Question 1

A bond is a

Accepted Answer

A) financial intermediary. 
B) certificate of indebtedness. 
C) certificate of partial ownership in an enterprise. 
D) None of the above is correct. 
A) financial intermediary. 
B) certificate of indebtedness. 
C) certificate of partial ownership in an enterprise. 
D) None of the above is correct.

Question 2

When a large, well-known corporation wishes to borrow directly from the public, it can

Accepted Answer

A) sell bonds. 
B) sell shares of stock. 
C) go to a bank for a loan. 
D) All of the above are correct. 
A) sell bonds. 
B) sell shares of stock. 
C) go to a bank for a loan. 
D) All of the above are correct.

Question 3

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

Accepted Answer

A) True 
 B)False

Question 4

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy.  
-Refer to Figure 26-5. Starting at point A, the enactment of an investment tax credit would likely cause

Accepted Answer

A) the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% (point 
C) . 
B) the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to 5% (point 
B) . 
C) the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to 7% (point 
E) . 
D) the quantity of loanable funds traded to increase to $125 and the interest rate to fall to 5% (point 
D) . 
A) the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% (point 
C) . 
B) the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to 5% (point 
B) . 
C) the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to 7% (point 
E) . 
D) the quantity of loanable funds traded to increase to $125 and the interest rate to fall to 5% (point 
D) .

Question 5

An increase in the government's budget surplus 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. 
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.

Question 6

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. 
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.

Question 7

Which of the following is both a financial institution and a financial intermediary?

Accepted Answer

A) banks 
B) stock exchanges 
C) the bond market 
D) All of the above are correct. 
A) banks 
B) stock exchanges 
C) the bond market 
D) All of the above are correct.

Question 8

If there is surplus of loanable funds, then

Accepted Answer

A) the supply for loanable funds shifts right and the demand shifts left. 
B) the supply for loanable funds shifts left and the demand shifts right. 
C) neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium. 
D) neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium. 
A) the supply for loanable funds shifts right and the demand shifts left. 
B) the supply for loanable funds shifts left and the demand shifts right. 
C) neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium. 
D) neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.

Question 9

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds,

Accepted Answer

A) the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply. 
B) the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply. 
C) the city's high credit rating contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply. 
D) the city's high credit rating contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply. 
A) the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply. 
B) the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply. 
C) the city's high credit rating contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply. 
D) the city's high credit rating contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply.

Question 10

An article in the textbook suggests that one method to correct the higher education inefficiency is to

Accepted Answer

A) provide free higher education to all Americans. 
B) have college students sell equity in themselves. 
C) reduce interest rates on student loans. 
D) increase the number of colleges and universities in the United States. 
A) provide free higher education to all Americans. 
B) have college students sell equity in themselves. 
C) reduce interest rates on student loans. 
D) increase the number of colleges and universities in the United States.

Question 11

When the government has a budget surplus

Accepted Answer

A) it buys more of its bonds from the public than it sells to the public. 
B) it spends more than it receives in tax revenue. 
C) private saving is greater than zero. 
D) exports are greater than imports. 
A) it buys more of its bonds from the public than it sells to the public. 
B) it spends more than it receives in tax revenue. 
C) private saving is greater than zero. 
D) exports are greater than imports.

Question 12

In the loanable funds model, an increase in an investment tax credit would create a

Accepted Answer

A) shortage at the former equilibrium interest rate. This shortage would lead to a rise in the interest rate. 
B) shortage at the former equilibrium interest rate. This shortage would lead to a fall in the interest rate. 
C) surplus at the former equilibrium interest rate. This surplus would lead to a rise in the interest rate. 
D) surplus at the former equilibrium interest rate. This surplus would lead to a fall in the interest rate. 
A) shortage at the former equilibrium interest rate. This shortage would lead to a rise in the interest rate. 
B) shortage at the former equilibrium interest rate. This shortage would lead to a fall in the interest rate. 
C) surplus at the former equilibrium interest rate. This surplus would lead to a rise in the interest rate. 
D) surplus at the former equilibrium interest rate. This surplus would lead to a fall in the interest rate.

Question 13

What is a mutual fund?

Accepted Answer

An institution that sells shar

Question 14

If the Apple corporation sells a bond it is

Accepted Answer

A) borrowing directly from the public. 
B) borrowing indirectly from the public. 
C) selling shares of ownership directly to the public. 
D) selling shares of ownership indirectly to the public. 
A) borrowing directly from the public. 
B) borrowing indirectly from the public. 
C) selling shares of ownership directly to the public. 
D) selling shares of ownership indirectly to the public.

Question 15

When someone borrows to purchase capital goods, he is using someone else's _____ to fund his _____.

Accepted Answer

The answer of When someone borrows to purchase capital goods,...

Question 16

If, for an imaginary closed economy, investment amounts to $12,000 and the government is running a $2,000 deficit, then private saving must amount to $10,000.

Accepted Answer

A) True 
 B)False

Question 17

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then

Accepted Answer

A) the demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. 
B) the demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate. 
C) the supply of loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. 
D) the supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate. 
A) the demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. 
B) the demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate. 
C) the supply of loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. 
D) the supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.

Question 18

If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, then the real interest rate is

Accepted Answer

A) 7 percent. 
B) 4 percent. 
C) 3 percent. 
D) 10 percent. 
A) 7 percent. 
B) 4 percent. 
C) 3 percent. 
D) 10 percent.

Question 19

The sale of stocks

Accepted Answer

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

Question 20

Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent. The dividend is

Accepted Answer

A) $0.25 and the price-earnings ratio is 5. 
B) $.25 and the price-earnings ratio is 6.7. 
C) $1.25 and the price-earnings ratio is 5. 
D) $1.25 and the price-earnings ratio is 6.7. 
A) $0.25 and the price-earnings ratio is 5. 
B) $.25 and the price-earnings ratio is 6.7. 
C) $1.25 and the price-earnings ratio is 5. 
D) $1.25 and the price-earnings ratio is 6.7.

Exam 26: Saving, Investment, and the Financial System

A bond is a

When a large, well-known corporation wishes to borrow directly from the public, it can

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. -Refer to Figure 26-5. Starting at point A, the enactment of an investment tax credit would likely cause

An increase in the government's budget surplus means

The sale of bonds

Which of the following is both a financial institution and a financial intermediary?

If there is surplus of loanable funds, then

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds,

An article in the textbook suggests that one method to correct the higher education inefficiency is to

When the government has a budget surplus

In the loanable funds model, an increase in an investment tax credit would create a

What is a mutual fund?

If the Apple corporation sells a bond it is

When someone borrows to purchase capital goods, he is using someone else's _____ to fund his _____.

If, for an imaginary closed economy, investment amounts to $12,000 and the government is running a $2,000 deficit, then private saving must amount to $10,000.

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then

If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, then the real interest rate is

The sale of stocks

Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent. The dividend is

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

When someone borrows to purchase capital goods, he is using someone else's _ to fund his _.