Question 1

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The Federal Reserve System was created in

a.

1913

b.

1945

c.

1972

d.

1999

Question 2

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When the government collects more tax revenues than it spends, this is referred to as a

a.

deficit

b.

surplus

Question 3

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Fiscal policies are

a.

policies including government spending and tax changes

b.

policies to control money supply and interest rates, to maintain price stability and adequate employment levels

Question 4

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A normal yield curve that is upward slowing implies that:

a.

the returns on short term securities are higher than the returns on long term securities of similar risk

b.

the returns on short term securities are equal to the returns on long term securities of similar risk

c.

the returns on short term securities are lower than the returns on long term securities of similar risk

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All other things constant, the larger the federal deficit, the higher the level of government spending.

Select one:

True

False

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If the risk free rate is 2% and the risk premium is 4%, what is the overall yield of the security?

a.

6%

b.

5

c.

2

d.

4

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A capital gain occurs when

a.

An asset is purchased then sold for a higher amount

b.

As asset is purchased then sold for a lower amount

c.

An asset is disposed of for the equal amount to what was paid for it

d.

when the money supply is inflated over time

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Assume the expected rates of inflation over the next three years are 10%, 8% and 5%. What is the average expected inflation over the 3-year period?

a.

7.67%

b.

10.25%

c.

6.75%

d.

5.00%

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An inverted yield curve is upward sloping and historically indicative of a future expanding economy.

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True

False

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History has shown that periods of prolonged periods of low interest rate environments tend to encourage speculation, higher risk taking and debt.

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True

False

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This rate index is typically used by lenders on small business loans with variable rates.

a.

Prime

b.

30 year mortgage

c.

10 year treasury

d.

Fed Funds Rate

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A normal yield curve is upward sloping, with lower short term rates and higher long term rates.

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True

False

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A federal deficit occurs when (select one):

a.

the government issues securities to the public

b.

stock prices of private companies decline

c.

social security benefits given to citizens are reduced

d.

the government's expenses are greater than its tax revenue

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Monetary policy includes the Federal Reserve using tools

a.

to control the money supply and adjust interest rates

b.

to influence government spending and tax policies

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Which one of the following factors will likely lead to an increase in interest rates? (select one)

a.

Deflation

b.

Federal deficit

c.

Contraction

d.

Recession

e.

Trade surplus (foreign trade balance)