UCI ECON 20 B (Harder Questions)

If your research leads you to believe that the present value of a stock's dividend stream and future price is less than its price then you believe the stock is --- a. overvalued so you should consider buying it. b. overvalued so you should not consider buying it. c. undervalued so you should consider buying it. d. undervalued so you should not consider buying it.

Answer: b. overvalued so you should not consider buying it.

Foreign-produced goods and services that are purchased domestically are called --- a. imports. b. exports. c. net imports. d. net exports.

Answer: a. imports.

f the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs --- a. $1.80. b. $4.80. c. $5. d. None of the above is correct.

Answer: c. $5.

U.S. net capital outflow ---- a. is a source of the supply of loanable funds, and the source of the supply of dollars in the foreign exchange market. b. is a source of the supply of loanable funds, and a source of the demand for dollars in the foreign exchange market. c. is a part of the demand for loanable funds, and the source of the supply of dollars in the foreign exchange market. d. is a part of the demand for loanable funds, and a source of the demand for dollars in the foreign exchange market.

c. is a part of the demand for loanable funds, and the source of the supply of dollars in the foreign exchange market.

Which of the following items is counted as part of government purchases? --- a. The federal government pays $2,000 in Social Security benefits to a retired person. b. The city of Athens, Ohio pays $10,000 to a tree-trimming firm to trim trees along city boulevards. c. The state of Nebraska pays $1,000 to help a low-income family pay its medical bills. d. All of the above are correct.

Answer: b. The city of Athens, Ohio pays $10,000 to a tree-trimming firm to trim trees

An increase in the price of imported coffee shows up --- a. in the consumer price index and in the GDP deflator. b. in the consumer price index, but not in the GDP deflator. c. in the GDP deflator, but not in the consumer price index. d. in neither the consumer price index nor in the GDP deflator.

Answer: b. in the consumer price index, but not in the GDP deflator.

If the real exchange rate between the U.S. and Argentina is 1, then ----- a. purchasing-power parity holds, and 1 U.S. dollar buys 1 Argentinean bolivar. b. purchasing-power parity holds, and the amount of dollars needed to buy goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina. c. purchasing-power parity does not hold, but 1 U.S. dollar buys 1 Argentinean bolivar. d. purchasing-power parity does not hold, but the amount of dollars needed to buy goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina.

Answer: b. purchasing-power parity holds, and the amount of dollars needed to buy goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina.

Which of the following statements is correct? --- a. The total income in the economy that remains after paying for consumption and government purchases is called private saving. b. The sum of private saving and national saving is called public saving. c. For a closed economy, the sum of private saving and public saving must equal investment. d. For a closed economy, the sum of consumption, national saving, and taxes must equal GDP.

Answer: c. For a closed economy, the sum of private saving and public saving must equal investment.

Social Security payments are indexed for inflation using the CPI. A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation. Which of the following statements is correct? ------ a. The newspaper editorial is correct under all circumstances. b. The newspaper editorial is correct if the market basket consumed by Social Security recipients is the same as the market basket used to compute the CPI. c. The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI d. The newspaper editorial is incorrect under all circumstances.

Answer: c. The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI

If you believe that stock prices follow a random walk, then probably you --- a. do not believe that there is positive relationship between risk and return. b. do not believe that stock prices reflect all available information. c. believe in the validity of the efficient markets hypothesis. d. believe that it is a good idea to engage in fundamental analysis.

Answer: c. believe in the validity of the efficient markets hypothesis.

A risk-averse person --- a. has a utility curve where the slope increases with wealth, and might take a bet with a 80 percent chance of winning $300 and a 20 per chance of losing $300. b. has a utility curve where the slope increases with wealth, and would never take a bet with a 80 percent chance of winning $300 and a 20 per cent chance of losing $300. c. has a utility curve where the slope decreases with wealth, and might take a bet with a 80 percent chance of winning $300 and a 20 per chance of losing $300. d. has a utility curve where the slope decreases with wealth, and would never take a bet with a 80 percent chance of winning $300 and a 20 per cent chance of losing $300.

Answer: c. has a utility curve where the slope decreases with wealth, and might take a bet with a 80 percent chance of winning $300 and a 20 per chance of losing $300.

Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of good x shows up ---- a. in the consumer price index and in the GDP deflator. b. in the consumer price index, but not in the GDP deflator. c. in the GDP deflator, but not in the consumer price index. d. in neither the consumer price index nor in the GDP deflator.

Answer: c. in the GDP deflator, but not in the consumer price index.

Which of the following is included in government purchases? --- a. unemployment benefits a state pays b. Social Security payments the U.S. government makes c. the services of a U.S. government attorney valued at the cost of her salary d. All of the above are correct.

Answer: c. the services of a U.S. government attorney valued at the cost of her salary

Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years? ----- a. $100(1 + .04^10) b. $100(1 + .04 x 10) c. $100 × 10 x (1 + .04) d. $100(1 + .04)^10

Answer: d. $100(1 + .04)10

Changes in the quality of a good --- a. do not present a problem in the construction of the consumer price index. b. present a problem in the construction of the consumer price index, and that problem is sometimes referred to as substitution bias. c. are not accounted for, as a matter of policy, by the Bureau of Labor Statistics. d. can lead to either an increase or a decrease in the value of a dollar.

Answer: d. can lead to either an increase or a decrease in the value of a dollar.

If the Fed sells government bonds to the public, then reserves ---- a. increase and the money supply increases. b. increase and the money supply decreases. c. decrease and the money supply increases. d. decrease and the money supply decreases.

Answer: d. decrease and the money supply decreases.

Suppose that an anti-smoking campaign in Moscow, Russia, is successful so that Muscovites smoke less and chew gum more. Tobacco companies lay off workers, while chewing gum manufacturers employ more workers. This is an example of ---- a. structural unemployment created by efficiency wages. b. structural unemployment created by sectoral shifts. c. frictional unemployment created by efficiency wages. d. frictional unemployment created by sectoral shifts.

Answer: d. frictional unemployment created by sectoral shifts.