Deck 5: Financial Markets Through Time

Question 1

What innovation did the Federal Housing Administration develop that helped make mortgage loans more accessible?

A)The 20-year, adjustable rate mortgage
B)The 30-year, fixed-rate mortgage
C)The 30-year, 50% down payment mortgage
D)The guaranteed interest rate mortgage

Answer 1

B

Question 2

In the period following World War II, the US Treasury was in charge of monetary policy and instructed the Federal Reserve to

A)keep interest rates low in order to keep spending high.
B)keep interest rates high in order to keep saving high.
C)keep the money supply stable to keep prices stable.
D)let the money supply grow in order to stimulate employment for returning veterans.

Answer 2

A

Question 3

In the early twentieth century, which of the following US industries were dominated by trusts?

A)Banking, shipping, and publishing
B)Steel, railroads, and banking
C)Publishing, steel, and oil
D)Oil, banking, and agriculture

Answer 3

B

Question 4

During World War II, the US government financed the dramatic increase in wartime spending by

A)decreasing tax rates and selling war bonds.
B)increasing tax rates and selling war bonds.
C)increasing tax rates and purchasing war bonds.
D)increasing tax rates and increasing the money supply.

Question 5

During World War I, the cost of living in the United States shot up 62%. Using more effective economic measures, the cost of living in the United States during World War II, from 1940 to 1945, increased by what percent?

A)40%
B)30%
C)20%
D)10%

Question 6

During World War II, US policymakers feared inflation would result from the dramatic increase in wartime spending. In order to prevent that inflation, US policymakers

A)cut the money supply, implemented wage and price controls, and rationed many commodities.
B)increased interest rates, issued war bonds, and implemented wage and price controls.
C)implemented wage and price controls, issued war bonds, and rationed many commodities.
D)cut the money supply, increased interest rates, and rationed many commodities.

Question 7

Stagflation is the term used for an economy experiencing a combination of

A)high unemployment and no inflation or deflation.
B)high unemployment and rising rates of inflation.
C)low unemployment but rising rates of inflation.
D)neither inflation nor deflation.

Question 8

One of the major reasons that the western European economies prospered following World War II was the

A)coordinated conduct of expansionary fiscal policy among the western European nations.
B)creation of the European Central Bank to coordinate monetary policy among the western European nations.
C)influx of direct investment by the United States in the western European nations.
D)elimination of trade barriers between the western European nations.

Question 9

Initially, the US Federal Reserve was created by Congress for what primary function?

A)Serve as a lender of last resort
B)Print all currency for the US economy
C)Be a repository of all gold deposits in the US financial system
D)Serve as the chief monitor of economic activity in the US economy

Question 10

One of the things that made the Savings & Loans eager to lend money for home mortgages was the existence of the

A)Federal National Mortgage Association.
B)Federal Housing Administration.
C)Federal Reserve.
D)Housing Assistance Council.

Question 11

In order to fund World War II, the United States followed the policy prescription of

A)John Maynard Keynes.
B)Friedrich von Hayek.
C)Adam Smith.
D)Milton Friedman.

Question 12

How did business firms respond to the stock market crash of 1929 and the subsequent Depression?

A)In general, business firms raised prices slightly to make up for decreased sales; when this was not successful, they stopped borrowing from banks.
B)In general, business firms cut prices to stimulate sales; when this was not successful, they stopped borrowing from banks.
C)In general, business firms began to borrow more money from banks in an attempt to increase production and stimulate sales.
D)In general, business firms began to borrow more money from banks in an effort to simply stay in business.

Question 13

Which of these statements was an argument for the elimination of trade barriers between various European nations after WWII?

A)Economic aid and the elimination of trade barriers would placate the more aggressive countries.
B)The elimination of trade barriers was the first step in creating a European Union over the next 20 years.
C)Economic sanctions after WWI had contributed to economic and political instability; European nations wanted to avoid that instability after WWII.
D)The elimination of trade barriers was seen as a way to strengthen ties with the more prosperous United States.

Question 14

The ownership structures previously called trusts are more commonly known today by what name?

A)Monopolies
B)International corporations
C)Corporations
D)Governments

Question 15

The Panic of 1907 was triggered by

A)excessive speculation in the stock market, excessively tight lending by banks and trusts, and excessively restrictive regulation of financial markets.
B)excessively loose lending by banks and trusts, a need to divert cash to San Francisco following the 1906 earthquake, and excessively restrictive regulation of financial markets.
C)a need to divert cash to San Francisco following the 1906 earthquake, government intervention that broke up many of the major trusts, and a lack of effective oversight of financial markets.
D)excessive speculation in the stock market, excessively loose lending by banks and trusts, and a lack of effective oversight of financial markets.

Question 16

Low nominal interest rates can indicate

A)an economy suffering from deflation.
B)either a sufficient money supply or an economy suffering from deflation.
C)a sign of sufficient liquidity in the financial system.
D)an economy in hard times but poised to move into better times.

Question 17

In the early twentieth century, the business scene in America was transformed by the formation of trusts. Business trusts are __________ integrated ownership structures.

A)vertically
B)diagonally
C)horizontally
D)backwards

Question 18

What was the primary lesson learned from the Panic of 1907?

A)The importance of wealthy families in the banking industry
B)The need to eliminate federal oversight of banks and return oversight to the level of states
C)The need  for a central bank and laws and regulations for banking
D)The need for deregulation of financial markets and tighter control of monopolies

Question 19

In a 2003 analysis of the Federal Reserve's role in the stock market collapse in October of 1929, Allan Meltzer concluded that the

A)federal government's action to intervene in the financial system in October of 1929 delayed the onset of the Great Depression.
B)Federal Reserve acted appropriately and quickly in reaction to the events in October of 1929.
C)federal government and the Federal Reserve effectively coordinated their response to the events in October of 1929.
D)Federal Reserve followed the wrong policy doctrine and thus contributed to the onset of the Great Depression.

Question 20

Under the Burgess-Riefler doctrine, a low level of bank borrowing and low nominal interest rates were considered to be evidence of __________ monetary policy.

A)contractionary
B)tight
C)easy
D)neutral

Question 21

In the late 1970s and early 1980s, as the Federal Reserve squeezed the growth of the money supply, interest rates shot up and

A)profits began to increase dramatically.
B)the economy began to recover.
C)the unemployment rate plummeted.
D)the unemployment rate shot up as well.

Question 22

The expansion of the "junk bond" market in the 1980s was one factor that allowed for the rapid increase in the number of leveraged buyouts.

Question 23

Financial deregulation in the 1980s ultimately led to

A)dramatic growth of Savings & Loan institutions.
B)big profits for Savings & Loan institutions.
C)the Savings & Loan crisis and the end of the Savings & Loan industry.
D)a housing boom.

Question 24

Which of these was a lesson that economists learned from the battle with stagflation in the late 1970s and early 1980s?

A)The money supply matters and has a very real impact on economic activity.
B)Unemployment rates and inflation rates move in opposite directions.
C)High inflation rates are more devastating to a society than high unemployment rates.
D)Interest rates are more important than the money supply at a national level.

Question 25

Stagflation in the US economy was worsened by

A)the resignation of President Nixon in 1974.
B)the US pullout from Vietnam in 1973.
C)an oil embargo instituted by the Organization of Petroleum Exporting Countries (OPEC)in 1973.
D)the unilateral cancellation of the convertibility of the US dollar to gold by President Nixon in 1971.

Question 26

Stagflation began to appear in the US economy in what time period?

A)The late 1950s
B)The late 1960s
C)The 1970s
D)The 1980s

Question 27

How was the Federal Reserve supposed to operate as outlined by the Burgess-Riefler doctrine?

Question 28

The acquisition of a public or private company that is financed largely by debt is referred to as a leveraged buyout, or LBO. Which of these statements is true of the LBO craze of the 1980s?

A)The amount of the purchase price that could be funded by debt was legally capped at 40%.
B)The amount of the purchase price funded by debt was typically less than 50%.
C)The amount of the purchase price funded by debt was as high as 90%.
D)The amount of the purchase price funded by debt was legally capped at 70%.

Question 29

In the late 1960s and 1970s, the US economy battled stagflation, which perplexed the economists of the time. What was perplexing about stagflation?

Question 30

What factors have been identified as the primary causes of the Panic of 1907?

Question 31

Very risky investments in the 1980s were largely limited to the so-called "junk bonds" sold at that time.

Question 32

The US government did not use actual wage and price controls to control inflation during World War II.

Question 33

The rise of Savings & Loans following World War II played a key role in the post-war __________ boom.

A)savings
B)employment
C)stock market
D)housing

Question 34

In the early 1980s, Paul Volcker used an easy monetary policy to bring inflation under control.

Question 35

The Chairman of the Federal Reserve, Paul Volcker, decided that dealing with stagflation would require

A)a dramatic increase in the money supply.
B)a shift in focus by the Federal Reserve from targeting interest rates to targeting the rate of growth of the money supply.
C)an expansionary monetary policy that would lower unemployment rates.
D)the Federal Reserve to continue to focus on interest rates and conduct monetary policy to bring interest rates down.