Q&A Hero

Q: Which of the following statements is most correct? a. The maturity premiums embedded in the interest rates on U.S. Treasury securities are due primarily to the fact that the probability of default is higher on long-term bonds than on short-term bonds. b. Reinvestment rate risk is lower, other things held constant, on 30-day T-bills than on 30-year T-bonds. c. According to the market segmentation theory of the term structure of interest rates, we should normally expect the yield curve to have an upward slope. d. The expectations theory of the term structure of interest rates states that borrowers generally prefer to borrow on a long-term basis while savers generally prefer to lend on a short-term basis, and that as a result, the yield curve is normally upward sloping. e. If the maturity risk premium were zero and the rate of inflation were expected to increase in the future, then the yield curve for U.S. Treasury securities would, other things held constant, have an upward slope.

Q: A firm that responds to a regulatory rule in a way that permits technical compliance while allowing the firm to violate the spirit of the regulation has.A) reduced the scope of the lemons problem. B) shared the gains and pains of regulation.C) engaged in a creative response to regulation. D) become a captured regulator.

Q: If the expectations theory of the term structure of interest rates is correct, and if the other term structure theories are invalid, and we observe a downward sloping yield curve, which of the following is a true statement? a. Investors expect short-term rates to be constant over time. b. Investors expect short-term rates to increase in the future. c. Investors expect short-term rates to decrease in the future. d. It is impossible to say unless we know whether investors require a positive or negative maturity risk premium. e. The maturity risk premium must be positive.

Q: If three firms of similar sizes join to form a cartel, then it is most likely thatA) they will charge a common, higher market price.B) they will collectively produce more than before. C) all three firms will stop producing.D) all three firms will earn zero profits.

Q: An inverted yield curve a. Exists when short-term rates exceed long-term rates. b. Exists when long-term rates exceed short-term rates. c. Represents the "normal term structure." d. Signifies that investors can get higher returns by investing in bonds than by investing in stocks. e. Signifies that investors can get higher returns on stocks than on bonds.

Q: Why would Sunkist incur substantial costs to advertise and establish a brand name when the quality of its oranges can easily be evaluated by consumers?

Q: If the yield curve is downward sloping, what is the yield to maturity on a 10-year Treasury coupon bond, relative to that on a 1-year T-bond? a. The yield on the 10-year bond is less than the yield on a 1-year bond. b. The yield on a 10-year bond will always be higher than the yield on a 1-year bond because of maturity premiums. c. It is impossible to tell without knowing the coupon rates of the bonds. d. The yields on the two bonds are equal. e. It is impossible to tell without knowing the relative risks of the two bonds.

Q: Advertising by monopolistically competitive firms can do all of the following EXCEPT A) lower the consumerʹs purchase price.B) help differentiate a firmʹs product.C) act as a signal to consumers that the company is serious about staying in business.D) result in increased profits for the advertising firm.

Q: Your uncle would like to restrict his interest rate risk and his default risk, but he still would like to invest in corporate bonds. Which of the possible bonds listed below best satisfies your uncle's criteria? a. AAA bond with 10 years to maturity. b. BBB perpetual bond. c. BBB bond with 10 years to maturity. d. AAA bond with 5 years to maturity. e. BBB bond with 5 years to maturity.

Q: Why is price less than marginal revenue for a monopolist?

Q: Which of the following statements is most correct? Other things held constant, a. the "liquidity preference theory" would generally lead to an upward sloping yield curve. b. the "market segmentation theory" would generally lead to an upward sloping yield curve. c. the "expectations theory" would generally lead to an upward sloping yield curve. d. the yield curve under "normal" conditions should be horizontal (i.e., flat.) e. a downward sloping yield curve would suggest that investors expect interest rates to increase in the future.

Q: Market signalsA) are ways of conveying information. B) do not involve economic profits.C) are best ignored by investors.D) do not involve economic losses.

Q: The Fed banks are supervised by a central governing body called a. the Board of Governors b. the Federal Open Market Committee c. the Chairman of the Fed d. the Federal Banking Committee

Q: Referring to the diagram, which of the following statements is INCORRECT?A) The equilibrium market price is $5, at which the industry demand and supply curves intersect.B) If the individual firm raises its price, it will capture all sales in the market.C) The individual firm takes as given the market price along the perfectly elastic demand curve ʺd.ʺD) The individual firm faces the going market price as determined by the industry.

Q: If the reserve requirement for banks is fixed at 10% and the Fed wishes to decrease the money supply by $500 billion, what type of open market operation should the Fed undertake? a. Sell $55.56 billion in government securities b. Purchase $55.56 billion in government securities c. Sell $00 billion in government securities d. Purchase $00 billion in government securities

Q: Which of the following statements is correct?A) TC = TFC + TVCB) TC = average product + marginal productC) TC = TFC - TVCD) TC = average physical product - marginal physical product

Q: If the federal reserve purchases $100 million worth of government securities in open market operations, what is the maximum amount of change in the money supply if the reserve requirement is 8% and banks hold no excess reserves? a. Decrease by $1.25 billion b. Increase by $1.25 billion c. Decrease by $1.15 billion d. Increase by $1.15 billion

Q: If profits are reinvested in the corporation, then A) payments made to bondholders will be less. B) there are fewer funds available to distribute to stockholders. C) the company will sell more bonds in order to pay dividends to stockholders. D) the high profits indicate that common stockholders will get larger dividends than normal.

Q: Mutual funds that invest primarily in instruments that generate fairly constant annual cash flows such as bonds and preferred stocks are ____. a. income funds b. growth funds c. value funds d. money market funds e. social funds

Q: When an entrepreneur invests his own financial capital in order to start a business,A) the opportunity cost of capital should be included in the economic cost of doing business. B) the investment is treated as a fixed cost, so it should not be considered as a cost of doing business.C) the firmʹs economic profits will exceed its accounting profits.D) the accounting costs increase because the funds would otherwise have to be borrowed.

Q: A(n) ____ is an investment company that accepts money from savers and then use these funds to buy various types of financial assets. a. savings and loans b. insurance company c. mutual savings bank d. mutual fund e. commercial bank

Q: A consumer was at an optimum. She then discovers that the marginal utility per dollar spent on food is more than the marginal utility per dollar spent on gasoline. She knows then thatA) the price of gasoline must have decreased. B) the price of food must have increased.C) the price of gasoline must have increased or the price of food must have decreased.D) the price of gasoline must have decreased or the price of food must have increased.

Q: Which of the following financial institutions is most likely to be the cheapest source of funds for individual borrowers? a. credit unions b. savings and loans c. commercial bank d. insurance company e. finance company

Q: Utility analysis assumes that the consumerʹs tastes and preferences areA) dependent on income and education. B) predetermined and stable.C) dependent on national origin. D) dependent on geographic location.

Q: A(n) ____ is a depository institution that is owned by its depositors, who are members of a common organization or association, such as an occupation, a religious group, or a community. a. pension fund b. commercial bank c. credit union d. insurance company e. mutual fund

Q: The longer the time frame involved, the more likely it is that the demand will be relativelyA) elastic. B) inelastic.C) steep. D) flat.

Q: What is the maximum change in total deposits at financial institutions if the Fed sells $120 billion of government securities to dealers, and the reserve requirement applicable to all deposits is 10%? a. $1.20 trillion decrease b. $133 billion increase c. $1.08 trillion increase d. $1.08 trillion decrease e. None of the above.

Q: Suppose cars are taxed according to the amount of pollution they emit per gallon of gasoline consumed. We would expect to observe all of the following EXCEPT A) an increase in quantity demanded of less-polluting automobiles and a reduction in quantity demanded of more-polluting automobiles. B) an increase in quantity demanded of more fuel -efficient cars. C) an increase in production of automobiles that were less polluting. D) an increase in the miles driven.

Q: Suppose the Federal Reserve increased deposits by $100 billion, but the reserve requirement on all deposits was 100%. What impact would the change in deposits have on the money supply? a. The money supply would increase by $100 billion. b. The money supply would increase by an infinite amount. c. The money supply would decrease by $100 billion. d. The money supply would decrease by an infinite amount. e. The money supply would not change.

Q: Which of the distributive standards does NOT involve a value judgment? A) Productivity standard B) Egalitarian standard C) Merit standard D) All of the standards involve value judgments.

Q: Suppose the Federal Reserve increases deposits at financial institutions by $50 billion through its open market operations. If the reserve requirement for all deposits is increased from 8% to 10% at the same time the Fed increases deposits, what is the maximum impact the Fed's actions can have on total deposits? a. $575 billion increase b. $450 billion increase c. $2.5 trillion increase d. Actually, deposits would decrease, but there is not enough information to determine by what amount. e. None of the above.

Q: Under monopsony, the marginal factor cost of a worker is equal toA) the additional workerʹs wage rate only.B) the additional workerʹs wage rate plus the increase in the wages of all other existing workers.C) the increase in the wages of all other existing workers.D) the difference between the workerʹs wage rate and the lower wage rate received by workers who have already been hired.

Q: Suppose the reserve requirement for transaction deposits is 10% and it is 5% for nontransaction deposits. What is the total reserve requirement for a bank with total deposits equal to $800 million, if $600 million of these deposits are classified as transaction deposits? a. $80 million b. $60 million c. $70 million d. $100 million e. None of the above.

Q: If a firm uses only capital and labor as inputs, then what should the firm do at a given rate of production if the marginal physical product of labor per last dollar spent is higher than the marginal physical product of capital per last dollar spent?A) The firm should increase both the quantity of capital and the quantity of labor. B) The firm should decrease both the quantity of capital and the quantity of labor.C) The firm should increase the quantity of capital and reduce the quantity of labor. D) The firm should decrease the quantity of capital and increase the quantity of labor.

Q: Suppose the Federal Reserve increases deposits at financial institutions by $50 billion through its open market operations. If the reserve requirement for all deposits is 8%, what is the maximum impact the Fed's actions can have on total deposits? a. $575 billion increase b. $54.3 billion increase c. $625 billion increase d. An increase greater than $1 trillion e. Total deposits would decrease, but there is not enough information to compute the amount.

Q: The demand curve for labor slopes down becauseA) firms value less efficient workers less than they value more efficient workers.B) firms must lower prices to sell the additional units of its product that the extra workers produce.C) of the law of diminishing marginal product. D) of profit maximizing behavior.

Q: The largest amount of pension assets are associated with a. private pension funds. b. social security. c. government-administered pension funds. d. insured pension plans with life insurance companies. e. None of the above.

Q: All of the following are possible criticisms of social regulation EXCEPT A) that the costs may outweigh the benefits.B) that social regulation may create anticompetitive effects.C) that the regulations have not resulted in safer working conditions.D) that the regulations lead to higher production costs.

Q: The Federal Reserve System established a. a system for federal chartering of banks. b. a system for controlling bank note issuance. c. a source of liquidity for the banking system. d. the beginning of demand deposit accounts. e. None of the above.

Q: A cartel behaves likeA) a monopolistic competitive firm. B) a perfectly competitive firm.C) a monopolist. D) an oligopolistic firm.

Q: All of the following are reasons to regulate depository institutions except a. to promote safety and soundness. b. to affect the structure of banking. c. to make sure banks' earnings are competitive with other financial institutions. d. to protect the interest of consumers. e. None of the above.

Q: Explain the difference between informational advertising and persuasive advertising. Give an example of a product that would be the subject of each type of advertising and explain why that type of advertising fits the product.

Q: Federal deposit insurance has a. prevented bank depositor panics, but not bank failures. b. prevented bank panic and bank failures. c. prevented bank failures, but not bank depositor panic. d. not prevented bank depositor panics, but has eliminated bank failures. e. None of the above

Q: Entry into a monopolistically competitive industryA) is relatively easy. B) is very difficult.C) can be easy or difficult, depending on the type of product. D) is about the same as entering a monopoly industry.

Q: All but which of the following financial institutions would you expect to be able to get federal deposit insurance for their customers? a. bank holding companies b. credit unions c. commercial banks d. savings and loan associations e. None of the above.

Q: Discuss and explain the relationships between the monopolistʹs demand curve, average revenue curve, and marginal revenue curve.

Q: The original purpose of deposit insurance was to a. prevent bank runs by large depositors. b. increase the regulatory monitoring of banks. c. force the banks to invest in less risky investments. d. prevent bank panics by insuring the small deposits of many people. e. All of the above.

Q: Using a graph, show a short-run equilibrium for the industry and the firm. Explain the graph.

Q: Early goldsmiths began to function as modern banks when they began to operate under a fractional reserve policy and a. loaned gold. b. issued receipts for gold deposited. c. issued deposit receipts to borrowers in return for a note (loan). d. when they received a banking charter from the government. e. All of the above.

Q: Refer to the above figure. The figure represents the market demand and supply curves for widgets. What statement can be made about the demand curve for an individual firm in this market?A) An individual firmʹs demand curve will be a smaller version of the market demand curve. B) An individual firmʹs demand curve will be horizontal at $5.C) An individual firmʹs demand curve will be horizontal at a price below $5.D) An individual firmʹs demand curve cannot be determined from the graph above.

Q: The 1978 International Bank Act a. prohibited foreign banks from establishing any new U.S. banking operations. b. allowed U.S. banks to engage in a wider range of nonbanking activities overseas. c. allowed U.S. banks to take equity positions in overseas business ventures. d. reduced the competitive advantage of foreign banks over U.S. banks. e. All of the above.

Q: In the above figure, at an output level of Q1, total variable cost isA) OF times Q1. B) OD times Q2.C) OF. D) OF minus DF

Q: The person least likely to receive a payment from a corporation in a year of losses is the A) bank that loaned money to the corporation. B) bondholder. C) preferred stockholder. D) common stockholder.

Q: The primary responsibility of the Federal Open Market Committee (FOMC) is to a. establish a level and growth of the money supply through open market operations to produce a stable economic environment. b. supervise the examination of state member banks. c. change the reserve requirements of banks. d. determine the level of Federal Reserve notes allowed in circulation. e. None of the above.

Q: All else equal, the money supply should decrease when a. banks withdraw currency from the Fed. b. the Fed makes loans at the discount window. c. the Fed sells securities on the open market. d. the Fed buys securities on the open market. e. None of the above

Q: Which of the following is NOT a correct description of opportunity cost of capital?A) It is the normal rate of return on investment.B) It is normally included in accounting costs.C) It is the income sacrificed by not investing in another firm.D) It is an implicit cost.

Q: While the Treasury collects most of its receipts through commercial banks, its expenditures (checks) are drawn upon a. the Federal Reserve Board of Governors. b. national banks. c. Federal Reserve banks. d. federal financing banks. e. None of the above.

Q: An individualʹs demand curve slopes down becauseA) marginal utility falls as price falls.B) the value of the marginal utility falls as the price falls.C) of the rule that the marginal utility of the last unit must equal the price.D) of the law of diminishing marginal utility and the rule of equal marginal utilities per dollar.

Q: Which of the following is not a reason for the rapid expansion of U.S. banks overseas? a. the establishment of the Edge Act b. overall expansion of U.S. world trade c. the growth of multinational corporations d. the International Bank Act of 1978 e. None of the above.

Q: In economics, the term ʺmarginalʺ refers toA) total. B) a change in the total. C) negative. D) inverse.

Q: The primary tools of the Federal Reserve monetary policy include all of the following except a. changing the discount rates. b. open market operations. c. changes in reserve requirements. d. changes in the Federal Funds rate. e. All of the above are monetary policy tools used by the Fed.

Q: The demand curve for petroleum should beA) more elastic in the long run than in the short run. B) less elastic in the long run than in the short run. C) as elastic in the long run as it is in the short run.D) more or less elastic in the long run versus the short run depending upon supply conditions.

Q: The major regulator of investment companies is the a. state in which they are incorporated. b. bank holding companies that own them. c. Securities and Exchange Commission. d. Federal Reserve System. e. U.S. Treasury.

Q: Which of the following methods could be used to correct for external costs? A) Impose a tax or an effluent fee on the offenders. B) Have the offender clean up the pollution it caused. C) Require firms in the industry to install pollution control devices. D) All of the above would be appropriate.

Q: The most frequent common bond for credit union formation is a. occupational. b. church-related or religious affiliation. c. geographical. d. ethnicity factors. e. political affiliation.

Q: We measure a personʹs productive contribution in a market system by A) the marginal factor cost theory of the firm. B) the profit maximization theory of the firm. C) the marginal revenue product theory of wage determination. D) the egalitarian theory of wage determination.

Q: The major federal regulator of mutual funds is the a. Federal Deposit Insurance Corporation. b. Federal Trade Commission. c. Federal Reserve System. d. Securities and Exchange Commission. e. None of the above.

Q: Under monopsony, marginal factor cost A) is downward sloping. B) is less than the wage rate, although it increases as more workers are hired. C) equals the wage rate. D) is greater than the going wage rate.

Q: A fractional reserve banking system might be in trouble if a. one depositor wanted his (her) money returned. b. one borrowing customer paid off the loan. c. all borrowing customers paid off their loans. d. all deposit customers wanted to withdraw their money. e. None of the above.

Q: If the marginal physical product (MPP) of the last dollar spent on labor is only half as large as the MPP from the last dollar spent on capital, this firm shouldA) increase its use of labor and sell employ less capital. B) employ more capital.C) increase its use of both labor and capital.D) maintain its current factor utilization pattern.

Q: A goldsmith who operated under strict 100 percent reserve requirements a. was similar to today's depository institutions. b. served only a safekeeping function in the economy. c. was able to make loans by issuing deposit receipts to borrowers. d. acted as an important credit institution in the local economy. e. All of the above.

Q: The demand curve for labor is theA) marginal factor cost curve for labor.B) marginal physical product curve for labor.C) marginal physical product curve for labor times the wage rate.D) marginal revenue product curve for labor.

Q: Social Security is a ____ pension plan. a. fully funded b. private c. pay-as-you go d. noncontributory e. divested

Q: The benefits of social regulation usually are A) small. B) obvious to people while the costs are hidden. C) less than the costs of social regulation, reducing overall welfare. D) difficult to measure.

Q: Life insurance protects a. the insured from premature death. b. the beneficiaries of the insured from the economic consequences of death. c. beneficiaries from premature death. d. the insured from fatal risks faced by the insured. e. None of the above.

Q: Between 1986 and 1998 the De Beers company controlled the world diamond market. De Beers and its affiliated association of producers restricted diamond sales to maximize profits. De Beers and its association was ʺthe only game in townʺ and had what isA) a cartel. B) a duopoly.C) monopolistic competitor. D) perfect competitor.

Q: Pension funds whose contributions are not large enough to actually cover the benefits to be paid out when all employees retire are termed a. divested. b. vested. c. unfunded, or underfunded. d. funded. e. None of the above.

Q: Explain how advertising can act as a signal.

Q: Which statement is not true about life insurance companies? a. They have relatively predictable inflows and outflows. b. Their liabilities are long-term in nature. c. They invest heavily in short-term highly marketable securities. d. They sell contracts that offer financial protection against premature death. e. All of the above.

Q: In a monopolistically competitive market there areA) many firms producing an identical product.B) many firms producing similar but not identical products. C) many firms producing totally different products.D) few firms producing identical products.