Exam 8: Saving, Investment, and the Financial System

Suppose that you are a broker and people tell you the following about themselves. What sort of bond would you recommend to each? Defend your choices. a. "I am in a high federal income-tax bracket and I don't want to take very much risk." b. "I want a high return and I am willing to take whatever risk necessary to get it." c. "I want a decent return and I have enough deductions that I don't value tax breaks highly."

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. What would we expect?

When the government runs a budget deficit, what is most likely to happen?

Suppose that the government were to replace the income tax with a consumption tax. What would happen to the interest rate and investment, respectively?

Suppose that interest rates and investment both rise. Which statement best explains these changes?

What would most likely happen in the market for loanable funds if the government were to increase the tax on interest income?

-Refer to Table 8-2. Which company had the highest earnings per share?

Lenders sell bonds, and borrowers buy them.

West Wind Power Company has a price of $40, a dividend of $2.00, and retained earnings of $5.00 per share. What is the dividend yield on this stock?

Suppose a country has a consumption tax that is similar to a provincial sales tax. If its government eliminates the consumption tax and replaces it with an income tax that includes an income tax on interest from savings, what would most likely happen?

Australia has recently implemented a national sales tax. If that country uses the proceeds from this tax to reduce income tax rates, what happens in the loanable funds market?

In a closed economy, what remains after paying for consumption and government purchases?

Suppose that interest rates fall and investment falls. Which statement best explains these changes?

If the inflation rate is 2 percent and the real interest rate is 6 percent, what is the nominal interest rate?

Mateo has the choice of two bonds, one that pays 4 percent interest and one that pays 6 percent interest. Which of the following situations is most likely?

What is the "volume" as reported in stock tables?

Generally, if people expect a company to have higher future profits, the price of the stock will be driven down.

Suppose that Parliament were to repeal an investment tax credit. What would most likely happen in the market for loanable funds?

In a closed economy, what does (Y - T - C) represent?

When the federal government is in debt, it follows that it has a deficit.