Chapter 6 Economics Review

Based on the graph below, when do you think investors would have been the least likely to buy junk bonds? (Junk Bond Yields, 2004-2013) A. 2008 B. 2013 C. 2004 D. 2001

2013

Which of these mortgages would a home buyer looking for stability and a low monthly payment select? (Mortgage Rate bar graph) A. 1-year adjustable-rate mortgage B. 15-year fixed-rate mortgage C. 30-year fixed-rate mortgage D. 5/1 adjustable-rate mortgage

30-year fixed-rate mortgage

Based on this graph, which of the statements below is correct? (line graph Subprime Mortgages 1998-2008) A. Between 2003 and 2007, subprime mortgages more than tripled as a percentage of all U.S. mortgages. B. Fewer homes were sold after 2003. C. Real estate prices dropped significantly after 2003. D. Banks generally lent less money after 2003.

Between 2003 and 2007, subprime mortgages more than tripled as a percentage of all U.S. mortgages.

What is the main reason for the difference shown here in the interest rates for savings accounts versus certificates of deposit (CDs)? (Intrest Rates bar graph) A. Savings account rates are higher because consumers must keep a higher balance in the account. B. Savings account rates are higher because consumers cannot write any checks on those accounts. C. CD rates are higher because consumers cannot remove their money until the end of a certain time period. D. CD rates are higher because consumers must keep a higher balance in the account.

CD rates are higher because consumers cannot remove their money until the end of a certain time period.

"How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case."—Robert G. Allen, financial writer This quotation reflects what principle of investing? A. Higher risk usually offers higher potential return. B. Higher risk usually offers lower potential return. C. Greater liquidity usually offers higher potential return. D. Greater liquidity usually offers lower potential return.

Higher risk usually offers higher potential return.

Which of the following is generally true about financial intermediaries? A. Intermediaries are government agencies. B. Intermediaries channel money from investors to savers. C. Intermediaries increase the level of risk for investors. D. Intermediaries provide information to savers and investors.

Intermediaries provide information to savers and investors

This cartoon illustrates what aspect of investing in the stock market? (office cartoon) A. Investing in the stock market can provide high returns. B. Investing in the stock market can have high risks. C. Investing in the stock market requires a lot of education. D. Investing in the stock market is easy using modern technology.

Investing in the stock market can have high risks.

How did the abandonment of the gold standard help the economy during the Depression? A. It allowed the President to take over failed banks that held gold. B. It allowed the Federal Reserve to base the value of the dollar on gold. C. It allowed the Federal Reserve to increase the money supply. D. It allowed the government to insure deposits.

It allowed the Federal Reserve to base the value of the dollar on gold.

Which characteristic of money does this cartoon relate to? (political cartoon) A. Money has a limited supply. B. Money is uniform. C. Money is divisible. D. Money is durable.

Money has a limited supply.

Why is it important to protect members of the Federal Reserve Board of Governors from political pressures? A. Political pressures could lead to one district being over represented. B. Political pressures could lead to reappointment. C. Political pressures always favor the wealthy. D. Political pressures could cause them to make poor decisions.

Political pressures could cause them to make poor decisions.

In the scenario below, why did investor 2 not want to buy the bond at 5% interest? (Discounts From PAR chart) A. She could earn a better return by purchasing another bond at a discount from par. B. She could earn a better return if she purchased the bond at a lower interest rate. C. She could earn a better return if she purchased the bond at the higher interest rate. D. She could earn a better return if she invested money in the stock market.

She could earn a better return if she purchased the bond at the higher interest rate.

If you look closely at this dollar bill, you will notice that at the top, it says "Silver Certificate" where most dollar bills say "Federal Reserve Note." How is this bill different from most dollar bills that you see? ($1 bill) A. There are no differences between the silver certificate and the Federal Reserve note. B. The Federal Reserve note is backed by something of value, and the silver certificate is backed by the government. C. The silver certificate is fiat money, and the Federal Reserve note is representative money. D. The Federal Reserve note is fiat money, and the silver certificate is representative money.

The Federal Reserve note is fiat money, and the silver certificate is representative money.

Look at this political cartoon. What was the effect of Jackson's destruction of this"monster"? (snakeheads) A. The United States entered a period of relative financial stability. B. The Free Banking Era began. C. The National Bank became the only institution to issue currency. D. The United States effectively went on the gold standard.

The Free Banking Era began.

Why is using money as a medium of exchange preferable to bartering? A. The relative value of bartered goods remains the same over time. B. The value of money fluctuates over time. C. The relative value of goods is difficult to establish in a barter system. D. The value of bartered goods decreases after they are purchased.

The relative value of goods is difficult to establish in a barter system.

"I believe that banking establishments are more dangerous than standing armies." —Thomas Jefferson Why did Thomas Jefferson and other Antifederalists hold the view described here? A. They feared the wealthy would gain control of the bank and use it to increase power. B. They feared a national bank would do a poor job of protecting deposits. C. They wanted to promote industry and trade. D. They didn't believe a national bank would be strong enough.

They feared the wealthy would gain control of the bank and use it to increase power.

Based on this graphic, why do people want to hold more cash during a financial panic? (Stages of a Financial Panic chart) A. They want money to speculate in new ventures. B. They want to spend money on consumer goods that have become less expensive. C. They believe holding cash will stabilize the economy. D. They have less confidence in banks and investments.

They have less confidence in banks and investments.

Which of the following statements is reflected in this graph? (History of the Dow line graph) A. After the Great Depression ended, many Americans looked to the stock market to regain what they had lost in 1929. B. Throughout much of the 1900s, many Americans believed stocks were too risky for ordinary investors. C. A significant drop in the Dow in 1987 scared off investors for the following decade. D. The early 2000s were a period of economic stability.

Throughout much of the 1900s, many Americans believed stocks were too risky for ordinary investors.

If you wanted to purchase shares of a company, whom would you contact? A. the New York Stock Exchange B. a commodities broker C. a stockbroker D. a day trader

a stockbroker

Look at the image below. Which of the following financial trends is illustrated by this image? (phone taking picture of a check) A. decreased use of credit cards B. decreased use of debit cards C. increased use of cash D. increased use of mobile banking

increased use of mobile banking

The table below shows the pros and cons of what type of loan? (pros and cons list) A. credit card B. auto loan C. mortgage D. money market

mortgage

When the Federal Reserve followed the policy shown below, which of its functions was it carrying out? (Federal Reserves Lending to Financial Institutions 2007-2009) A. serving the government B. serving banks C. regulating banks D. regulating the money supply

regulating the money supply

About how many times more assets were held by life insurance companies than by hedge funds in 2013? (Assets Held by Financial Intermediaries, 2013) A. ten times B. eight times C. four times D. three times

three times

According to the graphic, why would an investor buy a call option? (options chart) A. to benefit from a future drop in stock prices B. to benefit from a future rise in stock prices C. to benefit from a future rise in bond prices D. to benefit from a future drop in bond prices

to benefit from a future rise in stock prices

What is the function of a municipal bond? A. to provide money for a firm to expand its business B. to provide money for the federal government to pay its debts C. to provide money for local government to finance public projects D. to provide money for individuals who are willing to take high risks

to provide money for local government to finance public projects

Beginning in 2008, why did the Federal Reserve choose to follow the policy shown by this graph? (Federal Reserves Lending to Financial Institutions 2007-2009) A. to reduce the impact of the financial crisis B. to help banks make loans to home buyers C. to help banks make loans to new businesses D. to reduce the impact of high unemployment

to reduce the impact of the financial crisis