Savings And Investment Process Complete Test Bank Chapter 7

Chapter 7

Savings and Investment Process

TRUE-FALSE QUESTIONS

1. Personal consumption expenditures indicate expenditures by individuals for durable goods, nondurable goods, and services.

Difficulty Level: Easy

Subject Heading: GDP Components

L.O. 7.1

2. Government expenditures include only expenditures for goods and services by the federal government.

Difficulty Level: Easy

Subject Heading: GDP Components

L.O. 7.1

3. Gross private domestic investment measures a nation’s output of goods and services for a specified period of time.

Difficulty Level: Easy

Subject Heading: GDP Components

L.O. 7.1

4. GDP includes personal consumption expenditures, government purchases of goods and services, gross private domestic investment, and net exports of goods and services.

Difficulty Level: Easy

Subject Heading: GDP Components

L.O. 7.1

5. Gross private domestic investment (GPDI) measures fixed investment in residential and nonresidential structures, producers’ durable equipment, and changes in business inventories.

Difficulty Level: Easy

Subject Heading: GDP Components

L.O. 7.1

6. If the imports of goods and services exceed exports, GDP will be higher.

Difficulty Level: Medium

Subject Heading: Exports and Imports

L.O. 7.1

7. Net exports are exports of goods and services minus imports of goods and services.

Difficulty Level: Easy

Subject Heading: GDP Components

L.O. 7.1

8. Net exports are exports of goods and services plus imports of goods and services.

Difficulty Level: Easy

Subject Heading: GDP Components

L.O. 7.1

9. GDP = PCE + GE + GPDI – NE.

Difficulty Level: Easy

Subject Heading: GDP Components

L.O. 7.1

10. In recent years, the United States has been running large trade deficits with both Japan and China.

Difficulty Level: Medium

Subject Heading: Exports and Imports

L.O. 7.1

11. Net exports are the exports of goods minus total imports.

Difficulty Level: Easy

Subject Heading: GDP Components

L.O. 7.1

12. The capital account is a summary of the flow of funds between one country and all other countries involving the transfer of financial assets across country borders during a specified time period.

Difficulty Level: Easy

Subject Heading: Implications of International Payment Imbalances

L.O. 7.1

13. The capital account balance has a major impact on the balance of payments.

Difficulty Level: Medium

Subject Heading: Implications of International Payment Imbalances

L.O. 7.1

14. The financial account is a summary of the fl ow of funds between one country and all other countries involving foreign investments in fixed assets and financial assets during a specified time period.

Difficulty Level: Easy

Subject Heading: Implications of International Payment Imbalances

L.O. 7.1

15. The first stage of financing for an entrepreneurial firm is called the start-up stage.

Difficulty Level: Easy

Subject Heading: Small Business Practice

L.O. 7.1

16. The third stage of financing for an entrepreneurial firm is called the recovery of investment stage.

Difficulty Level: Easy

Subject Heading: Small Business Practice

L.O. 7.1

17. When taxes and general revenues fail to meet expenditures, a budget deficit occurs.

Difficulty Level: Medium

Subject Heading: Federal Government Receipts and Expenditures

L.O. 7.2

18. The federal government relies primarily on borrowing to support its various expenditure programs.

Difficulty Level: Medium

Subject Heading: Figure 7.1

L.O. 7.2

19. Benefit payments for individuals amount to over half of total expenditures of the federal government.

Difficulty Level: Medium

Subject Heading: Figure 7.1

L.O. 7.2

20. Local governments depend heavily on property taxes for their revenues, while state governments depend largely on sales taxes and special taxes, such as those on tobacco products.

Difficulty Level: Medium

Subject Heading: Federal Government Receipts and Expenditures

L.O. 7.2

21. The federal government relies primarily on income taxes and social insurance taxes for its revenues.

Difficulty Level: Medium

Subject Heading: Figure 7.1

L.O. 7.2

22. The federal debt of the United States is owned to a large extent by foreign institutions and individuals.

Difficulty Level: Medium

Subject Heading: Debt Financing

L.O. 7.2

23. The federal debt of the United States is owned to a large extent by China.

Difficulty Level: Medium

Subject Heading: Debt Financing

L.O. 7.2

24. The federal debt is the same thing as the budget deficit.

Difficulty Level: Medium

Subject Heading: Debt Financing

L.O. 7.2

25. The largest proportion of government revenue comes from corporate income taxes.

Difficulty Level: Medium

Subject Heading: Figure 7.1

L.O. 7.2

26. Mandatory spending is government spending provided by passage of appropriations bills that set aside funds for specific federal agencies and programs.

Difficulty Level: Easy

Subject Heading: The Budget

L.O. 7.2

27. The largest proportion of government spending goes to national defense, veterans, and foreign affairs.

Difficulty Level: Medium

Subject Heading: Figure 7.1

L.O. 7.2

28. Impeachment is a formal legislative process in which charges of “high crimes and misdemeanors” are brought against high-level officials.

Difficulty Level: Easy

Subject Heading: Fiscal Policy Makers

L.O. 7.2

29. The Senate votes on whether to impeach an official.

Difficulty Level: Easy

Subject Heading: Fiscal Policy Makers

L.O. 7.2

30. If impeachment goes to trial, that trial is held in the House of Representatives.

Difficulty Level: Easy

Subject Heading: Fiscal Policy Makers

L.O. 7.2

31. The president sets federal statutory debt limits that restrict the maximum amount of national debt that can be outstanding.

Difficulty Level: Easy

Subject Heading: Debt Financing

L.O. 7.2

32. Capital consumption adjustments are estimates of depreciation of plant and equipment assets for business purposes.

Difficulty Level: Medium

Subject Heading: Corporate Savings

L.O. 7.3

33. Capital consumption adjustments are estimates of the “using up” of plant equipment assets for businesses.

Difficulty Level: Medium

Subject Heading: Corporate Savings

L.O. 7.3

34. Savings surplus occurs when all of an economic unit’s income is not consumed, but held in the form of cash and other financial assets.

Difficulty Level: Medium

Subject Heading: Creation of Savings

L.O. 7.3

35. A savings deficit occurs when investment in real assets exceeds current income.

Difficulty Level: Medium

Subject Heading: Creation of Savings

L.O. 7.3

36. Savings surplus occurs when an economic unit has current income that exceeds its direct investment in real assets.

Difficulty Level: Easy

Subject Heading: Creation of Savings

L.O. 7.3

37. Voluntary savings are financial assets set aside for use in the future.

Difficulty Level: Easy

Subject Heading: Personal Savings

L.O. 7.3

38. Voluntary savings are financial assets set aside for use in more than one year in the future.

Difficulty Level: Easy

Subject Heading: Personal Savings

L.O. 7.3

39. Contractual savings are not determined by current decisions.

Difficulty Level: Medium

Subject Heading: Personal Savings

L.O. 7.3

40. Savings are impacted only by cyclical movements in the economy.

Difficulty Level: Medium

Subject Heading: Personal Savings

L.O. 7.3

41. Contractual savings are savings accumulated on a regular schedule for a specified length of time by prior agreement.

Difficulty Level: Easy

Subject Heading: Personal Savings

L.O. 7.3

42. Car payments are an example of contractual savings.

Difficulty Level: Easy

Subject Heading: Personal Savings

L.O. 7.3

43. Voluntary savings are savings accumulated on a regular schedule for a specified length of time by prior agreement.

Difficulty Level: Easy

Subject Heading: Personal Savings

L.O. 7.3

44. Personal savings are savings accumulated on a regular schedule for a specified length of time by prior agreement.

Difficulty Level: Easy

Subject Heading: Personal Savings

L.O. 7.3

45. Corporate saving for short-term working capital purposes is the most important reason for businesses accumulating financial assets.

Difficulty Level: Medium

Subject Heading: Corporate Savings

L.O. 7.3

46. Foreign capital played a significant role in the development of the United States.

Difficulty Level: Medium

Subject Heading: Historical Sources

L.O. 7.3

47. Undistributed profit is the proportion of after-tax profit paid as dividends to shareholders by a corporation.

Difficulty Level: Easy

Subject Heading: Creation of Savings

L.O. 7.3

48. Tax reform in the form of lower personal income tax rates in the mid-1960s and in the 1970s may have contributed to a higher personal savings rate.

Difficulty Level: Easy

Subject Heading: Personal Savings

L.O. 7.3

49. It is from individuals that most financial intermediaries accumulate capital.

Difficulty Level: Easy

Subject Heading: Creation of Savings

L.O. 7.3

50. The personal savings rate is calculated as personal savings divided by pre-tax income.

Difficulty Level: Medium

Subject Heading: Personal Savings

L.O. 7.3

51. In general, the savings rate in the United States has decreased during the past 40 years.

Difficulty Level: Medium

Subject Heading: Table 7.2

L.O. 7.4

52. In general, the total savings in the United States has decreased during the past 12 years.

Difficulty Level: Medium

Subject Heading: Table 7.3

L.O. 7.4

53. The corporate retention rate is simply another term for the corporate savings rate.

Difficulty Level: Medium

Subject Heading: Corporate Savings

L.O. 7.4

54. The primary factors that influence the total amount of savings in an economy in any given period include the trade surplus or deficit and exchange rates.

Difficulty Level: Medium

Subject Heading: Factors Affecting Savings

L.O. 7.4

55. Dissaving occurs when savings are transferred out of long-term savings and into short-term savings.

Difficulty Level: Easy

Subject Heading: Levels of Income

L.O. 7.4

56. The anticipation of future events has a little to no effect on savings.

Difficulty Level: Easy

Subject Heading: Economic Expectations

L.O. 7.4

57. Economic cycles may be viewed as annual events.

Difficulty Level: Medium

Subject Heading: Economic Cycles

L.O. 7.4

58. Capital market securities are debt securities with maturities less than one year and corporate stocks.

Degree of Difficulty: Easy

Subject Heading: Capital Market Securities

L.O. 7.5

59. Capital market securities include debt securities but not corporate stocks.

Degree of Difficulty: Easy

Subject Heading: Capital Market Securities

L.O. 7.5

60. A derivative security is a financial contract that derives its value from a bond, stock, or other asset.

Degree of Difficulty: Easy

Subject Heading: Capital Market Securities

L.O. 7.5

61. A derivative security is a financial contract that derives its value from a collection of bonds.

Degree of Difficulty: Easy

Subject Heading: Capital Market Securities

L.O. 7.5

62. A car loan is a type of mortgage.

Difficulty Level: Easy

Subject Heading: Capital Market Securities

L.O. 7.5

63. Municipal bonds can only be issued by cities.

Difficulty Level: Medium

Subject Heading: Capital Market Securities

L.O. 7.5

64. The interest paid on municipal bonds is exempt from federal income taxes.

Difficulty Level: Medium

Subject Heading: Capital Market Securities

L.O. 7.5

65. Securitization is the process of insuring mortgage loans against default.

Degree of Difficulty: Easy

Subject Heading; Types of Mortgages and Mortgage-Backed Securities

L.O. 7.6

66. Fixed rate mortgages typically require 20% down payment.

Degree of Difficulty: Easy

Subject Heading; Types of Mortgages and Mortgage-Backed Securities

L.O. 7.6

67. Adjustable rate mortgages typically adjust monthly.

Degree of Difficulty: Easy

Subject Heading; Types of Mortgages and Mortgage-Backed Securities

L.O. 7.6

68. Fixed rate mortgages are also known as “prime mortgages.”

Degree of Difficulty: Easy

Subject Heading; Credit Ratings and Scores

L.O. 7.6

69. Credit scores range from about 500 to 700.

Difficulty Level: Easy

Subject Heading: Credit Ratings and Scores

L.O. 7.6

70. A subprime mortgage is a mortgage made to a borrower with an excellent credit score.

Difficulty Level: Easy

Subject Heading: Credit Ratings and Scores

L.O. 7.6

71. Developments in the mortgage markets were major contributors to the severity of the 2007- 08 financial crisis.

Degree of Difficulty: Medium

Subject Heading; A Borrowing-Related Cultural Shift

L.O. 7.7

72. Fixed rate mortgages often replaced adjustable rate mortgages just prior to the 2007 – 08 financial crisis.

Degree of Difficulty: Medium

Subject Heading; A Borrowing-Related Cultural Shift

L.O. 7.7

73. Capital consumption adjustment is also called depreciation.

Difficulty Level: Easy

Subject Heading: Corporate Savings

L.O. 7.3

MULTIPLE-CHOICE QUESTIONS

74. Gross domestic product is equal to the sum of all of the following except:

a. personal consumption expenditures

b. net exports

c. government expenditures

d. personal savings in banks

Difficulty Level: Medium

Subject Heading: GDP Components

L.O. 7.1

75. Personal consumption expenditures (PCE) include:

a. individual expenditures for durable goods

b. business expenditures for nondurable goods

c. government purchases of goods for individuals

d. foreign purchase of nondurable goods

Difficulty Level: Medium

Subject Heading: GDP Components

L.O. 7.1

76. Personal consumption expenditures (PCE) does not include:

a. individual expenditures for durable goods

b. individual expenditures for nondurable goods

c. individual expenditures for services

d. individual savings

Difficulty Level: Hard

Subject Heading: GDP Components

L.O. 7.1

77. Gross Private Domestic Investment (GPDI) measures fixed investment in:

a. residential and non-residential structures

b. individual expenditures for nondurable goods

c. individual expenditures for services

d. government securities

Difficulty Level: Medium

Subject Heading: Investment

L.O. 7.1

78. If personal consumption expenditures are $1 billion, government purchases are $2 billion, gross private domestic investments are $4 billion and net exports are $5 billion, then GDP is:

a. $12 billion

b. $8 billion

c. $7 billion

d. $2 billion

Difficulty Level: Easy

Subject Heading: GDP Components

L.O. 7.1

79. If personal consumption expenditures are $6 billion, government purchases are $10 billion, gross private domestic investments are $4 billion and net exports are $negative 3 billion, then GDP is:

a. $23 billion

b. $20 billion

c. $17 billion

d. $16 billion

Difficulty Level: Medium

Subject Heading: GDP Components

L.O. 7.1

80. Direct payments to individuals from the Federal government do not include:

a. Social Security payments.

b. Medicare payments

c. health expenditures

d. public transportation subsidies

Difficulty Level: Medium

Subject Heading: GDP Components

L.O. 7.1

81. Expenditures for goods and services plus gross investments by federal, state, and local governments.

a. Net exports

b. Government expenditures

c. Gross private domestic investment

d. Personal consumption expenditures

Difficulty Level: Easy

Subject Heading: GDP Components

L.O. 7.1

82. Exports of goods and services minus imports.

a. Net exports

b. Government expenditures

c. Gross private domestic investment

d. Personal consumption expenditures

Difficulty Level: Easy

Subject Heading: GDP Components

L.O. 7.1

83. Most income for the Federal Government comes from:

a. corporate income taxes

b. individual income taxes

c. social insurance receipts

d. foreign imports

Difficulty Level: Medium

Subject Heading: Figure 7.1

L.O. 7.2

84. Income for the Federal Government does not come from:

a. corporate income taxes

b. foreign income taxes

c. personal income taxes

d. military weapon sales

Difficulty Level: Medium

Subject Heading: Figure 7.1

L.O. 7.2

85. Which of the following expenditures account for the largest part of the Federal budget?

a. national defense

b. interest on debt

c. direct benefits to individuals

d. national parks and monuments

Difficulty Level: Medium

Subject Heading: Figure 7.1

L.O. 7.2

86. The largest category of federal budget outlays is from:

a. national defense

b. Medicare and social security

c. Interest on the federal debt

d. international affairs

Difficulty Level: Easy

Subject Heading: Figure 7.1

L.O. 7.2

87. Which of the following statements is false?

a. The process of channeling savings into investment through the use of a financial institution or intermediary results in the creation of one type of financial asset and one type of financial liability.

b. During the early years of the history of the United States, foreigners purchased significant volumes of federal government securities.

c. The single most important use of funds raised in the credit markets is by the household sector.

d. The U.S. government borrows more than state and local governments combined.

Difficulty Level: Hard

Subject Heading: Multiple Topics

L.O. 7.2

88. Government spending on entitlement programs that must be funded according to existing law.

a. Mandatory spending

b. Discretionary spending

c. Required spending

d. Appropriations spending

Difficulty Level: Easy

Subject Heading: The Budget

L.O. 7.2

89. Government spending provided by passage of appropriations bills that set aside funds for specific federal agencies and programs.

a. Mandatory spending

b. Discretionary spending

c. Required spending

d. Appropriations spending

Difficulty Level: Easy

Subject Heading: The Budget

L.O. 7.2

90. The most important savings surplus unit in the economy is:

a. the savings of individuals

b. corporate savings

c. U.S. government savings

d. state and local government savings

Difficulty Level: Medium

Subject Heading: Creation of Savings

L.O. 7.3

91. Which of the following is a savings surplus unit?

a. businesses

b. government

c. individuals

d. foreign exporters

Difficulty Level: Medium

Subject Heading: Creation of Savings

L.O. 7.3

92. Which one the following four basic economic units consistently represents a savings surplus unit?

a. individuals

b. business firms

c. financial intermediaries

d. governments

Difficulty Level: Medium

Subject Heading: Creation of Savings

L.O. 7.3

93. Which of the following sources of savings is consistently the largest on an annual basis?

a. personal savings

b. undistributed corporate profits

c. federal, state, and local government surpluses

d. capital consumption allowances

Difficulty Level: Medium

Subject Heading: Creation of Savings

L.O. 7.3

94. Which of the following statements is false?

a. Factors affecting the amount of savings include: levels of income, economic expectations, cyclical influences, and the life stage of the individual saver.

b. Gross savings are the profits remaining after tax, and in the case of corporations, after the payment of cash dividends to stockholders.

c. Voluntary savings are financial assets set aside for use in the future.

d. After the Civil War, the United States was able to generate sufficient capital to finance its expansion.

Difficulty Level: Hard

Subject Heading: Creation of Savings

L.O. 7.3

95. Motivations for individuals to deposit money into a savings account include:

a. shelter from taxes

b. return on investment

c. lack of better investments

d. reserving against war

Difficulty Level: Medium

Subject Heading: Creation of Savings

L.O. 7.3

96. The accumulation of reserves in insurance and pension funds is referred to as what type of savings?

a. voluntary savings

b. contractual savings

c. real savings

d. risk based savings

Difficulty Level: Medium

Subject Heading: Personal Savings

L.O. 7.3

97. When current savings of an economic unit exceed its direct investment in real assets, this is referred to as:

a. savings surplus

b. savings deficit

c. savings neutral

d. savings inflation

Difficulty Level: Easy

Subject Heading: Creation of Savings

L.O. 7.3

98. When current savings of an economic unit exceed its direct investment in real assets,

a. more funds are needed by the economic unit

b. funds can be made available to a savings deficit unit

c. interest rates will rise

d. firms have undistributed profits

Difficulty Level: Medium

Subject Heading: Creation of Savings

L.O. 7.3

99. Which of the following is the most liquid form of savings?

a. cash balances

b. time deposits

c. insurance reserves

d. securities

Difficulty Level: Easy

Subject Heading: Creation of Savings

L.O. 7.3

100. Savings are the accumulation of cash and other financial assets and are generally classified into which of the following two categories?

a. voluntary and contractual savings

b. primary and secondary savings

c. personal and governmental savings

d. voluntary and corporate savings

Difficulty Level: Medium

Subject Heading: Personal Savings

L.O. 7.3

101. The personal savings rate is calculated as:

a. personal savings divided by personal outlays

b. personal savings divided by disposable personal income

c. disposable personal income divided by personal outlays

d. personal income divided by personal outlays

Difficulty Level: Medium

Subject Heading: Personal Savings

L.O. 7.3

102. Which of the following statements is false?

a. The process of channeling savings into investment through the use of a financial institution or intermediary results in no real economic value

b. During the early years of the history of the United States, foreigners purchased significant volumes of federal government securities.

c. Most funds raised in the credit sector are by households.

d. Consumer mortgages can be fixed rate or adjustable rate.

Difficulty Level: Hard

Subject Heading: Multiple Topics

L.O. 7.3

103. Which of the following factors often influence a person’s choice of savings medium?

a. foreign income taxes

b. degree of safety

c. minimum deposit amounts

d. whether it is a bank or a savings and loan

Difficulty Level: Medium

Subject Heading: Personal Savings

L.O. 7.3

104. Three factors usually influence a person’s choice of savings medium. Which of the following is not one of them?

a. Liquidity

b. Degree of safety

c. Return

d. Tax impacts

Difficulty Level: Medium

Subject Heading: Personal Savings

L.O. 7.3

105. Which of the following usually does not influence personal choice of savings medium?

a. Liquidity

b. Degree of Safety

c. Return

d. Income

Degree of Difficulty: Medium

Subject Heading: Personal Savings

L.O. 7.3

106. Which of the following factors does not affect savings?

a. Levels of Income

b. Inflation rate

c. Cyclical influences

d. Life stage of the individual or corporation

Degree of Difficulty: Easy

Subject Heading: Personal Savings

L.O. 7.3

107. Early developments in transportation were ultimately financed by:

a. private promoters

b. current government revenues

c. savings of individuals

d. foreign securities

Difficulty Level: Medium

Subject Heading: Historical Sources

L.O. 7.3

108. Estimates of “using up” plant and equipment for business purposes are called

a. accelerated depreciation estimates

b. gross capital formations

c. capital consumption adjustments

d. accumulated depreciation

Difficulty Level: Medium

Subject Heading: Corporate Savings

L.O. 7.3

109. These occur when an economic unit’s income exceeds its expenses, taxes, and real asset investments.

a. Savings deficit unit

b. Undistributed profits

c. Savings surplus unit

d. Economic unit savings

Difficulty Level: Easy

Subject Heading: Creation of Savings

L.O. 7.3

110. This is an economic unit that generates savings.

a. Profitable unit

b. Undistributed profits

c. Savings surplus unit

d. Economic unit savings

Difficulty Level: Easy

Subject Heading: Creation of Savings

L.O. 7.3

111. The proportion of after-tax profits retained by corporations.

a. Untaxed profits

b. Undistributed profits

c. Savings surplus unit

d. Economic unit savings

Difficulty Level: Easy

Subject Heading: Creation of Savings

L.O. 7.3

112. An economic unit with income less than its expenses, taxes, and real asset investments.

a. Savings deficit unit

b. Bankrupt unit

c. Savings surplus unit

d. Economic unit savings

Difficulty Level: Easy

Subject Heading: Creation of Savings

L.O. 7.3

113. Which of the following is not a stage in the individual savings life cycle?

a. Career starting/family creating

b. Formative/education developing

c. Death planning

d. Retirement enjoying

Degree of Difficulty: Easy

Subject Heading: Levels of Income

L.O. 7.4

114. In general, during the business cycle, when economic activity is peaking:

a. interest rates begin to go lower

b. unemployment levels are high

c. inflation begins to edge higher

d. inflation goes down

Difficulty Level: Medium

Subject Heading: Economic Cycles

L.O. 7.4

115. Which of the following could affect personal income levels?

a. Employment Levels

b. Corporate profits

c. Inflation

d. Liquidity

Degree of Difficulty: Easy

Subject Heading: Levels of Income

L.O. 7.4

116. If individuals believe their income will decrease in the near future, they may _____________ their spending.

a. eliminate

b. curtail

c. increase

d. double

Degree of Difficulty: Medium

Subject Heading: Levels of Income

L.O. 7.4

117. The major factors which influence the level of savings are the level of:

a. income and the life stage of the individual saver

b. income, economic expectations, cyclical influence, and the life stage of the individual saver

c. income, interest rates, and the life stage cycle of the individual saver

d. income and interest rates

Difficulty Level: Medium

Subject Heading: Factors Affecting Savings

L.O. 7.4

118. The primary factors that influence the amount of savings in any given period include all of the following except:

a. levels of income

b. economic expectations

c. cyclical influences

d. all of the above are factors that influence savings

Difficulty Level: Medium

Subject Heading: Savings

L.O. 7.4

119. Greater potential savings would result from a (n):

a. age distribution shift to more teenagers

b. shift to more elderly people in the total population

c. shift to more young married couples

d. shift to more middle-aged families

Difficulty Level: Medium

Subject Heading: Life Stages of the Individual Saver

L.O. 7.4

120. The life stages of an individual saver include all of the following except:

a. the formative/education developing stage

b. the career earning/family creating stage

c. the wealth building stage

d. the tax minimizing stage

Difficulty Level: Medium

Subject Heading: Life Stages of the Individual Saver

L.O. 7.4

121. The life stages of an individual saver include which of the following:

a. the formative/education developing stage

b. the career reduction stage

c. the wealth depletion stage

d. the cost of living stage

Difficulty Level: Medium

Subject Heading: Life Stages of the Individual Saver

L.O. 7.4

122. During the early years of the life stage of a typical corporation, the:

a. volume of physical assets increases slowly

b. firm is unable to establish a strong position with respect to its financial assets

c. corporation is a heavy provider of financial assets

d. need for borrowed capital is small

Difficulty Level: Medium

Subject Heading: Life Stages of the Corporation and Other Business Firms

L.O. 7.4

123. Which of the following is not a stage in the corporation cycle?

a. Start-up stage

b. Capital formation stage

c. Rapid growth stage

d. Survival stage

Degree of Difficulty: Easy

Subject Heading: Life Stages of the Corporation and Other Business Firms

L.O. 7.4

124. A saver who chooses securities as a savings medium and desires maximum safety of principal buys:

a. public utility stocks

b. corporate stocks

c. high-grade corporate bonds

d. government bonds

Difficulty Level: Medium

Subject Heading: Capital Market Securities

L.O. 7.5

125. Capital market securities include all of the following except:

a. Corporate bond

b. Treasury bond

c. Certificate of deposit

d. Common Stock

Degree of Difficulty: Easy

Subject Heading: Capital Market Securities

L.O. 7.5

126. A mortgage with interest rate and periodic payments that vary with market interest rates over the real estate loan’s life.

a. Adjustable-rate mortgage

b. Flexible mortgage

c. Fixed-rate mortgage

d. Subprime mortgage

Difficulty Level: Easy

Subject Heading: Types of Mortgages and Mortgage-Backed Securities

L.O. 7.6

127. A home loan made to a borrower with a relatively high credit score indicating the likelihood that loan payments will be made as agreed to.

a. Adjustable-rate mortgage

b. Prime mortgage

c. Desirable mortgage

d. Perfect mortgage

Difficulty Level: Easy

Subject Heading: Types of Mortgages and Mortgage-Backed Securities

L.O. 7.6

128. A mortgage with a constant interest rate with a constant periodic payment over the real estate loan’s life.

a. Adjustable-rate mortgage

b. Prime mortgage

c. Fixed-rate mortgage

d. Subprime mortgage

Difficulty Level: Easy

Subject Heading: Types of Mortgages and Mortgage-Backed Securities

L.O. 7.6

129. A home loan made to a borrower with a relatively low credit score indicating the likelihood that loan payments might be missed when due.

a. Adjustable-rate mortgage

b. Prime mortgage

c. Suboptimal mortgage

d. Subprime mortgage

Difficulty Level: Easy

Subject Heading: Types of Mortgages and Mortgage-Backed Securities

L.O. 7.6

130. Which of the following statements factors did not contribute to the 2007-2009 financial crisis?

a. The cultural shift that allowed the public to “spend now and pay later”—rather than their parents’ or grandparents’ philosophy of “save now, spend later” led to increases in consumer debt levels.

b. U.S. government officials engaged in efforts to expand home ownership by encouraging lenders to make mortgage loans available to a broader spectrum of individuals.

c. Businesses raising prices on goods and services.

d. The Federal Reserve adopted an expansionary monetary policy characterized by very low interest rates.

Difficulty Level: Hard

Subject Heading: Role of the Individual in the 2007–08 Financial Crisis and Today

L.O. 7.7

131. All of the following encouraged individuals to enter into risky mortgages during the 2000’s except:

a. Financial institution lenders

b. Local government officials

c. Government-supported agencies

d. Mortgage originators

Degree of Difficulty: Easy

Subject Heading: Role of the Individual in the 2007–08 Financial Crisis and Today

L.O. 7.7