Question 1

Generally, if people begin to expect a company to have higher future profits, the price of the company's stock will begin to decrease.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following would both make the interest rate on a bond higher than otherwise?

Accepted Answer

A)   the interest it pays is taxed and it is long term
B)   the interest it pays is taxed and it is short term
C)   the interest it pays is tax exempt and it is long term
D)   the interest it pays is tax exempt and it is short termE) A) and B)
F) All of the above

Question 3

The purchase of a new house is the one form of

Accepted Answer

A)   investment that is financed by private saving rather than public saving.
B)   household spending that is not counted as part of investment in the national income accounts.
C)   household spending that is investment rather than consumption.
D)   household spending that does not contribute to GDP.E) None of the above
F) All of the above

Question 4

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Accepted Answer

A)   credit risk.
B)   interest risk.
C)   term risk.
D)   private risk.E) A) and C)
F) All of the above

Question 5

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

Accepted Answer

Its price to earnings ratio is...

Question 6

Which of the following is correct?

Accepted Answer

A)   The maturity of a bond refers to the amount to be paid back.
B)   The principal of the bond refers to the person selling the bond.
C)   A bond buyer cannot sell a bond before it matures.
D)   None of the above is correct.E) B) and C)
F) B) and D)

Question 7

A decrease in government spending and the enactment of an investment tax credit would definitely cause

Accepted Answer

A)   the quantity of loanable funds traded to increase.
B)   the interest rate to increase.
C)   the quantity of loanable funds traded to decrease.
D)   the interest rate to decrease.E) B) and D)
F) A) and B)

Question 8

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the

Accepted Answer

A)   supply of existing shares of the stock and the price will both rise.
B)   supply of existing shares of the stock and the price will both fall.
C)   demand for existing shares of the stock and the price will both rise.
D)   demand for existing shares of the stock and the price will both fall.E) All of the above
F) A) and B)

Question 9

An increase in the government's budget deficit means

Accepted Answer

A)   public saving is greater than $0 and increasing.
B)   public saving is greater than $0 and decreasing.
C)   public saving is less than $0 and increasing.
D)   public saving is less than $0 and decreasing.E) A) and B)
F) A) and C)

Question 10

A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a

Accepted Answer

A)   bond.
B)   stock.
C)   mutual fund.
D)   All of the above are correct.E) A) and D)
F) B) and C)

Question 11

The sale of bonds

Accepted Answer

A)   and stocks to raise money is called debt finance.
B)   and stocks to raise money is called equity finance.
C)   to raise money is called debt finance, while the sale of stocks to raise funds is called equity finance.
D)   to raise money is called equity finance, while the sale of stocks to raise funds is called debt finance.E) B) and C)
F) A) and C)

Question 12

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

Accepted Answer

A)   crowding out would not be a consequence of an increase in the budget deficit.
B)   higher interest rates would not be a consequence of an increase in the budget deficit.
C)   an increase in the budget deficit would cause the demand for loanable funds to decrease.
D)   we would be making only a semantic change in how we analyze the effects of government budget deficits.E) C) and D)
F) A) and B)

Question 13

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Accepted Answer

A)   The supply of and demand for loanable funds would shift right.
B)   The supply of and demand for loanable funds would shift left.
C)   The supply of loanable funds would shift right and the demand for loanable funds would shift left.
D)   None of the above is correct.E) A) and C)
F) All of the above

Question 14

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 15

Figure 26-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. 
-Refer to Figure 26-2. Which of the following events would shift the demand curve from D1 to D2?

Accepted Answer

A)   The government goes from running a budget deficit to running a budget surplus.
B)   Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories.
C)   A change in the tax laws encourages people to consume less and save more.
D)   A change in the tax laws encourages people to consume more and save less.E) A) and B)
F) C) and D)

Question 16

Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto 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) A) and B)
F) C) and D)

Question 17

If the demand for loanable funds shifts to the right, then the equilibrium interest rate

Accepted Answer

A)   and quantity of loanable funds rises.
B)   and quantity of loanable funds falls.
C)   rises and the quantity of loanable funds falls.
D)   falls and the quantity of loanable funds rises.E) None of the above
F) All of the above

Question 18

A closed economy

Accepted Answer

A)   does not engage in international trade of goods and services.
B)   does not engage in international borrowing or lending.
C)   both A and B
D)   engages in international borrowing and lending.E) C) and D)
F) None of the above

Question 19

Suppose the economy is closed and consumption is 8 million, taxes are 2 million, and government purchases are 1.75 million. If national saving amounts to 1.25 million, then what is GDP?

Accepted Answer

A)   9 million.
B)   9.5 million.
C)   13 million.
D)   11 million.E) A) and B)
F) All of the above

Question 20

The primary economic function of the financial system is to

Accepted Answer

A)   keep interest rates low.
B)   provide expert advice to savers and investors.
C)   match one person's consumption expenditures with another person's capital expenditures.
D)   match one person's saving with another person's investment.E) B) and D)
F) B) and C)

Exam 18: Saving, Investment, and the Financial System

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Correct AnswerverifiedShow Answer

The purchase of a new house is the one form of

Correct AnswerverifiedShow Answer

An increase in the government's budget deficit means

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The primary economic function of the financial system is to

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A closed economy

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Generally, if people begin to expect a company to have higher future profits, the price of the company's stock will begin to decrease.

Correct AnswerverifiedShow Answer

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

Correct AnswerverifiedIts price to earnings ratio is...View AnswerShow Answer

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

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If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

Correct AnswerverifiedShow Answer

A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a

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Which of the following is correct?

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Figure 26-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. -Refer to Figure 26-2. Which of the following events would shift the demand curve from D1 to D2?

Correct AnswerverifiedShow Answer

Which of the following would both make the interest rate on a bond higher than otherwise?

Correct AnswerverifiedShow Answer

A decrease in government spending and the enactment of an investment tax credit would definitely cause

Correct AnswerverifiedShow Answer

Suppose the economy is closed and consumption is 8 million, taxes are 2 million, and government purchases are 1.75 million. If national saving amounts to 1.25 million, then what is GDP?

Correct AnswerverifiedShow Answer

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the

Correct AnswerverifiedShow Answer

Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a

Correct AnswerverifiedShow Answer

If the demand for loanable funds shifts to the right, then the equilibrium interest rate

Correct AnswerverifiedShow Answer

The sale of bonds

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

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Its price to earnings ratio is...
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