Question 1

According to the efficient markets hypothesis, if you are trying to find out what a stock is really worth, you should:

Accepted Answer

A)  look up the current stock price. 
B)  study past trends in the stock price. 
C)  study the underlying determinants of the company's future profits. 
D)  examine its recent price changes. 
A)  look up the current stock price. 
B)  study past trends in the stock price. 
C)  study the underlying determinants of the company's future profits. 
D)  examine its recent price changes.

Question 2

A default occurs when:

Accepted Answer

A)  the borrower repays a bond or loan before its maturity date. 
B)  a borrower fails to make payments as specified by the loan or bond contract. 
C)  an asset can't be converted to cash quickly with little or no loss of value. 
D)  transactions costs are minimized. 
A)  the borrower repays a bond or loan before its maturity date. 
B)  a borrower fails to make payments as specified by the loan or bond contract. 
C)  an asset can't be converted to cash quickly with little or no loss of value. 
D)  transactions costs are minimized.

Question 3

Assume that I = SPrivate + SGovernment + (IM - X). Furthermore, let's say that imports are equal to exports. In this case, private savings:

Accepted Answer

A)  plus government savings exceed investment. 
B)  exceed investment. 
C)  plus government savings are less than investment. 
D)  plus government savings are equal to investment. 
A)  plus government savings exceed investment. 
B)  exceed investment. 
C)  plus government savings are less than investment. 
D)  plus government savings are equal to investment.

Question 4

The term liquidity means that the:

Accepted Answer

A)  asset is used in a barter exchange. 
B)  asset is used as the medium of exchange. 
C)  asset is readily convertible to cash without much loss of value. 
D)  market interest rate is too low. 
A)  asset is used in a barter exchange. 
B)  asset is used as the medium of exchange. 
C)  asset is readily convertible to cash without much loss of value. 
D)  market interest rate is too low.

Question 5

Investment spending contributes to economic growth.

Accepted Answer

A) True 
 B)False

Question 6

Because bonds are more standardized than loans, transactions costs for bonds are typically lower than transactions costs for loans.

Accepted Answer

A) True 
 B)False

Question 7

A _____ sells policies to savers and guarantees a payment to the policyholder's beneficiaries when the policyholder dies.

Accepted Answer

A)  commercial bank 
B)  mutual fund 
C)  life insurance company 
D)  pension fund 
A)  commercial bank 
B)  mutual fund 
C)  life insurance company 
D)  pension fund

Question 8

The primary purpose of financial intermediaries it to transform funds gathered from savers into financial assets.

Accepted Answer

A) True 
 B)False

Question 9

Net capital inflow equals:

Accepted Answer

A)  national savings. 
B)  imports minus exports. 
C)  consumption. 
D)  consumption plus government spending. 
A)  national savings. 
B)  imports minus exports. 
C)  consumption. 
D)  consumption plus government spending.

Question 10

Which statement is CORRECT?

Accepted Answer

A)  The budget deficit equals tax revenues plus transfer payments. 
B)  Government spending equals private savings plus the budget deficit. 
C)  Tax revenues equal national savings plus the budget deficit. 
D)  The budget deficit equals government spending minus tax revenues. 
A)  The budget deficit equals tax revenues plus transfer payments. 
B)  Government spending equals private savings plus the budget deficit. 
C)  Tax revenues equal national savings plus the budget deficit. 
D)  The budget deficit equals government spending minus tax revenues.

Question 11

A financial intermediary that sets up a diversified portfolio of stocks and then resells that portfolio to individual investors is known as a:

Accepted Answer

A)  life insurance company. 
B)  mutual fund. 
C)  brokerage company. 
D)  credit card company 
A)  life insurance company. 
B)  mutual fund. 
C)  brokerage company. 
D)  credit card company

Question 12

Use the following to answer questions:  
-(Figure: The Market for Loanable Funds III) Use Figure: The Market for Loanable Funds III. If the government in a closed economy is running a budget balance of zero when it decides to increase defense spending by $200 billion and then finances the spending by selling bonds, the government will crowd out a maximum of _____ in private investment spending.

Accepted Answer

A)  $200 billion 
B)  $100 billion 
C)  $50 billion 
D)  $10 billion 
A)  $200 billion 
B)  $100 billion 
C)  $50 billion 
D)  $10 billion

Question 13

If Mega Corp. borrows $9,000 and agrees to pay the lender $10,500 in one year, the annual interest rate on this loan is approximately _____%.

Accepted Answer

A)  8.6 
B)  14.3 
C)  16.7 
D)  15 
A)  8.6 
B)  14.3 
C)  16.7 
D)  15

Question 14

By doing research on the companies in their portfolios, mutual funds reduce transactions costs for their investors.

Accepted Answer

A) True 
 B)False

Question 15

Physical capital is purchased through investment spending, which in turn is MOSTLY financed out of:

Accepted Answer

A)  taxes. 
B)  savings. 
C)  import tariffs. 
D)  consumption expenditure. 
A)  taxes. 
B)  savings. 
C)  import tariffs. 
D)  consumption expenditure.

Question 16

Use the following to answer questions:  
-(Table: Investment Projects) Use Table: Investment Projects. If the market interest rate is 11%, the amount of investment demanded is:

Accepted Answer

A)  $800. 
B)  $1,000. 
C)  $2,000. 
D)  $4,000. 
A)  $800. 
B)  $1,000. 
C)  $2,000. 
D)  $4,000.

Question 17

Financial assets with the HIGHEST risk are:

Accepted Answer

A)  stocks. 
B)  U.S. government bonds. 
C)  bonds. 
D)  bank deposits. 
A)  stocks. 
B)  U.S. government bonds. 
C)  bonds. 
D)  bank deposits.

Question 18

Financial markets eliminate transactions costs.

Accepted Answer

A) True 
 B)False

Question 19

An increase in the demand for loanable funds would MOST likely be caused by a(n):

Accepted Answer

A)  increase in the market interest rate. 
B)  increase in business tax rates. 
C)  increase in expected business opportunities. 
D)  decrease in expected business opportunities. 
A)  increase in the market interest rate. 
B)  increase in business tax rates. 
C)  increase in expected business opportunities. 
D)  decrease in expected business opportunities.

Question 20

Some economists have challenged the efficient markets hypothesis because they believe that stocks may be incorrectly priced when markets behave irrationally.

Accepted Answer

A) True 
 B)False

According to the efficient markets hypothesis, if you are trying to find out what a stock is really worth, you should:

A default occurs when:

Assume that I = S_Private + S_Government + (IM - X). Furthermore, let's say that imports are equal to exports. In this case, private savings:

The term liquidity means that the:

Investment spending contributes to economic growth.

Because bonds are more standardized than loans, transactions costs for bonds are typically lower than transactions costs for loans.

A _____ sells policies to savers and guarantees a payment to the policyholder's beneficiaries when the policyholder dies.

The primary purpose of financial intermediaries it to transform funds gathered from savers into financial assets.

Net capital inflow equals:

Which statement is CORRECT?

A financial intermediary that sets up a diversified portfolio of stocks and then resells that portfolio to individual investors is known as a:

If Mega Corp. borrows $9,000 and agrees to pay the lender $10,500 in one year, the annual interest rate on this loan is approximately _____%.

By doing research on the companies in their portfolios, mutual funds reduce transactions costs for their investors.

Physical capital is purchased through investment spending, which in turn is MOSTLY financed out of:

Use the following to answer questions: -(Table: Investment Projects) Use Table: Investment Projects. If the market interest rate is 11%, the amount of investment demanded is:

Financial assets with the HIGHEST risk are:

Financial markets eliminate transactions costs.

An increase in the demand for loanable funds would MOST likely be caused by a(n):

Some economists have challenged the efficient markets hypothesis because they believe that stocks may be incorrectly priced when markets behave irrationally.

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Income and Expenditure

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Macroeconomics: Events and Ideas

International Macroeconomics

Filters

Exam 10: Savings, Investment Spending, and the Financial Syst

According to the efficient markets hypothesis, if you are trying to find out what a stock is really worth, you should:

A default occurs when:

Assume that I = SPrivate + SGovernment + (IM - X). Furthermore, let's say that imports are equal to exports. In this case, private savings:

The term liquidity means that the:

Investment spending contributes to economic growth.

Because bonds are more standardized than loans, transactions costs for bonds are typically lower than transactions costs for loans.

A _____ sells policies to savers and guarantees a payment to the policyholder's beneficiaries when the policyholder dies.

The primary purpose of financial intermediaries it to transform funds gathered from savers into financial assets.

Net capital inflow equals:

Which statement is CORRECT?

A financial intermediary that sets up a diversified portfolio of stocks and then resells that portfolio to individual investors is known as a:

If Mega Corp. borrows $9,000 and agrees to pay the lender $10,500 in one year, the annual interest rate on this loan is approximately _____%.

By doing research on the companies in their portfolios, mutual funds reduce transactions costs for their investors.

Physical capital is purchased through investment spending, which in turn is MOSTLY financed out of:

Use the following to answer questions: -(Table: Investment Projects) Use Table: Investment Projects. If the market interest rate is 11%, the amount of investment demanded is:

Financial assets with the HIGHEST risk are:

Financial markets eliminate transactions costs.

An increase in the demand for loanable funds would MOST likely be caused by a(n):

Some economists have challenged the efficient markets hypothesis because they believe that stocks may be incorrectly priced when markets behave irrationally.

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Income and Expenditure

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Macroeconomics: Events and Ideas

International Macroeconomics

Filters

Assume that I = S_Private + S_Government + (IM - X). Furthermore, let's say that imports are equal to exports. In this case, private savings: