Final Review Chapter 9,11,14
This is a set of questions to review chapter 9,11, 14 for economics final exam
Questions and Answers
- 1.
The FED is responsible for all of the following EXCEPT
- A.
Holding companies
- B.
Margin requirements
- C.
Check clearing
- D.
Credit unions
Correct Answer
D. Credit unionsExplanation
The Federal Reserve (FED) is responsible for various functions related to the regulation and supervision of financial institutions. However, credit unions are not under the direct jurisdiction of the FED. Instead, credit unions are regulated by the National Credit Union Administration (NCUA), which is an independent agency. Therefore, the FED is responsible for holding companies, margin requirements, and check clearing, but not credit unions.Rate this question:
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- 2.
The FED is owned by
- A.
Member banks
- B.
The federal government
- C.
All banks
- D.
The people of the United States
Correct Answer
A. Member banksExplanation
The correct answer is member banks because the Federal Reserve System, also known as the FED, is a decentralized central bank that consists of 12 regional banks. These regional banks are owned and operated by the member banks, which are commercial banks located within their respective districts. The member banks hold shares of stock in their regional Federal Reserve Bank and elect its board of directors. Therefore, the ownership of the Federal Reserve System lies with the member banks rather than the federal government, all banks, or the people of the United States.Rate this question:
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- 3.
FICA taxes are used to
- A.
Social Security and Medicare
- B.
National defense
- C.
The IRS
- D.
The Treasury Department
Correct Answer
A. Social Security and MedicareExplanation
FICA taxes are used to fund Social Security and Medicare programs. These programs provide financial support and healthcare benefits to retired individuals, disabled individuals, and those with certain medical conditions. FICA taxes are deducted from employees' salaries and matched by their employers to fund these programs. The funds collected through FICA taxes are used to ensure the sustainability and operation of Social Security and Medicare, which are crucial for the well-being and healthcare needs of the American population.Rate this question:
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- 4.
What is the single largest source of revenue for the Federal Government?
- A.
User fee
- B.
FICA
- C.
Individual income tax
- D.
Corporate income tax
Correct Answer
C. Individual income taxExplanation
The individual income tax is the single largest source of revenue for the Federal Government. This tax is imposed on the income earned by individuals and is collected by the government to fund various public services and programs. It is a progressive tax system, meaning that individuals with higher incomes are taxed at higher rates. The revenue generated from individual income tax plays a crucial role in financing government operations, including defense, healthcare, education, and infrastructure development.Rate this question:
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- 5.
The Individual Income Tax is a (n)
- A.
Proportional tax
- B.
Regressive tax
- C.
Excise tax
- D.
Progressive tax
Correct Answer
D. Progressive taxExplanation
A progressive tax is a type of tax where the tax rate increases as the taxable income increases. This means that individuals with higher incomes will pay a higher percentage of their income in taxes compared to individuals with lower incomes. This type of tax system is often used to promote income redistribution and to ensure that those who can afford to pay more contribute a larger share of their income to support government services and programs.Rate this question:
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- 6.
The "benefits received" principle of taxation states that
- A.
Taxes benefit the economy as a whole
- B.
Those who benefit form government services should pay for them
- C.
People should be taxed according to their ability
- D.
The government should assess taxes only if there is a clear benefit to doing so
Correct Answer
B. Those who benefit form government services should pay for themExplanation
The "benefits received" principle of taxation states that those who benefit from government services should pay for them. This means that individuals or entities who directly benefit from a particular government service or program should bear the cost of funding it through taxes. This principle is based on the idea of fairness, as it ensures that those who use and benefit from government services contribute their fair share towards their provision. It also promotes efficiency in resource allocation, as it incentivizes individuals to consider the costs and benefits of the services they use.Rate this question:
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- 7.
A special tax on gasoline is probably a (n)
- A.
Excise tax
- B.
Customs duty
- C.
User fee
- D.
Estate tax
Correct Answer
C. User feeExplanation
A user fee is a payment made by individuals or businesses for the use of a particular service or facility provided by the government. In this case, a special tax on gasoline can be considered a user fee as it is a charge imposed on individuals who use gasoline as a means of transportation. This tax is specifically levied to fund the maintenance and improvement of roads, bridges, and other transportation infrastructure. Unlike an excise tax, which is a general tax on the sale or use of certain goods, or a customs duty, which is a tax on imported goods, a user fee is directly linked to the use of a specific service or facility.Rate this question:
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- 8.
The rate of interest that banks charge on loans to their best business customers is called the
- A.
Prime rate
- B.
Discount rate
- C.
Reserve rate
- D.
Adjustable rate
Correct Answer
B. Discount rateExplanation
The correct answer is discount rate. The discount rate refers to the interest rate that banks charge their most creditworthy business customers on loans. This rate is typically lower than the prime rate and is used as a benchmark for other interest rates in the economy. It is set by the central bank and is used to control the money supply and encourage or discourage borrowing.Rate this question:
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- 9.
The two largest sources of revenue for states are
- A.
Sales tax and intergovernmental revenue
- B.
Property tax and sales tax
- C.
Income tax and intergovernmental
- D.
Property tax and excise tax
Correct Answer
A. Sales tax and intergovernmental revenueExplanation
The correct answer is sales tax and intergovernmental revenue. Sales tax is a tax imposed on the sale of goods and services and is a significant source of revenue for states. Intergovernmental revenue refers to funds received from the federal government or other levels of government, which can include grants, subsidies, or shared taxes. These two revenue sources are commonly relied upon by states to fund their operations and provide essential services to their residents.Rate this question:
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- 10.
Owners of stock are protected from some risk because they have
- A.
Capital liability
- B.
Split liability
- C.
Unlimited liability
- D.
Limited liability
Correct Answer
D. Limited liabilityExplanation
Limited liability means that the owners of stock are not personally responsible for the debts and obligations of the company. Their liability is limited to the amount of their investment in the stock. This means that if the company goes bankrupt or faces legal issues, the owners' personal assets are protected and cannot be used to satisfy the company's liabilities. Limited liability is a key advantage for stockholders as it allows them to participate in the potential profits of the company while minimizing their risk and exposure to financial loss.Rate this question:
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- 11.
Mutual funds take some risk out of investing in stocks because
- A.
Funds are not diversified
- B.
Investors work independently in buying and selling stocks
- C.
Professional managers choose the stocks that the fund purchases
- D.
Investment is limited to the stocks of one company
Correct Answer
C. Professional managers choose the stocks that the fund purchasesExplanation
Mutual funds take some risk out of investing in stocks because professional managers choose the stocks that the fund purchases. This means that the investment decisions are made by experienced professionals who analyze the market and select a diversified portfolio of stocks. By having professional managers make these choices, investors can benefit from their expertise and reduce the risk associated with investing in individual stocks. This diversification helps to spread the risk across different companies and sectors, potentially minimizing the impact of any single stock's poor performance on the overall investment.Rate this question:
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- 12.
A Round Lot means shares are sold in amounts of
- A.
1
- B.
10
- C.
100
- D.
1000
Correct Answer
C. 100Explanation
A round lot refers to shares that are sold in multiples of 100. This means that when buying or selling stocks, investors typically transact in increments of 100 shares. This standardization simplifies trading and ensures that orders can be easily matched on the stock exchange. It also helps to maintain liquidity in the market by preventing small transactions from causing excessive price volatility.Rate this question:
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- 13.
An investor who sells stock at a price lower than the purchase price incurs a
- A.
Capital split
- B.
Capital gain
- C.
Loss
- D.
Capital windfall
Correct Answer
C. LossExplanation
When an investor sells stock at a price lower than the purchase price, they incur a loss. This means that they have sold the stock for less than what they originally paid for it, resulting in a financial loss. This is a common occurrence in the stock market where prices can fluctuate, and investors may sell their stocks at a lower price due to various factors such as market conditions, company performance, or personal financial needs.Rate this question:
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- 14.
Each of the following is true of the OTC market except
- A.
Brokers consult NASDAQ to find current prices
- B.
Stocks traded are sometimes called unlisted stocks
- C.
Stocks of many smaller corporations are often traded
- D.
Most OTC trading is done on the NYSE
Correct Answer
D. Most OTC trading is done on the NYSEExplanation
The correct answer is "most OTC trading is done on the NYSE". This statement is false because the OTC market, also known as the over-the-counter market, is a decentralized market where trading is conducted directly between parties without the involvement of a centralized exchange like the NYSE. In the OTC market, stocks are traded directly between buyers and sellers through a network of dealers, rather than on a centralized exchange.Rate this question:
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- 15.
Stocks that pay few or no dividends but gain in value are called
- A.
Income stock
- B.
Growth stock
- C.
Futures stock
- D.
Venture stock
Correct Answer
B. Growth stockExplanation
A growth stock refers to a type of stock that does not pay significant dividends but rather focuses on increasing its value over time. These stocks are typically associated with companies that are expected to experience substantial growth in terms of sales, earnings, and market share. Investors who purchase growth stocks are primarily seeking capital appreciation rather than regular income through dividends. This type of investment strategy is suitable for individuals who are willing to take on higher levels of risk in exchange for the potential for significant long-term gains.Rate this question:
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- 16.
In the commodities market, investors trade different types of commodities called
- A.
Corporate bonds
- B.
Futures
- C.
Stocks
- D.
Mutual funds
Correct Answer
B. FuturesExplanation
In the commodities market, investors trade different types of commodities called futures. Futures are contracts that obligate the buyer to purchase an asset or the seller to sell an asset at a predetermined price and date in the future. These assets can include commodities such as agricultural products, energy resources, precious metals, and more. Trading futures allows investors to speculate on the future price movements of these commodities and potentially profit from them. Therefore, futures are the correct answer in this context.Rate this question:
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- 17.
The sale of stock is regulated by the
- A.
Labor unions
- B.
Stockbrokers
- C.
Securities and Exchange Commission
- D.
Chamber of Commerce
Correct Answer
C. Securities and Exchange CommissionExplanation
The sale of stock is regulated by the Securities and Exchange Commission (SEC). The SEC is a government agency responsible for protecting investors, maintaining fair and efficient markets, and facilitating capital formation. It oversees the securities industry and enforces regulations to ensure that companies and individuals involved in the sale of stocks comply with the law. The SEC plays a crucial role in maintaining the integrity and transparency of the stock market, safeguarding investors' interests, and promoting confidence in the financial system.Rate this question:
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- 18.
The Board of Governors for the FED does NOT
- A.
Include 7 members
- B.
Members serve 2 yr. terms
- C.
Are appointed by the President
- D.
Are confirmed by the Senate
Correct Answer
B. Members serve 2 yr. termsExplanation
The correct answer is "members serve 2 yr. terms." The explanation for this is that the Board of Governors for the FED consists of 7 members, but their terms are not specified in the given information. The other options, such as being appointed by the President and confirmed by the Senate, are not mentioned in the given information either. Therefore, the only statement that can be inferred from the given information is that the members of the Board of Governors serve 2-year terms.Rate this question:
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- 19.
Federal Open Market Committee does NOT
- A.
Make decisions based on the policy set by the FED
- B.
Considers matters that affect the money supply
- C.
Buys and sells government securities
- D.
Has 12 members, including the Board of Governors
Correct Answer
B. Considers matters that affect the money supplyExplanation
The Federal Open Market Committee (FOMC) is responsible for making decisions related to monetary policy in the United States. One of its key roles is to consider matters that affect the money supply. This involves analyzing various economic factors such as inflation, employment, and economic growth, and determining the appropriate actions to maintain price stability and promote sustainable economic growth. The FOMC does not make decisions based on the policy set by the FED, as it is an independent body within the Federal Reserve System. Additionally, the FOMC consists of 12 members, including the Board of Governors, who collectively make these important monetary policy decisions.Rate this question:
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- 20.
The type of market that exists when the DOW steadily rises over a period of time is a
- A.
Bear Market
- B.
Stock Market
- C.
Investment Market
- D.
Bull Market
Correct Answer
D. Bull MarketExplanation
A bull market refers to a type of market where the prices of stocks or securities are consistently rising over a period of time. In this market, investor confidence is high, leading to increased buying activity and overall optimism. The Dow Jones Industrial Average (DOW) is a widely followed stock market index, and when it steadily rises, it indicates a positive trend in the overall market. Therefore, the correct answer is Bull Market.Rate this question:
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- 21.
If a stock was purchased for $40.00 and sold for $53.00, the investor has made a
- A.
Capital gain
- B.
Capital loss
- C.
Capital exchange
- D.
Stock split
Correct Answer
A. Capital gainExplanation
The investor has made a capital gain because the selling price of the stock is higher than the purchase price. A capital gain occurs when an investment is sold for a higher price than the original cost, resulting in a profit for the investor. In this case, the investor made a gain of $13.00 per share.Rate this question:
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- 22.
The largest stock exchange in the world is the
- A.
NYSE
- B.
Tokyo
- C.
AMEX
- D.
NASDAQ
Correct Answer
A. NYSEExplanation
The New York Stock Exchange (NYSE) is considered the largest stock exchange in the world based on market capitalization. It has a long history and is located in New York City. The NYSE is known for listing many large and well-established companies, making it a prominent player in the global financial market. It is also known for its iconic trading floor, where traders physically buy and sell stocks.Rate this question:
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- 23.
A fund that pools the money of investors and purchases a variety of securities is called
- A.
Mutual fund
- B.
Futures fund
- C.
Bond fund
- D.
OTC fund
Correct Answer
A. Mutual fundExplanation
A mutual fund is a type of investment fund that combines money from multiple investors to purchase a diversified portfolio of securities, such as stocks, bonds, or other assets. This allows individual investors to access a wide range of investments that may be difficult or costly to achieve on their own. The fund is managed by professional fund managers who make investment decisions on behalf of the investors.Rate this question:
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- 24.
The owner of shares in a corporation is a
- A.
Proprietor
- B.
Stockholder
- C.
Partner
- D.
Manager
Correct Answer
B. StockholderExplanation
A stockholder is the correct answer because they are an individual or entity that owns shares or stocks in a corporation. They have a financial interest in the company and are entitled to certain rights, such as voting on corporate matters and receiving dividends. The term "proprietor" refers to someone who owns and operates a business, but it does not specifically relate to ownership in a corporation. "Partner" typically refers to someone who co-owns a business with one or more individuals, but it may not apply to a corporation where ownership is through shares. "Manager" is a role responsible for overseeing the operations of a company, but it does not necessarily imply ownership.Rate this question:
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- 25.
The single most important use of money is as a
- A.
Store of value
- B.
Standard of value
- C.
Medium of exchange
- D.
Rate of exchange
Correct Answer
C. Medium of exchangeExplanation
Money is primarily used as a medium of exchange, meaning it is used to facilitate the buying and selling of goods and services. It allows individuals to trade their goods or services for money, which can then be used to purchase other goods or services. While money can also serve as a store of value and a standard of value, its primary function is to act as a medium of exchange.Rate this question:
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- 26.
Because check are payable on demand, checking accounts are often called
- A.
Demand deposits
- B.
Command deposits
- C.
Instant deposits
- D.
Note deposits
Correct Answer
A. Demand depositsExplanation
Demand deposits are often referred to as checking accounts because they allow the account holder to withdraw funds on demand, meaning they can access their money whenever they need it. Unlike other types of deposits, such as time deposits or savings accounts, demand deposits do not have any restrictions or penalties for withdrawal. This makes them highly liquid and convenient for everyday transactions. Therefore, the term "demand deposits" accurately describes the nature of checking accounts.Rate this question:
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- 27.
Each of the following is true of the FED except
- A.
Policy is set by the Board of Governors
- B.
The FED is controlled by the government
- C.
The FED is owned by the member banks
- D.
Ben Bernake is the Chairman of the FED
Correct Answer
B. The FED is controlled by the governmentExplanation
The explanation for the given correct answer is that the Federal Reserve (FED) is not controlled by the government. While the government has some influence over the FED, it is designed to be an independent entity. The FED operates independently in order to maintain the stability of the financial system and avoid political interference in monetary policy decisions. The FED is controlled by the Board of Governors, which is appointed by the President and confirmed by the Senate. The member banks do not own the FED, but they do have some representation in its governance structure. Ben Bernanke is a former Chairman of the FED, but this is not a defining characteristic of the institution.Rate this question:
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- 28.
An example of a proportional tax is
- A.
Income tax
- B.
Sales tax
- C.
Excise tax
- D.
Social Security tax
Correct Answer
D. Social Security taxExplanation
A proportional tax is a tax that takes the same percentage of income from all taxpayers, regardless of their income level. Social Security tax fits this definition because it is a flat tax that is levied on both employers and employees at a fixed rate. It is not based on the individual's income, but rather a set percentage of their wages. Therefore, it is an example of a proportional tax.Rate this question:
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- 29.
A bank fails when
- A.
Its gold standard fails
- B.
It runs out of float time
- C.
It no longer has enough assets to cover deposits
- D.
It runs out of debit cards
Correct Answer
C. It no longer has enough assets to cover depositsExplanation
A bank fails when it no longer has enough assets to cover deposits. This means that the bank's liabilities (deposits) exceed its assets, leading to insolvency. In such a situation, the bank is unable to fulfill its obligations to depositors who wish to withdraw their funds. This can be caused by a variety of factors such as bad loans, mismanagement, or economic downturns. When a bank fails, it often results in the closure of the bank and the need for government intervention to protect depositors and stabilize the financial system.Rate this question:
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- 30.
What is the main strength of the corporation ?
- A.
Ease of raising money
- B.
Ease of establishment
- C.
Ease of management
- D.
Freedom form business tax
Correct Answer
A. Ease of raising moneyExplanation
The main strength of a corporation is its ease of raising money. Corporations have the advantage of being able to issue stocks and bonds to raise funds for their operations or expansion. This ability to attract investment from a large number of shareholders or investors gives corporations a significant advantage over other business structures. It allows them to access capital markets and potentially raise substantial amounts of money to support their growth and development.Rate this question:
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Jan 15, 2023Quiz Edited by
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May 19, 2010Quiz Created by
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