Question 1

Which of the following provides the strongest argument for young people making regular payments into a retirement program that invests these funds in a diverse set of stocks?

Accepted Answer

A)  The prices of stocks tend to fluctuate more than the prices of bonds. 
B)  Over short periods of time, variation in the real rate of return of stocks is greater than bonds. 
C)  When held over lengthy periods like 30 or 40 years, historically, the rate of return on stocks has been both higher and less variable than that of bonds. 
D)  Lower interest rates will lead to higher bond prices.

Question 2

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 3

Proved reserves of natural gas and oil

Accepted Answer

A)  will last only another five years at the current worldwide consumption rate. 
B)  reveal little about whether the world is about to run out of these resources since they are calculated at present levels of price and technology. 
C)  are just another way of measuring how many years civilization will continue. 
D)  indicate that the supply of petroleum will be depleted by the year 2020 unless governments adopt price controls and energy rationing.

Question 4

Which of the following is true?

Accepted Answer

A)  The regressive nature of the Social Security benefit formula works to the advantage of groups with below average earnings. 
B)  Groups with an below average life expectancy gain from Social Security because they will typically draw retirement benefits over a more lengthy period of time. 
C)  The life expectancy of Hispanics at age 20 is generally lower than the figures for whites and blacks. 
D)  Hispanics derive a higher return from their Social Security taxes than whites, and substantially higher than blacks.

Question 5

Consider a stock with a 50 percent probability of zero net earnings and a 50 percent probability of net earnings equal to $20 per share each year continuously in the future. Furthermore, assume that people are risk averse: That is, they will have to be compensated for uncertainty accompanying variation in their future wealth. If the interest rate were 5 percent, how much would people be willing to pay for a share of this stock?

Accepted Answer

A)  $10 
B)  $200 
C)  less than $200 
D)  more than $200 
E)  $400

Question 6

Which of the following is true?

Accepted Answer

A)  The proportion of female workers who are union members is higher than the proportion of male workers. 
B)  The proportion of government employees who are union members is higher than the proportion of private sector workers. 
C)  The proportion of workers in southern states who are union members is higher than the proportion in northern states. 
D)  The proportion of white workers who are union members is higher than the proportion of black workers.

Question 7

If Apple Computer Corporation constitutes a sizeable share of your current stock holdings, the purchase of which of the following stocks would provide you with the greatest reduction in risk?

Accepted Answer

A)  Hewlett-Packard 
B)  IBM 
C)  Dell Computer Corporation 
D)  Wal-Mart

Question 8

A lower interest rate will increase the present value of future income and thereby

Accepted Answer

A)  decrease the market value of stocks. 
B)  increase the market value of stocks. 
C)  have no effect on the market value of stocks. 
D)  decrease the discounted market value of stocks.

Question 9

During the Great Depression of 1929-1933,

Accepted Answer

A)  the Fed allowed the money supply to contract substantially. 
B)  the Fed increased the money supply sharply. 
C)  Congress cut tax rates sharply. 
D)  Congress cut tariffs substantially.

Question 10

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 11

Which of the following will tend to result in the least variation in the expected real rate of return from the ownership of stocks?

Accepted Answer

A)  ownership of a single stock for a short period of time 
B)  ownership of a single stock over a lengthy period of time 
C)  ownership of stocks from a specific sector (for example, the automobile industry) over a lengthy period of time 
D)  ownership of a diverse set of stocks (the Standard & Poor's 500, for example) over a lengthy period of time

Question 12

Measured as a share of the labor force, union membership was at its highest level in the United States during the

Accepted Answer

A)  1930s 
B)  1950s 
C)  1970s 
D)  1990s

Question 13

Which of the following is true?

Accepted Answer

A)  The stock market helps channel the savings of individuals into business activities that create wealth. 
B)  Individual investors can reduce their risk by holding a large share of their wealth in the form of the stock ownership of a single company. 
C)  Historically, the long-term real rate of return of stocks has generally been less than that of bonds. 
D)  Mutual funds that have done well in the past are more likely to outperform the market average in the future.

Question 14

The experience of the Teamsters in the late 1970s and early 1980s suggests that

Accepted Answer

A)  there are few restraints on the ability of a strong union to increase the wages of its members. 
B)  product market competition with goods made from (or services provided by) nonunion labor significantly limits the ability of a union to get increased wages for its members. 
C)  higher wages tend to stimulate aggregate demand, which makes it easier for a union to gain still higher wages. 
D)  wages are established by the relative skill of union and management negotiators, independent of market conditions.

Question 15

Which of the following is true?

Accepted Answer

A)  In 2002, national defense accounted for more than half of federal spending. 
B)  Federal spending on national defense has increase rapidly during the last several decades. 
C)  Federal spending on health care programs such as Medicare and Medicaid has increased rapidly during the last several decades. 
D)  Federal spending in the aftermath of hurricane Katrina expanded over 50%.

Question 16

If the interest rate were 12.5 percent, how much would people be willing to pay for a stock that was certain to yield a $20 per share stream of net earnings continuously in the future?

Accepted Answer

A)  $20 
B)  $25 
C)  $160 
D)  $250

Question 17

When the federal government owns parks that are funded by tax dollars

Accepted Answer

A)  park managers receive full information about visitor desires and make decisions accordingly. 
B)  the same incentive structure exists for public park managers as private park managers. 
C)  park managers devote much time and effort to satisfying political desires instead of visitor desires. 
D)  park managers will be less likely to mismanage the park.

Question 18

Which of the following is true?

Accepted Answer

A)  Due to anti-employment discrimination legislation that was passed in the early 1960s, there was a large increase in the earnings of women relative to men in the 1960s and 1970s. 
B)  The female/male earnings ratio for full-time workers rose substantially between 1980 and 2010. 
C)  The number of women preparing for careers as professionals has declined during the last two decades. 
D)  In 2010, only about 42 percent of those completing college degrees were women.

Question 19

The concept of "proved reserves" refers to the amount of a resource that can be produced

Accepted Answer

A)  in one year's time. 
B)  in the next ten years. 
C)  before it runs out. 
D)  at current prices and technology.

Question 20

The random walk theory indicates that

Accepted Answer

A)  investors can make money by purchasing stocks that are widely expected to earn substantial profits in the future. 
B)  while changes in the prices of specific stocks are difficult to predict, experts are able to forecast the future direction of broad stock market indexes with a high degree of accuracy. 
C)  changes in stock prices are driven by surprise occurrences that are difficult for anyone to predict accurately. 
D)  managed mutual funds will persistently outperform indexed funds.

Exam 16: Applying the Basics: Special Topics in Economics

Which of the following provides the strongest argument for young people making regular payments into a retirement program that invests these funds in a diverse set of stocks?

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

Proved reserves of natural gas and oil

Which of the following is true?

Which of the following is true?

If Apple Computer Corporation constitutes a sizeable share of your current stock holdings, the purchase of which of the following stocks would provide you with the greatest reduction in risk?

A lower interest rate will increase the present value of future income and thereby

During the Great Depression of 1929-1933,

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

Which of the following will tend to result in the least variation in the expected real rate of return from the ownership of stocks?

Measured as a share of the labor force, union membership was at its highest level in the United States during the

Which of the following is true?

The experience of the Teamsters in the late 1970s and early 1980s suggests that

Which of the following is true?

If the interest rate were 12.5 percent, how much would people be willing to pay for a stock that was certain to yield a $20 per share stream of net earnings continuously in the future?

When the federal government owns parks that are funded by tax dollars

Which of the following is true?

The concept of "proved reserves" refers to the amount of a resource that can be produced

The random walk theory indicates that