FM 116 - Chap 2 Review Questions and Correct Answers
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Course
FM 116
Institution
FM 116
Which of the following statements is true of the economy? a. Its rise or downfall has no effect on the common man. b. It is inclined toward politics and rarely affects businesses. c. It solely indicates how resources are maintained in government-owned institutions. d. It is essentially a financial ...
FM 116 - Chap 2 Review Questions and
Correct Answers
Which of the following statements is true of the economy?
a. Its rise or downfall has no effect on the common man.
b. It is inclined toward politics and rarely affects businesses.
c. It solely indicates how resources are maintained in government-owned institutions.
d. It is essentially a financial and social system. ✅d. It is essentially a financial and
social system.
In the context of the global economic crisis in mid-2000, identify a true statement about
subprime loans.
a. They were given to borrowers with little or no documentation.
b. They were preferably given to borrowers with low debt-to-income ratios.
c. They required a high down payment.
d. They were seen by the lenders as high-risk loans. ✅a. They were given to
borrowers with little or no documentation
Which of the following was a reason for the collapse of financial institutions during the
economic crisis in the United States?
a. There was a drop in mortgage values.
b. Borrowers refinanced their loans to lower their payments
c. There was a hike in the debt ceiling.
d. Housing prices went up too quickly. ✅a. There was a drop in mortgage values.
Which of the following was an impact of the American Recovery and Reinvestment Act?
a. Taxes were hiked.
b. Economy took a downward turn as the funds deployed were insufficient.
c. People traded good-paying jobs for lower-paying positions.
d. Employment rates fell dramatically. ✅c. People traded good-paying jobs for lower-
paying positions.
The term _____ refers to government efforts to influence the economy through taxation
and spending decisions that are designed to encourage growth, boost employment, and
curb inflation.
a. reservation requirement
b. open market operation
c. fiscal policy
d. monetary policy ✅c. fiscal policy
Which of the following statements is true about the debt ceiling?
a. Debt ceiling hikes are fairly routine.
b. Voting on the debt ceiling happens together with voting on taxes and spending.
, c. Debt ceiling hikes are strictly decided by public policy polling.
d. Debt ceiling hikes usually do not depend on the amount already owed by the federal
government. ✅a. Debt ceiling hikes are fairly routine.
Which of the following statements best describes a budget surplus?
a. It is the overage that occurs when revenue is higher than expenses over a given
period of time.
b. It is the losses that occur when the total value of a nation's imports is higher than the
total value of its exports.
c. It is the amount borrowed by a company without any guarantee.
d. It is the total amount owed by high-income people in a country who are yet to repay
their loans. ✅a. It is the overage that occurs when revenue is higher than expenses
over a given period of time.
The term _____ refers to the sum of all the money that the federal government has
borrowed over the years and not yet repaid.
a. federal surfeit
b. budget slippage
c. budget surplus
d. federal debt ✅d. federal debt
_____ involve buying and selling government securities, which include treasury bonds,
notes, and bills.
a. Reserve requirement allowances
b. Social funding processes
c. Free banking services
d. Open market operations ✅d. Open market operations
_____ is the rate of interest that the Federal Reserve charges when it loans funds to
banks.
a. Budget interest
b. The discount rate
c. Fiscal interest
d. The debt rate ✅b. The discount rate
In the context of monetary policy, which of the following statements is true of the
reserve requirement?
a. It allows banks to hold lesser funds if the Fed changes its bulk amount collection
schemes.
b. It refers to the requirement of having a predetermined amount of contingency money.
c. It involves buying and selling of treasury bonds, notes, and bills.
d. It helps protect depositors who may want to withdraw their money without notice.
✅d. It helps protect depositors who may want to withdraw their money without notice.
_____ is an economic system based on private ownership, economic freedom, and fair
competition.
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