QQ MB Chp07 Money Demand

Macroeconomics, 7e (Blanchard)Chapter 24: Epilogue: The Story of Macroeconomics24.1 Keynes and the Great Depression1) Which of the following statements about Keynes' contribution to macroeconomics is correct?A) Although he published his most important ideas about the economy long before the 1930s, few economists paid attention to Keynes until the Great Depression proved him correct.B) Keynes argued that depressions and recessions were almost always caused by changes in the money supply.C) Keynes argued that balancing the budget could be an effective way to cure a recession or depression.D) all of the aboveE) none of the aboveAnswer: EDiff: 12) According to Keynes,A) the Great Depression was caused by ill-considered expansionary fiscal policy.B) balancing the budget in the midst of a depression would be a serious mistake.C) inflation is always and everywhere a monetary phenomenon.D) the Phillips curve is stable.E) none of the aboveAnswer: BDiff: 13) Liquidity preference refers toA) Keynes' name for the demand for money.B) the "random walk" behavior of consumption spending.C) monetarists explanations for stagflation.D) real business cycle theorists' explanations for stagflation.E) the controversy sparked by the Lucas critique.Answer: ADiff: 14) "In the long run, we're all dead" was Keynes' way of saying thatA) intellectual pursuits, like understanding the economy, are unimportant in the scheme of things.B) no one would appreciate his theories during his lifetime.C) there is no point in saving for retirement.D) it is very important to save for one's retirement.E) none of the aboveAnswer: EDiff: 15) "Effective demand" represents which of the following?A) money demandB) demand for exportsC) domestic demandD) the demand for laborE) aggregate demandAnswer: EDiff: 16) Liquidity preference refers to the theory ofA) money demand.B) consumption.C) investment.D) expectations.Answer: ADiff: 124.2 The Neoclassical Synthesis1) The neoclassical synthesisA) was a name coined by Keynes himself for his new theories.B) rejected virtually all of Keynes' insights.C) held that econometric models of the economy could not be used to predict the future.D) held that economy always operated at or very near the natural rate of unemployment.E) was the dominant school of thought among economists in the 1950s and 1960s. Answer: EDiff: 12) Which of the following was not part of the neoclassical synthesis?A) the IS curveB) the LM curveC) the Phillips curveD) aggregate demandE) rational expectationsAnswer: EDiff: 13) Which of the following schools of thought advised against fine-tuning, due to our limited understanding of the economy?A) MonetaristB) KeynesianC) New KeynesianismD) New growthE) NeoclassicalAnswer: EDiff: 14) The intellectual leader of the monetarists wasA) Robert Lucas.B) Milton Friedman.C) John Maynard Keynes.D) Paul Romer.E) John Taylor.Answer: BDiff: 15) In the 1960s, the monetarist school of thought held thatA) monetary and fiscal policy could explain most of the output fluctuations in U.S. history.B) there is a long-run tradeoff between inflation and unemployment.C) efforts to fine-tune the economy are likely to do more harm than good.D) all of the aboveE) none of the aboveAnswer: CDiff: 16) If the IS curve is relatively steep, thenA) there can be no long-run tradeoff between inflation and unemployment.B) monetary policy cannot be very effective in changing GDP.C) rational expectations theory is probably correct.D) Ricardian equivalence most likely holds.E) budget deficits will not affect future capital accumulation.Answer: BDiff: 17) During the 1970s and 1980s, macroeconomists were busy integrating the insights of which of the following into their ideas about the economy?A) real business cycle theoryB) Keynesian theoryC) supply side economicsD) classical macroeconomicsE) none of the aboveAnswer: EDiff: 18) The neoclassical synthesis had emerged by what decade?A) 1930sB) 1940sC) 1950sD) 1960sE) 1990sAnswer: CDiff: 19) The IS-LM model was developed byA) Friedman and Phelps.B) Hicks and Hansen.C) Modigliani and Friedman.D) Lucas and Sargent.E) none of the aboveAnswer: EDiff: 110) The theories of consumption were developed byA) Friedman and Phelps.B) Hicks and Hansen.C) Modigliani and Friedman.D) Lucas and Sargent.Answer: CDiff: 111) The theories of investment were developed byA) Friedman and Phelps.B) Hicks and Hansen.C) Modigliani and Friedman.D) Lucas and Sargent.E) Tobin and Jorgenson.Answer: EDiff: 112) Which of the following argued that the Great Depression was caused by monetary factors?A) Friedman and SchwartzB) Hicks and HansenC) Modigliani and FriedmanD) Lucas and SargentE) Tobin and JorgensonAnswer: ADiff: 113) Explain several of the key contributions of Keynes.Answer: Obviously, answers to this question could be quite long. Answers should include topics like: the importance of expectations, business cycle theory, the importance of aggregate demand in causing fluctuations, liquidity preference, and the concept of the multiplier.Diff: 114) Explain what is meant by liquidity preference.Answer: Liquidity preference is the phrase Keynes gave to money demand.Diff: 115) Discuss what is meant by the neoclassical synthesis and explain how it emerged. Answer: This is the title given to what was believed to be the emerging consensus in economics.Diff: 116) In the 1960s, there was significant debate between Keynesians and monetarists. Explain several aspects of this debate.Answer: There were three key areas of this debate: (1) the relative importance of monetary and fiscal policy; (2) the perceived stability of the Phillips curve; and (3) the role of policy to stabilize the economy.Diff: 124.3 The Rational Expectations Critique1) Which of the following events led to the crisis in macroeconomics and to the development of rational expectations theory?A) the Great DepressionB) the stock market crash of 1987C) the stock market speculative bubble of the late 1990sD) stagflation in the 1970sE) large budget deficits in the 1980sAnswer: DDiff: 12) Milton Friedman attributed the Great Depression primarily toA) the government's failure to respond to an increase in the budget deficit.B) a reduction in the money supply.C) economists' and policy-makers' failure to acknowledge their limited knowledge.D) the failure of wages to rise.E) inaccurate expectations by consumers and firms.Answer: BDiff: 13) Which of the following is an implication of rational expectations theory?A) Deviations of output from the natural rate are likely to be serious and long-lived.B) The economy is like a complex machine, that needs to be optimally controlled with the proper policy.C) Macroeconometric models based on past behavior will not be very useful in formulating policy.D) Wages and prices are set almost entirely at random, so it is pointless to try to model their behavior.E) Business cycles almost always result from a shift in aggregate demand.Answer: CDiff: 14) Most economists would agree that, unless it incorporates rational expectations or something like it, a model cannot account forA) the Great Depression.B) shifts in aggregate supply.C) the relationship between consumption and income.D) the stagflation of the 1970s.E) the different initial impact of a permanent versus a temporary policy change.Answer: EDiff: 15) According to rational expectations theory, monetary policy will affect output only if it isA) anticipated.B) unanticipated.C) a very large change.D) a very small change.E) a policy that has been tried in the past.Answer: ADiff: 16) The staggering of wage and price decisions suggests thatA) people do not possess rational expectations.B) people do possess rational expectations.C) the economy will adjust slowly to shocks even if people possess rational expectations.D) the Lucas critique is entirely correct.E) real business cycle theory is correct.Answer: CDiff: 17) Which of the following argued that a long-run trade-off between inflation and unemployment could not exist?A) Friedman and PhelpsB) Hicks and HansenC) Modigliani and FriedmanD) Lucas and SargentE) Tobin and JorgensonAnswer: ADiff: 18) The steeper is the IS curve,A) the more effective is monetary policy.B) the less effective is monetary policy.C) the effectiveness of monetary policy does not change.D) a given change in the money supply will have a greater effect on output.Answer: ADiff: 19) As the IS curve becomes flatter, we know thatA) a given change in the money supply will cause a larger change in output.B) a given change in the money supply will cause a smaller change in output.C) a given change in the money supply will cause the same change in output.D) monetary policy becomes less effective.Answer: BDiff: 110) Stagflation refers toA) a reduction in inflation.B) a simultaneous reduction in inflation and reduction in unemployment.C) a liquidity trap.D) reduction in the price level and a reduction in the unemployment rate.E) none of the aboveAnswer: EDiff: 111) Which of the following led a strong attack against mainstream macroeconomists during the 1970s?A) Friedman and PhelpsB) Hicks and HansenC) Modigliani and FriedmanD) Lucas, Barro, and SargentAnswer: DDiff: 112) The research by Robert Hall on the theory of consumption suggests that the best forecast of consumption for next year would beA) unpredictable.B) random.C) this year's consumption.D) last year's consumption.Answer: CDiff: 113) The more staggered are labor contracts,A) the more rapidly the economy will adjust to changes in aggregate demand.B) the less rapidly the economy will adjust to changes in aggregate demand.C) the greater the inflationary effects of a given change in money growth in the medium run.D) the less inflationary effects of a given change in money growth in the medium run. Answer: ADiff: 114) The new classical interpretation of the economy suggests thatA) output is always above the natural level.B) output is always below the natural level.C) output is always equal to the natural level.D) recessions will not occur.Answer: CDiff: 115) The flatter is the IS curve,A) the more effective is monetary policy.B) the less effective is monetary policy.C) the effectiveness of monetary policy does not change.D) a given change in the money supply will have a smaller effect on output.Answer: BDiff: 116) As the IS curve becomes steeper, we know thatA) a given change in the money supply will cause a larger change in output.B) a given change in the money supply will cause a smaller change in output.C) a given change in the money supply will cause the same change in output.D) monetary policy becomes more effective.Answer: ADiff: 117) The less staggered are labor contracts,A) the more rapidly the economy will adjust to changes in aggregate demand.B) the less rapidly the economy will adjust to changes in aggregate demand.C) the greater the inflationary effects of a given change in money growth in the medium run.D) the less inflationary effects of a given change in money growth in the medium run. Answer: BDiff: 118) Discuss some of the implications of rational expectations.Answer: Answers should include a discussion of the implications of rational expectations on: (1) our understanding of the behavior of consumption and financial market variables; (2) the determinants of wage and price setting behavior; and (3) the theory, implementation, and effectiveness of policy.Diff: 119) First, what is the Lucas critique? Second, explain how it might relate to the implementation of monetary policy.Answer: The Lucas critique refers to the argument made by Robert Lucas that using existing macro models to make predictions about the effects of proposed policy would not be successful. These models' predictions were based on previous relationships that, as Lucas noted, would no longer hold as new policy is implemented. When monetary policy is implemented, these models might predict, for example, increases in output. However, as we now know, expectations of the effects of these policies would change.Diff: 124.4 Developments in Macroeconomics up to 2009 Crisis1) According to real business cycle theorists,A) fiscal policy explains most changes in output.B) price and wage rigidity explain most changes in output.C) efficiency wage theory explains wage rigidity.D) changes in output primarily represent changes in the natural level of output.E) fiscal policy explains most changes in efficiency wage theory.Answer: DDiff: 12) One problem with real business cycle theory is thatA) it is more successful in explaining expansions than in explaining contractions.B) it relies almost entirely on Keynes' original ideas, ignoring much of the progress made since then.C) it treats government officials as well-meaning public servants, despite much evidence to the contrary.D) it defines "productivity" in a new and not very intuitive way.E) its models downplay the importance of technological progress in the economy.Answer: ADiff: 13) Those economists who attempt to explain why wages and prices do not freely adjust would most likely beA) real business cycle theorists.B) new classical economists.C) new Keynesian economists.D) new growth theorists.E) none of the aboveAnswer: CDiff: 14) The existence of menu costs are often used to explain whyA) fiscal and monetary policies should be relatively effective.B) the price of services, like those provided by restaurants and barbers, rise at a faster rate than the price of goods, like automobiles and clothing.C) food prices tend to rise disproportionately rapidly in the consumer price index.D) price and wage adjustments will be relatively rapid.E) people prefer to look backward, instead of forward, when anticipating the future. Answer: ADiff: 15) If consumers are very foresighted, we would expect actual consumption spending toA) increase during recessions.B) increase during episodes of stagflation.C) have no relation to wealth.D) resemble a "random walk."E) be entirely predictable.Answer: DDiff: 26) A core belief of modern macroeconomics is that in the short run,A) fiscal policy is more effective in changing output than monetary policy.B) monetary policy is more effective in changing output than fiscal policy.C) fluctuations in aggregate demand affect unemployment.D) fluctuations in aggregate demand have no impact on the price level.E) the economy always operates at or near the natural rate of unemployment.Answer: CDiff: 17) A core belief of modern macroeconomics is that in the long run,A) a change in money growth will affect the level of output, but not its composition.B) a change in money growth will affect the composition of output, but not its level.C) output can deviate permanently from its natural level.D) a change in fiscal policy will not affect the composition of output.E) greater saving will result in greater output.Answer: EDiff: 18) One of the most important areas of disagreement among macroeconomists today is overA) the slope of the IS curve.B) the slope of the LM curve.C) the definition of consumption spending.D) the definition of government spending.E) none of the aboveAnswer: EDiff: 19) Both the new classical and new Keynesian models had in common the belief thatA) in the medium run, output returns to its natural level.B) output is always at its natural level.C) in the short run, output would likely deviate from its natural level.D) none of the aboveAnswer: ADiff: 110) The main debate during the 1960s wasA) between Keynesians and classicals.B) between new Keynesians and new classicals.C) between Keynesians and monetarists.D) between new Keynesians and monetarists.Answer: CDiff: 111) The intellectual leader of new classicals isA) Edward Prescott.B) John Taylor.C) Stanley Fischer.D) Ben Bernanke.Answer: ADiff: 112) Discuss new classical economics and real business cycle theory.Answer: New classical economics refers to that area of research where it is assumed that there is sufficient wage and price flexibility. It was a fairly logical extension of Lucas' work on rational expectations. Real business cycle theory attempts to explain fluctuations in output as changes in the natural level of output.Diff: 113) Explain what is meant by "new Keynesians" and discuss some of the research conducted in this area.Answer: New Keynesians focus on the implications of market imperfections such as nominal rigidities. This research has also focused on the determination of wages (e.g. efficiency wage theory). Others have focused on "menu costs" to explain why prices might not adjust as rapidly to clear product markets.Diff: 114) Briefly discuss new growth theory.Answer: New growth theory focuses on the determinants of technological progress and on the extent to which increasing returns to scale might exist.Diff: 115) Explain the menu cost explanation of output fluctuations.Answer: Each wage setter or price setter is largely indifferent as to when and how often he changes his own wage or price. Therefore, even small costs of changing prices can lead to infrequent and staggered price adjustment. This staggering leads to slow adjustment of the price level and to large aggregate output fluctuations in response to movements in aggregate demand. In short, decisions that do not matter much at the individual level (how often to change prices or wages) lead to large aggregate effects (slow adjustment of the price level, and shifts in aggregate demand that have a large effect on output).Diff: 124.5 First Lessons for Macroeconomics after the Crisis1) The crisis reflects a major intellectual failure of macroeconomics to understand the macroeconomic importance ofA) financial system.B) growth.C) unemployment.D) inflation.Answer: ADiff: 12) Work by Doug Diamond and Philip Dybvig in the 1980s had clarified the nature ofA) unemployment.B) bank runs.C) inflation.D) growth.Answer: BDiff: 13) Economist ________ shows the "limits of arbitrage."A) Doug DiamondB) Andrei ShleiferC) Philip DybvigD) Richard ThalerAnswer: BDiff: 14) The Great Depression had led economists to suggest a larger role forA) market mechanism.B) government intervention.C) price mechanism.D) international trade.Answer: BDiff: 15) Recent research up to the crisis proceeded mainly on three fronts. Discuss each of them. Answer: New classical: the extent to which fluctuations in output are explained by movements in the natural level of output. New Keynesian: exploring the nature of market imperfections and nominal rigidities and the extent to which they can explain fluctuations in output. New Growth theory: examines the determinants of technological progress and the implications of increasing returns to scale for economic growth.Diff: 16) Discuss the major intellectual failure on macroeconomics from the crisis.Answer: The failure was in not realizing that such a large crisis could happen,that the characteristics of the economy were such that a relatively small shock, in this case the decrease in U.S. housing prices, could lead to a major financial and macroeconomic global crisis. The source of the failure, in turn, was a lack of focus on the role of the financial institutions in the economy.Diff: 17) Discuss research on the role of banks and other financial institutions in the intermediation of funds between lenders and borrowers.Answer: Work by Doug Diamond and Philip Dybvig in the 1980s had clarified the nature of bank runs : liquid assets and liquid liabilities created a risk of runs even for solvent banks. The problem could only be avoided by the provision of liquidity by the central bank if and when needed. Work by Bengt Holmström and Jean Tirole had shown that liquidity issues were endemic to a modern economy. Andrei Shleifer discussed the limits of arbitrage. Behavioral economists had pointed to the way in which individuals differ from the rational individual model typically used in economics, and had drawn implications for financial markets.Diff: 18) Discuss the consensus on the adjustment process after the crisis.Answer: The crisis has raised a larger issue, about the adjustment process through which output returns to its natural level. If there is a consensus, it might be that with respect to small shocks and normal fluctuations, the adjustment process works, and policy can accelerate this return; but that, in response to large, exceptional shocks, the normal adjustment process may fail, the room for policy may be limited, and it may take a long time for the economy to repair itself.Diff: 1。

FinancialAccounting7eLibbyTestbankch.1True / False Questions1. Accounting is a system that collects and processes financial information about an organization and reports that information to decision makers.TRUEAACSB Tag: CommunicationsDifficulty: EasyL.O.: 12. Assets on the balance sheet are recorded at market value or replacement cost.FALSEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 13. In accounting and reporting for a business entity, the accounting and reporting for the business must be kept separate from other economic affairs of its owners.TRUEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 14. The accounting period in which service revenue is recognized (i.e., revenue for services rendered) is generally the period in which the cash is collected.FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 15. Total assets are $70,000, total liabilities, $40,000 and contributed capital is $20,000; therefore, retained earnings are $15,000.FALSEAACSB Tag: AnalyticDifficulty: MediumL.O.: 16. The payment of a cash dividend to stockholders increases stockholders' equity.FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 17. The accounting model for the balance sheet is: Assets + Liabilities = Stockholders' Equity. FALSEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 18. A decision maker who wants to understand a company's financial statements must carefully read the notes to the financial statements because the notes provide useful supplemental information.TRUEAACSB Tag: CommunicationsDifficulty: EasyL.O.: 19. The financial statement that shows an entity's economic resources and its liabilities is the statement of cash flows. FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 110. Companies prepare financial statements at the end of each year and more often as needed. TRUEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 111. A note payable is a borrowing instrument that generally does not involve the payment of interest.FALSEAACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 112. The amount of cash paid by a business for office utilities would be reported on the statement of cash flows as an operating activity.TRUEAACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 113. The income statement equation is Expenses Revenues = Net Income.FALSEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 114. Generally accepted accounting principles almost never change once created.FALSEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 215. The Financial Accounting Standards Board (FASB) is an agency of the federal government that establishes generally accepted accounting principles for businesses. FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 216. Since 2002, there has been substantial movement to develop international financial reporting standards.TRUEAACSB Tag: DiversityDifficulty: MediumL.O.: 217. An audit guarantees that the financial statements are free of all misstatements.FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 318. An auditor who fails to detect a material misstatement of a business's financial statements may be sued by anyone who suffered a loss from relying on the financial statements. TRUEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 419. In terms of economic importance, partnerships are the dominant form of organization in the U.S. because of their ease of formation.FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: Sup A20. One of the advantages of a corporation when compared to a partnership is the limited liability of the owners.TRUEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: Sup AMultiple Choice Questions21. The primary purpose of the balance sheet is toA. measure the net income of a business up to a particular point in time.B. report the difference between cash inflows and cash outflows for the period.C. report the financial position of the reporting entity at a particular point in time.D. report the current value of the business.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 122. The Beta Corporation had 2009 revenues of $200,000, expenses of $140,000, and an income tax rate of 30 percent. Net income after taxes would beA. $60,000.B. $18,000.C. $42,000.D. $48,000.AACSB Tag: AnalyticDifficulty: HardL.O.: 123. Atlantic Corporation reported the following amounts at the end of the first year of operations: contributed capital $100,000; sales revenue $400,000; total assets $300,000; $20,000 dividends; and total liabilities $160,000. Retained earnings and total expenses would beA. retained earnings $40,000 and expenses $340,000.B. retained earnings $60,000 and expenses $320,000.C. retained earnings $140,000 and expenses $240,000.D. retained earnings $160,000 and expenses $220,000.AACSB Tag: AnalyticDifficulty: HardL.O.: 124. The financial statement that reports the financial position of a business is theA. income statement.B. balance sheet.C. statement of cash flows.D. footnotes to the financial statements.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 125. Which of the following reports the cash inflows, cash outflows, and change in cash for period?A. Income statement.B. Balance sheet.C. Statement of cash flows.D. Auditor's report.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 126. For a business, a supplierA. is a company or individual that owns shares of the business.B. is a company or individual to whom the business sells goods or services.C. provides goods and services used by the business.D. makes loans to the company to help finance its activities.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 127. For a business, an example of an internal decision maker isA. a loan officer at a bank.B. a supplier who sells goods to the company on account.C. one of the business's long-term customers.D. one of the business's managers.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 128. Financial accountingA. provides information primarily for external decision makers.B. is required for corporations but probably would not be done by other business entities.C. provides information primarily for the use of managers of the company.D. has been practiced in this country for approximately the last 15 years.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 129. Accounting information developed primarily for internal decision makers is calledA. management accounting.B. risk accounting.C. auditing.D. financial accounting.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 130. What financial statement would you look at to determine the dividends declared by a business?A. income statement.B. statement of retained earnings.C. statement of cash flows.D. balance sheet.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 131. Which of Chao's financial statements would you look at to determine whether Chao will be able to pay for the goods when payment is due in 30 days?A. income statement.B. balance sheet.C. statement of retained earnings.D. statement of cash flows.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 132. Which of the following is not considered to be a liability?A. accounts payableB. notes payableC. wages payableD. cost of goods soldAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 133. A business's assets areA. equal to liabilities minus stockholders' equity.B. the economic resources of the business.C. Reported at current cost.D. Reported on the income statement.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 134. Assets for a particular business might includeA. cash, accounts payable, and notes payable.B. cash, retained earnings, and accounts receivable.C. cash, accounts receivable, and inventory.D. inventories, property and equipment, and contributed capital.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 135. A business's balance sheet cannot be used to accurately predict what the business might be sold for becauseA. it identifies all the revenues and expenses of the business.B. assets are generally listed on the balance sheet at their historical cost, not their current value.C. it gives the results of operations for the current period.D. some of the assets and liabilities on the balance sheet may actually be those of another entity.AACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 136. Liabilities and stockholders' equity areA. sources of financing for economic resources.B. economic resources used by a business entity.C. increases in assets resulting from profitable operations.D. shown on the income statement in calculating net income.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 137. The accounting equation (balance sheet equation) isA. Assets + Liabilities = Stockholders' equity.B. Assets + Stockholder's equity = Liabilities.C. Assets = Liabilities + Stockholders' equity.D. Revenues Expenses = Net income.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 138. Downard Bank, in deciding whether to make a loan to Rodney Company, would be interested in the amount of liabilities Rodney has on its balance sheet becauseA. the liabilities represent resources that could be used to repay the loan.B. if Rodney already has many other obligations, it might not be able to repay the loan.C. existing liabilities give an indication of how profitable Rodney has been in the past.D. Downard would be interested in the amount of Rodney's assets but not the amount of liabilities.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 139. The two categories of stockholders' equity usually found on the balance sheet of a corporation areA. contributed capital and long-term liabilities.B. contributed capital and property, plant, and equipment.C. retained earnings and notes payable.D. contributed capital and retained earnings.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 140. Which financial statement for a business would you look at to determine the company's earnings performance during an accounting period?A. balance sheet.B. statement of retained earnings.C. income statement.D. statement of cash flows.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 141. The income statement equation isA. Assets Liabilities = Stockholders' Equity.B. Assets + Stockholders' equity = Liabilities.C. Net income = Revenues Expenses.D. Expenses Net income = Revenues.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 142. Most businesses earn revenuesA. when they collect accounts receivable.B. through sales of goods or services to customers.C. by borrowing money from a bank.D. by selling shares of stock to stockholders.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 143. Accounts receivable represents:A. amounts which are owed to the company by its customers resulting from credit sales.B. amounts which are owed by the company to its suppliers for past purchases.C. amounts which have been borrowed to finance operations.D. amounts which are due to stockholders.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 144. InventoriesA. are an asset.B. result from paying for a product that has now been sold to a customer.C. will result in a liability being charged sometime in the future.D. are an expense.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 145. The amount of revenue recognized in the income statement by a company that sells goods to customers would beA. the cash collected from customers during the current period.B. total sales, both cash and credit sales, for the period.C. total sales minus beginning amount of accounts receivable.D. the amount of cash collected plus the beginning amount of accounts receivable.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 146. On January 1, 2009 Mammoth Corporation had retained earnings of $4,000,000. During 2009, they reported net income of $750,000 and dividends of $100,000. What is the amount of Mammoth's retained earnings at the end of 2009?A. $4,000,000B. $4,450,000C. $4,650,000D. $4,850,000AACSB Tag: AnalyticDifficulty: MediumL.O.: 147. What are the categories of cash flows that appear on a statement of cash flows?A. cash flows from investing, financing, and service activitiesB. cash flows from operating, production, and internal activitiesC. cash flows from financing, production, and growth activitiesD. cash flows from operating, investing, and financing activitiesAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 148. On the statement of cash flows, an amount paid for utilities would be classified asA. an operating activity.B. an investing activity.C. a financing activity.D. a production activity.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 149. A company would report a net loss whenA. retained earnings decreased due to paying dividends to stockholders.B. its assets decreased during an accounting period.C. its liabilities increased during an accounting period.D. its expenses exceeded its revenues for an accounting period.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 150. The amount of insurance expense reported on the income statement isA. the amount of cash paid for insurance in the current period.B. the amount of cash paid for insurance in the current period less any unpaid insurance at the end of the period.C. the amount of insurance used up (incurred) in the current period to help generate revenue.D. an increase in net income.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 151. What events cause changes in a corporation's retained earnings?A. Net income or net loss and declaration of dividends.B. Declaration of dividends and issuance of stock to new stockholders.C. Net income, issuance of stock, and borrowing from a bank.D. Declaration of dividends and purchase of new machinery.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 152. The operating activities section is often believed to be the most important part of a statement of cash flows becauseA. it gives the most information about how operations have been financed.B. it shows the dividends that have been paid to stockholders.C. it indicates a company's ability to generate cash from sales to meet current cash payments for goods or services.D. it shows the net increase or decrease in cash during the period.AACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 153. If you wanted to know what accounting rules a company follows related to its inventory, where would you look?A. the balance sheetB. the income statementC. the notes to the financial statementsD. the headings to the financial statementsAACSB Tag: CommunicationsDifficulty: EasyL.O.: 154. At the beginning of 2009, Buck Corporation had assets of $540,000 and liabilities of $320,000. During the year, assets increased by $50,000 and liabilities decreased by $10,000. What was the total amount of stockholders' equity at the end of 2009?A. $220,000B. $280,000C. $380,000D. $500,000AACSB Tag: AnalyticDifficulty: MediumL.O.: 155. The term used for economic resources owned by an entity as a result of past transactions isA. assets.B. liabilities.C. revenues.D. retained earnings.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 156. How are the differing claims of creditors and investors recognized by a corporation?A. The claims of creditors are liabilities; those of investors are assets.B. The claims of both creditors and investors are liabilities, but only the claims of investors are considered to be long term.C. The claims of creditors are liabilities; the claims of investors are recorded as stockholders' equity.D. The claims of creditors and investors are considered to be essentially equivalent.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 157. In what order would the items on the balance sheet appear?A. assets, retained earnings, liabilities, contributed capitalB. contributed capital, retained earnings, liabilities, assetsC. assets, liabilities, contributed capital, retained earningsD. contributed capital, assets, liabilities, retained earningsAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 158. Which of the following would increase retained earnings?A. an increase to an expenseB. an increase to a revenueC. a cash dividendD. issuance of additional common stockAACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 159. The ending retained earnings balance of Juan's Mexican Restaurant chain increased by $3.2 million from the beginning of the year. The company had declared a dividend of $1.3 million during the year. What was the net income earned during the year?A. $1.9 millionB. $3.2 millionC. $4.5 billionD. There is not enough information given to determine net income.AACSB Tag: AnalyticDifficulty: HardL.O.: 160. Which of the following items is an expense?A. Accounts PayableB. Cost of Goods SoldC. Accounts ReceivableD. Sales RevenueAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 161. Which of the following activities would cause investors to overpay for the acquisition of a company from its current owners?A. Overstated accounts payable and understated inventoryB. Understated revenues and overstated expensesC. Understated assets and overstated expensesD. Overstated accounts payable and overstated inventoryAACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 162. The government regulatory agency that has the legal authority to prescribe financial reporting requirements for corporations that sell their securities to the public is theA. FASB.B. FTC.C. SEC.D. APB.AACSB Tag: CommunicationsDifficulty: EasyL.O.: 263. The part of the federal government that has broad powers to determine measurement rules for financial statements of public companies isA. the Internal Revenue Service.B. the Securities and Exchange Commission.C. the General Accounting Office.D. the Supreme Court.AACSB Tag: CommunicationsDifficulty: EasyL.O.: 264. Identify the potential economic consequences of the public learning a company did not follow generally accepted accounting principles (GAAP).A. It could increase the stock price of the company.B. It could increase management and employee bonuses.C. It could result in legal liability for the company.D. It could increase a company's market share.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 265. The nature of generally accepted accounting principles (GAAP) is important to large corporations becauseA. a change in GAAP will not likely affect the selling price of the company's stock.B. a change in GAAP will not likely affect the amount of bonuses paid to managers and employees.C. a change in GAAP will not likely affect a corporation's competitive position.D. a change in GAAP will likely affect a company's financial statementsAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 2。