Which of the following describes the efficient market hypothesis?

asset prices reflect all publicly available information

Business only borrow funds for projects if the projected rate of return on the project

exceeds the interest rate charged on borrowed funds.

(Select all that apply.) Economists worry that speculative bubbles can be costly to the economy because

bubbles attract funds that would be more useful elsewhere., when the bubble pops wealth decreases, reducing spending., when the bubble pops workers may need to switch industries.

A. Tabarrok and T. Cowen suggest three basic ideas for using the stock market to grow wealth:

diversify, avoid fees, and let your gains compound.

One of the concerns with crowding out is that it

may dampen future economic growth.

The risk-return trade-off is the observation that

the greater the likely return, the greater the risk.

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Savings and Investment (Macroeconomics)

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Answers

1
Which of the following describes the efficient market hypothesis?
competitive markets tend to be efficient
asset prices reflect all publicly available information
markets can align self-interest with the public interest
self-interest tamed by competition can lead to good things
2
Consider the market for loanable funds. An incerease in the demand for loanable funds
will raise interest rates.
often results in bank panics and financial difficulty.
reduces the quantity of borrowing and lending that occurs.
will reduce the profits of banks.
3
Business only borrow funds for projects if the projected rate of return on the project
is less than the interest rate in the loanable funds market.
can be deducted from their taxable income.
can be calculated with near certainty.
exceeds the interest rate charged on borrowed funds.
4
If the government increases its borrowing there is a tendency for C and I to decline. This is
why governments rarely borrow.
one of the great mysteries of economics.
because the government uses public lands as collateral.
called crowding out.
5
A firm is _______________ if it has liabilities that exceed its assets.
crowded out
liquid
insolvent
profitable
6
(Select all that apply.) Economists worry that speculative bubbles can be costly to the economy because
bubbles attract funds that would be more useful elsewhere.
when the bubble pops wealth decreases, reducing spending.
when the bubble pops workers may need to switch industries.
7
With all bonds there is a risk that the issuer will not make the payment(s) promised. This is
the Fisher Effect.
default risk.
an example of "the way the cookie crumbles" issue.
crowding out.
8
A. Tabarrok and T. Cowen suggest three basic ideas for using the stock market to grow wealth:
buy low priced stocks, sell high priced stocks, & use IRA's.
diversify, avoid fees, and let your gains compound.
use actively managed mutual funds, use IRA's and 403b's.
hire the best money managers, pay them well, and sit back.
9
A ____________ signifies partial ownership of a corporation.
stock
bond
leverage certificate
junk bond
10
One of the concerns with crowding out is that it
may result in excessive savings.
motivates voters to vote for the party that is not in power.
may dampen future economic growth.
is often followed by crowding in.
11
Mutual funds that follow a passive investment strategy are often called
the poor man's investment.
fools' gold.
index funds.
Midas funds.
12
A _____________ is a certificate of indebtedness.
time preference
share of stock
leverage ratio
bond
13
Economists suggest that the primary benefit of a mutual fund is
highly paid, professional money managers.
significant earnings in almost all economic climates.
diversification.
the ability to avoid taxes.
14
Bond prices and interest rates tend to move
in opposite directions.
in the same direction.
in a circular pattern.
in a star-shaped pattern.
15
What bridges the gap between those who save and those who desire to borrow funds?
leverage
the interest rate
financial institutions
The U.S. Social Security Administration
16
The risk-return trade-off is the observation that
the best stocks pay dividends in good times and bad times.
risky assets rarely produce any return at all.
the greater the likely return, the greater the risk.
the greater the likely return, the lower the risk.

Savings and Investment (Macroeconomics) Flashcards | StudBud