Deck 11: The Macroeconomic Environment for Investment

Question 1

Changes in the price of gold are often related to the anticipation of inflation.

Answer 1

True

Question 2

An increase in the expected rate of inflation suggests that investors should sell the stocks of natural resource companies (e.g., gold and silver).

Answer 2

False

Question 3

Open market operations is the buying and selling ofsecurities by the Federal Reserve.

Answer 3

True

Question 4

Gross domestic product (GDP) is the sum of spending on consumer goods, government spending, and investing in stocks and bonds.

Question 5

M 2 is a narrower definition of the money supply andexcludes savings accounts in commercial banks.

Question 6

An easy monetary policy should generate a lowerrequired return for common stock.

Question 7

The federal funds rate is the rate banks charge eachother when they borrow reserves.

Question 8

An increase in stock prices is a lagging indicator ofeconomic activity.

Question 9

The price of gold tends to rise during inflationary periods.

Question 10

If the country's exports increase, GDP declines.

Question 11

Deflation is a period of rising employment.

Question 12

If the Federal Reserve sells securities, that reducescommercial banks' capacity to lend.

Question 13

The money supply, defined as M1, includes currency,coins, and checking accounts.

Question 14

An easy monetary policy increases the cost of credit.

Question 15

A recession is a period of rising employment.

Question 16

Economies go through regular, identifiable cycles that can be forecasted with accuracy.

Question 17

The federal funds rate is the rate federal governmentpays when it borrows funds.

Question 18

The Federal Reserve is the central bank of the UnitedStates.

Question 19

Monetary and fiscal policy may affect stock pricesthrough their impact on corporate earnings.

Question 20

An increase in the targeted federal funds rate implies that the Fed is buying securities.

Question 21

A federal government deficit may be financed by1. the general public buying government bonds2. commercial banks buying treasury bills3. the Federal Reserve selling securities

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of the above

Question 22

One means to invest in anticipation of deflationis to

A) sell stocks short
B) buy real estate
C) acquire ETFs specializing in commodities
D) hoard money

Question 23

The fiscal policy of the federal government excludes

A) expenditures
B) taxation
C) the money supply
D) debt management

Question 24

When the Federal Reserve seeks to contract the moneysupply, it may

A) sell securities and raise the targeted federal funds rate
B) sell securities and lower the targeted federal funds rate
C) buy securities and raise the targeted federal funds rate
D) buy securities and lower the targeted federal funds rate

Question 25

Which of the following is not a leading indicator

A) initial claims for unemployment insurance
B) building permits for new home construction
C) changes in manufacturers' unfilled orders for durable good
D) the level of unemployment

Question 26

The sum of cash, currency, and demand deposits is

A) M1
B) M2
C) M3
D) M4

Question 27

If the Federal Reserve lowers the target federalfunds rate,

A) the discount rate rises
B) liquidity in the banking system is increased
C) securities prices fall
D) required reserves are decreased

Question 28

Recession is a period of

A) declining unemployment
B) rising unemployment
C) falling prices
D) rising prices

Question 29

Monetary policy affects securities prices by1. affecting investors' required return2. increasing the federal deficit3. affecting firms' capacity to generate earnings

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of the above

Question 30

Inflation is a period of

A) rising stock prices
B) rising prices of consumer goods
C) declining interest rates
D) rising confidence in the dollar

Question 31

Deflation is a period of

A) rising unemployment
B) declining unemployment
C) rising prices
D) falling prices

Question 32

When the Federal Reserve seeks to expand the moneysupply, it

A) sells securities
B) buys securities
C) runs a deficit
D) runs a surplus

Question 33

The economic goals of the Federal Reserve include1. prosperity2. full employment3. stable prices

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of the above

Question 34

The financial crises lead to

A) higher interest rates
B) a decrease in the money supply
C) an increase in the rate of inflation
D) the Federal Reserve buying securities

Question 35

The anticipation of inflation suggests that theinvestor should

A) buy bonds
B) anticipate higher interest rates
C) avoid real estate investments
D) sell stocks of gold companies

Question 36

Increased unemployment may be associated with

A) increased inflation
B) increase in interest rates
C) an easy monetary policy
D) a tight monetary policy