following would shift the demand curve for new textbooks to the right? A) a decrease in the price of paper B) a fall in the price of used textbooks C) an increase in college enrollment D) a fall in the price of new textbooks

answer

c. an increase in college enrollment

question

Which of the following is likely to cause a rightward shift in the demand for home-delivered pizza? A) a lower price of pizza B) a lower price of fast-food hamburgers C) a higher price of pepperoni D) a larger population

answer

a. a larger population

question

The demand curve for running shoes has shifted to the right. What could have caused it? A) a fall in the price of running shoes B) an increase in the price of running shoes C) an increase in the supply of running shoes D) an increase in the income of buyers of running shoes

answer

d. an increase in the income of buyers of running shoes

question

The typical supply curve illustrates that: A) other things equal, the quantity supplied for a good is inversely related to the price of a good. B) other things equal, the supply of the good creates its own demand for the good. C) other things equal, the quantity supplied for a good is positively related to the price of a good. D) price and quantity supplied are unrelated.

answer

other things equal, the quantity supplied for a good is positively related to the price of a good

question

The primary difference between a change in supply and a change in the quantity supplied is that: A) a change in quantity supplied is a movement along the supply curve, while a change in supply is a shift in the supply curve. B) both a change in quantity supplied and a change in supply are movements along the supply curve, only in different directions. C) a change in supply is related to the supply curve, while a change in quantity supplied is related to shifts in the demand curve that elicit a change in supply. D) a change in supply is a movement along the supply curve, while a change in quantity supplied is a shift in the supply curve.

answer

a. a change in quantity supplied is a movement along the supply curve, while a change in supply is a shift in the supply curve

question

Market equilibrium occurs when: A) there is no incentive for prices to change in the market. B) quantity demanded equals quantity supplied. C) the market clears. D) there is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears.

answer

d. there is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears

question

An ambiguous change in price and a decrease in quantity are most likely caused by: A) no shift in supply and a shift to the left in demand. B) a shift to the left in supply and a shift to the left in demand. C) a shift to the right in supply and a shift to the left in demand. D) a shift to the left in supply and a shift to the right in demand.

answer

b. a shift to the left in supply and a shift to the left in demand

question

The horizontal summation of individual demand curves for a particular product, holding the quantity demanded constant, is referred to as: A) market demand. B) market supply. C) complements in production. D) substitutes in production.

answer

a. market demand

question

An increase in the price of sugar (an ingredient for soft drinks) and an increased concern about tooth decay caused by the consumption of soft drinks will result in which of the following in the soft drink market? A) There will be an increase in both the equilibrium price and quantity. B) Equilibrium quantity will decrease, but equilibrium price may decrease, increase, or stay the same. C) There will be a decrease in both equilibrium price and quantity. D) Equilibrium quantity will increase, but equilibrium price may decrease, increase, or stay the same.

answer

b. equilibrium quantity will decrease, but equilibrium price may decrease, increase, or stay the same

question

An increase in the price of wheat, an important ingredient in the production of bread, combined with an increase in the number of people consuming bread, will result in which of the following changes in the bread market? A) Both the equilibrium price and quantity will increase. B) Equilibrium quantity will decrease, but equilibrium price may decrease, increase, or stay the same. C) Both the equilibrium price and quantity will decrease. D) Equilibrium price will increase, but equilibrium quantity may decrease, increase, or stay the same.

answer

d. equilibrium price will increase, but equilibrium quantity may decrease, increase, or stay the same

question

Changing the level of government spending is an example of: A) fiscal policy. B) interest rate policy. C) monetary policy. D) exchange rate policy.

answer

a. fiscal policy

question

The modern tools of macroeconomic policy are: A) tax policy and antitrust policy. B) fiscal policy and monetary policy. C) monetary policy and exchange rate policy. D) capital policy and labor policy.

answer

b. fiscal policy and monetary policy

question

Monetary policy involves: A) changes in government spending. B) changes in government tax receipts. C) changes in the quantity of money. D) changes in tax rates.

answer

c. changes in the quantity of money

question

Fiscal policy involves: A) changes in interest rates. B) changes in government spending. C) changes in the quantity of money. D) changes in the quantity of money and interest rates.

answer

b. changes in government spending

question

When the Great Depression reached its trough in 1933, the unemployment rate was approximately: A) 5%. B) 10%. C) 25%. D) 50%.

answer

c. 25%

question

An expansion is a period in which: A) output declines. B) the price level falls. C) output rises. D) unemployment rises.

answer

c. output rises

question

Recessions are periods when: A) output rises. B) the aggregate price level rises. C) the unemployment rate is falling. D) output and employment are falling.

answer

d. output and employment are falling

question

83. Economists have identified several consecutive months of falling employment and forecasts for the next few months suggest more of the same. At what point in the business cycle is the economy? A) recession B) expansion C) business-cycle peak D) business-cycle trough

answer

a. recession

question

The sequence of business cycle phases is: A) business-cycle peak, business-cycle trough, expansion, recession. B) business-cycle peak, expansion, business-cycle trough, recession. C) business-cycle peak, recession, business-cycle trough, expansion. D) business-cycle peak, expansion, recession, business-cycle trough.

answer

d. business-cycle peak, expansion, recession, business-cycle trough

question

Suppose an economy has rising total output accompanied by increasing employment. This is generally known as: A) stagflation. B) recession. C) inflation. D) expansion.

answer

d. expansion

question

In many countries, economists adopt the rule that a recession is a period of at least ______ during which aggregate output falls. A) one quarter B) two consecutive quarters C) three consecutive quarters D) a full year

answer

b. two consecutive quarters

question

If the economy grew at a 3% rate this year and average prices increased ______, people would be better off this year than last year. A) 3% B) faster than 3% C) less than 3% D) faster than 10%

answer

c. less than 3%

question

If workers' nominal wages have risen by 50% over a ten-year period and prices have increased by 40% in that same period, then we can safely conclude that the amount of goods and services that workers can buy has A) fallen. B) increased. C) not changed. D) It is impossible to determine whether the amount of goods and services that workers can purchase has changed and in what direction.

answer

b. increased

question

Inflation: A) raises the cost of making purchases and sales for which cash is required. B) can result in a decrease in barter transactions. C) encourages people to hold cash. D) is caused by changes in interest rates.

answer

a. raises the cost of making purchases and sales for which cash is required

question

Deflation: A) raises the cost of making purchases and sales for which cash is required. B) can result in an increase in employment. C) encourages people to hold cash rather than invest in new factories and productive assets. D) is caused by changes in interest rates.

answer

c. encourages people to hold cash rather than invest in new factories and productive assets

question

Price stability occurs when: A) the overall price level is zero. B) the economy is at full employment. C) the overall cost of living is changing very slowly. D) food prices have remained the same.

answer

c. the overall cost of living is change very slowly

question

If a country sold more goods and services to the rest of the world than it purchased from the other countries, then the country has a: A) trade deficit. B) budget deficit. C) trade surplus. D) budget surplus.

answer

c. trade surplus

question

If a country has a trade deficit, does it indicate that the country has a serious problem? A) No. Trade deficits occur when a country's investment spending is higher than its level of saving. B) Yes. Trade deficits occur when a country has low worker productivity. C) Yes. Trade deficits occur when a country does not have a comparative advantage in production. D) Yes. Trade deficits occur when a country has high budget surplus.

answer

a. no. trade deficits occur when a country's investment spending is higher than its level of saving

question

When the value of a nation's imports exceeds the value of that nation's exports, the nation is said to have: A) hyperinflation. B) a trade deficit. C) price stability. D) a trade surplus.

answer

b. a trade deficit

question

The paradox of thrift highlights: A) the role investment plays in the macroeconomy. B) how individual decisions to save more may worsen a recession. C) how an increase in spending occurs during recessions. D) the irrational behavior on the part of households.

answer

b. how individual decisions to save more money may worsen a recession

question

Fiscal and monetary policies: A) have no role in macroeconomic policies. B) have been used by the government for over 250 years. C) are most effective in microeconomic settings. D) are used to correct for short-term economic fluctuations.

answer

d. are used to correct for short-term economic fluctuations

question

Fiscal policy involves: A) deliberate changes in the money supply. B) deliberate changes in taxation and/or government spending. C) changes in interest rates in specific markets. D) changes which correct only recessionary problems.

answer

b. deliberate changes in taxation and/or government spending

question

A contraction in the business cycle is: A) called the long run. B) called a recession. C) accompanied by an increase in employment. D) viewed as a rarity.

answer

b. called a recession

question

The national accounts keep track of everything except: A) the spending of consumers and the government. B) the sales of producers. C) business investment. D) exchange rates.

answer

d. exchange rates

question

(Figure: Circular-Flow Model) If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of that box), which of the following is likely to happen if there is an increase in consumer spending? A) an increase in the nominal GDP B) a decrease in the nominal GDP C) an increase in the unemployment rate D) a decrease in the inflation rate

answer

a. an increase in nominal GDP

question

Figure: Circular-Flow Model) If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of that box), which of the following is likely to happen if there is a decrease in consumer spending? A) an increase in the nominal GDP B) an increase in the real GDP C) an increase in the unemployment rate D) an increase in the inflation rate

answer

c. an increase in the unemployment rate

question

(Figure: Circular-Flow Model) If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of that box), which of the following is likely to happen if there is an increase in investment spending? A) a decrease in the nominal GDP B) an increase in the nominal GDP C) an increase in the unemployment rate D) a decrease in the inflation rate

answer

b. an increase in nominal GDP

question

(Figure: Circular-Flow Model) If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of that box), which of the following is likely to happen if there is an increase in exports? A) a decrease in the nominal GDP B) a decrease in the real GDP C) a decrease in the unemployment rate D) a decrease in the inflation rate

answer

c. a decrease in the unemployment rate

question

n the circular-flow model, households: A) receive transfer payments from the government. B) buy resources in the factor markets. C) sell products in the market for goods and services. D) issue stocks and bonds to raise capital.

answer

a. receive transfer payments from the government

question

The market(s) that channel the excess savings of households into investment spending by firms is(are) known as: A) the stock market. B) financial markets. C) the international market. D) the bond market.

answer

b. financial markets

question

Investment spending represents spending on: A) productive physical capital. B) stocks. C) mutual funds. D) corporate bonds.

answer

a. productive physical capital

question

Which one of the following is an example of consumption expenditure? A) Samantha bought an oven for her cooking show on Food Network. B) Stephanie bought a laptop for her brother. C) Jim purchased 200 shares of Google stock. D) Mr. Smith spent $1,500 to buy a used car for his son.

answer

b. Stephanie bought a laptop for her brother

question

Which of the following is NOT included in investment spending in the national income accounts? A) new residential construction B) the purchase of machinery and other productive physical capital C) the purchase of stocks and bonds by a business D) spending on inventories

answer

c. the purchase of stocks and bonds by a business

question

A laptop computer that is purchased by an accounting firm is considered to be: A) consumption spending. B) investment spending. C) private saving. D) a pretax dividend.

answer

b. investment spending

question

If we add up all of the values added at every stage of production for a good, we will get: A) the total cost of the labor used to produce the good. B) the prices of the factors of production used to produce the good. C) the final value of the good. D) the intermediate value of the good.

answer

c. the final value of the good

question

Which of the following would NOT be included in this year's GDP? A) the production of a television show B) the purchase of a new work truck C) the hiring of a new police officer D) your purchase of your neighbor's 2001 Toyota

answer

d. your purchase of your neighbor's 2001 toyota

question

Which of the following would NOT be included in this year's GDP? A) the production of a television show B) the purchase of a new hybrid truck C) the hiring of a new school teacher D) your purchase of your neighbor's house, which was built in 1994

answer

d. your purchase of your neighbors house, which was built in 1994

question

Which of the following is included in GDP? A) the purchase of 100 shares of Microsoft stock B) the purchase of a 1965 Ford Mustang C) Social Security payments from the U.S. government to retired people D) the purchase of a ticket to a Lady Gaga concert

answer

d. the purchase of a lady gaga ticket

question

Suppose that a doctor who lives alone hires the services of a maid and pays her $15,000 a year to clean his house. Suppose that he marries her the following year. Other things equal, which of the following would be true about the reported official GDP the following year? A) It would rise. B) It would fall. C) It would stay the same. D) There is not enough information to evaluate the impact that it would have on GDP.

answer

b. it would fall

question

(Table: Peanut Butter and Jelly Economy) A simple economy produces only peanut butter and jelly. Using the data in the attached table, in 2011, nominal GDP was ____ and real GDP was _____. A) $450; $400 B) $525; $450 C) $525; $400 D) $450; $575

answer

b. 525; 450

question

If nominal GDP increases from one year to the next: A) prices must have risen from one year to the next. B) real GDP must have risen from one year to the next. C) prices and real GDP must have risen from one year to the next. D) either output or prices or both must have risen from one year to the next.

answer

d. either output or price or both must have risen from one year to the next

question

Real GDP is the same as: A) current-dollar GDP . B) inflation-adjusted GDP . C) nominal GDP . D) value-added GDP .

answer

b. inflation-adjusted GDP

question

50. (Table: Pizza Economy III) Considering 2010 as the base year, real GDP in 2011 was: A) $47,000. B) $69,000. C) $72,000. D) $114,000.

answer

B. 69,000

question

151. (Table: Pizza Economy III) Considering 2010 as the base year, real GDP between 2010 and 2011 grew at a rate of: A) 53.19%. B) 39.47%. C) -39.47%. D) -58.67%.

answer

C. -39.47%

question

A price index: A) always includes a base year. B) measures the cost of purchasing a market basket of output across different years. C) is normalized to 100 for the base year. D) always includes a base year, measures the cost of purchasing a market basket of output across different years, and is normalized to 100 for the base year.

answer

c. always includes a base year, measures the cost of purchasing a market basket of output across different years, and is normalized to 100 for the base year

question

In a market basket of goods: A) the quantities stay constant and the prices may change. B) the quantities may change and the prices are held constant. C) both the prices and the quantities are held constant. D) both the prices and the quantities may change.

answer

a. the quantities stay constant and the prices may change

question

157. (Table: The Consumer Price Index) The approximate rate of inflation in year 3 is: A) 5%. B) 10%. C) 19%. D) 20%.

answer

a. 5%

question

You read in the newspaper that the CPI in 2011 was 120. You conclude that a typical market basket in 2011 would have cost: A) 20 percent more than the same market basket purchased in 2010. B) 120 percent more than the same market basket purchased in 2010. C) 20 percent more than the same market basket purchased in the base year. D) 120 percent more than the same market basket purchased in the base year.

answer

c. 20 percent more than the same market purchased in the base year

question

The ______ is the most widely used measure of inflation in the United States. A) producer price index B) CPI C) GDP deflator D) national income account

answer

b. CPI

question

The purpose of indexing Social Security payments to the CPI is to: A) increase corporate profits. B) justify continued government funding of the Bureau of Labor Statistics. C) avoid the privatization of Social Security. D) maintain the purchasing power of retirees.

answer

D. maintain the purchasing power of retirees

question

In the circular-flow diagram, government purchases of goods and services are financed by: A) tax revenues. B) tax revenues net of transfer payments. C) tax revenues net of transfer payments plus government borrowing from financial markets. D) tax revenues plus government borrowing from financial markets.

answer

c. tax revenues, net of transfer payments plus government borrowing from financial markets.

question

179. (Scenario: Market Basket) What is the value of the price index in 2011? A) 100 B) 90 C) 111 D) 132

answer

c. 111

question

180. (Scenario: Market Basket) What is the rate of inflation between 2010 and 2011? A) -10% B) 11% C) 32% D) 0%

answer

b. 11%

question

A binding minimum wage does all of the following EXCEPT: A) decrease the quantity of labor demanded. B) increase unemployment. C) increase the amount of labor supplied. D) decrease the amount of labor supplied.

answer

d. decrease the amount of labor supplied

question

When the economy is at full employment: A) there is no unemployment. B) cyclical unemployment is zero. C) frictional unemployment is zero. D) the natural rate of unemployment is zero.

answer

b. cyclical unemployment is zero

question

Recent declines in union membership are likely to cause the natural rate of unemployment to: A) increase. B) decrease. C) be unaffected. D) be unpredictable.

answer

b. decrease

question

Which of the following is an example of a cyclically unemployed worker? A) Julio, a statistician, lost his job in a forecasting firm and now does consulting work part time. B) Jennifer, an accountant, spends her days at home reading The New York Times and mailing out her résumé. C) Ana Maria, a business major, received a job offer during her senior year but has yet to start working. D) Ulysses, a high school dropout, joined the army.

answer

b. Jennifer, an account, spends her days at home reading the NYT and mailing out her resume

question

If money income remains the same while the average price level doubles, then: A) nominal income will fall. B) real income will fall. C) interest rates will fall. D) purchasing power will increase.

answer

b. real income will fall

question

Suppose that a country has a progressive income tax code, where taxable income is calculated in nominal terms but the schedule of income tax rates is NOT indexed to inflation. An individual whose income keeps up with inflation will find that over time he or she she will pay: A) the alternative minimum tax. B) a lower percentage of income in taxes over time. C) the same percentage of income in taxes over time. D) a higher percentage of income in taxes over time.

answer

d. a higher percentage of income in taxes over time

question

Which of the following is true? A) Unexpected inflation benefits lenders and hurts borrowers. B) Unexpected inflation benefits borrowers and hurts lenders. C) Unexpected inflation benefits borrowers but does not affect lenders. D) Unexpected deflation benefits lenders but does not affect borrowers.

answer

b. unexpected inflation benefits borrowers and hurts lenders

question

210. (Figure: The Labor Market) Refer to the accompanying figure on the labor market. The unemployment rate at the equilibrium wage rate is: A) 0%. B) 50%. C) 80%. D) 15%.

answer

a. 0%

question

Structural unemployment occurs when: A) new workers enter the work force. B) there is a surplus of labor at the current wage rate. C) there is an expansion in the economy. D) there is cyclical unemployment.

answer

b. there is a surplus of labor at the current wage rate

question

In a particular labor market, the demand for labor is given by W = 20 - (1/100)L and the supply of labor is given by W = 4 + (1/100)L where W is the wage rate, and L is the number of workers. Suppose government decides to impose a minimum wage of $15 in this market. What effect will this minimum wage have on the market? A) The wage will have no impact since it is below the equilibrium wage. B) The wage will create a shortage of workers since it is above the equilibrium wage. C) The wage will create surplus of workers since it is above the equilibrium wage. D) The wage will result in increases in wages for workers who were employed at the equilibrium wage only.

answer

c. the wage will create a surplus of workers since it is above the equilibrium wage

question

The natural rate of unemployment changes when: A) the cyclical unemployment changes. B) actual rate of unemployment changes. C) there are changes in labor market institutions. D) government policies remain the same.

answer

c. there are changes in labor market institutions

question

Productivity is equal to: A) real GDP divided by the number of workers. B) real GDP divided by the population. C) the number of workers per machine. D) the total output produced.

answer

a. real GDP divided by the number of workers

question

An increase in capital stock would: A) shift the production function upward. B) shift the production function inward. C) shift the production function downward. D) cause a movement to the right along a stationary production function.

answer

d. cause a movement to the right along a stationary production function

question

Which of the following countries would NOT be characterized by abundant farmland and mineral deposits? A) United States B) Canada C) Argentina D) Japan

answer

d. Japan

question

Computers started to become more common in the 1970s in America. From this time until the mid-1990s: A) the economy started to grow rapidly. B) real GDP per person increased quickly and then slowed down. C) nominal GDP per person increased quickly. D) very little happened to productivity.

answer

d. very little happened to productivity

question

. Economic growth will likely involve: A) a reduction in investment. B) a decrease in the capital stock. C) higher saving. D) lower saving.

answer

c. higher saving

question

The sources of funds for investment spending are: A) savings by households, government, and foreigners. B) taxes and transfer payments. C) always equal to U.S. spending on imports. D) directed to their most productive uses by the U.S. government.

answer

a. savings by households, government, and foreigners

question

The convergence hypothesis helps explain why: A) highly educated people converge in high-income countries. B) high-income individuals marry other high-income individuals. C) high-income countries continue their high growth rates. D) the income of high-income and lower-income countries get closer.

answer

d. the income of high-income and lower-income countries get closer

question

Economists generally agree that ____ are the best way for governments to reduce greenhouse gases to address climate change. A) military actions B) market-based incentives C) direct pollution controls D) subsidies for offshore oil exploration

answer

b. market-based incentives

question

To helpt increase investment spending, the government can: A) lower taxes on consumption, so that disposable income rises. B) lower taxes on the returns from savings, so that total savings increase and the interest rate falls. C) raise taxes on the returns from bonds while lowering taxes on stock dividends. D) lower taxes on investment spending while raising taxes on savings, so that total tax revenue remains constant.

answer

b. lower taxes on the returns from savings, so that the total savings increase and the interest rate falls

question

If a country has a trade surplus, we can conclude that it also has: A) a budget surplus. B) a net capital outflow. C) a net capital inflow. D) a budget deficit.

answer

b. a net capital outflow

question

A business will want to borrow to undertake an investment project when the rate of return on that project is: A) lower than the interest rate. B) higher than the interest rate. C) higher than the exchange rate. D) equal to the inflation rate.

answer

b. higher than the interest rate

question

Governments can save when: A) taxes are less than expenditures. B) taxes are greater than expenditures. C) the government borrows to finance its expenditures. D) the president insists that Congress balance the budget.

answer

b. taxes are greater than expenditures

question

Suppose a lender expects a real interest rate of 6% and the inflation rate is expected to be 3%. In this case, the nominal interest rate is equal to: A) 3%. B) 9%. C) 12%. D) 6%.

answer

b. 9%

question

If you are paid $10,500 in one year on a $10,000 loan made today, then your annual interest rate is: A) 0%. B) 5%. C) $500. D) $10,000.

answer

b. 5%

question

The present value of $1 realized one year from now is equal to: A) $1/(1+r). B) $1×(1+r). C) 1+r. D) 1/r.

answer

a. $1/(1+r)

question

The main role of financial systems is to: A) make the capitalist class richer. B) provide credit cards to as many people as possible. C) channel goods and services to the people willing to pay for them. D) channel funds from savers into investments.

answer

d. channel funds from savers into investments

question

A financial asset is: A) a physical asset like a car. B) a claim that entitles the owner to future income from the seller. C) the value of accumulated savings. D) another term for capital.

answer

b. a claim that entitles the owner to future income from the seller

question

A physical asset is: A) a claim on a tangible asset that gives the owner the right to dispose of it as he or she wishes. B) a claim that entitles the owner to future income from the seller. C) the value of accumulated savings. D) human capital.

answer

a. a claim on a tangible asset that gives the owner the right to dispose of it as he or she wishes

question

Transaction costs are: A) the return to an entrepreneur. B) the return to moving a product to market. C) the expenses of producing a product. D) the expenses of negotiating and executing a deal.

answer

d. the expenses of negotiating and executing a deal

question

Which of the following assets would be considered to be the least liquid? A) cash B) checking account balance C) corporate bond D) ownership of one fourth of a privately held company

answer

d. ownership of one fourth of a privately held company

question

Financial assets that carry more risk: A) usually have a lower rate of return. B) usually have a higher rate of return. C) are purchased by risk-averse buyers. D) are a hedge against the future.

answer

b. usually have a higher rate of return

question

Financial intermediaries that manage a stock portfolio and sell shares of the stock portfolio itself to individual investors are: A) mutual funds. B) pension funds. C) life insurance companies. D) banks.

answer

a. mutual funds

question

When portions of investment spending are financed by a capital inflow: A) interest is being paid by government for the use of those funds. B) interest is being paid to a foreigner for use of those funds. C) consumers will need to cut back on spending. D) taxes will be raised to pay for this capital inflow.

answer

b. interest is being paid to a foreigner for use of those funds

question

Holding everything else constant, when the government uses an expansionary policy in the presence of a deficit, it will result in: A) an increase in the equilibrium interest rate in the loanable funds market. B) an increase in the level of private investment spending. C) an increase in government savings. D) a fall in the equilibrium interest rate in the loanable funds market.

answer

a. an increase in the equilibrium interest rate in the loanable funds market

question

Crowding out results in a(n): A) decrease in private investment spending resulting from government deficit spending. B) increase in physical capital accumulation, which leads to higher economic growth. C) increase in private investment spending resulting from government deficit spending. D) increase in consumption spending as a result of higher investment spending.

answer

a. decrease in private investment spending resulting from government deficit spending

question

Four types of financial intermediaries are: A) mutual funds, pension funds, government, and the central bank. B) mutual funds, pension funds, life insurance companies, and banks. C) banks, stock markets, pension funds, and the central bank. D) the central bank, government, the stock market, and the Dow Jones Industrial A verage.

answer

b. mutual funds, pension funds, life insurance companies, and banks

question

The net present value of a project is the difference between: A) current benefits and the present value of future costs. B) the present value of current benefits and the current value of future costs. C) the present value of future benefits and the present value of future costs. D) the present value of current and future benefits and the present value of current and future costs.

answer

d. the present value of current and future benefits and the present value of current and future costs

question

In order to finance your education, you borrow $10,000 from a relative at an annual interest rate of 5%. You promise to pay her back in eight years. Which formula will provide the correct formula for calculating the value of your payment in eight years? A) $10,000(1 + 0.05) B) $10,000(1 + 5) C) $10,000(1 + 0.05)8 D) $10,000(1 + 0.5)8

answer

C) $10,000(1 + 0.05)^8

question

The present value of a future payment: A) decreases when the interest rate rises. B) decreases when the interest rate falls. C) decreases when the interest rate stays the same. D) never changes regardless of the interest rates.

answer

a. decrease when the interest rate rises

question

If the friend offers to pay you $1 five years from today, the net present value will: A) be higher than $1. B) depend upon the prevailing interest rate. C) be equal to zero, since you don't have the dollar. D) not be important in understanding the time value of money.

answer

b. depend upon the prevailing interest rate.

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