Chapter 26—Real Estate and the Economy
MULTIPLE CHOICE
1. Industries which produce goods and services for export are referred to by all of the following terms
EXCEPT
a.
base industries.
b.
export industries.
c.
primary industries.
d.
backbone industries.
2. Which of the following terms would not apply to an industry that produces goods or services that are
locally consumed ?
a.
Service industry
b.
Accessory industry
c.
Secondary industry
d.
Filler industry
3. The real estate brokerage industry is an example of a
a.
base industry.
b.
secondary industry.
c.
export industry.
d.
primary industry.
4. The Texagum manufacturing Company, which was the largest employer in the city of Westview,
recently closed its plant in that city. This will probably result in
a.
declining real estate values.
b.
A slow-down in the construction of new homes.
c.
A decline in the population of Westview.
d.
All of the above.
5. Generally, for every job created by a base industry, there will be created in service industries
approximately
a.
an equal number of jobs.
b.
two jobs.
c.
one job for every two persons employed in the base industry.
d.
four jobs.
6. When there is a sudden increase in the demand for housing in a community, the price of existing
housing will
a.
rise slowly over the next 12 months.
b.
rise rapidly, then fall slightly as supply catches up with demand.
c.
not reflect the increased demand for approximately 12 months.
d.
none of the above.
7. When the supply and demand relationship in a market is unbalanced because of excess supply, it is to
the advantage of
a.
buyers.
b.
sellers.
c.
sellers of services only.
d.
buyers of services only.
8. Generally, a person’s peak earning years occur at ages
a.
25-35 years.
b.
35-45 years.
c.
45-55 years.
d.
60 years.
9. Typically, most families acquire their largest and most expensive housing between ages
a.
25 to 35.
b.
45 to 55.
c.
35 to 45.
d.
over age 60.
10. The post-World War II baby boom includes persons aged
a.
30 to 40 in 1960.
b.
35 to 40 in 1985.
c.
50 to 60 in 1980.
d.
none of the above.
11. Real estate values are affected by the federal government’s
a.
tax rules.
b.
laws.
c.
deficits.
d.
all of the above.
12. Under federal tax laws that allow homeowners to deduct mortgage loan interest, what would be the
after-tax cost to a homeowner in the 28 percent tax bracket of a home mortgage loan made at a 12
percent rate of interest?
a.
3.36 percent
b.
8.64 percent
c.
9.5 percent
d.
8.0 percent
13. Federal tax laws have traditionally allowed owners of investment properties to deduct all of the
following EXCEPT
a.
depreciation on land.
b.
maintenance costs.
c.
operating costs.
d.
ad valorem taxes.
14. Commercial property has a useful life under IRS guidelines of
a.
15 years.
b.
27 years.
c.
39 years.
d.
19 years.
15. From an investor’s point of view, which is the most attractive allowable depreciation period for an
investment property?
a.
40 years
b.
30 years
c.
27.5 years
d.
15 years
16. Which has the greatest effect upon the interest rate an individual must pay for a real estate mortgage
loan?
a.
Federal governmental borrowing
b.
State governmental borrowing
c.
Local governmental borrowing
d.
Competition form commercial and industrial borrowers
17. In order to keep prices from falling in an economy that is growing at a 4 percent rate, which of the
following is necessary?
a.
A 4% decrease in the money supply
b.
A constant, unchanging money supply
c.
A 2% increase in the money supply
d.
A 4% increase in the money supply
18. When a government prints more money than is necessary for economic growth, the result is
a.
a short-term drop in interest rates.
b.
a long-term drop in interest rates.
c.
both a and b.
d.
neither a nor b.
19. All of the following have made home purchases by persons of modest income easier EXCEPT
a.
FHA loan insurance programs.
b.
creation of extra money by the federal reserve.
c.
VA loan guarantee programs.
d.
income tax deductions for mortgage loan interest and taxes.
20. The ECOA has contributed to greater numbers of homeowners among
a.
single persons.
b.
divorced persons.
c.
employed women.
d.
all of the above.
21. The advent of the secondary mortgage market
a.
made available previously untapped sources of money for real estate mortgage loans.
b.
contributed to real estate speculation and inflation in the late 1970s.
c.
both a and b.
d.
neither a nor b.
22. Cost-push inflation is the result of
a.
increased manufacturing costs.
b.
increased demand for a product.
c.
changes in the money supply.
d.
changes in interest rates.
23. Demand-pull inflation has little to do with
a.
manufacturing costs.
b.
the availability of money.
c.
buyers bidding against each other.
d.
too much money chasing too few goods.
24. When too much money chases too few goods, it is known as
a.
cost-push inflation.
b.
demand-pull inflation.
c.
real-cost inflation.
d.
deflation.
25. Inflation brought on by increased effort necessary to produce the same quantity of a good or service is
known as
a.
demand-pull inflation.
b.
real-cost inflation.
c.
cost-push inflation.
d.
monetary inflation.
26. The real cost of interest is the
a.
rate stated on the promissory note.
b.
inflation-adjusted cost.
c.
annual percentage rate.
d.
rate stated on the promissory note plus any discounts.
27. During the period from 1975 to 1980, the attractiveness of real estate as an investment was enhanced
by all of the factors below EXCEPT
a.
tax deductions for interest on mortgage loans.
b.
rapidly appreciating property values.
c.
capital gains tax treatment of sales.
d.
declining interest rates for mortgage loans.
28. By the year 1980, in order to curb inflation, the policy of the Federal Reserve became one of
a.
generous monetary growth.
b.
negative monetary growth.
c.
restrained monetary growth.
d.
constant, no-growth monetary supply.
29. Which of the following is more likely to be the LEAST demanding of appreciation potential in the
ownership of real estate?
a.
The owner of a rental residence
b.
An owner who occupies a property as a principal
c.
A business which owns apartment buildings
d.
A corporation which owns office buildings
30. By 1985, the market for residential housing for first-time buyers was strongest for the sale of
a.
condominium units.
b.
large single-family houses of more than 1600 square feet.
c.
smaller single-family houses of approximately 1000 square feet.
d.
cooperative housing.
TRUE/FALSE
1. A community’s economic base is determined by its ability to produce goods and/or services for
consumption within the local area.
2. The tourist industry in Florida or oil wells on Alaska’s North Slope would be examples of base
industries.
3. The existence of a base industry is essential to the economic health of a community.
4. The extent to which regions and cities are vulnerable to changes in the economic base depends on the
number and kinds of base industries that are present.
5. Communities which are suffering from an economic depression caused by a decline in demand for the
products of a single base industry tend to derive little benefit from diversification of their economic
base.
6. Over a period of years, the supply of residential housing is one of temporary shortages and temporary
excesses.
7. A dramatic increase in the birth rate will have an immediate effect on the demand for housing but will
have no long-range effect.
8. Federal tax treatment of expenses and profits from real estate investments has little effect on what a
person will pay for a property.
9. Through the Federal Reserve Banks, the Federal Reserve Board can create money.
10. Real-cost inflation can be cooled by environmental controls and depletion of natural resources.
11. Expectations about inflation tend to parallel actual changes.
12. The existence of a base industry is essential to the maintenance of local real estate values.
13. The extent to which regions and cities are vulnerable to changes in the economic base has little to do
with the ability of base industries to consistently export their products.
14. The creation of excessive amounts of money by the government would have little effect on monetary
inflation.
15. Ultimately, interest rates for real estate mortgage loans are determined by the marketplace.
16. Over a period of years, there will be periods of rapid price changes mixed with periods of mild price
changes.
17. Through the Federal Reserve Banks, the Federal Reserve Board can create money but cannot destroy
money.
18. The Federal Reserve Board’s objectives for the American economy include high employment, stable
prices, and steady growth in productive capacity.
19. The Federal Reserve Board influences the national economy by adjusting interest rates.
20. Monetary inflation can be controlled by keeping the growth in the monetary supply parallel to the
growth in productivity.
COMPLETION
1. The Federal Reserve Board, through the Federal Reserve Banks, has the ability, through
____________________ policy, to create and destroy money.
2. The employment ____________________ describes the number of people employed in local service
industries as a function of the number of people employed in a base industry.
3. To ____________________ the debt is the creation of money by the Federal Reserve to purchase
Treasury securities.
4. ____________________ inflation results in higher prices due to increased costs of labor and supplies.
5. The dependency on the number of base industries present and the ability of those industries to continue
to consistently export their products is called ____________________.
6. ____________________ inflation results from increasing the money supply faster than increases in
goods and services to buy.
7. When there are higher prices due to greater effort needed to produce the same product today it is called
____________________ inflation.
8. The future demand for housing as seen by looking at the population and the ability of people to obtain
income at various age levels is known as ____________________ demand.
9. Higher prices due to buyers bidding against each other causes ____________________ inflation.
10. Price changes for developed real property can be rapid and dramatic over short periods of time and
create ____________________ demand.
MATCHING
Choose the one most appropriate answer for each.
a.
age distribution
k.
monetary inflation
b.
base industry
l.
monetize the debt
c.
buying pattern
m.
primary industry
d.
cost-push inflation
n.
real
e.
demand
o.
real-cost inflation
f.
demand-pull inflation
p.
secondary industry
g.
economic base
q.
service industry
h.
employment multiplier
r.
short-run demand
i.
Federal Reserve Board
s.
supply
j.
long-run demand
t.
vulnerability
1. an industry that produces goods or services for export from the region; also called primary or export
industries
2. an industry that produces goods or services to sell to local residents
3. the ability of a region to export goods and services to other regions
4. higher prices due to buyers bidding against each other
5. higher prices due to greater effort needed to produce the same product today
6. higher prices due to increased costs of labor and supplies
7. results from increasing the money supply faster than increases in goods and services to buy
8. governing board of the nation’s central bank
9. inflation-adjusted
10. the creation of money by the Federal Reserve to purchase Treasury securities
11. population distribution based on year of birth
12. industries that produce goods and services for export; also called base or export industries.
13. producers of goods and services that are not exported; also called service or filler industries
14. dependency on the number of base industries present and the ability of those industries to continue to
consistently export their products
15. describes the number of people employed in local service industries as a function of the number of
people employed in a base industry
16. price changes for developed real property can be rapid and dramatic over short periods of time
17. availability of housing in a community
18. the requirement for housing in a community
19. future demand for housing as seen by looking at the population and the ability of people to obtain
income at various age levels
20. requirement for housing based on age and income patterns
