Econ Test 2

If U.S. per capita GDP is $50,000 and grows at 2% per year, what will U.S. per capita GDP be in 70 years? $800,000 $400,000 $100,000 $200,000

$200,000

Which of the following is TRUE about the life-cycle theory of savings? People tend to save during the early years of their lifetimes, dissave during their prime working years, and borrow during their retirement years. People tend to borrow during the early years of their lifetimes, save during their prime working years, and dissave during their retirement years. People tend to borrow during the early years of their lifetimes, invest during their prime working years, and save during their retirement years. People tend to save during the early years of their lifetimes, borrow during their prime working years, and invest during their retirement years. Score: 1 of 1

People tend to borrow during the early years of their lifetimes, save during their prime working years, and dissave during their retirement years.

High fees: have little impact on your long-run returns to investing. are not likely to generate higher returns in the long run, because of the efficient markets hypothesis. are not likely to generate higher returns in the long run, because of diversification issues. can often signal a higher-quality management and thus higher returns in the long run.

are not likely to generate higher returns in the long run, because of the efficient markets hypothesis.

One of the problems with investment advice that claims you should buy stock in a certain company or sector of the economy is that: asset prices likely reflect that information already. sellers know less than buyers in the financial markets. investment advice is not regulated. no one else knows such advice.

asset prices likely reflect that information already.

A speculative bubble is when: assets are priced much lower than is warranted by the profitability of the assets. assets are priced much higher than is warranted by the profitability of the assets. market manipulation by dominant hedge funds bids up the market prices of assets. assets prices are high and profits are even higher.

assets are priced much higher than is warranted by the profitability of the assets.

Wealthier nations tend to have: better educational opportunities. lower life expectancy rates. lower infant survival rates. fewer opportunities for leisure and entertainment.

better educational opportunities.

At lower interest rates, the cost of investing _____ and the quantity of funds demanded for investment _____. decreases; decreases increases; increases decreases; increases increases; decreases

decreases; increases

If the government raises taxes on investment returns, then the: demand for loanable funds will decrease and the equilibrium interest rate will decrease. supply of loanable funds will decrease and the equilibrium interest rate will increase. supply of loanable funds will increase and the equilibrium interest rate will decrease. demand for loanable funds will increase and the equilibrium interest rate will increase.

demand for loanable funds will decrease and the equilibrium interest rate will decrease.

When industries are limited by the size of the domestic market, opening trade to the world markets will likely lead to _____ and _____ real GDP per capita in the domestic country. diseconomies of scale; decrease economies of scale; increase economies of scale; decrease diseconomies of scale; increase

economies of scale; increase

Which of the following is NOT a reason for the financial crisis of 2007-2008? excessive confidence about the stock market collapse of the shadow banking system excessive securitization of liabilities increases in the leverage ratios for financial intermediaries

excessive confidence about the stock market

Time preference is the desire to: increase longevity in order to have a greater income. save for a time when income will be reduced. maximize return on investment in the shortest amount of time. have goods and services sooner rather than later.

have goods and services sooner rather than later.

A business that pays for its workers to attend a technical college is increasing its: human capital. technical knowledge. organizational skills. physical capital.

human capital

The United States and Western European countries began to experience accelerated economic growth during which century? fifteenth twelfth nineteenth sixteenth

nineteenth

Someone who purchased stock in ___________ seems to have followed a diversification strategy. lumber, paper, and furniture companies cat food, dog food, and dog bone companies silicon chips, computers, and cell phone companies oil, telecommunications, and clothing companies

oil, telecommunications, and clothing companies

Which of the following has the greatest potential for solving free-rider problems? property rights an honest government the rule of law a stable political system

property rights

One of the best explanations for why some countries are rich and others are poor is that: rich countries organize their factors of production more efficiently than poor countries do. rich countries may have simply gotten lucky and poor countries remain unlucky. rich countries have far greater natural resources than poor countries do. technological knowledge is more advanced in rich countries than in poor countries.

rich countries organize their factors of production more efficiently than poor countries do.

Which of the following represents ownership in a corporation? saving deposits bonds stocks IOUs

stocks

If real GDP per capita in a country was $14,000 in year 1 and $14,140 in year 2, then the economic growth rate for this country from year 1 to year 2 was: 3%. 4%. 1%. 2%.

1%

Suppose you invest $1,000 in a mutual fund. If the annual return of that fund is 5%, how many years will it take before your fund is worth $2,000? 20 years never 14 years 10 years

14 years

Assume that the money in your investment account grew from $30,000 to $60,000 in 9 years. What was your approximate annual rate of return? 7.8% 11.8% 6.5% 5%

7.8%

Which statement best describes the cross-country evidence on the relationship between a nation's GDP per capita and standard measures of societal well-being? There is no relationship between GDP per capita and measures of societal well-being. GDP per capita is negatively related to measures of societal well-being. The relationship between GDP per capita and societal well-being is positive at times and negative at times. GDP per capita is positively related to measures of societal well-being.

GDP per capita is positively related to measures of societal well-being

Which of the following are advantages of saving your money in a mutual fund? I. You have professional fund management. II. Mutual funds have always outperformed the S&P 500. III. People with smaller amounts of money can diversify risk. I and III only I only I, II, and III I and II only

I and III only

If the efficient markets hypothesis is valid, then a person should: I. buy mutual funds. II. diversify. III. follow a buy-and-hold strategy. I and III only I, II, and III II and III only I and II only

I, II, and III

The benefits of stock markets for the economy include: I. serving as an intermediary between savers and investors. II. revealing information about firm performance. III. increasing the efficiency of resource allocation among firms. I and III only I, II, and III II and III only I and II only

I, II, and III

Which of the following chains of logic explain the functions of banks in the process of economic growth? Firms borrow from stock and bond markets issued through banks. These funds are used for investment, which leads to the capital accumulation that furthers economic growth. Savers deposit their savings in banks. Banks direct these funds to firms that invest and engage in capital accumulation that furthers economic growth. Savers deposit their savings in banks. Banks engage in capital accumulation, which plays an important role in economic growth. The demand for loanable funds is determined by banks and that demand fuels investment that in turn furthers economic growth.

Savers deposit their savings in banks. Banks direct these funds to firms that invest and engage in capital accumulation that furthers economic growth.

Which statement is TRUE? To reduce portfolio risk, you should buy the majority of stocks from the industry that you work in. NASDAQ is composed of fewer stocks than the S&P 500. The least risky assets are positively correlated with your portfolio. The riskiest stocks are those that move up and down the most with the overall economy.

The riskiest stocks are those that move up and down the most with the overall economy.

f individuals become more impatient, what will happen in the market for loanable funds? The supply of loanable funds will increase, interest rates will rise, and the quantity of saving and borrowing will decrease. The supply of loanable funds will increase, interest rates will fall, and the quantity of saving and borrowing will increase. The supply of loanable funds will decrease, interest rates will rise, and the quantity of saving and borrowing will decrease. The supply of loanable funds will decrease, interest rates will fall, and the quantity of saving and borrowing will increase.

The supply of loanable funds will decrease, interest rates will rise, and the quantity of saving and borrowing will decrease.

What is a result of a high level of government corruption? There are few entrepreneurs. The form of government tends toward Communism. Government officials have a low standard of living. Politicians hold little power over the market.

There are few entrepreneurs.

Insecure property rights in bank account deposits typically lead to: an increase in the demand to borrow. an increase in the supply of savings. a decrease in the supply of savings. a decrease in the demand to borrow.

a decrease in the supply of savings.

In financial investment, a riskier asset typically has: a lower expected return. a higher expected return. a higher or lower expected return, depending on the industry. the same expected return as a less risky asset.

a higher expected return.

Which is NOT an institution that leads to sustained long-term economic growth? a stable political system an honest government a dependable legal system a more equal income distribution

a more equal income distribution

The main reason people save during their working years is: a preference toward a smooth consumption path over time. an expectation that they will die early. a high time preference for the present. a preference toward matching income with spending over time.

a preference toward a smooth consumption path over time.

Which of the following tends to be least risky in its stock value when the economy is in a deep recession? an automobile manufacturer a homebuilder a high-end department store a utility company that supplies water to government buildings

a utility company that supplies water to government buildings

The investment approach of one of T. Rowe Price's mutual funds is: "Reflecting a value approach to investing, the fund will seek the stocks of companies whose current stock prices do not appear to adequately reflect their underlying value as measured by assets, earnings, cash flow, or business franchises." This fund is a(n): market fund. asset fund. passive fund. active fund.

active fund.

For most of recorded human history, long-run economic growth was: almost nonexistent. the same as it is today. the highest during the Dark Ages. much higher than it has been in recent decades.

almost nonexistent.

If the interest rate increases, then: the quantity saved will decrease, but the quantity supplied of loanable funds will increase. both the quantity saved and the quantity supplied of loanable funds will increase. both the quantity saved and the quantity supplied of loanable funds will decrease. the quantity saved will increase, but the quantity supplied of loanable funds will decrease.

both the quantity saved and the quantity supplied of loanable funds will increase.

"Buy and hold" involves buying stocks and holding them: for the long run. for a time proportional to the real interest rate. until the price increases even just a little. until a cheaper stock comes along.

for the long run.

Bond prices and bond interest rates move: together when there is arbitrage. in opposite directions. together when there is collateral damage. in the same direction.

in opposite directions.

Savings is: income that is not spent on capital goods. the purchase of new capital goods. the purchase of new consumption goods. income that is not spent on consumption goods.

income that is not spent on consumption goods.

Which would be most effective in ensuring sustained long-term economic growth? increasing technological knowledge increasing physical capital increasing government control of land use increasing human capital

increasing technological knowledge

Which of the following defines the "rules of the game" that structure economic incentives? institutions economic laws technical knowledge factors of production

institutions

The major difference between active and passive mutual funds is that active funds: are classed as mutual funds, but passive funds are not. are more risky than passive funds. involve stock picks by managers, while passive funds involve stock picks by the investors themselves. involve stock picks by managers, while passive funds match the movements of a broad market index.

involve stock picks by managers, while passive funds match the movements of a broad market index.

When economists speak of "long-run economic growth," they mean increasing the: population of a country. geographic size of a country. per capita real GDP of a country. real GDP of a country.

per capita real GDP of a country.

One measure of student output is number of completed math problems produced. Using pen and paper only, a student can complete 50 math problems in 2 hours. Using pen, paper, and a calculator, the same student can complete 100 math problems in 2 hours. (The student is already familiar with, and knows how to use, the calculator.) This scenario illustrates the use of which factor of production? both human capital and technological knowledge technological knowledge human capital physical capital

physical capital

Factors of production that contribute to growth in per capita GDP include: proximal and ultimate factors of production. physical capital, human capital, and technological knowledge. organization of resources. institutions.

physical capital, human capital, and technological knowledge.

The main reason for the influence of institutions on the wealth of nations is that good institutions: keep the economy in tight control of the government. help distribute wealth more evenly among the people. allow government to more easily convert private property into collective property. raise people's incentives to build wealth.

raise people's incentives to build wealth.

Financial intermediaries: reduce the costs of moving savings from savers to borrowers and investors. profit by keeping resources in their least valuable uses. have liabilities that exceed their assets. are inefficient middlemen, raising the cost of economic activity.

reduce the costs of moving savings from savers to borrowers and investors.

Diversification is an investment strategy to: minimize the risk in personal finance. reduce the risk of a given investment portfolio. outperform the average stock market return. maximize the return in stock investment.

reduce the risk of a given investment portfolio.

According to the efficient markets hypothesis, stock prices: contain both public and private information that is helpful for some investors to outperform other investors. reflect all private company information that is known only to company insiders. reflect all publicly available information about the stock market. contain no useful information.

reflect all publicly available information about the stock market.

A country increases its technological knowledge by engaging in: investment in physical capital. programs that improve workers' health. research and development. education.

research and development.

The process in which bank loans are bundled together and sold on the market as financial assets is called: securitization. consolidation. grouping. aggregation.

securitization.

Over the past 200 years, economic growth in the United States has been: the fastest in the world. slow and consistent. volatile. among the slowest in the world.

slow and consistent.