Question 1

A larger budget deficit

Accepted Answer

A) raises the interest rate and investment. 
B) reduces the interest rate and investment. 
C) raises the interest rate and reduces investment. 
D) reduces the interest rate and raises investment. 
A) raises the interest rate and investment. 
B) reduces the interest rate and investment. 
C) raises the interest rate and reduces investment. 
D) reduces the interest rate and raises investment.

Question 2

The country of Yokovia does not trade with any other country. Its GDP is $20 billion. Its government collects $2 billion in taxes. Consumption equals $15 billion and investment equals $2 billion. What is public saving in Yokovia, and what is the value of the goods and services purchased by the government of Yokovia?

Accepted Answer

A) -$2 billion and $1 billion. 
B) $1 billion and $1 billion. 
C) -$1 billion and $3 billion. 
D) -$2 billion and $3 billion. 
A) -$2 billion and $1 billion. 
B) $1 billion and $1 billion. 
C) -$1 billion and $3 billion. 
D) -$2 billion and $3 billion.

Question 3

Which of the following is both a store of value and a common medium of exchange?

Accepted Answer

A) corporate bonds 
B) mutual funds 
C) checking account balances 
D) All of the above are correct. 
A) corporate bonds 
B) mutual funds 
C) checking account balances 
D) All of the above are correct.

Question 4

Banks

Accepted Answer

A) play a role in creating an asset that people can use as a medium of exchange. 
B) are financial intermediaries, but mutual funds are not financial intermediaries. 
C) are financial markets, as are bond markets. 
D) All of the above are correct. 
A) play a role in creating an asset that people can use as a medium of exchange. 
B) are financial intermediaries, but mutual funds are not financial intermediaries. 
C) are financial markets, as are bond markets. 
D) All of the above are correct.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) The demand and supply of loanable funds would shift right. 
B) The demand and supply of loanable funds would shift left. 
C) The supply of loanable funds would shift right. 
D) The demand for loanable funds would shift left. 
A) The demand and supply of loanable funds would shift right. 
B) The demand and supply of loanable funds would shift left. 
C) The supply of loanable funds would shift right. 
D) The demand for loanable funds would shift left.

Question 7

Larry buys stock in A to Z Express Company. Curly Corporation builds a new factory. Whose transaction would be an act of investment in the language of macroeconomics?

Accepted Answer

A) only Larry's 
B) only Curly Corporation's 
C) Larry's and Curly Corporation's 
D) neither Larry's nor Curly Corporation's 
A) only Larry's 
B) only Curly Corporation's 
C) Larry's and Curly Corporation's 
D) neither Larry's nor Curly Corporation's

Question 8

A closed economy

Accepted Answer

A) does not trade with other economies. 
B) is centrally-planned. 
C) does not allow financial intermediation. 
D) All of the above are correct. 
A) does not trade with other economies. 
B) is centrally-planned. 
C) does not allow financial intermediation. 
D) All of the above are correct.

Question 9

Retained earnings are

Accepted Answer

A) earnings of a company that are not paid out to stockholders. 
B) the amount of revenue a corporation receives for the sale of its products minus its costs of production as measured by its accountants. 
C) the single most important piece of information about a stock. 
D) computed by multiplying the dividend yield by the price of the stock. 
A) earnings of a company that are not paid out to stockholders. 
B) the amount of revenue a corporation receives for the sale of its products minus its costs of production as measured by its accountants. 
C) the single most important piece of information about a stock. 
D) computed by multiplying the dividend yield by the price of the stock.

Question 10

Compared to stocks, bonds offer the holder

Accepted Answer

A) lower risk and lower potential return. 
B) lower risk and higher potential return. 
C) higher risk and lower potential return. 
D) higher risk and higher potential return. 
A) lower risk and lower potential return. 
B) lower risk and higher potential return. 
C) higher risk and lower potential return. 
D) higher risk and higher potential return.

Question 11

If you were to start a business delivering documents, you might need to purchase cell phones, bicycles, desks, and chairs.

Accepted Answer

A) These purchases are called capital investment. If you raise the funds to purchase them from others you are a saver. 
B) These purchases are called capital investment. If you raise the funds to purchase them from others you are a borrower. 
C) These purchases are called consumption. If you raise the funds to purchase them from others you are a saver. 
D) These purchases are called consumption. If you raise the funds to purchase them from others you are a borrower. 
A) These purchases are called capital investment. If you raise the funds to purchase them from others you are a saver. 
B) These purchases are called capital investment. If you raise the funds to purchase them from others you are a borrower. 
C) These purchases are called consumption. If you raise the funds to purchase them from others you are a saver. 
D) These purchases are called consumption. If you raise the funds to purchase them from others you are a borrower.

Question 12

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Accepted Answer

The answer of Bond A and Bond B have identical...

Question 13

We would expect the interest rate on Bond A to be lower 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 Apple corporation and Bond B was issued by the city of Houston. 
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. 
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 Apple corporation and Bond B was issued by the city of Houston. 
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.

Question 14

Buskin's Corporation has issued 2 million shares of stock. Its earnings were $10 million, of which it retained 40 percent. What was the dividend per share?

Accepted Answer

A) $2. 
B) $3. 
C) $5. 
D) $8. 
A) $2. 
B) $3. 
C) $5. 
D) $8.

Question 15

Which of the following statements is correct?

Accepted Answer

A) The total income in the economy that remains after paying for consumption and government purchases is called private saving. 
B) The sum of private saving and national saving is called public saving. 
C) For a closed economy, the sum of private saving and public saving must equal investment. 
D) For a closed economy, the sum of consumption, national saving, and taxes must equal GDP. 
A) The total income in the economy that remains after paying for consumption and government purchases is called private saving. 
B) The sum of private saving and national saving is called public saving. 
C) For a closed economy, the sum of private saving and public saving must equal investment. 
D) For a closed economy, the sum of consumption, national saving, and taxes must equal GDP.

Question 16

In a closed economy, national saving equals

Accepted Answer

A) investment. 
B) income minus the sum of consumption and government purchases. 
C) private saving plus public saving. 
D) All of the above are correct. 
A) investment. 
B) income minus the sum of consumption and government purchases. 
C) private saving plus public saving. 
D) All of the above are correct.

Question 17

Municipal bonds pay a relatively

Accepted Answer

A) low rate of interest because of their high default risk and because the interest they pay is subject to federal income tax. 
B) low rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax. 
C) high rate of interest because of their high default risk and because federal taxes must be paid on the interest they pay. 
D) high rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax. 
A) low rate of interest because of their high default risk and because the interest they pay is subject to federal income tax. 
B) low rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax. 
C) high rate of interest because of their high default risk and because federal taxes must be paid on the interest they pay. 
D) high rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax.

Question 18

The fictional country of Alpetra increases the income tax rate so that tax revenues increase by​ $30 million. In response, consumption falls by $8 million. If GDP and government spending remains the same and Alpetra is a closed economy, what is the change in investment?

Accepted Answer

A) ​Investment increases by $8 million. 
B) ​Investment decreases by $8 million. 
C) ​Investment increases by $38 million. 
D) ​Investment decreases by $22 million. 
A) ​Investment increases by $8 million. 
B) ​Investment decreases by $8 million. 
C) ​Investment increases by $38 million. 
D) ​Investment decreases by $22 million.

Question 19

Suppose a closed economy had public saving of -$1 trillion and private saving of $3 trillion. What are national saving and investment for this country?

Accepted Answer

A) $2 trillion, $2 trillion 
B) $2 trillion, $3 trillion 
C) $3 trillion, $3 trillion 
D) $4 trillion, $2 trillion 
A) $2 trillion, $2 trillion 
B) $2 trillion, $3 trillion 
C) $3 trillion, $3 trillion 
D) $4 trillion, $2 trillion

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 l

Exam 26: Saving, Investment, and the Financial System

A larger budget deficit

Which of the following is both a store of value and a common medium of exchange?

Banks

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

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

Larry buys stock in A to Z Express Company. Curly Corporation builds a new factory. Whose transaction would be an act of investment in the language of macroeconomics?

A closed economy

Retained earnings are

Compared to stocks, bonds offer the holder

If you were to start a business delivering documents, you might need to purchase cell phones, bicycles, desks, and chairs.

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

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

Buskin's Corporation has issued 2 million shares of stock. Its earnings were $10 million, of which it retained 40 percent. What was the dividend per share?

Which of the following statements is correct?

In a closed economy, national saving equals

Municipal bonds pay a relatively

The fictional country of Alpetra increases the income tax rate so that tax revenues increase by​ $30 million. In response, consumption falls by $8 million. If GDP and government spending remains the same and Alpetra is a closed economy, what is the change in investment?

Suppose a closed economy had public saving of -$1 trillion and private saving of $3 trillion. What are national saving and investment for this country?

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

The fictional country of Alpetra increases the income tax rate so that tax revenues increase by $30 million. In response, consumption falls by $8 million. If GDP and government spending remains the same and Alpetra is a closed economy, what is the change in investment?