Exam Guide

CHAP -13

1. Which of the following are characteristics of bonds?

i. Bonds are certificates of indebtedness. ii. Bonds are purchased through auctions. iii. Bonds can be resold in secondary bond markets. iv. Bonds represent ownership of a corporation. a. only ii, iii, and iv b. only i, ii, and iii c. only i, iii, and iv d. all four

2. Financial institutions through which savers can directly provide funds to borrowers are called: a. banks. b. financial markets. c. mutual funds. d. saving and loan associations.

3. Which of the following are true, regarding bonds? a. From the holder's point of view, bonds are riskier than stocks. b. Bonds do not have a specified date of maturity. c. For tax purposes, government bonds are treated differently than corporate bonds. d. Bond buyers are protected from corporate bankruptcy through the FDIC.

4. Which of the following statements is true, regarding stocks? a. Stocks specify the benefits the holder will have in the future. b. The act of buying stock of a corporation amounts to buying a part of that corporation. c. Stocks have maturity dates. d. Stocks pay interest to the stockholder.

5. Which of the following are true? a. Prices of stocks are determined by the corporations that issue them. b. Stocks are riskier than bonds for the holder. c. The profits of a corporation do not belong to the stockholders. d. The value of the stock will be repaid to the stockholder by the corporation on the maturity date.

6. Which of the following is true about banks? a. The interest rate banks charge when they lend is the same they pay for the deposits they receive. b. Typically, banks receive few but big deposits, which they then use to make many small loans.
c. Through the checking accounts they facilitate, banks provide a medium of exchange.
d. Banks are financial institutions through which savers can directly provide funds to borrowers.

7. Which of the following is NOT true about mutual funds?
a. Mutual funds typically hold a wide assortment of stocks and/or bonds.
b. Mutual funds pool together the money of many different savers.
c. Mutual funds typically accept deposits and allow depositors to write checks on their deposits.
d. Mutual funds allow people with limited funds to diversify.

8. Assuming a closed economy, which of the following is true? a. National saving must equal domestic investment. b. National saving must be greater than domestic investment. c. National saving is what remains out of income after households consume. d. National saving must be less than domestic investment.

9. Assuming a closed economy, which of the following is FALSE in the market for loanable funds? a. National saving provides the supply of loanable funds. b. Domestic investment provides the demand for loanable funds. c. The loanable funds market determines the interest rate in the economy. d. The amount of funds loaned depends on national saving alone.

10. If the government changes the tax code in a way that encourages households to save more: a. the supply of loans will shift to the right, leading to a lower interest rate. b. the demand for loans will shift to the right leading to a higher interest rate. c. the supply of loans will shift to the left, leading to a higher interest rate. d. the demand for loans will shift to the left leading to a lower interest rate.

CHAP-14 1. The amount of money today that would be needed to produce, using prevailing interest rates, a given future amount of money is called: a. future value. b. compounding value. c. present value. d. financial value.

2. The amount of money in the future that an amount of money today will yield, given prevailing interest rates is called: a. future value. b. compounding value. c. present value. d. financial value.
3. Most people are risk: a. neutral. b. averse. c. seekers. d. prone.
4. Markets for insurance suffer from: a. adverse selection, but not from moral hazard. b. moral hazard, but not from adverse selection. c. both moral hazard and adverse selection. d. neither adverse selection nor moral hazard.

5. The reduction in risk achieved by replacing a single risk with a large number of smaller unrelated risks is called: a. expansion. b. spread. c. dilution. d. diversification.

6. When people increase the percentage of their savings that they have invested in stocks, as opposed to short-term government bonds, they ________ the average return they can expect to earn, and they ________ the risks they face. a. increase, decrease b. decrease, increase c. increase, increase d. decrease, decrease
7. The study of a company's accounting statements and the future prospects to determine its value is called: a. fundamental analysis. b. prospective analysis. c. accounting analysis. d. future accounting analysis.

8. The efficient markets hypothesis argues that:
a. markets use the least amounts possible of resources in their activities.
b. market economies produce the goods that consumers want most, and sell them at the lowest possible prices.
c. assets are exchanged in markets with the least amount of effort.
d. asset prices reflect all publicly available information about the value of an asset.

9. The path of a variable whose changes are impossible to predict is called: a. random walk. b. informationally efficient. c. market irrationality. d. random efficient.

10. Which of the following is FALSE? a. All economists believe that markets are efficient. b. Some economists believe that markets sometimes don't behave rationally. c. If markets behave irrationally, investors should be able to take advantage of this and beat the market. d. It is very hard for individual investors to beat the market.

CHAP-15 1. The Bureau of Labor Statistics measures unemployment by: a. surveying firms and asking them how many workers they have hired and fired each month. b. reviewing claims for unemployment benefits. c. surveying households. d. reviewing statistics of homeless people.

2. The Bureau of Labor Statistics surveys households to determine whether the interviewees are: a. earning high or low wages. b. employed, unemployed or not in the labor force. c. working legally or not. d. foreign or U.S. citizens.

3. The labor force is the: a. sum of the employed and the unemployed. b. percentage of the labor force that is employed. c. workers employed. d. percentage of workers employed out of the total population.

4. The unemployment rate is the: a. number of people unemployed in the nation. b. percentage of the labor force that is unemployed. c. percentage of the population that is unemployed. d. number of people unemployed in a given state.

5. The normal rate of unemployment around which the unemployment rate fluctuates is called the ________ rate of unemployment. a. cyclical b. natural c. frictional d. structural

6. The unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called ________ unemployment. a. cyclical b. natural c. frictional d. structural

7. The unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one is called ________ unemployment. a. cyclical b. natural c. frictional d. structural

8. Which of the following statements is true? a. It is possible for an economy to completely and permanently eliminate unemployment. b. It is possible for an economy to eliminate unemployment completely, but only temporarily. c. It is impossible for an economy to eliminate unemployment completely. d. It is possible for an economy to completely and permanently eliminate unemployment, but only if the government finds a way to avoid recessions altogether.

9. Which of the following policies would be most effective in reducing the unemployment rate? a. Pass laws that make it difficult for employers to fire workers. b. Reduce the benefits to the unemployed (unemployment insurance). c. Pass laws that force businesses to hire more workers. d. Raise taxes on imports (tariffs), to protect American producers and workers.

10. All of the following make it difficult for wages to go down when necessary, EXCEPT: a. unions and collective bargaining. b. minimum wage laws. c. efficiency wages. d. job search time.