Real World Graduation: Question 13

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A sports fan (father of three young children) is in a clothing store and finds a jersey from his favorite major league sports team in his size that is on sale at $75.00. It normally sells for $100.00 (i.e., the $75 represents 25% off regular price).  The jersey is a genuine one, authorized by the major league franchise (not an imitation).  Why is this jersey a good deal?

a) The sports fan can show his support for the team whenever he wears it.

b) If he wears it to a game, the players will appreciate that he is one of their fans.

c) He can use it to teach his children the value of teamwork.

d) The jersey may become a valuable collectible in the future.

e) Some combination of all of the above.

(The answer is on p. 2 of the PDF.)

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Real World Graduation: Question 12

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There are about 85 named storms worldwide each year [1]. Prior to 1950, hurricanes were not officially named.  Hurricanes were given official names after 1953, and the minimum sustained winds necessary to qualify as a hurricane was 74 MPH [2].  In 2002, tropical storms also began to be named (having sustained winds greater than 38 MPH) in an effort to legitimize claims of “man-made global warming” [3 – 5].  Thus, the number of named storms has grown over time, due to the lowering of wind speeds used as the criteria.  Every such storm, whether a tropical storm, or hurricane, has the same characteristics: strong winds, large waves impacting the shore, and a lot of rainfall.  Why does every TV news outlet feel it is necessary to send a reporter to the beach before and after every storm to show viewers that this one will cause high winds, large waves, and heavy rainfall, exactly like all the others that have occurred during the past 100,000 years?

a) Because TV was not around for the first 99,960 years of hurricanes and tropical storms, and they are trying to catch up

b) TV anchors deserve a chance to do a little surfing

c) So there will be a photographic record of the damage, for insurance purposes

d) To conduct interviews with the local people, who can describe what they expect or what they saw afterward from the storm

e) Some combination of c) and d)

[1]     “Number of category 4 and 5 hurricanes has doubled over 35 years”, University Corporation for Atmospheric Research, 16 Sep 2005 press release

[2]   U. S. Army Corps of Engineers

[3]   “NOAA inflating storm numbers and aiding political campaign for carbon restrictions”, The National Center for Public Policy Research press release, 30 Nov 2007

[4]     2007 Hurricane Season: In Like a Lamb, Out Like A Lion?”, The National Center for Public Policy Research press release, 30 Aug 2007

[5]     2007 Hurricane Update, Have Records Been Broken?”, The National Center for Public Policy Research press release, 10 Sep 2007

(The answer is on p. 2 of the PDF.)

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Real World Graduation: Question 11

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Some in Congress in 2006 proposed an income-tax modification bill that would have provided a 5% across-the board reduction in federal income tax rates. The bill mandated that the highest marginal income tax rate would have been reduced from 38% to 33%; the next rate from 25% to 20%, and the lowest from 10% to 5%.  Capital gains rates would remain unchanged.  Critics have claimed that only the very rich would benefit from this measure. They were joined by Mr. Ralph Thompson, estimated to be the nations fourth-richest person, who came out in opposition to the tax cut, saying, “Neither I nor any other wealthy people need an income tax cut.”  But people who favor the tax cut claim that the working people will benefit because they will have more money in their pocket.  For example, the single person working a full-time job (40 hours per week) at $6.50 per hour (just over minimum wage of $5.75 per hour) would have their marginal rate reduced to 5%, so they would have received a tax cut of approximately $4.57 per week after the combined standard deduction of $8,750.  Does this income tax proposal unfairly benefit the wealthy or unfairly penalize the working poor with regard to income tax rates?

a) It unfairly benefits the rich because they will pay less in income taxes.

b) It unfairly benefits the rich because they don’t need the extra money, as Mr. Thompson said.

c) It unfairly penalizes the poor because it left the minimum wage unchanged.

d) It unfairly penalizes the poor because the proponents of the tax cut are lying: the extra $4.57 won’t buy much and isn’t necessary.

e) All of the above are true to some extent.

(The answer is on p. 2 of the PDF.)

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Real World Graduation: Question 10

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A Savings-and-Loan bank crisis in the 1980’s and 1990’s required a government bailout. Major automobile companies (Chrysler and General Motors) have sometimes required government bailouts.  In the most recent bailout (2007-2009), many banks (Washington Mutual, Indy Mac), mortgage companies (Fannie Mae, Freddie Mac), and financial institutions (Bear Stearns, American International Group) required government bailouts.

“Fannie Mae” and “Freddie Mac” are nicknames for two government-sponsored entities (GSE) that buy residential mortgages; the goal being to stimulate home-buying. In the latest bailout, the losses to the taxpayers for bailing out these two organizations will range between $221 billion and $363 billion [1].

Bear Stearns, a long-standing investment bank specializing in mortgage securitization, was sold to JP Morgan Chase in an emergency sale to avoid a formal bankruptcy that would negatively affect the rest of the economy. The New York Federal Reserve bought $30 billion of Baer Stearns’ “assets” to get them off the balance sheet, then lent $29 billion to JP Morgan to finance the purchase of Stearns [2].

American International Group, an insurer of mortgage contracts, borrowed $182 billion in bailouts from the Federal Reserve, with the taxpayers liable if they fail to pay it back [3].

Morgan Stanley and Goldman Sachs converted to bank holding companies in order to obtain access to emergency funding from the Federal Reserve to stay afloat and avoid collapse [4]. Goldman Sachs required loans totaling $67 billion, while Morgan Stanley required loans of $96 billion.

How can one predict in advance which segment of the economy will require a bailout?

a) The ones with the highest CEO pay will require the bailout, because the CEO takes all the money out of the company.

b) All companies who operate in accordance with for-profit capitalism.

c) Only foreign companies require bailouts, because they borrow too much American money and fail to pay it back on time.

d) They are not really bailouts because the government pays for it.

e) All of the above.

(See answer on p. 2 of PDF.)

[1] Phil Angelides, Chairman, The Financial Crisis Inquiry Report, New York: Public Affairs, 2001, p. 322

[2] ibid., pp. 290, 291

[3] ibid., p. 350

[4] ibid., p. 362, 363

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