SIE Module 2 Test Bank

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1. Which of the following statements is correct regarding macroeconomic analysis?

A. The economy is considered to be in a recession when the business cycle is moving from expansion to trough.

B. For most large companies, the single most important factor influencing sales is the prime interest rate.

C. Interest rates tend to rise, and bond prices fall, during periods of economic expansion.

D. In general, the stock market lags behind the overall economy.

2. Which one of the following phases of the business cycle typically reflects the highest level of unemployment and possibly economic stimulus by the Federal Reserve to spur the economy?

A. Trough.

B. Contraction.

C. Expansion.

D. Peak.

3. If gross domestic product is decreasing, this indicates the economy is currently in the economic phase of:

A. Recession.

B. Peak.

C. Trough.

D. Contraction.

4. Congress can use which of the following tools as part of its fiscal policy to stimulate the economy?

A. Raising short-term interest rates.

B. Decreasing the discount rate charged to the banking system.

C. Increasing the amount of deficit spending.

D. Increasing tax rates for individuals and businesses.

5. Each of the following represents monetary policy EXCEPT:

A. Bank reserve requirements are increased by the Federal Reserve.

B. Congress implements a tax increase.

C. The Federal Open Market Committee purchases securities.

D. The discount rate is increased.

6. Which of the following actions would indicate a restrictive monetary policy?

A. Fed’s open market operations result in a net purchase of securities.

B. Interest rate on short-term Treasury securities is increased.

C. Fed increases the discount rate.

D. Bank reserve requirements are decreased.

7. Which of the following statements is correct regarding monetary policy?

A. The most frequently used tool of monetary policy is changes to the reserve requirement.

B. If the Fed sells government bonds in the open market, this would indicate expansionary monetary policy.

C. Open-market operations cannot be performed by the Fed without a formal announcement.

D. When the Fed lowers the discount rate, it is signaling that it is easing monetary policy.

8. Which of the following statements is correct regarding monetary policy?

A. The Fed uses open market operations to influence the economy only as a last resort.

B. Equitable distribution of income is a major goal of monetary policy.

C. Monetary policy can be implemented more quickly than fiscal policy.

D. The Fed changes reserve requirements on a monthly basis.

9. Which of the following factors would generally result in a shift toward greater restrictiveness in monetary and fiscal policy?

A. A trade surplus exists.

B. Unemployment is increasing.

C. Inflation is increasing.

D. The U.S. dollar is strong.

10. All of the following statements are correct regarding monetary and fiscal policy EXCEPT:

A. Keynesians assert that monetary policy drives the economy, while fiscal policy plays a lesser role.

B. Monetary policy directly affects the stock market through its influence on interest rates.

C. Monetary policy is considered easier to track and predict as opposed to fiscal policy.

D. Full employment and price stability are the primary goals of both monetary and fiscal policy.

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11. Which of the following statements is correct regarding goals of monetary and fiscal policy?

A. The unemployment rate is the percentage of the labor force that is out of work and seeking a job.

B. Disinflation occurs when individual prices are decreasing.

C. Price stability implies that individual prices remain constant throughout the year.

D. The balance of trade represents the amount of imports in the U.S. as opposed to the amount of imports in Europe and the Far East.

12. Which one of the following entities controls monetary policy?

A. Executive branch.

B. Securities and Exchange Commission.

C. FINRA.

D. Federal Reserve Board.

13. Which of the following represents the correct sequence of the phases of a typical business cycle?

A. Trough, Prosperity, Expansion, Recession.

B. Trough, Expansion, Peak, Recession.

C. Recession, Peak, Recovery, Contraction.

D. Depression, Expansion, Trough, Peak.

14. In a typical business cycle, which one of the following phases would exhibit periods of rising output and increasing employment?

A. Depression.

B. Trough.

C. Expansion.

D. Peak.

15. Which phase of the business cycle best describes high unemployment combined with low interest rates?

A. Peak.

B. Trough.

C. Expansion.

D. Recession.

16. Which of the following would probably occur if the economy is experiencing a recession?

A. The value of real estate will increase.

B. Current yields will increase.

C. The market value of bonds will increase.

D. Consumer debt will decrease.

17. Which of the following would represent an example of fiscal policy?

A. Congress passes a tax increase.

B. The federal funds rate is decreased.

C. Bank reserve requirements are increased by the Federal Reserve.

D. The Federal Open Market Committee sells securities.

18. Which one of the following statements is correct regarding inflation?

A. Flatflation is a persistent rate of inflation that only changes after economic shock.

B. Disflation is a decline in general price level.

C. Deflation denotes a decline in the rate of inflation.

D. Deflation is often caused by a reduction in the supply of money.

19. Which one of the following statements is correct regarding deflation?

A. Deflation usually occurs during a period of economic expansion when unemployment levels are decreasing.

B. Deflation can be caused by the demand for goods significantly exceeding the supply of goods.

C. Deflation represents a measurable decline in the general level of prices.

D. Deflation is a decrease in Gross Domestic Product for at least six quarters.

20. An economic contraction is likely to feature increasing:

A. Unemployment.

B. Consumer spending.

C. Economic output.

D. Inflation.

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21. Which one of the following would be an action the Federal Reserve could take if it wanted to lower interest rates?

A. Sell government securities.

B. Increase the reserve requirement of member banks.

C. Lower the margin requirement.

D. Increase the discount rate.

22. Which of the following would most likely indicate that interest rates will rise in the future?

A. An increase in manufacturer inventories.

B. A decrease in the federal deficit.

C. An increase in consumer confidence.

D. A decrease in the trade deficit due to reduced imports.

23. In the current economic environment, Treasury bills are being issued with a rate of 3.5%, and Treasury bonds are being issued with a rate of 3%. This is an example of:

A. An inflationary yield curve.

B. A nominal rate of return that is less than the real rate of return.

C. An upward sloping yield curve.

D. An inverted yield curve.

24. Which one of the following statements is correct regarding the yield curve?

A. A normal yield curve may result when a sharp increase occurs in short-term interest rates.

B. An inverted yield curve can occur when there is a high current demand for money relative to the available supply.

C. If the yield curve spread between corporate bonds and government bonds is widening, an economic expansion is expected.

D. The most common method of constructing a yield curve is to compare the yields of investment grade bonds and risk-free bonds.

25. Which one of the following statements is correct regarding gross domestic product (GDP)?

A. The largest component of GDP is government spending.

B. GDP is negatively affected when imports exceed exports.

C. GDP is based on a current dollar.

D. GDP is a measure of the general retail price level.

26. Which of the following statements is correct regarding a balance sheet?

A. Net worth represents what is left over if liabilities are subtracted from assets.

B. Leased automobiles should be reported in the Personal Assets section.

C. Assets such as building should be reported at their current value.

D. Liabilities should be reported based on the original amount of the loan.

27. Which of the following transactions on a company’s financial statements would result in a decrease in the company’s cash flow?

A. Decrease in long-term debt.

B. Decrease in accounts receivable.

C. Decrease in accumulated depreciation.

D. Increase in accounts payable.

28. The accounting equation is best represented by the formula:

A. Assets = Liabilities + Owner’s Equity

B. Assets + Liabilities = Net Worth

C. Revenue - Expenses = Net Income

D. Revenue + Liabilities = Owner’s Equity

29. Which one of the following is an example of a current asset?

A. Trademark expiring in nine months.

B. Marketable security maturing in two years.

C. Office building purchased six months ago.

D. Unearned revenue received three months ago.

30. Which one of the following is an example of a current liability?

A. Treasury stock.

B. Patent.

C. Accounts payable from vendors.

D. Long-term note payable.

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31. Which one of the following statements is correct regarding a company’s balance sheet?

A. It reflects the company’s operations over a period of time.

B. It includes a reconciliation of the company’s cash accounts.

C. Assets should be reported at their original cost, less an allowance for reasonable depreciation.

D. Liabilities should be reported based on the original amount of the loan.

32. Which one of the following statements is correct regarding a company’s income statement?

A. It reflects the company’s profitability on a single date.

B. Revenues reported on the income statement include any gains from sales of assets.

C. A capital expenditure will appear on the income statement gradually over time.

D. Cost of goods sold should be reported on the income statement as a general operating expense.

33. ABC Company recorded the following items:
• Checking account – current balance $5,000
• Office building – purchase price $300,000, current value $320,000
• Long-term debt payable – original loan $250,000, current balance $190,000
• Annual salary expense – $125,000
• Accounts receivable – $45,000
• Leased automobile – current value $30,000, monthly lease payments $600
Based only on this information, what is ABC Company’s owner’s equity?

A. $100,000.

B. $160,000.

C. $180,000.

D. $285,000.

34. HallCo had the following ending balances for the current year:
• Cash – $90,000
• Other assets – $400,000
• Additional paid-in capital – $75,000
• Retained earnings – $200,000
• Net income – $60,000
• Dividends paid – $25,000
For the current year, HallCo’s total liabilities are:

A. $180,000.

B. $215,000.

C. $250,000.

D. $285,000.

35. Congress would like to use its fiscal policy to help stimulate the growth rate of the economy. To achieve this goal, Congress can:

A. Decrease short-term interest rates.

B. Increase the discount rate charged to the banking system.

C. Increase the amount of deficit spending.

D. Increase tax rates for individuals and businesses.

36. Which one of the following represents an example of fiscal policy?

A. Open market operations.

B. Increasing the discount rate.

C. Changing the tax law.

D. Lowering reserve requirements.

37. Which one of the following yield curves results from short-term debt instruments having a higher yield than long-term debt instruments of the same credit quality?

A. Inverted yield curve.

B. Normal yield curve.

C. Flat yield curve.

D. Distributed yield curve.

38. ABC Company sells belt buckles. In December of last year, ABC Company sold belt buckles to a clothing store at a price of $200,000. The cost to ABC Company for the belt buckles was $160,000. The clothing store did not pay for the belt buckles until January of the current year. What was the net change in ABC Company’s assets on its balance sheet for December of last year?

A. $0.

B. $40,000.

C. $160,000.

D. $200,000.

39. ABC Company’s balance sheet reveals the following:
• Current assets - $3,000,000
• Total assets - $10,000,000
• Current liabilities - $2,000,000
• Long-term liabilities - $4,000,000
• Owners’ equity - $4,000,000
Which one of the following best describes ABC Company’s financial position?

A. They have good liquidity and most of their assets are financed through equity contributions by shareholders.

B. They have poor liquidity and most of their assets are financed through equity contributions by shareholders.

C. They have good liquidity and most of their assets are financed through debt.

D. They have poor liquidity and most of their assets are financed through debt.

40. Which one of the following represents a leading economic indicator?

A. Change in consumer sentiment.

B. Change in the Consumer Price Index.

C. Average duration of unemployment.

D. The ratio of consumer credit outstanding to personal income.

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41. Which one of the following items is excluded from the determination of core inflation?

A. Housing.

B. Energy.

C. Transportation.

D. Healthcare.

42. Maribess has $200,000 cash in her traditional IRA. The yield curve is currently inverted, and it is expected that long-term interest rates will rise in the future. Which one of the following is the most appropriate fixed income investment strategy for Maribess to invest her cash?

A. Short-term municipal bonds.

B. Short-term corporate bonds.

C. Long-term government bonds.

D. Long-term investment bonds.

43. A stock of a company in which one of the following industries would be considered a defensive stock?

A. Food.

B. Airline.

C. Technology.

D. Automobile.

44. Ronnie wants to purchase the stock of a company in the defensive sector. Ronnie should purchase the stock of:

D. A computer hardware company.

A. A toy manufacturing company.

B. A pharmaceutical company.

C. An automobile manufacturer.

45. A trade surplus occurs when a country:

A. Exports more than it imports.

B. Has a tax rate that is higher than the prime rate.

C. Exports less than it imports.

D. Has a current account deficit.

46. Assume the following data from the Bureau of Economic Analysis:
• Exports - $1,000
• Consumption - $13,000
• Business investment - $3,000
• Imports - $1,500
• Government spending - $4,000
What is the gross domestic product?

A. $16,000.

B. $19,500.

C. $20,500.

D. $22,500.

47. A preliminary prospectus which does not have details of either price or number of shares being offered, or the amount of issue, is also referred to as a:

A. Red herring.

B. Tombstone ad.

C. Private placement.

D. Dark pool.

48. The level of new business start-ups is an example of a:

A. Lagging economic indicator.

B. Coincident economic indicator.

C. Recessionary economic indicator.

D. Leading economic indicator.

49. Which one of the following statements is correct regarding Keynesian economic theory?

A. It supports the notion that lower wages can restore full employment.

B. It is considered “supply-side” economic theory.

C. It advocates increased government expenditures and lower taxes.

D. It focuses on changes in the economy over the long run.

50. Which one of the following represents a statement of all transactions made between entities in one country and the rest of the world over a defined period?

A. Balance of payments.

B. Financial statements.

C. Gross domestic product.

D. Liquidity reserve.

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51. Which one of the following represents a temporary group of investment banks and broker/dealers who come together to sell new offerings of equity or debt securities to investors?

A. Investment advisory conglomerate.

B. Secondary market affiliate.

C. Underwriting syndicate.

D. Solicitor group.

52. With respect to municipalities issuing bonds, a municipal advisor performs a role that is very similar to a(n):

A. Government agency.

B. Investment banker.

C. Self-regulatory organization.

D. Solicitor group.

53. Which one of the following statements is correct regarding types of offerings?

A. A diluted follow-on offering occurs when existing shareholders of a company make their shares available for sale on the public market.

B. With a non-diluted follow-on offering, the company’s earnings per share decreases.

C. An initial public offering occurs when a publicly traded company offers additional shares of stock to the general public.

D. Private offerings are only available to qualified investors, such as accredited investors.

54. Investors are pre-selected in which one of the following types of offerings?

A. Follow-on securities offerings.

B. Public securities offerings.

C. Initial public offerings.

D. Private securities offerings.

55. Which one of the following represents a Securities and Exchange Commission (SEC) provision that allows an equity issuer to register a new issue of securities without having to sell the entire issue at once?

A. Wash sale.

B. Stop order.

C. Shelf offering.

D. Short sale.

56. Which one of the following is typically issued by a state or municipality that is issuing a municipal security?

A. Official statement.

B. Prospectus.

C. Red herring.

D. Charter agreement.

57. Which one of the following represents a document a company is expected to file to complete its securities registration?

A. Prospectus.

B. Official statement.

C. Program disclosure document.

D. Firm commitment.

58. Which one of the following may agree to a best efforts agreement for an initial public offering?

A. State securities commissioner.

B. Underwriting syndicate.

C. Financial Industry Regulatory Authority.

D. Securities and Exchange Commission.

59. Which one of the following requires SEC registration before being sold?

A. Open-end mutual fund.

B. Regulation A small offering.

C. Private placement.

D. Fixed annuity.

60. Which one of the following regulations governs private placement exemptions?

A. Regulation G.

B. Regulation J.

C. Regulation D.

D. Regulation Q.

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61. Which one of the following would be considered a federal covered security?

A. Unit investment trust.

B. Penny stock.

C. Collectible.

D. Fixed annuity.

62. Which one of the following statements is correct regarding the Securities Act of 1933?

A. It requires the registration of nonexempt securities.

B. It sets requirements for broker/dealer registration.

C. It regulates secondary markets for securities.

D. It established the Securities and Exchange Commission.

63. Which one of the following statements is correct regarding the Securities Act of 1933?

A. It established the Securities and Exchange Commission (SEC).

B. It dealt with initial public offerings (IPOs).

C. It dealt with the secondary market.

D. It required trading by insiders to be reported beforehand.

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