macro exam 2
65. The analysis of a company's prospect in order to buy stock is called a. fundamental analysis b. secondary analysis c. tertiary analysis
A
35. The length of time until the bond matures is called a bond's a. maturity date b. term c. both a & b d. none of the above
B
36. Selling bond is a way for corporations and governments to ___ money from public (people). a. lend b. borrow c. invest
B
37. Public(People) buy bonds because they get a. only principal back b. Principal plus interest back c. none of the above
B
48. It's recommended that you buy a share if its (P/E) is high. a. True b. False
B
7. Which good has more weight in the CPI calculation a. Food b. Apparel c. Housing d. transportation
C
financial system
The group of institutions in the economy that help to match one person's saving with another person's investment.
term
The length of time until the bond matures
GDP Deflator
a measure of the level of prices of all new, domestically produced, final goods and services in an economy.
CPI
a measure of the overall cost of the goods and services bought by a typical consumer.
who channels savings to investment?
financial system
where does investment come from?
from household and government savings
why do we need investment?
to form capital
58. Suppose you will pay $1000 to your friend after 10 years. What is the present value of that money if interest rate is 10%. a. 385 b. 485 c. 285 d. 585 e. none of the above
A
61. Suppose a friend offers you the following opportunity. She will toss a coin. If it comes up heads, she will pay you $1000. But if it comes up tails, you will have to pay her $1000. If you don't accept this offer, your attitude towards risk is a. you are a risk-lover b. You are a risk-averse person c. You are a risk-neutral person
B
31. Financial intermediaries consist of a. Banks b. Mutual funds c. Stock market d. both a & b e. all of the above
D
real interest rate
Nominal Interest rate - Inflation rate
inflation rate
The percentage change in the price index from the preceding period.
1. The consumer price index is used to a. monitor changes in the level of wholesale prices in the economy. b. monitor changes in the cost of living over time. c. monitor changes in the level of real GDP over time. d. monitor changes in the stock market.
B
10. The inflation rate you are likely to hear on the nightly news is calculated from a. the GDP deflator. b. the CPI. c. the Dow Jones Industrial Average. d. the unemployment rate.
B
14. If the CPI was 95 in 1955 and is 475 today, then $100 today purchases the same amount of goods and services as a. $4.75 purchased in 1955. b. $20.00 purchased in 1955. c. $95.00 purchased in 1955. d. $500 purchased in 1955. e) none of the above
B
19. When looking at a graph of nominal and real interest rates you notice that nominal rates almost always lie above real rates. From this you conclude a. there were serious episodes of deflation in the time frame represented on the graph. b. Inflation rate is positive c. the economy never experienced a recession in the time frame represented on the graph. d. GDP was always increasing for the time frame represented on the graph.
B
earning per share
If a company's total earning is divided by total share, we get
price earning ratio
If the price of share is divided by the earning per-share we get_________. A higher P/E indicates the stock of the company is overvalued (overpriced).
12. For an imaginary economy, the value of the consumer price index was 140 in 2013 and 146.5 in 2014. The economy's inflation rate for 2014 was a. 4.6 percent. b. 6.5 percent. c. 4.4 percent. d. 46.5 percent. e) none of the above
A
22. There are regional difference in prices. Which of the following may have highest difference in prices a. hair-cut b. apples c. pencils d. online purchase of a book
A
26. We need investment in the economy a. to form capital that will ultimately help economic growth b. to form saving that will ultimately help economic growth c. to consume more today
A
27. Where does the domestic saving come from? a. From Household and government saving b. From Household and government consumption c. From Government investment d. All of the above
A
28. Financial system of a country helps channel savings into investment. a. True b. False
A
33. We associate the term debt finance with a. the bond market, and we associate the term equity finance with the stock market. b. the stock market, and we associate the term equity finance with the bond market. c. financial intermediaries, and we associate the term equity finance with financial markets. d. financial markets, and we associate the term equity finance with financial intermediaries.
A
39. A failure by the borrower to pay is called a. default b. term risk c. credit risk d. debit risk e. all of the above
A
40. Bankruptcy means a. when borrowers fail to pay the money back to their lenders. b. when borrowers don't have enough illiquid assets c. both a & b
A
43. The expected return from stock is _____ than the return from bond, but the former is _______ than the latter. a. higher, riskier b. higher, less risky
A
44. The profit corporates pay to their stock holders is called a. dividend b. earning. c. interest
A
45. Dividend yield is a. (dividend per share/ price per share) X 100 b. (price per share/dividend per share) X 100 c. All of the above d. None of the above
A
46. A corporation's accounting profit is called a. earning b. economic profit c. revenue d. all of the above
A
47. Earning per share of a company is a. Total earning/total share b. Total share/ total earning c. Total Revenue/ Total share d. All of the above e. None of the above
A
51. 'S&p 500' is the average price of a group of ____ major companies. a. 500 b. 50 c. 30 d. 100
A
53. A Mutual Fund sells share to the ___ , and use the money to buy a ___ of stocks and bonds. a. public, portfolio
A
57. If there is a government budget ____, the supply of loanable fund will ____. a. deficit, decrease. b. surplus, decrease c. deficit, increase d. all of the above
A
59. How much will you get after 10 years if you put $500 at the interest rate of 10% in a bank? a. 1297 b. 1197 c. 1397 d. none of the above
A
9. If consumer price index increases from previous year to this year, inflation rate is a. positive b. negative c. zero d. could be positive or negative
A
earning
A corporate's accounting profit (Revenue - accounting cost) is called
default
A failure by the borrower to pay is called
2. The consumer price index is used to a. convert nominal GDP into real GDP. b. turn dollar figures into meaningful measures of purchasing power. c. characterize the types of goods and services that consumers purchase. d. measure the quantity of goods and services that the economy produces.
B
20. In 2009 Real Interest rate is greater than nominal interest rate. It implies a. inflation rate is positive b. inflation rate is negative c. inflation rate is zero d. it has nothing to do with inflation rate
B
23. If inflation rate is 3% and a bank gives you 1% interest on your deposit, you are a) gaining b) losing c) neither gaining nor losing d) doesn't have enough information
B
25) Because of inflation, purchasing power of money a) increases b) decreases c) remains same d) doesn't have enough information
B
32. A bond is a a. financial intermediary. b. certificate of indebtedness. c. certificate of partial ownership in an enterprise. d.None of the above is correct.
B
34. The buyer of a bond must hold it until the maturity date a. true b. False c. Uncertain
B
4. The CPI is a measure of the overall cost of a. the inputs purchased by a typical producer. b. the goods and services purchased by a typical consumer. c. the goods and services produced in the economy. d. the stocks on the New York Stock Exchange.
B
41. The ___ the chance of default, the _____ the interest rate. a. less, higher b. higher, higher c. higher, lower
B
49. Like the price of everything else, the price of a stock also depends on its relative demand and supply. a. False, because stock is not a good. b. true c. uncertain
B
52. Banks get money to cover its costs and to make profit from a. the interest paid to its depositors - the interest on the loans it makes b. the interest on the loans it makes - the interest paid to its depositors c. the government
B
54. If income is $100, income tax is $10, consumption is $60, government tax revenue is $10 and government expenditure is $ 8, what is the national saving? a. $30 b. $32 c. $40 d. $25 e. none of the above
B
6. If the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year must be a. 2012. b. 2013. c. 2014. d. The base year cannot be determined from the given information.
B
60. Suppose you invest $100 today. For this investment you will get $112 after 2 years. Is this a good investment decision if the interest rate in bank is 10%. a. Yes b. No
B
62. You are a risk-averse person if, to you, the pain of losing $1000 is less than the pleasure from winning $1000. a. true b.false
B
63. The purpose of insurance is to a. eliminate risk b. spread one person's risk among many
B
bankruptcy
Borrowers can (and sometimes do) default on their loans by declaring
11. Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $77; in 2013, the basket's cost was $82; and in 2014, the basket's cost was $90. The value of the CPI in 2014 was a. 109.8 and the inflation rate was 9.8%. b. 109.8 and the inflation rate was 16.9%. c. 116.9 and the inflation rate was 9.8%. d. 116.9 and the inflation rate was 16.9%. e) none of the above
C
17. If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is a. -5 percent. b. 1.67 percent. c. 5 percent. d. 11 percent. e) none of the above
C
18. The CPI was 220 in 2012 and 231 in 2013. Phil borrowed money in 2012 and repaid the loan in 2013. If the nominal interest rate on the loan was 10 percent, then the real interest rate was a. -5 percent. b. -1 percent. c. 5 percent. d. 3.2 percent. e) none of the above
C
21. In the US, since 2008 Real interest rate is negative. It implies a. Inflation rate is less than nominal interest rate b. inflation rate is equal to nominal interest rate c. Inflation rate is more than nominal interest rate
C
24) $115 in New York can buy exactly same amount of good $90.6 can buy in a) California b) Mississippi c) Tennessee d) Hawai
C
29. Financial system consists of a. Stock market and bond market b. Banks and mutual funds c. Financial markets and financial intermediaries d. Financial markets
C
38. The probability that the borrower will fail to pay some of the interest or principal is called a. default b. term risk c. credit risk d. debit risk e. all of the above
C
42. The difference between bond and stock is a. Return from bond is certain but return from stock is not certain. b. Return from the bond does not depend on the financial condition of the corporations but return from the stock depends on the financial condition of the corporations. c. both a and b
C
50. 'Dow Jones' is the average price of a group of ___ top Companies. a. 500 b. 50 c. 30 d. 100
C
55. Assuming the country is closed meaning no inflow of foreign-capital, the supply of loanable fund depends on a. Public saving b. Private saving c. Domestic saving d. None of the above
C
64. The reason(s), the premium ( the installments a person has to pay if buy insurance ) is higher than they should be, are a. Adverse selection b. Moral hazard c. all of the above d. none of the above
C
8. The inflation rate is defined as the a. price level in an economy. b. change in the price level from one period to the next. c. percentage change in the price level from the previous period. d. price level minus the price level from the previous period.
C
13. The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia's inflation rate in 2006? a. 4 percent b. 11 percent c. 19.6 percent d. 24.4 percent e) none of the above
D
15. In 1969, Malcolm bought a Pontiac Firebird for $2,500. If the price index was 36.7 in 1969 and the price index was 235 in 2013, then what is the price of the Firebird in 2013 dollars? a. $4,609.57 b. $4,957.51 c. $13,508.17 d. $16,008.17 e) none of the above
D
16. In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 70 in 1980, and 130 in 1990, then in real terms, Professor Plum's salary was highest in a. 1970 and lowest in 1980. b. 1970 and lowest in 1990. c. 1980 and lowest in 1970. d. 1980 and lowest in 1990. e) none of the above
D
3. Which of the following is not correct? a. The consumer price index gives economists a way of turning dollar figures into meaningful measures of purchasing power. b. The consumer price index is used to monitor changes in the cost of living over time. c. The consumer price index is used by economists to measure the inflation rate. d. The consumer price index is used to measure the quantity of goods and services that the economy is producing.
D
30. Financial market consists of a. Stock market b. Bond market c. banks d. a & b e. all of the above
D
56. If the demand for investment increases, the ___ curve for loanable funds shifts ___ and interest rate _______. a. supply, leftward, increases b. supply, rightward, decreases c. demand, leftward, decreases d. demand, rightward, increases
D
financial markets
Financial Markets are financial institutions through which savers can directly provide funds to borrowers. The two most important financial markets in the economy are bond markets and stock markets.
Financial Intermediaries:
Financial institutions through which savers can indirectly provide funds to borrowers. Example: Banks, Mutual Funds.
Which states are more expensive to live and which states are less expensive to live? Compare three goods: Land, Haircut, Apple and Stapler. Which of the four might have highest difference in price between the most expensive and least expensive states? WHY?
Haircut; service costs
real wage
Nominal Wage / CPI
credit risk
The probability that the borrower will fail to pay some of the interest or principal
dividend
The profit corporates pay to their stock holders is called
difference between bond and stock
The return (principal + interest) of a bond is guaranteed; doesn't depend on the financial condition of the company. The return (dividend) on stock depends on the financial condition of the company; if the company makes more profit the share-holder will get higher dividend, if the company suffers loss, the share-holder will get nothing.