Question 1

Which of the following would be most likely to cause the price/earnings ratio of stocks to rise?

Accepted Answer

A) the expectation of a recession in the near future 
B) the expectation of inflation in the near future 
C) higher interest rates 
D) lower interest rates 
A) the expectation of a recession in the near future 
B) the expectation of inflation in the near future 
C) higher interest rates 
D) lower interest rates

Question 2

Which of the following is true?

Accepted Answer

A) Most stockholders own stock because they want to participate in the daily decision making of the firms that they own. 
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) The potential losses of shareholders are limited to the amount of their investment. 
D) Ownership of a corporate bond provides the bondholder with an ownership right to a fraction of the firm's future profits. 
A) Most stockholders own stock because they want to participate in the daily decision making of the firms that they own. 
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) The potential losses of shareholders are limited to the amount of their investment. 
D) Ownership of a corporate bond provides the bondholder with an ownership right to a fraction of the firm's future profits.

Question 3

Which of the following is true?

Accepted Answer

A) An increase in the interest rate will tend to increase stock prices. 
B) A reduction in the interest rate will tend to increase stock prices. 
C) An increase in the inflation rate will tend to increase stock prices. 
D) There is no reason to believe that changes in interest rates will influence stock prices. 
A) An increase in the interest rate will tend to increase stock prices. 
B) A reduction in the interest rate will tend to increase stock prices. 
C) An increase in the inflation rate will tend to increase stock prices. 
D) There is no reason to believe that changes in interest rates will influence stock prices.

Question 4

The random walk theory implies that stock prices

Accepted Answer

A) go down,then up,and then down again. 
B) go up and then down in a predictable pattern. 
C) follow systematic trends. 
D) are unpredictable based on past trends. 
A) go down,then up,and then down again. 
B) go up and then down in a predictable pattern. 
C) follow systematic trends. 
D) are unpredictable based on past trends.

Question 5

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 
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 6

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 7

According to the random walk theory,which of the following is true?

Accepted Answer

A) Stock prices reflect all available information about factors that affect stock prices. 
B) Future movements of stock prices are unpredictable. 
C) Changes in stock prices are driven by surprise occurrences. 
D) All of the above are true. 
A) Stock prices reflect all available information about factors that affect stock prices. 
B) Future movements of stock prices are unpredictable. 
C) Changes in stock prices are driven by surprise occurrences. 
D) All of the above are true.

Question 8

During 1982-1997,stock prices increased substantially.Which of the following helped to boost stock prices during this period?

Accepted Answer

A) higher interest rates and rapid growth of corporate profits 
B) lower interest rates and rapid growth of corporate profits 
C) higher interest rates and slow growth of corporate profits 
D) lower interest rates and slow growth of corporate profits 
A) higher interest rates and rapid growth of corporate profits 
B) lower interest rates and rapid growth of corporate profits 
C) higher interest rates and slow growth of corporate profits 
D) lower interest rates and slow growth of corporate profits

Question 9

Investment in a broad portfolio of stocks is most attractive for

Accepted Answer

A) short-term investors. 
B) long-term investors. 
C) investors seeking a steady rate of return. 
D) investors who will need the funds for other purposes in about 10 years. 
A) short-term investors. 
B) long-term investors. 
C) investors seeking a steady rate of return. 
D) investors who will need the funds for other purposes in about 10 years.

Question 10

Which of the following is a risk that investors undertake when purchasing stocks?

Accepted Answer

A) An individual stock can rise and fall unpredictably. 
B) Nearly all stocks in the stock market may rise or fall together,when expectations about the entire economy change. 
C) Both a and b are true. 
D) Neither a nor b is true. 
A) An individual stock can rise and fall unpredictably. 
B) Nearly all stocks in the stock market may rise or fall together,when expectations about the entire economy change. 
C) Both a and b are true. 
D) Neither a nor b is true.

Exam 31: The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Which of the following would be most likely to cause the price/earnings ratio of stocks to rise?

Which of the following is true?

Which of the following is true?

The random walk theory implies that stock prices

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

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

According to the random walk theory,which of the following is true?

During 1982-1997,stock prices increased substantially.Which of the following helped to boost stock prices during this period?

Investment in a broad portfolio of stocks is most attractive for

Which of the following is a risk that investors undertake when purchasing stocks?

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

Dynamic Change, economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney 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

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Government Spending and Taxation

The Economics of Social Security

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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