Question 1

Fiscal policy that results in a deficit will cause more inflation when it finances the deficit through:

Accepted Answer

When the government sells treasury securities to the Federal Reserve, it increases the money supply, which can lead to inflation. This is known as monetizing the debt. The other options, international currency exchange and selling securities to individuals in the private sector, do not necessarily lead to inflation.

Question 2

According to the traditional definitions,a recession is two or more quarters of:

Accepted Answer

A recession is traditionally defined as two or more consecutive quarters of negative real GDP growth. This means that the economy, as measured by GDP adjusted for inflation, is shrinking over a period of time. Negative nominal GDP growth (choice A) does not take into account inflation, which can be misleading. A rate of inflation exceeding real GDP growth (choice C) is a situation known as stagflation, which is different from a recession. Declining growth in real past GDP (choice D) is not a commonly used definition of a recession.

Question 3

Some of the major leading indicators would be:

Accepted Answer

The answer of Some of the major leading indicators would...

Question 4

The National Bureau of Economic Research publishes information about economic indicators in its monthly Survey of Current Business.The most important indicators to investors are the

Accepted Answer

Leading indicators are the most important economic indicators for investors because they provide insight into future economic activity. The other indicator categories (coincident, lagging, and market) provide more current or historical information about economic activity.

Question 5

Expansions of economic activity during the nine peace time business cycles from 1945 to 2009 have averaged approximately 55 months.

Accepted Answer

According to the National Bureau of Economic Research, the average length of the nine peace time business cycles from 1945 to 2009 is approximately 58 months.

Question 6

The difference between GNP and GDP is that GDP only measures output from U.S.factories and consumption in the U.S.

Accepted Answer

The GDP measures only output from U.S. factories and consumption within the United States. The GNP is the sum total, in dollars, of all goods and services produced in the U.S. in one year.

Question 7

For the investor's purposes,a normal business cycle (peak to peak or trough to trough)lasts approximately ________,as reported by the National Bureau of Economic Research (based on the last eight peace time business cycles).

Accepted Answer

According to the National Bureau of Economic Research, the average length of a normal business cycle (peak to peak or trough to trough) is approximately 65 to 66 months based on the last eight peace time business cycles.

Question 8

The most widely used tool of the Federal Reserve is:

Accepted Answer

The most widely used tool of the Federal Reserve is open-market operations in which the Fed buys and sells U.S. government securities for its own portfolio.

Question 9

The composite index of leading indicators,made up of ten leading indicators,has historically

Accepted Answer

The answer of The composite index of leading indicators,made up...

Question 10

Some of the major coincident indicators would be:

Accepted Answer

Personal income, employees on nonagricultural payrolls, and industrial production are all coincident indicators. Other common coincident indicators include GDP, retail sales, and manufacturing sales.

Question 11

Since the stock market is the most accurate and reliable of the ten leading indicators,

Accepted Answer

Since the stock market is already reflecting current market conditions, it may not provide enough lead time for investors to make profitable trades. Therefore, investors may need to use other indicators that provide more lead time, such as economic indicators or technical analysis tools.

Question 12

What is the difference between real GDP and inflation-adjusted GDP?

Accepted Answer

Real GDP reflects gross domestic product in constant dollars, which eliminates the effects of inflation from GDP. Since it is measured in constant dollars, the real GDP and inflation-adjusted GDP are the same.

Question 13

If the Fed buys securities,the money supply goes down,along with interest rates.

Accepted Answer

When the Fed buys securities, it injects money into the economy, increasing the money supply and potentially lowering interest rates.

Question 14

It is estimated that manufacturing accounts for about than 20% of the GDP.

Accepted Answer

According to data from the World Bank, manufacturing contributes to around 16-18% of global GDP, so it is likely that it is at least 20% in some individual countries or regions.

Question 15

The quantity theory of money states that as the supply of money increases relative to the demand for money,people will make adjustments in their portfolios of assets.First,they will buy bonds,stocks,and then real assets.

Accepted Answer

This is the basic principle of the quantity theory of money, which suggests that as the supply of money increases, people will seek to invest their excess money in assets such as bonds, stocks, and real estate in order to maintain the value of their wealth. This relationship between the supply and demand for money is often cited as a key driver of inflation.

Question 16

The Federal Reserve Bank's buying and selling of securities for its own portfolio is known as open-market operations.

Accepted Answer

This is correct. Open-market operations refer to the buying and selling of securities by the Federal Reserve in order to influence the money supply and interest rates in the economy.

Question 17

The National Bureau of Economic Research revised its definition of a recession in 2001 to read as follows: A recession is

Accepted Answer

The revised definition of a recession by the National Bureau of Economic Research states that it is a significant decline in economic activity spread across the economy and lasting more than a few months. This definition takes into account various economic indicators instead of just GDP growth and focuses on the overall impact on the economy. Therefore, option B is the best choice. Option A only considers GDP growth, while option C is too extreme and option D is too narrow.

Question 18

The first step in any stock valuation is

Accepted Answer

The answer of The first step in any stock valuation...

Question 19

Some of the major lagging indicators would be:

Accepted Answer

The answer of Some of the major lagging indicators would...

Question 20

Which of the following is not a goal of the federal government economic policy as established by the Employment Act of 1946?

Accepted Answer

The Employment Act of 1946 established low inflation, high levels of employment, and economic growth as goals of federal government economic policy. It did not establish balanced federal budgets as a goal.

Quiz 5: Economic Activity