Question 1

The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings. It was planning to use the money to build a new factory. Recently, the rate of interest has increased. The increase in the rate of interest should

Accepted Answer

A)   not influence the decision to build the factory because The Eye of Horus doesn't have to borrow any money.
B)   not influence the decision to build the factory because its stockholders are expecting a new factory.
C)   make it more likely that The Eye of Horus will build the factory because a higher interest rate will make the factory more valuable.
D)   make it less likely that The Eye of Horus will build the factory because the opportunity cost of the $10 million is now higher.E) None of the above
F) A) and C)

Question 2

Late in the 2000-2009 decade, real estate prices in the U.S. fell by a greater percentage than they had fallen since the

Accepted Answer

A)   1890s.
B)   1930s.
C)   1950s.
D)   1970s.E) None of the above
F) A) and D)

Question 3

The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms.

Accepted Answer

A) True 
 B)False

Question 4

If Congress instituted an investment tax credit

Accepted Answer

A)   it would make buying bonds more desirable, so the demand for loanable funds would shift.
B)   it would make buying capital goods more desirable, so the demand for loanable funds would shift.
C)   it would make buying bonds more desirable, so the supply of loanable funds would shift.
D)   it would make buying capital goods more desirable, so the supply of loanable funds would shift.E) C) and D)
F) B) and C)

Question 5

A government reduces its budget deficit, but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default. Which of the following is correct.

Accepted Answer

A)   The reduced budget deficit will raise interest rates in general. The increased risk of default will raise interest rates on government bonds.
B)   The reduced budget deficit will raise interest rates in general. The increased risk of default will reduce interest rates on government bonds.
C)   The reduced budget deficit will reduce interest rates in general. The increased risk of default will raise interest rates on government bonds.
D)   The reduced budget deficit will reduce interest rates in general. The increased risk of default will reduce interest rates on government bonds.E) A) and C)
F) B) and C)

Question 6

In a closed economy, if Y, C, and T remained the same, an increase in G would reduce

Accepted Answer

A)   private saving and public saving.
B)   private saving but not public saving.
C)   public saving but not private saving.
D)   neither private nor public saving.E) B) and C)
F) All of the above

Question 7

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

Accepted Answer

A)   the credit risk associated with Bond A is lower than the credit risk associated with Bond B.
B)   Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat Corporation.
C)   Bond A has a term of 20 years and Bond B has a term of 2 years.
D)   All of the above are correct.E) B) and C)
F) A) and C)

Question 8

On a graph that depicts the market for loanable funds, the nominal interest rate is measured along the vertical axis.

Accepted Answer

A) True 
 B)False

Question 9

Scenario 8-1. Assume the following information for an imaginary, closed economy.
 
-Refer to Scenario 8-1. For this economy, government purchases amount to

Accepted Answer

A)   $12,000.
B)   $18,000.
C)   $28,000.
D)   $38,000.E) A) and C)
F) A) and B)

Question 10

Kathleen is considering expanding her dress shop. If interest rates rise she is

Accepted Answer

A)   less likely to expand. This illustrates why the supply of loanable funds slopes downward.
B)   more likely to expand. This illustrates why the supply of loanable funds slopes upward.
C)   less likely to expand. This illustrates why the demand for loanable funds slopes downward.
D)   more likely to expand. This illustrates why the demand for loanable funds slopes upward.E) A) and B)
F) C) and D)

Question 11

At the broadest level, the financial system moves the economy's scarce resources from

Accepted Answer

A)   the rich to the poor.
B)   financial institutions to business firms and government.
C)   households to financial institutions.
D)   savers to borrowers.E) B) and D)
F) None of the above

Question 12

When a corporation experiences financial problems, bondholders are paid before stockholders.

Accepted Answer

A) True 
 B)False

Question 13

Use the following table to answer the following questions.
Table 8-2
 
-Refer to Table 8-2. Which company had the highest earnings per share?

Accepted Answer

A)   Boeing Co.
B)   Eli Lilly and Co.
C)   H. J. Heinz and Co.
D)   Kellog Co.E) All of the above
F) B) and D)

Question 14

As a money management fee, mutual funds usually charge their customers

Accepted Answer

A)   between 0.5 and 2.0 percent of assets each year.
B)   between 1.5 and 3.0 percent of assets each year.
C)   nothing, because they receive commissions from the firms whose stock they buy.
D)   a flat fee of about $50.E) B) and D)
F) B) and C)

Question 15

Given that Monika's income exceeds her expenditures, Monika is best described as a

Accepted Answer

A)   saver or as a supplier of funds.
B)   saver or as a demander of funds.
C)   borrower or as a supplier of funds.
D)   borrower or as a demander of funds.E) None of the above
F) C) and D)

Question 16

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.

Accepted Answer

A) True 
 B)False

Question 17

Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds?

Accepted Answer

A)   The interest rate and investment would fall.
B)   The interest rate and investment would rise.
C)   The interest rate would rise and investment would fall.
D)   None of the above is necessarily correct.E) A) and C)
F) All of the above

Question 18

Which of the following statements is correct?

Accepted Answer

A)   NASDAQ is an important stock exchange in the United States.
B)   The Standard & Poor's 500 Index and the New York Stock Exchange are two examples of stock indexes.
C)   The most significant influence on the demand for a corporation's stock is the number of shares of the stock that the corporation has issued.
D)   All of the above are correct.E) A) and D)
F) B) and C)

Question 19

Financial crises seldom involve economic downturns.

Accepted Answer

A) True 
 B)False

Question 20

Which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why.
a.a U.S. government bond or a Venezuelan government bond
b.a U.S. government bond or a municipal bond with the same term and issued by a creditworthy municipality.
c.a 6-month Treasury bill or a 20-year Treasury bond
d.a Microsoft bond or a bond issued by a new recording company

Accepted Answer

a.
The Venezuelan government bond would ...

Exam 8: Saving, Investment, and the Financial System

Late in the 2000-2009 decade, real estate prices in the U.S. fell by a greater percentage than they had fallen since the

Correct Answer
verified

The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings. It was planning to use the money to build a new factory. Recently, the rate of interest has increased. The increase in the rate of interest should

Correct Answer
verified

A government reduces its budget deficit, but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default. Which of the following is correct.

Correct Answer
verified

At the broadest level, the financial system moves the economy's scarce resources from

Correct Answer
verified

As a money management fee, mutual funds usually charge their customers

Correct Answer
verified

Kathleen is considering expanding her dress shop. If interest rates rise she is

Correct Answer
verified

Scenario 8-1. Assume the following information for an imaginary, closed economy. -Refer to Scenario 8-1. For this economy, government purchases amount to

Correct Answer
verified

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.

Correct Answer
verified

Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds?

Correct Answer
verified

In a closed economy, if Y, C, and T remained the same, an increase in G would reduce

Correct Answer
verified

When a corporation experiences financial problems, bondholders are paid before stockholders.

Correct Answer
verified

On a graph that depicts the market for loanable funds, the nominal interest rate is measured along the vertical axis.

Correct Answer
verified

If Congress instituted an investment tax credit

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Correct Answer
verified
a.
The Venezuelan government bond would ...
View Answer

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

Correct Answer
verified

Use the following table to answer the following questions. Table 8-2 -Refer to Table 8-2. Which company had the highest earnings per share?

Correct Answer
verified

Given that Monika's income exceeds her expenditures, Monika is best described as a

Correct Answer
verified

Financial crises seldom involve economic downturns.

Correct Answer
verified

The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms.

Correct Answer
verified

Exam 8: Saving, Investment, and the Financial System

Late in the 2000-2009 decade, real estate prices in the U.S. fell by a greater percentage than they had fallen since the

Correct AnswerverifiedShow Answer

The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings. It was planning to use the money to build a new factory. Recently, the rate of interest has increased. The increase in the rate of interest should

Correct AnswerverifiedShow Answer

A government reduces its budget deficit, but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default. Which of the following is correct.

Correct AnswerverifiedShow Answer

At the broadest level, the financial system moves the economy's scarce resources from

Correct AnswerverifiedShow Answer

As a money management fee, mutual funds usually charge their customers

Correct AnswerverifiedShow Answer

Kathleen is considering expanding her dress shop. If interest rates rise she is

Correct AnswerverifiedShow Answer

Scenario 8-1. Assume the following information for an imaginary, closed economy. -Refer to Scenario 8-1. For this economy, government purchases amount to

Correct AnswerverifiedShow Answer

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.

Correct AnswerverifiedShow Answer

Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds?

Correct AnswerverifiedShow Answer

In a closed economy, if Y, C, and T remained the same, an increase in G would reduce

Correct AnswerverifiedShow Answer

When a corporation experiences financial problems, bondholders are paid before stockholders.

Correct AnswerverifiedShow Answer

On a graph that depicts the market for loanable funds, the nominal interest rate is measured along the vertical axis.

Correct AnswerverifiedShow Answer

If Congress instituted an investment tax credit

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct Answerverifieda.The Venezuelan government bond would ...View AnswerShow Answer

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

Correct AnswerverifiedShow Answer

Use the following table to answer the following questions. Table 8-2 -Refer to Table 8-2. Which company had the highest earnings per share?

Correct AnswerverifiedShow Answer

Given that Monika's income exceeds her expenditures, Monika is best described as a

Correct AnswerverifiedShow Answer

Financial crises seldom involve economic downturns.

Correct AnswerverifiedShow Answer

The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms.

Correct AnswerverifiedShow Answer

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a.
The Venezuelan government bond would ...
View Answer

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