Economics Final Exam

Funds paid until which of the following accounts will be fully deductible against your current income

A Roth IRA

historically which of the following has yielded the highest rate of return when held over a long period of time

A diverse holding of common stocks

which of the following is most important if michael wants to budget effectively and become wealthier? -Michael should begin saving as soon as his basic needs are satisfied -Michael should begin saving soon as possible -Michael should begin saving soon as he pays off his education loans -Michael should begin saving after he has purchased a home

Michael should begin saving as soon as possible

As the time nears when you expect to use funds and your retirement portfolio you will reduce your risk if you

Move more of your assets into bonds and out of stocks

Insurance companies earn profit when they're able to

Pool the payments a policy holders who are willing to pay premiums that are more than sufficient to cover the losses of those harmed by the adverse event

Most people obtain insurance for their automobile house in hell but did not ensure items such as their smart phones because

The financial risks posed by damages to one's home car and health are large whereas the rest pose by damage to one's phone is usually manageable

The forces of supply and demand assure that...

The price of a good will eventually rise in response to an excess demand for that good

which of the following will most likely occur when government price controls fix the price of a good above market equilibrium? -waiting lines to buy the good will develop -The quality of the good will deteriorate -consumers will buy more than they would at the market equilibrium price -A surplus of the good will develop

a surplus of the good will develop

The link between helping others and earning income provides a strong incentive for young people to

acquire skills and invest in education that will increase their ability to provide valuable goods and services to others

if an external cost exists which of the following might be a possible solution? -a tax imposed on the activity that generates the external cost -an agreement between the people creating the externality and those suffering the cost -changes in manners, social conventions, and norms -all of the above

all of the above

regulatory prices requiring lenders to extend more low down-payment loans to higher risk borrowers along with the Fed's low short term interest rate policy during 2002-2004 caused

an increase in demand for housing and higher housing prices

Government encourage lobbying and favor seeking when they

are heavily involved in the granting of subsidies and tax breaks that favor some segments of the population at the expense of others

based on the historical record, managed funds that have yielded the highest returns during the last 2-3 years

are unlikely to maintain high returns in the future

both individuals and nations expand their income by

budgeting, spending less than they make and investing the savings productively

a persons comparative advantage is based on

comparative abilities

if a country with a centrally planned economy such as Cuba or North Korea were to convert to a market-based economy the country would have to

develop a system clearly defined property rights

which of the following attitudes is likely to be viewed by a potential employer as a sign of low employee productivity

dishonesty and disrespect for others

When considering the choice between buying a home in renting a good rule of thumb is

do not buy a home if you expect to live in the area for less than three years

which of the following is an implication of random walk theory?

even experts will be unable to predict future movement of stock prices with any degree of accuracy

the economic freedom of the world index indicates that countries with more economic freedom

have higher levels offer capita income

suppose the outstanding balance on christi's credit card is $2000 and her annual interest rate is 12% (1% a month). if christi makes a payment of $50

her monthly interest charge will be $20 and her new outstanding balance will be $1950

compared to managed equity funds, indexed equity funds generally yield a

higher return because the indexes funds spend less on research and stock trading and therefore have lower administrative costs than managed funds

increases in per capita GDP are

important because they generally improve our standard of living

which of the following would be most likely to improve the efficiency and quality of government services to the public? -limitations on campaign contributions to political candidates -subsidies for the campaigns of political candidates so more people can afford to run for office -shift of activities from local to state governments in order to increase the scale of government operations -increased competition among local governments

increased competition among local governments

Business owners who think like an entrepreneur will focus on

increasing the value of their product or service relative to its costs

what is the invisible hand coordinates the actions of individuals referred to Adam Smith?

market prices

financing an item over a period of time more lengthy than the useful life of the asset

means that you will still be making monthly payments in the future after the asset is worn out and no longer has value

the average return on stocks is significantly higher than returns on savings accounts and government bonds because

of the higher risk associated with investing in the stock market

personal financial success is primarily the result of

providing services others value while working hard to achieve financial goals

which of the following is most likely to help you get more value for your money?

purchasing a used car that is in good condition even though it is 3-4 years old

which of the following will most likely occur under system clearly defined and enforced private property rights? -resource owners will fail to conserve vital resources even if they expect the supply to be highly limited in the future -resource owners would ignore The wishes of others including others who would like to use the resource that is privately owned -research owners will fail to consider the wishes of potential future buyers when they decide how to employ privately owned resources -resource owners will gain by discovering and employing their resources in ways that are highly valued by others

resource owners will gain by discovering and employing their resources in ways that are highly valued by others

Characteristic of entrepreneurs that they are

risk takers

which of the following is the best place to set funds aside for surprise expenditures?

savings account

When a firm or enterprise obtains more funds from government and less from consumers the enterprise will

spend more time trying to influence politicians and less time trying to meet the preferences of consumers

the key to converting a small amount of money now into a large amount of money in the future is

starting to save regularly at an early age and taking advantage of compound interest

the marginal tax rate is

the percentage of tax that must be paid on an additional dollar of income earned

because indexed equity funds engage in less research and stock trading

there are fewer fees involved, but the returns are lower than those of managed funds

entrepreneurs generally have higher savings rate which further contribute to their wealth because

they invest much of their profit in the stock market

why is it difficult to improve the well-being of a group through income transfers

unintended secondary effects and competition for transfers reduce the net gains of unintended beneficiaries

If an individual has an outstanding balance on a credit card at 15% interest, money in a savings account earning 5%, and an opportunity to invest some money earning a 12% return, the individual should

use all available funds including savings to pay off the credit card

diversification of an investment portfolio will reduce volatility over the business cycle because

while a recession or expansion will be worse for some industries, it will be better for others

which of the following is true? -investment in the stock market is a relatively foolproof method for an investor to earn a high rate of return during the next five years -current stock prices already reflects information that is known with a high degree of certainty -experts are able to predict changes in the direction of the broad stock market indexes with a high degree of accuracy -while changes in the prices of specific stocks are difficult to predict it is relatively easy to predict the future direction of the broad stock market

while changes in the prices of specific stocks are difficult to predict it is relatively easy to predict the future direction of the broad stock market

in a diversified portfolio, the rate of return

will converge toward the average returns of all the investments

Compared to other investments such as bronze historically a diverse set of stocks held over a lengthy period of time has

yielded a high average real rate of return and the variation in that return has been relatively small

which of the following statements most clearly reflects the concept of opportunity costs? -you can't have your cake and eat it too -you can't teach an old dog new tricks -i'll have a Baker's dozen -there's no business like show business

you can't have your cake and eat it too

monetary prices in the United States is conducted by

Congress

When a young person is considering career options and seeking to discover their comparative advantage, which of the following is most important? -Discovery of those areas where the relative talents are greatest but they also really enjoy doing -Discovery of the areas where their relative talents are greatest even if they do not find work in that area fulfilling -information about high-paying career opportunities even if they have little or no ability in the area -any area where they have at least a little more ability than most of their friends

Discovery of those areas where the relative talents are greatest but they also really enjoy doing

During the first few years of a 30 year fixed interest rate mortgage most of the payments you make will go to

Interest