1. Suppose that you learn that a friend recently received a substantial inheritance. Your friend was given two choices: 1) wait 10 years and receive the inheritance or 2) receive the present value of the inheritance (using a 3% discount rate) now. Your friend chose option #2, and received a hefty $700,000. How much would your friend have received if she waited 10 years to take the inheritance?
A. 1,000,000
B. 940,741
C. 910,000
D. 520,866
2. Diversification reduces
A. only systemic risk
B. only idiosyncratic risk
C. only aggregate risk
D. only market risk
3. The efficient market hypothesis
A. all of these are correct
B. assumes that investors use fundamental analysis
C. predicts that it should be difficult to find stocks whose price differs from their fundamental value
D. assumes that investors are rational
4. Which of the following represents the problem of adverse selection for a health insurance company?
A. When insured people become ill, they have difficulty paying insurance premiums.
B. none of these are correct
C. People with unhealthy habits are more likely to sign up for health insurance than healthy people.
D. Insured people tend to behave more dangerously and take greater health risks.
5. Which of the following is a goal of having homeowners insurance?
A. To become less risk-averse
B. To make money if your house burns down
C. To reduce the probability of having your house burn down
D. To spread the financial risk of your house burning down
6. As interest rates rise, the present value of a fixed sum of money to be received at a future date
A. Decreases
B. Stays the same.
C. Increases
7. With regard to moral hazard and adverse selection:
A. Both moral hazard and adverse selection are post-insurance problems
B. Adverse selection is a post-insurance problem
C. Moral hazard is a pre-insurance problem
D. none of these are correct
8. If the value of technology stocks is more sensitive to economic conditions than consumer staples stocks (e.g. Coca Cola), what can we conclude about the relative risk and return of technology versus consumer staples stocks?
A. Consumer staples stocks are riskier and have a lower expected return
B. Technology stocks are riskier and have a higher expected return
C. Consumer staples stocks are riskier and have a higher expected return
D. Technology stocks are riskier and have a lower expected return
9. Suppose that 40% of your portfolio consists of risk-free bonds that have an annual rate of return of 4%, and the other 60% of your portfolio consists of risky stocks. If your portfolio's average annual return is 5.8%, what was the annual rate of return of your stocks?
A. 8%
B. 7%
C. 6%
D. 9%
10. Which of the following is a store of value?
A. Currency
B. US Government Bonds
C. Fine art
D. all of these answers
11. Which list ranks assets from least to most liquid?
A. Fine art, currency, stocks
B. Currency, fine art, stocks
C. Fine art, stocks, currency
D. Currency, stocks, fine art
12. The current Chair of the Federal Reserve is
A. Henry Paulson
B. Alan Greenspan
C. Janet Yellen
D. Ben Bernanke
13. Which of the following statements regarding the Federal Reserve and the Board of Governors are correct?
A. The Fed has 14 regional banks; The Board has 7 members
B. The Fed has 14 regional banks; The Board has 12 members
C. The Fed has 12 regional banks; The Board has 7 members
D. The Fed has 12 regional banks; The Board has 12 members
14. Suppose the banking system currently has $333 billion in reserves, the reserve requirement is 10%, and $3 billion of the reserves are excess reserves that will not be lent out. What is the value of deposits?
A. $3,300 billion
B. $2,970 billion
C. $2,700 billion
D. $2,673 billion
15. If the reserve ratio is 5 percent, the money multiplier is
A. 4
B. 20
C. 2
D. 25
16. During the financial crisis of 2008, the Federal Reserve sought to stabilize the banking sector by reducing the ____________ rate, which is the rate at which banks can borrow directly from the Fed. Simultaneously, the Fed aggressively cut the ____________ rate, which is the rate at which banks borrow funds from each other via overnight loans.
A. Discount ; Prime
B. Prime ; Discount
C. Federal Funds ; Prime
D. Discount ; Federal Funds
17. Which of the following lists two actions that both decrease the money supply?
A. Raise the discount rate, make open market sales
B. Raise the discount rate, make open market purchases
C. Lower the discount rate, make open market purchases
D. Lower the discount rate, make open market sales
18. In recent years, China's central bank has been attempting to combat a significant real estate bubble by increasing banks' required reserve ratio. What are Chinese policy makers seeking to achieve?
A. They want interest rates to rise and housing prices to fall/stabilize
B. They want interest rates to fall and housing prices to rise
C. They want interest rates and housing prices to fall
D. They want interest rates and housing prices to rise
19. The price level rises from 115 to 150. What was the inflation rate?
A. 25%
B. 20%
C. none of these are correct
D. 30%
20. When prices are falling, economists say that there is
A. deflation
B. an inverted inflation
C. disinflation
D. a contraction
21. The classical dichotomy argues that changes in the money supply
A. affect nominal variables, but not real variables
B. do not affect nominal variables, but do affect real variables
C. affect neither nominal nor real variables
D. affect both nominal and real variables
22. According to the quantity equation, if P = 2, Y = 3,000, and M= 3,000, then V equals?
A. 4
B. 1
C. 2
D. 1/2
23. The money supply in Tazland is $400 billion. Nominal GDP is $800 billion and real GDP is $400 billion. What are the price level and velocity in Tazland?
A. The price level is 4 and velocity is 8
B. The price level and velocity are both 8
C. The price level and velocity are both 2
D. The price level is 8 and velocity is 4
24. The nominal interest rate is 3 percent and the inflation rate is 2 percent. What is the real interest rate?
A. 1.5%
B. 6%
C. 1%
D. 5%
25. Which of the following can a country increase in the long-run by increasing its money growth rate?
A. Real output
B. None of these are correct
C. Real wages
D. Real interest rates
26. Who would be included in the labor force?
A. Dakota, a stay-at-home mom not looking for other work
B. Brad, a full-time student not looking for work
C. None of them are included in the labor force
D. Maggie, who does not have a job, and receives a disability check
In 2004, based on concepts similar to those used to estimate U.S. employment figures, the Canadian adult non-institutionalized population was 25.022 million, the labor force was 16.956 million, and the number of people employed was 15.864 million.
27.1. According to these numbers, the Canadian labor-force participation rate was about
A. 6.4%
B. 4.4%
C. 67.8%
D. 63.4%
27.2. According to these numbers, the Canadian unemployment rate was about
A. 4.4%
B. 6.4%
C. 67.8%
D. 63.4%
28. Unemployment resulting from workers searching for jobs that better suit their tastes/preferences is called
A. frictional unemployment, which partly accounts for the natural rate of unemployment
B. structural unemployment, which partly accounts for the natural rate of unemployment
C. structural unemployment, which does not help account for the natural rate of unemployment
D. frictional unemployment, which does not help account for the natural rate of unemployment
29. Ford formulates collective bargaining agreements with the United Auto Workers (UAW), while the National Basketball Association (NBA) negotiates its collective bargaining agreements with the National Basketball Player's Association (NBPA). Of the four parties mentioned above (i.e. Ford, the NBA, UAW, and NBPA), which is most likely to "strike" and which is most likely to "lock out" if collective bargaining negotiations break-down?
A. Ford most likely to "lock out"; NBPA most likely to "strike"
B. NBA most likely to "lock out"; UAW most likely to "strike"
C. NBA most likely to "lock out"; NBPA most likely to "strike"
D. Ford most likely to "lock out"; UAW most likely to "strike"
30. Economists would predict that, other things the same, the more generous unemployment compensation a country has,
A. the shorter the duration of each period of unemployment, and the higher the unemployment rate
B. the longer the duration of each period of unemployment, and the lower the unemployment rate
C. the longer the duration of each period of unemployment, and the higher the unemployment rate
D. the shorter the duration of each period of unemployment, and the lower the unemployment rate
31. When employers pay efficiency wages, they pay wages
A. below the equilibrium value to increase profitability
B. set by the government to counter charges of unfair labor practices
C. at a level that would prevail in the absence of unions
D. above the equilibrium value to increase productivity
32. Currently, what is the approximate (official) rate of unemployment in the United States?
A. 4.0%
B. 5.0%
C. 3.5%
D. 7.5%
33. Suppose that you work in a competitive labor market and your total compensation is equal to your value added. Last year, you earned $70,000 in wages and $30,000 in benefits. If your labor productivity increases 3% and the cost of your benefits increase by 10%, what is the value of your new compensation package?
A. $102,100 (wages: $70,000, benefits: $32,100)
B. $93,000 (wages: $60,000, benefits: $33,000)
C. $103,000 (wages: $70,000, benefits: $33,000)
D. $107,000 (wages: $74,000, benefits: $33,000)
34. Suppose that San Francisco passes a living wage ordinance requiring that the minimum wage increase to $20 per hour. What are the likely affects of this policy?
A. Higher rates of unemployment for unskilled workers
B. Higher wages for unskilled workers
C. Higher prices for fast food and other goods/services produced using unskilled labor
D. All of these are correct