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34 Cards in this Set
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Which of the following tools is MOST often used by the Federal Reserve Board to control the money supply?
A) Lowering the discount rate B) Engaging in open market operations C) Altering the reserve requirements D) Changing margin requirements |
Answer: B
The FRB has 3 tools to influence the money supply: the discount rate, the reserve requirement and open market operations. The purchase & sale of government securities by the Federal Open Market Committee (FOMC) is the most frequently used tool of the Fed. |
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Disintermediation is a movement of funds which could result from all of the following EXCEPT:
A) The money supply tightens B) Money market rates are higher than typical savings rates C) The FRB increases reserve requirements D) The discount rate is decreased by FRB |
Answer: D
Disintermediation is money flowing from banks and thrifts into MM instruments. It tends to occur when money is tight, causing rates to rise and making money funds more attractive than passbook savings rates. |
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Four of the best known indexes and averages are listed below. How do they rank on the scale of most to fewest issues in the index?
1) Dow Jones Industrial Average 2) NYSE Composite Index 3) Standard & Poor's 500 4) Wilshire |
Answer: 4, 2, 3, 1
Of the indexes and averages listed, the Wilshire, sometimes referred to as the Wilshire 5000, is the broadest measure of the market; it contains more than 5000 issues (exchange listed and OTC securities). The NYSE Composite Index is based on the prices of all of the common stocks listed on the Exchange. The S&P 500, as the name implies, is based on the prices of 500 stocks. The index recording the fewest issues is the Dow Jones Industrial Average - only 30 stocks. |
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If the Federal Open Market Committee (FOMC) purchases T-bills in the open market, which of the following scenarios are likely to occur?
1. Secondary bond prices will rise. 2. Secondary bond prices will fall. 3. Interest rates will rise. 4. Interest rates will fall. |
Answer: 1 & 4
When the FOMC purchases t-bills in the open market, it pays for the transaction by increasing member banks' reserve accounts. The net effect of this action increases the total money supply and signals a period of relatively easier credit conditions, declining interest rates and a rise in the price for existing or secondary bonds. |
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In the assessment of a company's stock, a technical analyst takes into consideration all of the following EXCEPT:
A) Volume B) Earnings C) Price Momentum D) Market Price |
Answer: B
A market technician (technical analyst) deals primarily with timing of activity and market trends, while a fundamental analyst centers on a particular industry or company within an industry and its relative health and market potential. |
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ALFA Enterprises pays a quarterly dividend of $0.15/sh and has earnings/sh of $2.40. What is the dividend payout ratio?
A) 14.4% B) 6.25% C) 30% D) 25% |
Answer: D
The dividend payout ratio measures the proportion of earnings paid to stockholders as dividends:
Annual dividends per share/earnings per share = DPR
.15 x 4 = .60/2.40 = .25 |
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Which of the following is a leading economic factor?
A) Duration of unemployment claims. B) Industrial production C) S&P 500 Index D) Gross domestic product |
Answer: C
Broad stock market indices are generally leading indicators. GDP and industrial production are coincident indicators, and the duration of unemployment claims is a lagging indicator. |
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Which of the following is considered the MOST accurate method of measuring GDP?
A) actual dollars B) Eurodollars C) as a function of GNP D) constant dollars |
Answer: D
Constant dollars are mathematically adjusted to remove the effects of inflation, so when economists compare the gross domestic product of one period with that of another, they measure economic activity rather than inflation. |
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To reflect a more accurate picture of economic results, GDP is adjusted:
A) to include bank reserves B) downward by the balance of payments C) for inflation D) to match foreign GDP |
Answer: C
By adjusting GDP for inflation, one can measure economic activity with less distortion. A constant dollar adjustment is made to remove the effects of inflation. |
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The Conference Board releases information about the economy on a monthly basis. Included are a number of different indicators. Economic indicators can be leading, lagging or coincidental, which indicates the timing of their changes relative to how the economy as a whole changes. Which of the following is a lagging economic indicator?
A) Hours worked B) Corporate profits C) S&P 500 D) Housing permits issued |
Answer: B
Both the S&P 500 and housing permits are leading economic indicators, as is the measure of hours worked because it reflects changes in the average workweek during the current period of time. Corporate profits are a lagging indicator. |
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To determine the amount of change in the GDP from one year to another, both years' GDP should be converted into:
A) international depository receipts B) the current dollar price of gold buillon C) constant dollars D) the exchange value of the dollar, as compared with major foreign currencies |
Answer: C
To compare GDP from one year to another, and thus to compare the amount of actual economic activity, economists use constant dollars to eliminate distortion caused by inflation. |
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In what order do the following economic phases typically occur?
1. Recovery 2. Trough 3. Decline 4. Prosperity |
Answer: 1, 4, 3, 2
Economists consider expansion (recovery) the beginning of the business cycle, followed by the peak (prosperity), contraction (decline) and then, trough. |
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During the past 2 quarters, the GDP declined by 3%, unemployment rose by .7% and the Consumer Price Index fell off by 1.3%. This economic condition is called:
A) stagflation B) recession C) inflation D) depression |
Answer: B
2 consecutive quarters of economic decline is termed a recession. |
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Which of the following economists supports demand-side economics?
A) Adam Smith B) Arther Laffer C) Milton Friedman D) John Maymard Keynes |
Answer: D
John Maynard Keynes was the first deman-side economist. He believed that by increasing the income available for spending and saving, a government could increase demand and improve the courtry's economic well-being. Higher taxes and higher government spending are key tenets of this theory. |
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According to Keynesian economic theory, an economy's health can be ensured if the government:
A) increases aggregate demand B) cuts taxes for businesses and the wealthy C) increases the money supply D) does not interfere |
Answer: A
Keynesians theorize that government efforts to increase aggregate demand by increasing purchases of goods and services result in the healthiest economy. In general, higher taxes and higher government spending lead to favorable economic conditions. |
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What term do economists use to describe a downturn in the economy that is characterized by both unemployment and rising prices?
A) Inflation B) Depression D) Stagflation |
Answer: D
"Stagflation" is the term used to describe the unusual combination of inflation and unemployment (stagnation). |
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Which of the following is NOT a leading economic indicator?
A) Orders for durable goods B) Duration of unemployment C) New housing permits D) Money supply |
Answer: B
The average amount of time it takes for an unemployed person to find a new job is a lagging indicator, not a leading one. Employment is usually one of the last things to pick up as the economy enters a period of expansion. Layoffs are one of the last resorts for companies when the economy turns down. |
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The Conference Board releases info about the economy on a monthly basis. Included are a number of different indicators. Economic indicators can be leading, lagging or coincidental, which indicates the timing of their changes relative to how the economy as a whole changes. New orders for durable goods is what kind of economic indicator?
A) Coterminous B) Lagging C) Leading D) Coincident |
Answer: C
New orders for durable goods is a leading economic indicator. |
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Industrial production is what kind of economic indicator?
A) Coincident B) Leading C) Coterminous D) Lagging |
Answer: A
Industrial production is a coincident economic indicator. |
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Stats from which of the following industries ar econsidered a leading indicator of economic growth?
A) Automotive B) High technology C) New housing D) Natural gas |
Answer: C
A leading indicator predicts economic trends. Such indicators include steel shipments, stock market indices, manufacturing orders and housing starts. |
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Which of the following indicators reflects the current level of business activity?
A) Expenditures on plant and capital equipment B) Level of inventories C) Personal incomes D) Building permits
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Answer: C
Personal income levels reflect the current state of the economy. Building permits and expenditures on plant and capital equipment indicate future economic activity and are considered leading indicators. Inventory levels are considered a lagging indicator. |
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The economic theory that says economic growth results from lower tax rates and lower government spending is:
A) Demand-side theory B) Supply-side theory C) Monetary theory D) Keynesian theory |
Answer: B
Supply-side economics is the theory of Arthur Laffer, who believed that heavy taxing and government intervention have a negative effect on the economy. |
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Which of the following choices does NOT influence the level of interest rates?
A) FRB's monetary policy B) New housing starts C) Amount of loanable funds in the financial markets D) Inflation expectations |
Answer: B
New housing starts are affected by the level of interest rates, but they are not a factor in the determination of interest rates. Interest rates are determined by the supply and demand for loanable funds. The more money that is available for lending, the lower the rates. |
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The economy has gone through 3 consecutive quarters of economic decline with no immediate end in sight, and therefore could be said to be:
A) In a recovery B) Lagging C) In a recession D) In a depression |
Answer: C
Recession is defined as 2 or more consecutive quarters of economic decline. It would have to be at least 6 quarters to be considered a depression. |
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Which of the following fundamental analysis theories might rely on lowering and raising taxes to stimulate or cool down an economy?
A) Keynesian B) Supply side C) Short interest D) Breakout |
Answer: A
Keynesian theory is interventionist. Supply side theory calls for low taxes and low government spending. Both short interest and breakout theories are technical rather than fundamental analysis theories. |
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Which of the following is a leading indicator of the economic future?
A) The Consumer Price Index B) Machine tool orders C) Unemployment stats D) The GNP |
Answer: B
Machine tool orders anticipate the business cycle, because they come first in the manufacturing process. |
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Which of the following is a coincident economic indicator?
A) Capital goods purchased B) Housing starts C) Industrial production D) The S&P 500 Index |
Answer: C
Coincident economic indicators measure the strength of the current economy at specific intervals. Industrial production is such an indicator. |
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Which of the following is a lagging indicator?
A) The GNP B) Housing starts C) Durable goods orders D) Corporate profits |
Answer: D |
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The economic philosophy that believes in controlling the money supply to stimulate the economic growth is often referred to as:
A) The Fiscal Economic Theory B) The Monetarist Economic Theory C) The Supply Side Economic Theory D) The Demand Side Economic Theory |
Answer: B
Controlling the money supply implies a hands-on theory that is referred to as the Monetarist Theory. |
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To stimulate a sluggish economy using fiscal policy measures, policymakers would:
A) Increase the money supply |
Answer: C
Reducing income taxes is a fiscal policy tool intended to increase overall demand for goods and services. Adjusting the money supply is a monetary policy tool. |
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Increases in which of the following indicators are regarded as predictors of the level of business activity?
A) Personal incomes |
Answer: D
Increases in building permits are indicative of increased, future business activity and are therefore considered a leading economic indicator. Increases in personal income and employment levels reflect current, not future activity, and would be considered coincident indicators. Corporate profits are a lagging economic indicator. |
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The US GDP consists of the annual sum of all goods and services produced within the nation. It includes: personal consumption, private investment, foreign investment, net exports and all:
A) government purchases |
Answer: A
The GDP includes everything produced in the US in a year, whether used domestically, shipped abroad or sold to the government. |
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Which economic theory states that a reduced tax rate will result in a healthy economy that will in turn generate more taxes?
A) The Keynesian Economic Theory |
Answer: C
The Supply Side Economic Theory (Reaganomics) is that reduced tax rates will result in a healthier economy, which will generate more taxes to compensate for the reduced rates. |
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The Consumer Price Index (CPI) is released:
A) monthly B) weekly C) quarterly D) semiannually |
Answer: A
The US Bureau of Labor Statistics releases the CPI monthly. |
