Deck 12: The Macroeconomic Environment for Investment Decisions

Question 1

The money supply,defined as M-1,includes currency,coins,and checking accounts.

Answer 1

True

Question 2

If an investor expects interest rates to fall,the individual should sell bonds and preferred stock.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

If investors anticipate an increase in the rate of inflation,they also anticipate lower interest rates.

Question 5

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

Question 6

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

Question 7

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

Question 8

Investments in cyclical firms are less risky than investments in firms in non-cyclical industries.

Question 9

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

Question 10

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

Question 11

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

Question 12

If the country's exports increase,GDP declines.

Question 13

An easy monetary policy increases the cost of credit.

Question 14

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

Question 15

A tight monetary policy should generate a higher required return for common stock.

Question 16

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

Question 17

Securities prices tend to decline when banks' capacity to lend diminishes.

Question 18

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

Question 19

A recession is a period of rising employment.

Question 20

Higher interest rates are bullish for the common stocks of construction firms.

Question 21

Deflation is a period of

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

Question 22

The stocks of building firms
1)are considered to be cyclical
2)are sensitive to changes in interest rates
3)generally have stable earnings

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices

Question 23

If the investor anticipates higher interest rates,the investor should

A) buy bonds
B) acquire short-term, money market securities
C) buy corporate stock
D) withdraw funds from savings accounts

Question 24

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

Question 25

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 26

The fiscal policy of the federal government excludes

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

Question 27

The economic goals of the Federal Reserve include

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices

Question 28

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 these choices

Question 29

Deflation is a period of rising unemployment.

Question 30

Recession is a period of

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

Question 31

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 goods
D) the level of unemployment

Question 32

An increase in the expected rate of inflation suggests that investors should sell the stocks of natural resource companies and purchase the stocks of public utilities.

Question 33

The sum of cash,currency,and demand deposits is

A) M-1
B) M-2
C) M-3
D) M-4

Question 34

Monetary policy affects security 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 these choices

Question 35

When the Federal Reserve seeks to contract the money supply,it may

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

Question 36

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 37

If the Federal Reserve lowers the target federal funds rate,

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

Question 38

A large ratio of sales to total assets suggests
1)the firm has a greater need for financing
2)the firm has less need for financing
3)the firm is more affected by changes in interest rates
4)the firm is less affected by changes in interest rates

A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4