Unit 4 Economics Test

Which of the following is an example of commodity money put to use? A. A cow used to purchase land B. Mowing a lawn for a friend who, in turn, gives you a haircut C. Giving a store clerk a five dollar bill for a $4 purchase D. Writing an I.O.U. to a friend in exchange for a loan

A. A cow used to purchase land

Which of the following is a negative aspect of bartering rather than using currency? A. Bartering requires you to find someone who wants what you have. B. Bartering does not require you to have any cash. C. Bartering usually takes less time than using currency. D. Bartering makes it easy to determine the relative value of items.

A. Bartering requires you to find someone who wants what you have.

Name one advantage of bonds for their issuers. A. Bondholders can't share in the profits of a company. B. Issuers must make fixed interest payments, even when it doesn't make a profit. C. Issuers can't change interest payments even when rates have dropped. D. Bonds have the potential to be downgraded.

A. Bondholders can't share in the profits of a company.

How can you be MOST certain that a stock you own will allow you to vote at stockholder meetings and also earn dividends? A. It must be both a common stock and an income stock. B. It must be both a common stock and a growth stock. C. It must be both a preferred stock and an income stock. D. It must be both a preferred stock and a growth stock.

A. It must be both a common stock and an income stock.

What kinds of financial assets are sold on secondary markets? A. Stocks B. Small certificates of deposit C. Savings bonds D. Capital markets

A. Stocks

In the early days of our nation, a strong centralized bank was favored by __________. A. The Federalists B. The Antifederalists C. Thomas Jefferson D. The entire nation

A. The Federalists

What might happen if a monopolist increased output of its product each week? A. The price of the good would eventually fall and so would revenue. B. The price of the good would eventually fall and revenue would increase. C. The price of the good would not change but revenue would increase. D. The price of the good would rise but revenue would decrease.

A. The price of the good would eventually fall and so would revenue.

What purpose does the FDIC serve? A. To insure customer deposits if a bank fails B. To restrict the nation's money supply C. To restrict interest rates that banks can pay D. To provide loans to borrowers with unfavorable credit histories

A. To insure customer deposits if a bank fails

What service is available through home banking on the Internet? A.Checking account balances. B.Withdrawing cash. C.Lending money to a friend. D.Selling gold.

A.Checking account balances.

What would most likely happen in a purely competitive market if one supplier was significantly more efficient than all others? A.Suppliers who could not become more efficient would be driven from the market. B.The other suppliers would rise their prices. C.The government would step in to help the other suppliers. D.More suppliers would enter the market to meet the challenge.

A.Suppliers who could not become more efficient would be driven from the market.

A firm might try to increase its market power in order to A.charge higher prices for the goods it produces. B.lower the price level throughout the market. C.encourage more firms to enter the market. D.boost competition through deregulation.

A.charge higher prices for the goods it produces.

How can collusion be harmful to consumers? A.it can make consumers pay too much money for goods or services B.it can flood the market with products that are identical C.it can result in advertising that is confusing to consumers D.it can result in prices that fall so low that firms go out of business

A.it can make consumers pay too much money for goods or services

Why does the government regulate oligopolies? A.to keep them from acting like monopolies B.to make sure that they work together rather than against each other C.to ensure that markets have price leaders D.to reduce start-up costs for new businesses

A.to keep them from acting like monopolies

Which of these is not a characteristic of pure competition? A.unique products B.well-informed consumers C.many sellers D.easy market exit

A.unique products

What kinds of money are included in M1? A. Money market funds B. Currency C. Savings deposits D. Small-time deposits

B. Currency

How does the tax-exempt status of municipal bonds benefit consumers throughout the U.S. free enterprises system? A. It makes people more likely to buy corporate bonds. B. It makes people more likely to buy municipal bonds. C. It increases the costs of projects like roads and bridges. D. It raises the amount of taxes that the federal government collects.

B. It makes people more likely to buy municipal bonds.

The fact that coins can last a long time in circulation shows which characteristic of money? A. Money is portable. B. Money is durable. C. Money is divisible. D. Money is uniform.

B. Money is durable.

Which of the following situations would encourage people to invest their money in a savings account rather than keep it in cash? A. Falling interest rates B. Rising interest rates C. Rising demand for money D. Rising prices

B. Rising interest rates

The Federal Reserve System was created as a result of the need for financial stability shown by what event? A. The collapse of the First Bank of the United States B. The Panic of 1907 C. The Great Depression D. World War II

B. The Panic of 1907

A prospectus tells you A. if you have a liquid investment. B. how well your investment is performing. C. whether or not you need a financial intermediary. D. if you need a hedge fund.

B. how well your investment is performing.

Which is not example of a stored-value card? A.Gift card B.Credit card C.Phone card D.Visa prepaid card

B.Credit card

What is the MOST LIKELY reason that some firms have gone out of business after their industry was deregulated? A.They could not afford to pay their workers enough to keep them on the job. B.They could not compete successfully with new firms entering the market. C.They had failed to win a lawsuit brought against them by the government. D.They had developed a business that could grow only under government regulation.

B.They could not compete successfully with new firms entering the market.

You bought a stock on January 1. At the end of the year, why might you analyze published data from the S&P 500? A.To see whether the stock has just split. B.To find out how the stock performed that year. C.To decide whether to switch to the Dow next year. D.To determine whether bonds are earning more than stocks.

B.To find out how the stock performed that year.

Which set of markets includes all purely competitive markets? A.plastic trash bags, school backpacks, action/adventure movies B.children's wood blocks, dry pasta, plain t-shirts C.designer jeans, video game consoles, crime novels D.reality television shows, bowling alleys, sneakers

B.children's wood blocks, dry pasta, plain t-shirts

If you saw an advertisement for an electric car that boasted 500 miles between battery charges, what form of non-price competition would that be? A.location B.physical characteristics C.service level D.status

B.physical characteristics

Which of the following is most similar to a purely competitive labor market? A.three teenagers who babysit, but one earns more because she has taken a course in babysitting B.three teenagers who each earn money by raking leaves for different people in the neighborhood C.three teenagers who have taken classes in computer programming and now work for a local start-up company D.three teenagers who have pooled their money to buy a lawn mower that they use for a lawn mowing business

B.three teenagers who each earn money by raking leaves for different people in the neighborhood

Why does government intervene in markets? A.to promote competition and keep prices high for businesses B.to promote competition and keep prices low for consumers C.to ensure that monopolies and cartels remain competitive D.to ensure that companies are free to buy out competitors

B.to promote competition and keep prices low for consumers

Which of these is NOT one of the three uses of money? A. A medium of exchange B. A store of value C. A means to barter D. A unit of account

C. A means to barter

Which of the following is an example of money's divisibility? A. Coins and bills can last a long time in circulation. B. Twenty dollar bills are easy to carry around in a wallet or pocket. C. A ten dollar bill can purchase a five dollar item, with five dollars change coming back. D. If Jane and Ranita both have a ten dollar bill they can purchase the same $10 t-shirt.

C. A ten dollar bill can purchase a five dollar item, with five dollars change coming back.

Which of the following is the WISEST strategy for a new investor in the stock market? A. Buy growth stocks recommended by a relative. B. Buy preferred stocks with a three-month call option. C. Buy blue chip income stocks through a brokerage firm. D. Buy the hottest common stocks and sell them as soon as the price rises.

C. Buy blue chip income stocks through a brokerage firm.

Which aspect of the Federal Reserve System helps establish its independence from the government? A. Appointment of the Board of Governors by the president B. Its division into 12 Federal Reserve Districts C. Ownership of Federal Reserve System by member banks D. Role of the Fed as the government's banking agent

C. Ownership of Federal Reserve System by member banks

To raise money, a company is selling shares of "dividend growth" stock. What does the company MOST LIKELY do with its earnings? A. Pays it all out to stockholders, four times a year. B. Reinvests it quarterly in order to expand the company. C. Pays out some to stockholders and reinvests the rest in its business. D. Invests it in company stock, which it then sells at a discount to stockholders.

C. Pays out some to stockholders and reinvests the rest in its business.

What advantages do financial intermediaries offer an investor? A. They offer liquidity, low interest rates, and risk-free investment. B. They offer securities, interest-free loans, and diversification. C. They share risks, provide information, and provide liquidity. D. They share securities, provide liquidity, and assume risk.

C. They share risks, provide information, and provide liquidity.

In which situation would a family apply for a mortgage? A. They want to buy a car. B. They want to go on vacation. C. They want to buy a house. D. They want to send their daughter to college.

C. They want to buy a house.

Why do monopolists engage in price discrimination? A. They want to lower production costs. B. They want to increase the amount they produce. C. They want to maximize their profits. D. They want to help senior citizens.

C. They want to maximize their profits.

Why does the United States government issue savings bonds? A. To improve its bond rating B. To earn interest C. To pay for government projects D. To raise taxes

C. To pay for government projects

Which of the following is a positive aspect of using a credit card? A. The interest charged on credit cards is lower than interest on all other types of loans. B. With a credit card, money is automatically deducted from the user's bank account. C. Using a credit card allows consumers to buy goods even if they don't have cash. D. Credit cards bills can quickly add up if the consumer only pays the minimum.

C. Using a credit card allows consumers to buy goods even if they don't have cash.

In the early 2000s, the number of home foreclosures increased because A. many people paid off their mortgages early. B. housing prices rose. C. many borrowers could not repay their mortgages. D. the government had to bail out large financial institutions.

C. many borrowers could not repay their mortgages.

When you evaluate an investment, you must balance A. the interest you will earn with the prospectus you will gain. B. the liquidity involved with the risk you take. C. the risks involved with the rewards you expect to gain. D.the diversification you are making with the type of financial intermediary.

C. the risks involved with the rewards you expect to gain.

If the three largest producers of breakfast cereal agreed to form an organization that produced a limited amount of cereal for the next year in order to inflate the price, what would they be doing? A.creating an oligopoly B.creating a price war C.creating a cartel D.creating a monopoly

C.creating a cartel

Which of the following is a characteristic of monopolistic competition? A.small number of firms B.high start up costs C.low barriers to entry D.identical products

C.low barriers to entry

Why does the government usually regulate natural monopolies? A.to ensure that marginal revenue is the same as price B.to make sure that companies profit from their research C.to keep the monopolist from having too much power D.to prevent price discrimination

C.to keep the monopolist from having too much power

Why do some people invest in hedge funds? A. Because they want a fund that doesn't diversify. B. Because they want to invest a small amount of money. C. Because they want a fund with less risk. D. Because they might make a huge profit.

D. Because they might make a huge profit.

The Federal Reserve System acts as lender of last resort to what group? A. Businesses in general B. Consumers C. Federal government D. Financial institutions

D. Financial institutions

Which of the following is a tool that the Fed uses to regulate the money supply? A. Bank examinations B. Check clearing policies C. Issuing of government checks D. Reserve requirements

D. Reserve requirements

What relationship does risk have to return? A. With lower risk, the potential for a return disappears. B. The higher the risk, the lower the potential for return. C .The lower the risk, the greater the potential for return. D. The higher the risk, the greater the potential for return.

D. The higher the risk, the greater the potential for return.

Why do you think ratings are helpful to investors? A. They lower potential risk. B. They raise potential risk. C. They improve the yield for investors. D. They help investors judge potential risk

D. They help investors judge potential risk

Why might ranchers want to lock in a price today for their cattle by signing a six-month futures contract? A. To be able to pay off the put option when the futures contract expires. B. To be able to buy a new herd of cattle when the six months is up. C. To be able to sell all of their cattle for a profit a year from now. D. To be able to plan on a certain amount of income in the future.

D. To be able to plan on a certain amount of income in the future.

What happens to the average total cost curve for a company with economies of scale? A. When production decreases, the cost of production falls. B. Marginal revenue is greater than market price. C. Marginal revenue is less than market price. D. When production increases, the cost of production falls.

D. When production increases, the cost of production falls.

Why does the government grant patents to some firms that develop new products? A. to increase the number of monopolies in the economy B. to guarantee additional profits to large firms that pay high taxes C. to generate competition in industries that might otherwise become monopolies D. to encourage firms to research new products that may benefit society

D. to encourage firms to research new products that may benefit society

Why is predatory pricing an unprofitable strategy for a company to use over the long term? A.It encourages more firms to enter the market. B.It leads to government deregulation of the market. C.It leads to ever-higher prices for goods. D.It causes the company to lose money.

D.It causes the company to lose money.

Why do high start-up costs serve as a barrier to market entry? A.by frightening inexperienced entrepreneurs out of the market B.by preventing the possibility of earning significant profits C.by being subject to high government regulation D.by limiting potential suppliers to those few with large amounts of capital

D.by limiting potential suppliers to those few with large amounts of capital