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Econ test 2
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Questions in this quiz (30)
1In the one-period valuation model, the current stock price increases if:
- Athe expected sales price increases
- Bthe required return increases
- Cthe expected sales price falls
- Ddividends are cut
2In the Gordon Growth Model, the growth rate is assumed to be ____ the required return on equity to ensure that the firm ______ .
- Aproportional to; earns normal profits in the long run
- Bless than; does not grow impossibly large in the long run
- Cgreater than; does not become bankrupt in the long run
- Dequal to; earns little more than normal profits in the short run as well as the long run
3A monetary expansion ___ the stock prices due to a(n) _____ in the required rate of return and a(n) _____ in the dividend growth rate, everything else held constant.
- Aincreases; increase; increase
- Breduces; increase; increase
- Cincreases; decrease; increase
- Dincreases; decrease; decrease
4If during the past decade the average rate of monetary growth has been 5% and the average inflation rate has been 5%, everything else held constant, when the Federal Reserve announces that the new rate of monetary growth will be 10%, the adaptive expectation forecast of the inflation rate is:
- Abetween 5 and 10%
- B10%
- C5%
- Dmore than 10%
5Rational expectations forecast errors will on average be ____ and therefore _____ be predicted ahead of time.
- Anegative; can
- Bpositive; cannot
- Cpositive; can
- Dzero; cannot
6The efficient markets hypothesis indicates that investors:
- Ado better on average if they adopt a "buy and hold" strategy
- Bdo better if they purchase loaded mutual funds.
- Ccan use the advice of technical analysts to outperform the market.
- Dlet too many unexploited profit opportunities go by if they adopt a "buy and hold" strategy.
7Microsoft announces that its profit for the financial year 2012-2013 was 15%, which is very high according to market standards. However, it was observed that its stock prices declined after the announcement. This phenomenon is:
- Aconsistent with the efficient markets hypothesis if the profit of Microsoft was anticipated to be 12%
- Bconsistent with the efficient markets hypothesis if the profit of Microsoft was anticipated to be 18%
- Cconsistent with the efficient markets hypothesis since it says that good news such as announcement of favorable earnings impacts stock prices negatively
- Dclearly inconsistent with the efficient markets hypothesis
8When the exchange rate for the British pound changes from $1.80 per pound to $1.60 per pound, then, holding everything else constant, the pound has ____ and ____ expensive.
- Aappreciated; British cars sold in the United States become more
- Bdepreciated; American wheat sold in Britain becomes more
- Cappreciated; British cars sold in the United States become less
- Ddepreciated; American wheat sold in Britain becomes less
9According to the Law of One Price, if the prices of Colombian coffee is 100 Colombian pesos per pound and the price of Brazilian coffee is 4 Brazilian reals per pound, then the exchange rate between the Colombian peso and the Brazilian real is:
- A40 pesos per real.
- B100 pesos per real.
- C0.4 pesos per real.
- D25 pesos per real.
10If the real exchange rate between the United States and Japan is _____ , then it is cheaper to buy goods in Japan than in the United States and the exchange rate in the future is likely to ______ assuming that the relative price levels will not change.
- Agreater than 1.0; fall
- Bless than 1.0; fall
- Cless than 1; rise
- Dgreater than 1; rise
11Assume that the following are the predicted inflation rates in these countries for the year: 2% for the United States, 3% for Canada, 4% for Mexico, and 5% for Brazil. According to the purchasing power parity and everything else held constant, which of the following would we expect to happen?
- AThe Mexican peso will depreciate against the Brazilian real.
- BThe U.S. dollar will appreciate against the Brazilian real.
- CThe U.S. dollar will depreciate against the Canadian dollar.
- DThe Canadian dollar will depreciate against the Mexican peso.
12If the U.S. Congress imposes a quota on imports of Japanese cars due to claims of "unfair" trade practices, and Japanese demand for American exports increases at the same time, then, in the long run _____ , everything else held constant.
- Athe Japanese yen will appreciate relative to the U.S. dollar
- Bthere will be no effect on the Japanese yen relative to the U.S. dollar
- Cthe Japanese yen will depreciate relative to the U.S. dollar
- Dthe Japanese yen will either appreciate, depreciate or remain constant against the U.S. dollar
13As the relative expected return on dollar assets increases, foreigners will want to hold more ____ assets and less ____ assets leading to a(n) _____ in the exchange rate, everything else held constant.
- Aforeign; foreign; increase
- Bforeign; dollar; decrease
- Cdollar; dollar; increase
- Ddollar; foreign; increase
14Suppose that the Federal Reserve conducts an open market sale. Everything else held constant, this will cause the demand for U.S. assets to _____ and the U.S. dollar will ______.
- Aincrease; depreciate
- Bincrease; appreciate
- Cdecrease; appreciate
- Ddecrease; depreciate
15______ in the expected future domestic exchange rate causes the demand for domestic assets to shift to the left and the domestic currency to ______ , everything else held constant.
- AA decrease; appreciate
- BAn increase; depreciate
- CAn increase; appreciate
- DA decrease; depreciate
16By looking at aggregate demand via its component parts, we can conclude that the aggregate demand curve is downward sloping because:
- Aa higher inflation rate causes the real interest rate to rise, and stimulates planned investment spending.
- Ba lower inflation rate causes the real interest rate to rise, and stimulates planned investment spending.
- Ca lower inflation rate causes the real interest rate to fall, and stimulates planned investment spending.
- Da higher inflation rate causes the real interest rate to fall, and stimulates planned investment spending.
17Everything else held constant, a decrease in net taxes _____ aggregate ______ .
- Adecreases; supply
- Bdecreases; demand
- Cincreases; demand
- Dincreases; supply
18Suppose the U.S. economy is producing at the natural rate of output. A depreciation of the U.S. dollar will cause _____ in real GDP in the short run and _______ in inflation in the long run, everything else held constant. (Assume the depreciation causes no effects in the supply side of the economy).
- Ano change; a decrease
- Bno change; an increase
- Ca decrease; a decrease
- Dan increase; an increase
19Suppose the economy is producing at the natural rate of output. A decrease in consumer and business confidence will cause ______ in real GDP in the long run and _____ in inflation in the long run, everything else held constant.
- Ano change; a decrease
- Ban increase; an increase
- Ca decrease; a decrease
- Dno change; an increase
20Suppose the economy is producing below the natural rate of output and the government is suffering from large budget deficits. To deal with the deficit problem, suppose the government takes a policy action to reduce the size of the deficits. This policy action will cause ______ in the unemployment rate in the short run and _______ in inflation in the short run, everything else held constant.
- Aan increase; an increase
- Ba decrease; a decrease
- Ca decrease; an increase
- Dan increase; a decrease
21Suppose the U.S. economy is operating at potential output. A technological revolution resulting in a supply shock that is accommodated by an open market purchase by the Federal Reserve will cause _____ in real GDP in the short run and _______ in inflation in the short run, everything else held constant.
- Aan increase; a decrease
- Bno change; no change
- Can increase; an increase
- Dan increase; no change
22According to aggregate demand and supply analysis, America's involvement in the Vietnam War, other things equal, had the effect of
- Aincreasing aggregate output and raising unemployment in both the short- and long-runs, and raising the inflation rate in both the short- and long-runs.
- Bincreasing aggregate output and lowering unemployment in only the short-run, and raising the inflation rate in both the short- and long-runs.
- Cdecreasing aggregate output and raising unemployment in the short-run, and lowering the inflation rate in both the short- and long-runs.
- Ddecreasing aggregate output and lowering unemployment in both the short- and long-runs, and lowering the inflation rate in both the short- and long-runs.
23In the ______ the aggregate supply curve is upward sloping because costs of many factors that go into producing goods and services are relatively _____ , which means that as the price for a unit of output rises, the profit per unit will _____ .
- Ashort run; fixed; rise
- Bshort run; fixed; fall
- Clong run; flexible; rise
- Dshort run; flexible; fall
24When the economy suffers a temporary negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy, then in the short run
- AA) inflation will be higher
- BB) output will be at its potential
- CC) output will be lower
- DD) inflation will not change
- Eboth A and C
25Policy makers achieve both price stability and economic activity stability when facing
- AA) permanent supply shocks
- BB) demand shocks
- CC) temporary supply shocks
- DBoth A and B
- Eall of the above
26If aggregate output is below the natural rate level, policy activists would recommend that the government
- Atry to eliminate the high unemployment by attempting to shift the aggregate supply curve to the right
- Btry to eliminate the high unemployment by attempting to shift the aggregate demand curve to the right
- Cdo nothing
- Dtry to eliminate the high unemployment by attempting to shift the aggregate demand curve to the left
27The nonactivists who opposed the recent fiscal stimulus package argue that:
- AA) fiscal stimulus could lead to increased volatility in inflation and economic activity
- BB) fiscal stimulus would take too long to work because of long implementation lags
- CC) fiscal stimulus might kick in after the economy had already recovered
- Dall of the above (A, B, and C)
- Enone of the above
28If workers do not believe that policymakers are serious about fighting inflation, they are most likely to push for higher wages, which will _____ aggregate ______ and lead to _____ in unemployment or inflation or both, everything else held constant.
- Adecrease; demand; a decrease
- Bincrease; demand; an increase
- Cdecrease; supply; a decrease
- Ddecrease; supply; an increase
29Monetary policy can affect output in ______ and inflation in _____ .
- Aonly short run; both short run as well as long run
- Bonly long run; both short run as well as long run
- Cboth short run as well as long run; only long run
- Dboth short run as well as long run; both short run as well as long run
30Which of the following does not shift the short-run aggregate supply curve?
- Apersistent positive output gap
- Bsupply shocks
- Cchanges in expected inflation
- Da temporary increase in the output gap
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- Quiz on Econ test 2, created by pkelz on 18/03/2015.
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- pkelz
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