UNIT 15 QBANK Flashcards
Which of the following is a true statement with regard to either U.S. securities laws or the description of international economic factors?
A) A tombstone advertisement may be used in lieu of a prospectus in the distribution and sale of corporate securities.
B) When a company files for bankruptcy, claims of preferred shareholders are settled before all others.
C) The Securities Act of 1933 regulates secondary markets and trading on exchanges.
D) When the U.S. dollar is strong, foreign currency buys fewer U.S. goods.
D) When the U.S. dollar is strong, foreign currency buys fewer U.S. goods.
Explanation
When the dollar is strong, foreign currency buys fewer U.S. goods. On the other hand, the strong dollar would buy more foreign goods. A tombstone is not a prospectus nor can it be used instead of a prospectus when securities are sold. The Securities Act of 1933 regulates the primary (new issue) market. During a bankruptcy liquidation, preferred shareholders and common shareholders come after all other debt obligations have been satisfied.
Of the statements listed, which best characterizes the potential impact of factors occurring outside our domestic economy and markets?
A) Factors outside the United States can impact our securities and trade markets, but the effects are always short term and thus impact our domestic economy very little.
B) Factors outside the United States have little impact on our securities and trade markets and thus our domestic economy.
C) Factors outside the United States never have immediate impact on our securities and trade markets, but over time can impact our domestic economy.
D) Factors outside the United States can have immediate and prolonged impact on our securities and trade markets and thus our domestic economy.
D) Factors outside the United States can have immediate and prolonged impact on our securities and trade markets and thus our domestic economy.
Explanation
While not all factors outside of the United Sates will impact our domestic economy and markets, some can and will immediately. In these instances, the effects can be prolonged and thus the impact to our overall domestic economy is also felt.
To contract or slow economic growth U.S. fiscal policy should be to
A) cut taxes and government spending for programs and development.
B) raise taxes and cut government spending for programs and development.
C) raise taxes and government spending for programs and development.
D) cut taxes and increase government spending for programs and development.
B) raise taxes and cut government spending for programs and development.
Explanation
Fiscal policies to slow economic growth or contract the economy would encompass both increases in taxes leaving consumers with less money to spend, slowing economic growth, and cutting government spending for programs and development that would otherwise have created more jobs. Fewer jobs will slow economic growth as well.
The flow of money between the United States and other countries is known as
A) the payment reserves.
B) the surplus.
C) the balance of payments.
D) the balance of trade.
C) the balance of payments.
Explanation
The balance of payments represents the flow of money between the United States and other countries.
The largest component of the U.S. balance of payments is
A) exports.
B) the balance of trade.
C) imports.
D) foreign currency.
B) the balance of trade.
Explanation
U.S. imports and exports are the components used to calculate the balance of trade. The balance of trade is the measure of those two components against each other—the net being either more money coming into or going out of the U.S. economy. That measure, the balance of trade, is the largest component of the U.S. balance of payments.
A strong U.S. dollar leads to more
A) U.S. exports and a balance of payments deficit.
B) U.S. imports and a balance of payments deficit.
C) U.S. exports and a balance of payments surplus.
D) U.S. imports and a balance of payments surplus.
B) U.S. imports and a balance of payments deficit.
Explanation
When the dollar is strong, it is more affordable for U.S. consumers to buy more foreign goods, so U.S. imports increase. As more imported goods flow in, more money flows out—deficit.
Which of the following are considered tools used to implement fiscal policies?
I. Government spending
II. Operations of the Federal Open Market Committee (FOMC)
III. Changing the reserve requirements
IV. Taxation
A) I and III
B) I and IV
C) II and III
D) II and IV
B) I and IV
I. Government spending
IV. Taxation
Explanation
Fiscal policy refers to governmental budget decisions enacted by the president and Congress to regulate federal spending and taxation. Increases in taxes and decreases in government spending slow the economy, while lowering taxes and increasing government spending spur growth in the economy.
To grow or expand the economy, U.S. fiscal policy should be to
A) cut taxes and government spending for programs and development.
B) cut taxes and increase government spending for programs and development.
C) raise taxes and government spending for programs and development.
D) raise taxes and cut all government spending for programs and development.
B) cut taxes and increase government spending for programs and development.
Explanation
Fiscal policies to grow or expand the economy would encompass cuts in taxes allowing consumers to have more money to spend, spurring the economy forward, and increasing government spending for programs and development that creates jobs, again spurring the economy forward.
The federal government could use which of the following to stimulate the economy?
A) Buy Treasury securities from banks
B) Increase government spending
C) Raise the federal funds rate
D) Raise taxes
B) Increase government spending
Explanation
Taxation and government spending are tools of the federal government (president and congress). Changing the discount rate and open market activities (buying and selling treasuries) are tools of the Fed. Raising taxes slows down the economy.
A surplus in the U.S. balance of payments can occur if
I. interest rates in foreign countries are higher than U.S. domestic rates.
II. interest rates in foreign countries are lower than U.S. domestic rates.
III. U.S. consumers are purchasing (importing) foreign goods.
IV. foreign consumers are purchasing (importing) U.S. goods.
A) I and III
B) II and IV
C) II and III
D) I and IV
B) II and IV
II. interest rates in foreign countries are lower than U.S. domestic rates.
IV. foreign consumers are purchasing (importing) U.S. goods.
Explanation
Anything that brings money into our domestic economy leads to a surplus (more money coming in than going out). When interest rates abroad are comparatively lower, money flows into the United States to earn a better rate. When foreign consumers are purchasing more U.S. domestic goods and services, money flows into the United States as well.
A deficit in the U.S. balance of payments can occur if
I. interest rates in foreign countries are higher than U.S. domestic rates.
II. interest rates in foreign countries are lower than U.S. domestic rates.
III. U.S. consumers are purchasing (importing) foreign goods.
IV. foreign consumers are purchasing (importing) U.S. goods.
A) I and IV
B) II and IV
C) I and III
D) II and III
C) I and III
I. interest rates in foreign countries are higher than U.S. domestic rates.
III. U.S. consumers are purchasing (importing) foreign goods.
Explanation
Anything that sends money out of our domestic economy leads to a deficit (more money flowing out than coming in). When interest rates abroad are higher, money flows out of the United States to those foreign locations. When U.S. consumers are purchasing more foreign goods and services, money flows out of the United States to those foreign markets.
Deflationary periods are characterized by all of the following except
A) increased consumer demand.
B) rising unemployment.
C) a decline in prices.
D) coinciding with recessions.
A) increased consumer demand.
Explanation
Periods of deflation tend to occur during recessions. Consumer demand decreases, leading to declining prices. When demand decreases, so does production, which leads to rising unemployment.
Exports from the United States would likely increase if
I. the Japanese yen strengthened against the dollar.
II. the U.S. dollar strengthened against the euro.
III. the U.S. dollar weakened against the British pound.
IV. the Swiss franc weakened against the dollar.
A) II and IV
B) I and III
C) I and IV
D) II and III
B) I and III
I. the Japanese yen strengthened against the dollar.
III. the U.S. dollar weakened against the British pound.
Explanation
U.S. exports should increase when foreigners have greater purchasing power. That occurs when their currency is stronger than the dollar.
Match the following statement to the best term: Government intervention in the economy is a significant force in creating prosperity by engaging in activities that affect aggregate demand.
A) Monetarist Theory
B) Socialism
C) Keynesian Theory
D) Balance of payments
C) Keynesian Theory
Explanation
According to the late economist John Maynard Keynes, a government’s fiscal policies determine the country’s economic health. Fiscal policy involves adjusting the level of taxation and government spending. In this way the government intervenes in the economy and is a major force in creating prosperity by engaging in activities that affect aggregate demand.
If the U.S. dollar is weak against foreign currency,
A) U.S. currency buys more foreign goods; therefore, U.S. exports will increase.
B) foreign currency buys more U.S. goods; therefore, U.S. imports will increase.
C) foreign currency buys more U.S. goods; therefore, U.S. exports will increase.
D) U.S. currency buys less foreign goods; therefore, U.S. imports will increase.
C) foreign currency buys more U.S. goods; therefore, U.S. exports will increase.
Explanation
When the U.S. dollar is weak against foreign currencies, U.S goods are more affordable for foreign buyers; therefore, U.S. exports will increase. At the same time, foreign goods are less affordable for U.S. consumers; therefore, U.S. imports will decrease.
The U.S. balance of payments deficit would decrease in all of the following scenarios except
A) a decrease in purchases of U.S. securities by foreign investors.
B) a decrease in dividend payments by U.S. companies to foreign investors.
C) a decrease in imports of foreign goods into the United States.
D) an increase in exports of domestic goods from the United States.
A) a decrease in purchases of U.S. securities by foreign investors.
Explanation
A deficit in the balance of payments occurs when more money is flowing out of the country than in. When foreign investors decrease their purchases of U.S. securities, the flow of money coming into the United States decreases, this adds to the deficit rather than decreasing it.
Laws increasing or decreasing taxation would be best associated with
A) monetary policy enacted by the FRB.
B) fiscal policy enacted by the president and Congress.
C) monetary policy enacted by the president and Congress.
D) fiscal policy enacted by the Federal Reserve Board (FRB).
B) fiscal policy enacted by the president and Congress.
Explanation
Tax laws are fiscal (not monetary) policy and are enacted by the president and Congress.
The federal government could use which of the following to slow the economy?
A) Raise the federal funds rate
B) Raise taxes
C) Increase government spending
D) Buy Treasury securities from banks
B) Raise taxes
Explanation
Taxation and government spending are tools of the federal government (president and congress). Changing the federal funds rate and open market activities (buying and selling treasuries) are tools of the Fed. Raising taxes slows down the economy.
A surplus in the balance of payments is best described by
A) more money flowing into the United States than out.
B) the United States importing more than it exports.
C) more money flowing out of the United States than into the United States.
D) other countries exporting more to the United States.
A) more money flowing into the United States than out.
Explanation
This is the basic definition of a surplus in the balance of payments. Generally, this is a result of the United States increasing exports and decreasing imports.
The country’s annual economic output of all of the goods and services produced within the nation, is known as
A) balance of payments.
B) indicators.
C) gross domestic product.
D) expansion.
C) gross domestic product.
Explanation
A nation’s annual economic output, all of the goods and services produced within that nation, is its gross domestic product (GDP). U.S. GDP includes personal consumption, government spending, gross private investment, foreign investment, and net exports.
