Economics Topic Quiz Flashcards
A firm’s breakeven quantity of sales is the level of output at which its:
If total revenue equals total cost, a firm is breaking even.
(Module 12.1, LOS 12.a)
A government attempts to stimulate the economy by increasing its budget deficit. However, the additional borrowing causes interest rates to increase and reduces private fixed investment, offsetting the expansionary effect of increased government spending. The economy is best described as experiencing:
“Crowding out” occurs when increased government borrowing causes interest rates to increase, which decreases the net present values of private investment projects, making more of them unprofitable and decreasing private fixed investment. That is, government demand for loanable funds “crowds out” private sector borrowers.
Ricardian equivalence is the theory that increasing a fiscal deficit will cause taxpayers to increase savings in anticipation of higher future taxes.
Automatic stabilizers are programs such as unemployment insurance that cause fiscal spending to increase or decrease against the direction of the business cycle.
(Module 14.1, LOS 14.b)
A country that is a regional or global leader that uses its political or economic influence over others to control resources would most likely be described as:
Hegemony describes countries that use political or economic influence of other countries to control resources. Autarky refers to countries seeking political self-sufficiency without external trade or financing. Multilateralism refers to countries that participate in rules harmonization and mutually beneficial trade relationships.
(Module 16.1, LOS 16.d)
Regarding geopolitical risks from the perspective of an investor, which of the following types of risks is most likely to be sudden and unanticipated?
Exogenous risk is a sudden or unanticipated risk such as natural disasters, sudden uprisings, or invasions.
Thematic risk is a known risk that evolves and expands over a period of time. Event risk evolves around set dates.
(Module 16.1, LOS 16.f)
Compared to a customs union or a common market, the primary advantage of an economic union is that:
The advantage of an economic union is that its members establish common economic policies and institutions. A common currency is a characteristic of a monetary union. All regional trading agreements remove barriers to imports and exports among their members.
(Module 17.1, LOS 17.c)
A currency broker based in Chicago provides a spot exchange rate quote of 140 JPY/USD to a hedge fund in Tokyo.
From the perspective of the Japanese hedge fund, the most accurate statement is that the:
For a JPY/USD quote, the Japanese yen is the price currency, so the direct quote for the Japanese hedge fund is 140 because it costs 140 JPY to purchase 1 USD. Direct exchange rates use the domestic currency as the price currency and the foreign currency as the base currency.
(Module 18.1, LOS 18.a)
A U.S. company recently finalized a sale of goods to a German client and expects to receive a payment of EUR50 million in one year. At the time of the sale, the EUR/USD spot rate was 0.9378, and the 12-month forward rate was 0.93526 EUR/USD. According to the exchange rate information, the 12-month forward points are closest to:
The number of forward points is equal to the scaled difference between the forward rate and the spot rate. In this case, 0.93526 – 0.93780 = –0.00254. This is then multiplied by 10,000 to convert to the number of forward points.
(Module 19.1, LOS 19.b)
