Deck 13: Monopoly and Antitrust

Question 1

The PE ratio is determined by dividing the earnings per share by the current market price of the stock.

Answer 1

False

Question 2

A rational individual would rather receive $5,000 today than receive $6,000 in one year if the applicable nominal interest rate was 10%.

Answer 2

False

Question 3

A decrease in real interest rates will lead to an increase in the demand for loanable funds.

Answer 3

False

Question 4

Because of fixed interest rates, there is no risk involved with holding corporate bonds.

Question 5

The term "saving" is a flow concept while the term "savings" is a stock concept.

Question 6

The 2008 financial crisis was caused by the decline of real estate values as well as several other factors.

Question 7

Owners of preferred stock received fixed dividend payments while owners of common stock receive dividend payments that vary with the level of profits.

Question 8

An increase in real interest rates will lead to an increase in the quantity of loanable funds supplied.

Question 9

A consumption tax would lead to an increase in the supply of loanable funds and a decrease in real interest rates.

Question 10

The use of financial leveraging on mortgage backed securities played a central role in the 2008 financial crisis.

Question 11

Stocks and bonds are both considered securities.

Question 12

Incentives for borrowers and savers in the loanable funds market are determined by the nominal interest rate as opposed to the real interest rate.

Question 13

Crowding out will lead to a decrease in supply of loanable funds, a decrease in real interest rates, and subsequently a decrease in spending by households and firms.

Question 14

A bank is an example of a financial intermediary.

Question 15

In a closed economy, the formula for public saving is: S_private = T + G + TR

Question 16

In a closed economy, the formula for private saving is: S_private = Y - C - T + TR

Question 17

A rational individual would rather receive $1,000 today than receive $1,100 in one year if the applicable nominal interest rate was 12%.

Question 18

Because of fixed interest rates, there is no risk involved with holding government bonds.

Question 19

The PE ratio is a measure of how highly a stock is valued relative to its current earnings.

Question 20

A stock is an obligation issued by a corporation that promises the holder to receive fixed annual interest payments and payment of the principal upon maturity.

Question 21

"Saving" refers to ____ while "savings" refers to ____.

A)​a stock concept; a flow concept
B)​how much is saved within a certain time period; accumulated assets
C)​a stock concept; accumulated assets
D)​how much is saved within a certain time period; a flow concept

Question 22

A bond can be:

A)​partial ownership in a corporation.
B)​a debt obligation of a company.
C)​a debt obligation of a government or government agency.
D)​both B and C above

Question 23

Which of the following will increase the demand for loanable funds?

A)​a newly established consumption tax
B)​a decrease in the real interest rate
C)​an increase in the real interest rate
D)​creation of an investment tax credit for businesses

Question 24

Which of the following is not true with regard to mutual funds?

A)​Some mutual funds allow investors to invest in all stocks in a given market.
B)​Mutual fund returns are greater than those for an individual who selects his/her own stocks.
C)​They allow individuals to spread risk across many different companies.
D)​Investors gain access to the services of a financial expert.

Question 25

A government budget deficit will have a:

A)​positive effect on public saving causing a rightward shift in the supply of loanable funds.
B)​positive effect on public saving causing a leftward shift in the supply of loanable funds.
C)​negative effect on public saving causing a rightward shift in the supply of loanable funds.
D)​negative effect on public saving causing a leftward shift in the supply of loanable funds.

Question 26

Public saving equals:

A)​TR - G - T
B)​Y - C- T + TR
C)​Y + C + T + TR
D)​T - G -TR

Question 27

An increase in the ____ interest rate will lead to an increase in the ____.

A)​nominal; demand for loanable funds
B)​nominal; supply of loanable funds
C)​real; quantity of loanable funds supplied
D)​real; quantity of loanable funds demanded

Question 28

A government budget deficit will lead to:

A)​an increase in the supply of loanable funds and an increase in real interest rates.
B)​a decrease in the supply of loanable funds and an increase in real interest rates.
C)​an increase in the supply of loanable funds and a decrease in real interest rates.
D)​a decrease in the supply of loanable funds and a decrease in real interest rates.

Question 29

In the loanable funds market which of the following is true?

A)​Borrowers represent supply and government represents demand.
B)​Borrowers represent supply and banks represent demand.
C)​Banks represent supply and savers represent demand.
D)​Savers represent supply and borrowers represent demand.

Question 30

Which of the following is a type of ownership that features a fixed payment?

A)​common stock
B)​preferred stock
C)​retained earnings
D)​bonds

Question 31

Which of the following is likely to increase the equilibrium real interest rate?

A)​greater tax benefits for IRAs
B)​technological improvement creating profitable investment opportunities
C)​elimination of an investment tax credit for corporations
D)​an increased consumption tax

Question 32

If the real interest rate is below equilibrium, which of the following is likely to occur?

A)​Lenders will raise their interest rates which will encourage saving.
B)​Lenders will raise their interest rates which will encourage borrowing.
C)​Lenders will lower their interest rates which will encourage saving.
D)​Lenders will lower their interest rates which will encourage borrowing.

Question 33

Private saving equals:

A)​Y - C - T + TR
B)​Y + C + T + TR
C)​Y + C + T - TR
D)​Y + C - T - TR

Question 34

The concept that it is very difficult to consistently pick winners in the stock market without inside information is known as:

A)​a random walk.
B)​a double coincidence of wants.
C)​the crowding out effect.
D)​arbitrage.

Question 35

Which of the following is a method by which a firm can obtain financial resources to invest in capital?

A)​use of retained earnings
B)​borrowing from financial intermediaries
C)​selling stocks or bonds
D)​all of the above

Question 36

If the government runs a deficit, which of the following will be true?

A)​T > G - TR
B)​T < G - TR
C)​T > G + TR
D)​T < G + TR

Question 37

The crowding-out effect indicates that increased government borrowing will lead to:

A)​an increase in consumption by households and an increase in investment spending by firms.
B)​an increase in consumption by households and a decrease in investment spending by firms.
C)​a decrease in consumption by households and an increase in investment spending by firms.
D)​a decrease in consumption by households and a decrease in investment spending by firms.

Question 38

Which of the following is not true regarding bonds?

A)​Bonds can be purchased from corporations as well as governments.
B)​Interest must be paid to bondholders before dividends are paid to stockholders.
C)​Bondholders face no risk from changing market interest rates on bonds that have a fixed interest rate.
D)​The capital gains on bonds are generally more limited than the capital gains on stocks.

Question 39

Which of the following is true regarding bonds?

A)​Other things equal, bondholders have greater financial security than stockholders.
B)​The possibility of a bond's value increasing greatly is limited compared to stocks.
C)​The legal obligation to bondholders is of higher priority than that of stockholders.
D)​Higher market interest rates represent a risk to bondholders.
E)​all of the above

Question 40

Which of the following must be true?

A)​Savings must equal investment in an open economy.
B)​Savings must equal investment in a closed economy.
C)​Savings must equal consumption in an open economy.
D)​Savings must equal consumption in a closed economy.

Question 41

Which of the following statements is true with regard to the Fed's response to the economic crisis of 2008?

A)​Although the Fed lowered its interest rates to nearly zero, there are other actions it can take to improve the economy.
B)​Because the Fed lowered its interest rates to nearly zero, there are no other actions it can take to improve the economy.
C)​Since the Fed did not lower its interest rates to near zero, there are still other actions it can take to improve the economy.
D)​none of the above

Question 42

Most economists believe that the financial crisis of 2008 began because of problems in the ____ industry.

A)​computer
B)​automotive
C)​housing
D)​banking

Question 43

Other things held constant, investment in physical capital will increase:

A)​labor productivity.
B)​national income.
C)​wages.
D)​all of the above

Question 44

The actions of a miser benefit ____ and the actions of a philanthropist benefit ____.

A)​a select few; a wide range of individuals
B)​a wide range of individuals; a select few
C)​a wide range of individuals; a wide range of individuals
D)​a select few; a select few

Question 45

Which of the following is true?

A)​In 2007, the default rate on fixed rate mortgages was lower than that on ARMs.
B)​From 2006-2008, housing construction decreased in the U.S.
C)​Zero-down mortgages decreased the incentive for homeowners to prevent defaulting on their homes.
D)​all of the above

Question 46

Housing prices peaked in:

A)​1997.
B)​2000.
C)​2003.
D)​2006.

Question 47

The substantial risks taken by financial intermediaries like Sallie Mae because they are effectively insured are examples of what economists refer to as:

A)​sub-prime behavior.
B)​asymmetric information.
C)​moral hazard.
D)​countercyclical policy.

Question 48

Why are real interest rates more important than nominal interest rates with regard to analyzing the supply and demand of loanable funds?

Question 49

Rank bonds, common stock, and preferred stock with regard to two factors the possibility of a substantial increase in value. Rank these same securities with regard to investors' legal claims for repayment on their investments.

Question 50

According to the crowding-out effect, a budget deficit will lead to:

A)​reduced investment spending and a reduction in long-term economic growth.
B)​reduced investment spending and an increase in long-term economic growth.
C)​increased investment spending and a reduction in long-term economic growth.
D)​increased investment spending and an increase in long-term economic growth.

Question 51

Which of the following is a government sponsored enterprise that funds or guarantees a substantial number of mortgage loans in the U.S.?

A)​Fannie Mae
B)​Freddy Mac
C)​both A and B above
D)​neither A nor B above

Question 52

Would a relatively high P/E ratio lead us to conclude that a stock is overvalued or undervalued? Why or why not?

Question 53

What is the present value of $1,000 to be received in two years if the current market interest rate is 8.0%?

A)​$481
B)​$556
C)​$857
D)​$926

Question 54

Which of the following was not a reason for the significant decline in housing prices in 2007?

A)​overbuilding
B)​strict regulation
C)​excessive previous appreciation
D)​aggressive mortgages

Question 55

What is the present value of $5,000 to be received in one year if the current market interest rate is 6.0%?

A)​$3,125
B)​$4,717
C)​$4,923
D)​$5,300

Question 56

Which of the following was not a reason for the financial collapse in 2008?

A)​inaccurate ratings by S&P and Moody's
B)​government promoting aggressive mortgage lending
C)​pooling of mortgage backed securities
D)​the absence of financial leveraging in the banking industry

Question 57

In 2005 and 2006, because of fears of inflation, the Fed:

A)​increased interest rates which lead to higher monthly payments on fixed rate mortgages.
B)​increased interest rates which lead to higher monthly payments on adjustable rate mortgages.
C)​decreased interest rates which lead to higher monthly payments on fixed rate mortgages.
D)​decreased interest rates which lead to higher monthly payments on adjustable rate mortgages.

Question 58

Other things equal, which of the following is the result of increased saving?

A)​a decrease in interest rates
B)​a decrease in prices
C)​forgone consumption
D)​all of the above

Question 59

In 2005, the percentages of mortgages that were considered sub-prime:

A)​increased dramatically.
B)​increased minimally.
C)​decreased minimally.
D)​decreased dramatically.

Question 60

Adjustable rate mortgages with extremely low initial interest rates which enable high risk buyers to purchase homes are known as:

A)​upside down mortgages.
B)​ARMs.
C)​sub-prime loans.
D)​mortgage backed securities.

Question 61

List the various reasons that contributed to the financial crisis that occurred in 2008.

Question 62

Explain how a consumption tax could lead to a decrease in real interest rates.