Deck 11: The Macroeconomic Environment for Investment

Question 1

A recession is a period of rising employment.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

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

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

Question 6

If the country's exports increase, GDP declines.

Question 7

The price of gold tends to rise during inflationary periods.

Question 8

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

Question 9

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

Question 10

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

Question 11

The federal funds rate is the rate federal government
pays when it borrows funds.

Question 12

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

Question 13

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

Question 14

The Federal Reserve is the central bank of the United
States.

Question 15

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

Question 16

Deflation is a period of rising employment.

Question 17

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

Question 18

An easy monetary policy increases the cost of credit.

Question 19

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

Question 20

An increase in stock prices is a lagging indicator of
economic activity.

Question 21

Recession is a period of

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

Question 22

If the Federal Reserve lowers the target federal
Funds rate,

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

Question 23

The sum of cash, currency, and demand deposits is

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

Question 24

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 25

One means to invest in anticipation of deflation
Is to

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

Question 26

A federal government deficit may be financed by
1) the general public buying government bonds
2) commercial banks buying treasury bills
3) the Federal Reserve selling securities

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

Question 27

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 28

The fiscal policy of the federal government excludes

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

Question 29

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 30

The anticipation of inflation suggests that the
Investor should

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

Question 31

The economic goals of the Federal Reserve include
1) prosperity
2) full employment
3) stable prices

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

Question 32

Monetary policy affects securities prices by
1) affecting investors' required return
2) increasing the federal deficit
3) affecting firms' capacity to generate earnings

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

Question 33

When the Federal Reserve seeks to contract the money
Supply, 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 34

Increased unemployment may be associated with

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

Question 35

Deflation is a period of

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

Question 36

When the Federal Reserve seeks to expand the money
Supply, it

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