Exam
Name___________________________________
TRUE/FALSE. Write ‘T’ if the statement is true and ‘F’ if the statement is false.
1)
Finance is any transaction where money is exchanged for goods and services.
1)
2)
Finance is any transaction where money is exchanged for money or a money–like instrument.
2)
3)
A dividend is an after tax payment that must be made by all stock companies to the stockholders
each year.
3)
4)
The United States operates with a free enterprise system.
4)
5)
A market economy is one where all goods and services are exchanged freely.
5)
6)
Wheat, soybeans, oil, and gold are commodities.
6)
7)
The mental and physical talents of human beings are entrepreneurial resources.
7)
8)
The stocks and bonds issued by a corporation are the economic capital resources of the corporation.
8)
9)
The stocks and bonds issued by a corporation are the financial capital resources of the corporation.
9)
10)
In market transactions, when one party wins, the other usually feels as though he or she lost.
10)
11)
The law of demand states that as the price of an item falls, the quantity demanded will decrease,
ceteris paribus.
11)
12)
As the price of an item increases, the quantity of the item provided to the marketplace will increase,
ceteris paribus.
12)
13)
First National Bank is the central bank of the United States.
13)
14)
The Federal Reserve is the central bank of the United States.
14)
15)
In order to increase the money supply, the Fed will sell government securities.
15)
False
16)
A person making less than the cutoff rate for Social Security pays 6.2% of his income in Social
Security taxes.
16)
False
17)
A person making $90,000 or less pays 6.2% of his salary in Social Security taxes.
17)
False
18)
An athlete making $7,000,000 pays 6.2% on the full $7,000,000 in Social Security taxes.
18)
False
19)
Social Security tax is regressive to the person making less than the cutoff rate.
19)
False
20)
The Medicare tax of 1.45% is a proportionate tax for all.
20)
False
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
21)
Which of the following can be used to finance a small business?
21)
A)
using one’s own savings
B)
borrowing from other individuals
C)
borrowing money from financial institutions
D)
using cash generated from current sales
E)
all of the above
22)
Which of the following is NOT a viable source of financing for the small business?
22)
A)
borrowing from other individuals
B)
using one’s own savings
C)
using cash generated from current sales
D)
borrowing money from financial institutions
E)
issuing bonds to the general public
23)
An organized effort where goods and services are freely exchanged is known as a
23)
A)
government.
B)
market.
C)
religion.
D)
business.
24)
Which of the following is NOT a primary participant in the financial marketplace?
24)
A)
businesses
B)
military units
C)
governments
D)
individual households
False
25)
There are several markets in the United States. The market where property is exchanged is the
25)
A)
financial market.
B)
retail market.
C)
commodity market.
D)
real estate market.
E)
none of the above.
26)
There are several markets in the United States. The market where corn, wheat, soybeans, and oil are
exchanged is the
26)
A)
real estate market.
B)
retail market.
C)
financial market.
D)
commodity market.
E)
none of the above.
27)
There are several markets in the United States. The market where stocks, bonds, and money are
exchanged is the
27)
A)
financial market.
B)
retail market.
C)
commodity market.
D)
real estate market.
E)
none of the above.
28)
There are several markets in the United States. The market where television sets are exchanged is
the
28)
A)
retail market.
B)
real estate market.
C)
financial market
D)
commodity market.
E)
none of the above.
29)
There are several markets in the United States. The market where final goods and services are
exchanged is the
29)
A)
retail market.
B)
commodity market.
C)
financial market.
D)
real estate market.
E)
none of the above.
30)
The primary savers of funds in the United States are
30)
A)
governments.
B)
households.
C)
businesses.
D)
all of the above.
E)
none of the above.
31)
The users of funds in the United States are
31)
A)
governments.
B)
households.
C)
businesses.
D)
all of the above.
E)
none of the above.
32)
Human beings have ________ wants and desires for goods and services. They also have ________
financial means with which to pay for them.
32)
A)
unlimited; limited
B)
limited; unlimited
C)
limited; limited
D)
unlimited; unlimited
33)
A tree in a forest is an example of a(n)
33)
A)
natural resource.
B)
human resource.
C)
entrepreneurial resource.
D)
capital resource.
34)
The classroom on a college campus is an example of a(n)
34)
A)
human resource.
B)
capital resource.
C)
entrepreneurial resource.
D)
natural resource.
35)
When Bill Gates developed MS–DOS and founded Microsoft to market this product, he was using
a(n)
35)
A)
human resource.
B)
natural resource.
C)
capital resource.
D)
entrepreneurial resource.
36)
When a college hires a professor, they are employing a(n)
36)
A)
natural resource.
B)
entrepreneurial resource.
C)
human resource.
D)
capital resource.
37)
Which of the following is NOT an example of economic capital?
37)
A)
a desk in a classroom
B)
a delivery truck used by Federal Express
C)
an electric plant used by a local utility to generate electricity
D)
a bond issued by IBM
E)
all of the above
38)
Which of the following is NOT an example of economic capital?
38)
A)
an electric plant used by a local utility to generate electricity
B)
a desk in a classroom
C)
a share of stock issued by IBM
D)
a delivery truck used by Federal Express
E)
all of the above
39)
Which of the following is an example of financial capital?
39)
A)
a desk in a classroom
B)
a share of stock issued by IBM
C)
a delivery truck used by Federal Express
D)
an electric plant used by a local utility to generate electricity
E)
all of the above
40)
A local computer manufacturer hires an additional worker and pays $10.00 per hour for an 8–hour
day. The worker is capable of assembling 3 computers an hour. The firm sells each computer for
$1,500. What is the marginal physical product of this worker?
40)
A)
$10.00 per hour
B)
3 computers per hour
C)
$1,500 per unit produced
D)
$80.00 per day
41)
The highest value surrendered when a decision is made is
41)
A)
economic cost.
B)
marginal cost.
C)
opportunity cost.
D)
absolute cost.
E)
capital cost.
42)
The cost associated with hiring one more unit of labor is
42)
A)
absolute cost.
B)
economic cost.
C)
opportunity cost.
D)
capital cost.
E)
marginal cost.
43)
John’s friend just gave him a pair of concert tickets to see his favorite rock group perform this
weekend. Each ticket sells for $25. John’s boss asked him to work overtime the same weekend and
at the same time as the concert. John currently makes $10.00 an hour and his overtime pay for the
four hours his boss asked him to work is double the hourly rate. If John decides to go to the concert,
his opportunity cost is
43)
A)
$80.00 in lost pay.
B)
$40.00 in lost pay.
C)
$50.00 because that is what his friend paid for the tickets.
D)
$50.00 for the two tickets.
E)
nothing because the concert tickets were free for John.
44)
Jane just graduated from college with a Bachelor of Science Degree in Computer Information
Systems. She received the following job offers. Jones and Associates at a starting salary of $30,000.
Smith Brothers at a starting salary of $33,000. Joan Cannery Consulting at a starting salary of
$35,000. Consultants–R–We at a starting salary of $32,000. Andrews Computer Vendors at a
starting salary of $36,000. If she takes the job with Andrews Computer Vendors, her opportunity
cost is
44)
A)
$30,000.
B)
$32,000.
C)
$33,000.
D)
$35,000.
E)
nothing because she took the job with the highest salary.
45)
Jane just graduated from college with a Bachelor of Science Degree in Computer Information
systems. She received the following job offers. Jones and Associates at a starting salary of $30,000.
Smith Brothers at a starting salary of $33,000. Joan Cannery Consulting at a starting salary of
$35,000. Consultants–R–We at a starting salary of $32,000. Andrews Computer Vendors at a
starting salary of $36,000. If she takes the job with Jones and Associates, her opportunity cost is
45)
A)
$30,000.
B)
$32,000.
C)
$33,000.
D)
$35,000.
E)
$36,000.
46)
Which of the following is included in Gross Income?
46)
A)
profit made by an entrepreneur
B)
interest earned on savings accounts
C)
wages and tips
D)
rental income on property
E)
all of the above
47)
Which of the following is NOT a form of taxes that governments use?
47)
A)
regressive taxes
B)
proposed taxes
C)
progressive taxes
D)
proportional taxes
E)
all of the above
48)
John Gates made $25,000 last year and paid $2,500 in taxes on this income. Jane Smith made $30,000
last year and paid $3,000 in taxes on this income. What type of tax is the government using?
48)
A)
proportional taxes
B)
proposed taxes
C)
regressive taxes
D)
progressive taxes
E)
impossible to calculate with the information provided
49)
John Gates made $25,000 last year and paid $1,500 in taxes on this income. Jane Smith made $30,000
last year and paid $3,000 in taxes on this income. What type of tax is the government using?
49)
A)
proposed taxes
B)
regressive taxes
C)
proportional taxes
D)
progressive taxes
E)
impossible to calculate with the information provided
50)
John Gates made $25,000 last year and paid $2,500 in taxes on this income. Jane Smith made $30,000
last year and paid $2,700 in taxes on this income. What type of tax is the government using?
50)
A)
proportional taxes
B)
progressive taxes
C)
proposed taxes
D)
regressive taxes
E)
impossible to calculate with the information provided
51)
John Gates made $25,000 last year and paid $2,500 in taxes. What percentage of his income did John
pay in taxes?
51)
A)
1%
B)
9%
C)
10%
D)
90%
E)
impossible to calculate with the information provided
52)
Jane Smith made $30,000 last year and paid $8,400 in taxes. What percentage of her income did Jane
pay in taxes?
52)
A)
2.8%
B)
3.57%
C)
7.2%
D)
28%
E)
72%
53)
Which of the following is an example of a regressive tax?
53)
A)
income tax
B)
property tax
C)
sales tax
D)
flat tax
E)
All taxes are regressive taxes.
54)
Which of the following is an example of a progressive tax?
54)
A)
flat tax
B)
income tax
C)
property tax
D)
sales tax
E)
Both A and B above were noted in the text as progressive taxes.
55)
Which of the following is an example of a progressive tax?
55)
A)
Social Security tax
B)
sales tax
C)
property tax
D)
income tax
E)
All taxes are progressive taxes.
56)
The price paid for money is
56)
A)
the principal and interest rate charged by the lender.
B)
the amount borrowed from the lender.
C)
the interest rate charged by the lender.
D)
the actual payment made by the borrower to the lender.
E)
There is no price paid for money as it is not for sale.
57)
The supply of money saved includes all of the following EXCEPT
57)
A)
demand deposits in banks.
B)
savings accounts in banks.
C)
money market mutual funds in brokerage houses.
D)
stocks held for investors by brokerage houses.
E)
all of the above.
58)
A union has negotiated a contract that states the following: work up to 40 hours per week will be
paid at a base rate of $10 per hour. All work in excess of 40 hours, but less than 48 hours will be
paid at a rate equal to 11
2 times the base rate. Any work in excess of 48 hours will be paid at double
time. This pay scale agrees with
58)
A)
the law of supply.
B)
ceteris paribus.
C)
the law of demand.
D)
the law of supply and demand.
E)
can’t tell with the information provided.
59)
Albert Jones went to his local department store to purchase a pair of Levi’s®. He thought that the
style of Levi’s® that he wanted would sell for about $30 a pair. When he got to the store, he saw a
sign which said, Levi’s®, all styles, $18 a pair. Albert bought three pairs of Levi’s®. The behavior of
Albert is consistent with
59)
A)
the law of supply.
B)
the law of demand.
C)
ceteris paribus.
D)
the law of supply and demand.
E)
can’t tell with the information provided.
Table 1–1. Supply and Demand for Personal Computers
Market Price
per Computer Quantity
Demanded Quantity
Supplied
$2,000 14,000 20,000
$1,900 15,000 19,000
$1,800 16,000 18,000
$1,700 17,000 17,000
$1,600 18,000 16,000
$1,500 19,000 15,000
60)
Refer to Table 1–1. At a market price of $1,600, there will be
60)
A)
a shortage of 2,000 computers.
B)
neither a surplus nor a shortage of computers as the market is in equilibrium at this price.
C)
a surplus or a shortage of 2,000 computers.
D)
a surplus of 2,000 computers.
61)
Refer to Table 1–1. At a market price of $1,700, there will be
61)
A)
a surplus or a shortage of 2,000 computers.
B)
a shortage of 2,000 computers.
C)
a surplus of 2,000 computers.
D)
neither a surplus nor a shortage of computers as the market is in equilibrium at this price.
62)
Refer to Table 1–1. At a market price of $1,800, there will be
62)
A)
a surplus or a shortage of 2,000 computers.
B)
neither a surplus nor a shortage of computers as the market is in equilibrium at this price.
C)
a shortage of 2,000 computers.
D)
a surplus of 2,000 computers.
63)
When the supply of money saved exceeds the demand for money, then banks will
63)
A)
increase interest rates to attract more savers.
B)
lower interest rates to discourage savers.
C)
put money on sale by making loans more attractive.
D)
both A and B above.
E)
both B and C above.
64)
Changing the supply of money to expand or contract economic activity is
64)
A)
judicial policy.
B)
monetary policy.
C)
congressional policy.
D)
presidential policy.
E)
legislative policy.
65)
The four basic factors that affect the price paid (interest rate) for money are
65)
A)
the demand for money saved, the demand for borrowed funds, Federal Reserve policy, and
risk.
B)
the supply of money saved, the supply for borrowed funds, Federal Reserve policy, and risk.
C)
the demand for money saved, the supply for borrowed funds, Federal Reserve policy, and
risk.
D)
the supply of money saved, the demand for borrowed funds, Federal Reserve policy, and risk.
66)
When the Federal Reserve increases the interest rate it charges banks to borrow reserves, it is
controlling the money supply by using which of the following tools?
66)
A)
discount rate
B)
reserve requirements ratio
C)
open market operations
D)
risk
E)
unable to tell with the information provided
67)
When the Federal Reserve notifies banks that they must hold fifteen cents for every dollar that is
deposited, it is controlling the money supply by using which of the following tools?
67)
A)
reserve requirements ratio
B)
risk
C)
discount rate
D)
open market operations
E)
unable to tell with the information provided
68)
You read an article in the paper that stated the Federal Reserve Bank sold $500 million of
government securities on Tuesday of last week. When the Fed did this they were controlling the
money supply by using which of the following tools?
68)
A)
open market operations
B)
risk
C)
reserve requirements ratio
D)
discount rate
E)
unable to tell with the information provided
69)
If the Fed sells $10,000 in government securities, it will have the effect of
69)
A)
decreasing the money supply.
B)
changing the money supply, but the direction is not clear.
C)
having no effect on the money supply.
D)
increasing the money supply.
E)
unable to tell with the information provided.
70)
If the Fed purchases $10,000 in government securities it will have the effect of
70)
A)
having no effect on the money supply.
B)
decreasing the money supply.
C)
changing the money supply, but the direction is not clear.
D)
increasing the money supply.
E)
unable to tell with the information provided.
71)
The probability that the desired return on an investment will be different from the desired return is
defined as
71)
A)
risk.
B)
discount rate.
C)
reserve requirements ratio.
D)
open market operations.
E)
unable to tell with the information provided.
72)
Jerry Jones has a Visa® card with the Very Big Interstate Bank. He notices that the interest rate
charged on this card is 19.5% per annum. Jerry has been employed by the same company for 15
years and has excellent credit. The company has a credit union that will issue Jerry a Visa® card
with an interest rate of 14.6%. The credit union offered Jerry this reduced rate because
72)
A)
the systematic risk is lower for credit union members than it is for the general population.
B)
the unsystematic risk is lower for credit union members than it is for the general population.
C)
the credit union manager likes Jerry.
D)
all Visa® credit cards charge the same rate.