Chapter 9 Quiz Bank Review Flashcards
(32 cards)
Sparkly fluorescent earbuds made in the U.S by IRKsome, Inc. are suddenly popular in Asia. People from Canton to Calcutta are buying them in huge numbers. This is most likely to cause:
A. Something, but the impact is unpredictable
B. No effect on the balance of the trade
C. The trade surplus to decrease, or deficit to increase.
D. The trade deficit to increase, or surplus to increase.
D. The increase demand for U. S produced good will increase what is exported, causing a deficit to shrink, or a surplus to grow
Which of the following regarding monetary or fiscal policy is true?
A. Fiscal policies are governmental budget decisions enacted by the Federal Reserve Board(FRB)
B. Monetary Policy refers to the actions that congress takes when it attempts to influence money supply
C. Monetary policy is what the federal Reserve Board) FRB) engages in when it attempts to influence the money supply
D.Fiscal polices are the actions taken by the president and congress to regulate the amount of money consumers will be able to borrow.
C. Monetary policy is what the FRB engages in when it attempts to influence the money supply. Fiscal policy refers to governmental budget decisions enacted by the president and congress to regulate federal spending and taxation. And those impacting deficits and surpluses
The Federal Reserve Bank is raising interest rates, this will:
A. Push bond prices lower in the open market
B. Push bond prices higher in the open market
C. Have no impact on bond prices in the open market
D. Make bonds trading in the open market more desirable
A.This is interest rate risk. When interest rates are rising, bond prices in the open market are pushed down. Rate movements and prices have an inverse relationship . Those already holding bonds in their portfolios see their investments decrease in value. This also makes bonds trading in the open market less desirable because new issue bonds will be yielding the now higher rates and are comparably more desirable.
A weak U. S dollar leads to more:
A. U.S imports and a balance of payments deficit.
B. U. S exports and a balance of payments surplus
C. U.S imports and a balance of payment surplus
D. U. S exports and a balance of payments deficit
B. When the dollar is weak relative to other currencies, it makes U.S goods more affordable for foreign consumers to buy, so U. S exports increase. As more goods flow out of the US, more money flows in- surplus.
An analyst is trying to determine upcoming economic activity to better determine her recommended investment strategy. She would be most interested in:
A. Coterminous indicators
B. Lagging Indicators
C. Coincident indicators
D. Leading Indicators
D. When someone wants to know what future economic activity may be, she would be most interested in leading indicators. These indicators move in advance of economic activity. Coincident indicators move along with the economic activity, and lagging indicators follow economic activity. There is no such thing as coterminous indicator.
Which of the following is not a tool of the Federal Reserve?
A. Regulation T margin requirements
B. Federal funds rate
C. Discount rate
D. FOMC activities
B. The fed funds rate is set by the bank making the loan, not the federal reserve.
The U.S balance of payments deficit would decrease in all of the following scenarios except:
A. An increase in exports of domestic goods from the United States
B. A decrease in purchases of US securities by foreign investors
C. A decreased in dividend payments by US companies to foreign investors
D. A decrease in imports of foreign goods into the United States
B. A deficit in the balance of payments occurs when more money is flowing out of the country then in. When foreign investors decrease their purchase of U.S securities, the flow of money coming into the United States decreases, this adds to the deficit rather than decreasing it.
In what order do the following economic phases typically occur
I. Recovery
II. Trough
III. Decline
IV. Prosperity
A. IiII, IV, I, II
B. IV, III, I, II
C. II, I, III, IV
D. I, IV, III, II
D. Expansions ( recovery) is considered to be the beginning of the business cycle followed by the peak( prosperity) , contraction, an trough.
Of the standard Federal Reserve tools, which of these is considered the most powerful and used infrequently?
A. Quantitative easing
B. FOMV activities
C. Discount rate
D. Reserve rate
D.The reserve rate ( i.e, the amount member banks keep on deposit at the Federal Reserve liquidity) has the most dramatic impact when changed. It is rarely changed.
If the U. S dollar is relatively strong against the Japanese yen, it can be assumed that
A. The US dollar will buy more goods produced in Japan, while the Japanese yen buys fewer goods in the United States
B. The US dollar will buy fewer goods produced in Japan and the Japanese yen will also buy fewer goods produced in the United States.
C. The US dollar will buy fewer goods produced in Japan, while the Japanese yen buys more goods produced in the United States.
D. The US dollar will buy more goods Procyon Japan and the Japanese yen will also buy more goods in the United States.
A.The strength of one country’s currency against another impacts trade in between the two. The stronger currency ( In this case the US dollar) will buy more foreign goods, and the weaker currency ( in this case the JY) will buy fewer goods produced in other countries.
Federal Reserve member banks needing to borrow money can borrow from:
A. Nonmember banks at the federal funds rate
B. Member firms at the discount rate
C. The Federal Reserve Bank at the Federal Funds Rate
D. The Federal Reserve Bank at the discount rate
D. Federal reserve members banks needing to borrow have two resources: The Federal Reserve Bank itself, which will lend to them at the discount rate, and other member banks, who will lend to one another at the federal funds rate
After an extended period of high unemployment and negative GDP figures , the nations most recent GDP is positive and employment is improving. This indicates the nation is entering a period of:
A. Prosperity
B. Contraction
C. Disaster
D. Recovery
D. Recovery is the best option. A recovery occurs when the economy begins to show some signs of growth after a period of contraction. The period of the trough ( bottom) along with deflation and economic disasters are hopefully behind the nation.
Several months of slow economic growth and rising unemployment have characterized the economy. Market analysts would describe this as a period of
A. Deflation
B. Stagflation
C. Stagnation
D. Inflation
C. Stagnation is defined as prolonged periods of slow or little economic growth accompanied by high unemployment.
The Federal Reserve could use which of the following to stimulate the Economy?
A. Lower Taxes
B. Buy treasury securities from banks
C. Increase government spending
D. Raise the federal funds rate
B. Taxation and government spending are tools of the president and congress. Changing the federal funds rate and open market activities ( buying and selling treasuries) are tools of the Fed. Raising rates slows down the economy
An economic indicator that tends to change direction prior to a change in the direction GDP is
A. A lagging indicator
B. A coincident indicator
C. A flagging indicator
D. A leading indicator
D. Leading indicators tend to change direction prior to a change in the overall economy. GDP ( a coincident indicator) is the most common indicator of economic activity. An economic indicator that changes direction following a change in GDP is a lagging indicator. When you have studied for eight hours straight and cannot keep your eyes open, that is a flagging indicator ( but flagging indicator is not on the exam.
Those industries that are least affected by normal business cycles are
A. Defensive industries
B. Counter- cyclical industries
C. Cyclical industries
D. Special situation
A. Defensive industry are least affected by normal business cycles. Companies in defensive industries produce non durable consumer goods, such as food, pharmaceuticals, and tobacco or supply essential services such as those supplied by utility companies. Public consumption of such goods remains fairly steady throughout the business cycle.
To tighten its monetary policy, making it more difficult for consumers to borrow money, the Federal Reserve Board (FRB) can
A. Raise the discount rate
B. Lower the discount rate
C lower the federal funds rate
D. Raise the federal funds rate
A. Wanting to tighten its monetary policy, would make it harder for consumers to borrow money, the FRB can raise the discount rate- the rate it charges its member banks for short term loans. This lessens the availability of money it’s member banks have to lend to customers. The federal funds rate isn’t a rate charged by the FRB but instead by large commercial banks to one another
Within the money supply, which of the following are part of M2 but not M1?
A. Demand deposits and S&L
B. Money market mutual funds
C. Checking accounts at commercial banks
D. Currency in circulation
B. Money market funds are part of M2 include everything in M1, plus time deposits and money market funds.
Which of the following refers to prolonged periods of slow or little economic growth, usually accompanied by high unemployment ?
A. Deflation
B. Stagnation
C. Stagflation
D. Trough
B. Economic stagnation refers to prolonged periods of slow or little economic growth, usually accompanied by high unemployment
All of these are leading economic indicators except
A, Manufacturer’s new orders
B the stock market ad measure by the s&p 500
C. Duration of unemployment
D. Building permits
C. Duration of unemployment) I.e how long unemployed people stay unemployed) is a lagging indicator. All of the others tend to change direction before the economy changes direction
Rising employment due to an increase in demand for goods and services would be associated with periods of
A. Stagnation
B. Inflation
C. Deflation
D.stagflation
B.During inflationary periods, prices are rising due to rising demand for goods and services. This will have the effect of creating more employment. Conversely when the economy slows down, employment generally falls and claims for unemployment benefits will rise.
To calculate earnings per share (EPS), you would divide
A. The earnings available to the common shareholder from the balance sheet by the number of outstanding shares found on the income statement.
B. The number of outstanding shares found on the balance sheet by the earnings available to the common share holders from the income statement
C. The number of outstanding shares found on the balance sheet by the number of outstanding shares found on the income statement
D. The earnings available to the common shareholder from the income statement by the number of outstanding shares found on the balance sheet
D. Earnings per share EPS is earning available to the common shareholder ( from the income statement) dividend by the number of outstanding shares( found in the net worth section of the balance sheet). The stock’s current market value is not used in the calculation.
According to Keynesian theory a government can stimulate the economy by taking which of the following steps?
A. Lowering taxes and increasing government spending
B. Increasing taxes and decreasing government spending.
C.Lowering taxes and decreasing government spending
D. Increasing taxes and increasing government spending
A. According to Keynes, a government’s fiscal policies determine the country’s economic health. Fiscal policies involves adjusting the level of taxation and government spending. The government is expected to intervene in the economy as a major force in creating prosperity by envying activities that affect aggregate demand. By decreasing taxes and increasing spending, the government increases disposable income and private sector spending.
All of the following are leading indicators except:
A. The money Supply
B. New Orders
C. Personal income
D. Stock prices
C. The money supply, new orders, and stock prices are all leading indicators. These increase in advance to an increase in economic activity. Personal income, however is a coincident indicator moving along with economic activity.
