Question 1

The NASDAQ:

Accepted Answer

A) weights individual stocks equally. 
B) gives greater weight to low-tech stocks than does the Dow. 
C) gives greater weight to small stocks than does the Dow.(True Answer )Correct 
D) has 500 stocks.

Question 2

Bursting stock market bubbles create labor adjustment costs.

Accepted Answer

A) True 
 B)False

Question 3

Suppose the economy is in a recession. Which of thefollowing is the best incentive scheme for the manager ofa large auto sales center?

Accepted Answer

A) Threat of termination if one sale is not made each day. 
B) Equal salary for all sales agents regardless of sales. 
C) Bonuses for the sales agents with the highest gross level of sales. 
D) Bonuses for the sales agents with the highest sales relative to other sales agents.

Question 4

If rewards are mostly based on luck the incentive toexert effort will be low.

Accepted Answer

A) True 
 B)False

Question 5

The number of senior citizens will double by 2020, so investingin medical care and retirement homes is likely to generateabove-normal market returns.

Accepted Answer

A) True 
 B)False

Question 6

Accepted Answer

A) The optimal consumption bundle contains five movie downloads and 10 music downloads. 
B) The MRS is 0.50 at the optimal consumption bundle. 
C) The price per music download is half as expensive as the price per movie download. 
D) In the optimum consumption bundle, the marginal utility of movie downloads equals half the marginal utility of music
Downloads.

Question 7

Corporate culture helps firms ________ what is________ to measure.

Accepted Answer

A) incentivize; easy 
B) establish; easy 
C) incentivize; difficult 
D) monetize; difficult

Question 8

Financial returns on houses are _______ over long periods oftime because part of the return on housing is from ________.

Accepted Answer

A) close to zero; the joys of ownership 
B) about 7 percent per year; home owner improvements 
C) about 12 percent per year; paying low property taxes 
D) negative; depreciation

Question 9

For a mutual fund, a load is:

Accepted Answer

A) the expected return of the fund. 
B) the risk of the fund. 
C) the fee for managing the fund. 
D) the charge for insuring the fund.

Question 10

Which of the following choices correctly describes therelationship between risk and return?

Accepted Answer

A) Risk and return have no relationship. 
B) Risk and return have a positive relationship.(True Answer )Correct 
C) Zero risk instruments have the highest returns. 
D) The lower the risk is, the higher the return.

Question 11

Corporate culture is the:

Accepted Answer

A) natural interactions of employees and managers. 
B) shared collection of values and norms that govern how people interact in an organization or firm.(True Answer
)Correct 
C) easiest aspect of the firm to manage. 
D) typical extrinsic reward mechanism used in corporations.

Question 12

Which of the following statements is TRUE?

Accepted Answer

A) The income effect of a wage increase is to consume less leisure. 
B) The substitution effect of a wage decrease is to consume less leisure. 
C) The price of leisure decreases with a decrease in wages. 
D) The price of leisure increases with an increase in income.

Question 13

Tournaments are useful for rewarding worker effortwhenever:

Accepted Answer

A) external factors, such as the quality of the good and the state of the economy, have little effect on workers'
Success. 
B) workers are myopic and unaware that external factors play a significant role on sales. 
C) workers are utility maximizers primarily concerned about their reputation in the community. 
D) external factors, such as the quality of the good and the state of the economy, do affect workers
Success.

Question 14

Corporate culture helps firms incentivize what is easyto measure.

Accepted Answer

A) True 
 B)False

Question 15

Stock market bubbles have real effects in the economy because:

Accepted Answer

A) overvalued stocks cause inflationary effects in the economy. 
B) overvalued stocks violate the efficient markets hypothesis. 
C) overvalued stocks divert capital to less-productive uses. 
D) when these bubbles burst, they raise the value of capital in those industries.

Question 16

Suppose that a car dealer in California advertises thatits sales staff is not paid on commission. Which of thefollowing is correct with regards to the strategy of thisadvertising?

Accepted Answer

A) Car dealers who rely on repeat business prefer a low- pressure, informative sales staff. 
B) Car dealers who rely on selling cars to first-time buyers prefer a lower-pressure, informative sales
Staff. 
C) Car dealers who rely on repeat business prefer high- pressure sales tactics. 
D) Car dealers who rely on selling cars to first-time buyers prefer high-pressure sales tactics.

Question 17

X pays a yearly salary of $55,000, regardless of thestate of the economy. Job Y pays a yearly salary of$10,000 in a bad economy and $70,000 in a goodeconomy. The probability of a bad economy is 0.30.Which job would most people prefer?

Accepted Answer

A) Job Y because the expected payoff of $80,000 is greater than $55,000. 
B) Job X because $55,000 exceeds the expected payoff of Job Y of $52,000. 
C) Job X because $55,000 exceeds the expected payoff of Job Y by $6,000. 
D) Job Y because the expected payoff of $70,000 is greater than $55,000.

Question 18

Which of the following methods have been used to reduce thedisincentive effects of welfare on labor supply?
I. The government reduces welfare benefits by $1 of every $1 oflabor income earned
II.The government limits the amount of time that someone cancollect welfare
III. The government provides an Earned Income Tax Creditthat supplements the income of the working poor.

Accepted Answer

A) I and III only 
B) II and III only 
C) II only 
D) I, II, and III

Question 19

problem with tying executive pay to stock prices isthat:

Accepted Answer

A) many factors other than executive effort and ability affect stock prices. 
B) executives can manipulate stock prices. 
C) it is a complicated evaluation to make, riddled with strong assumptions. 
D) executives prefer more straightforward compensation schemes that reduce their risk.

Question 20

The risk-return trade-off says that higher risk is associatedwith lower expected returns.

Accepted Answer

A) True 
 B)False

Exam 21: Consumer Utility and Optimization

The NASDAQ:

Bursting stock market bubbles create labor adjustment costs.

Suppose the economy is in a recession. Which of thefollowing is the best incentive scheme for the manager ofa large auto sales center?

If rewards are mostly based on luck the incentive toexert effort will be low.

The number of senior citizens will double by 2020, so investingin medical care and retirement homes is likely to generateabove-normal market returns.

Corporate culture helps firms what is to measure.

Financial returns on houses are _ over long periods oftime because part of the return on housing is from __.

For a mutual fund, a load is:

Which of the following choices correctly describes therelationship between risk and return?

Corporate culture is the:

Which of the following statements is TRUE?

Tournaments are useful for rewarding worker effortwhenever:

Corporate culture helps firms incentivize what is easyto measure.

Stock market bubbles have real effects in the economy because:

Suppose that a car dealer in California advertises thatits sales staff is not paid on commission. Which of thefollowing is correct with regards to the strategy of thisadvertising?

X pays a yearly salary of $55,000, regardless of thestate of the economy. Job Y pays a yearly salary of$10,000 in a bad economy and $70,000 in a goodeconomy. The probability of a bad economy is 0.30.Which job would most people prefer?

problem with tying executive pay to stock prices isthat:

The risk-return trade-off says that higher risk is associatedwith lower expected returns.