Question 1

In a closed economy, each unit of output is either consumed by households or invested.

Accepted Answer

A) True 
 B)False

Question 2

We associate the term debt finance with

Accepted Answer

A) the bond market, and we associate the term equity finance with the stock market. 
B) the stock market, and we associate the term equity finance with the bond market. 
C) financial intermediaries, and we associate the term equity finance with financial markets. 
D) financial markets, and we associate the term equity finance with financial intermediaries. 
A) the bond market, and we associate the term equity finance with the stock market. 
B) the stock market, and we associate the term equity finance with the bond market. 
C) financial intermediaries, and we associate the term equity finance with financial markets. 
D) financial markets, and we associate the term equity finance with financial intermediaries.

Question 3

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

Accepted Answer

A) their consumption expenditures are being financed by someone else's saving. 
B) their consumption expenditures are being financed by someone else's investment. 
C) their investments are being financed by someone else's saving. 
D) their saving is being financed by someone else's investment. 
A) their consumption expenditures are being financed by someone else's saving. 
B) their consumption expenditures are being financed by someone else's investment. 
C) their investments are being financed by someone else's saving. 
D) their saving is being financed by someone else's investment.

Question 4

In the small closed economy of San Lorena, the currency is the denar. Statistics for last year show that private saving was 60 billion denars, taxes were 80 billion denars, government purchases of goods and services were 70 billion denars, there were no transfer payments by the government, and GDP was 400 billion denars. What were consumption and investment in San Lorena?

Accepted Answer

A) 270 billion denars, 50 billion denars 
B) 250 billion denars, 60 billion denars 
C) 260 billion denars, 70 billion denars 
D) None of the above is correct. 
A) 270 billion denars, 50 billion denars 
B) 250 billion denars, 60 billion denars 
C) 260 billion denars, 70 billion denars 
D) None of the above is correct.

Question 5

In a closed economy, Y - C - G equals _____. The variable Y is _____, C is _____, and G is _____.

Accepted Answer

national saving/inve

Question 6

We interpret the meaning of "loanable funds" as the

Accepted Answer

A) flow of resources available from private saving. 
B) flow of resources available to fund private investment. 
C) resources borrowed by private investors and by government. 
D) resources lent by private investors and by government. 
A) flow of resources available from private saving. 
B) flow of resources available to fund private investment. 
C) resources borrowed by private investors and by government. 
D) resources lent by private investors and by government.

Question 7

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. 
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.

Question 8

Which of the following is not correct?

Accepted Answer

A) If you buy a bond from a corporation, you can sell the bond to someone else before it matures. 
B) Term refers to the scheduling of periodic interest rate payments on a bond. 
C) A bond is an IOU. 
D) There are millions of different bonds in the U.S. economy. 
A) If you buy a bond from a corporation, you can sell the bond to someone else before it matures. 
B) Term refers to the scheduling of periodic interest rate payments on a bond. 
C) A bond is an IOU. 
D) There are millions of different bonds in the U.S. economy.

Question 9

Other things the same, a government budget deficit

Accepted Answer

A) reduces public saving, but not national saving. 
B) reduces national saving, but not public saving. 
C) reduces both public and national saving. 
D) reduces neither public saving nor national saving. 
A) reduces public saving, but not national saving. 
B) reduces national saving, but not public saving. 
C) reduces both public and national saving. 
D) reduces neither public saving nor national saving.

Question 10

The prices of stock traded on exchanges are determined by

Accepted Answer

A) the Corporate Stock Administration. 
B) the administrators of NASDAQ. 
C) the supply of, and demand for, the stock. 
D) All of the above are correct. 
A) the Corporate Stock Administration. 
B) the administrators of NASDAQ. 
C) the supply of, and demand for, the stock. 
D) All of the above are correct.

Question 11

How do banks make profits?

Accepted Answer

They charge borrower

Question 12

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.  
-Refer to Figure 26-3. Which of the following movements would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit?

Accepted Answer

A) a movement from Point A to Point C 
B) a movement from Point B to Point A 
C) a movement from Point B to Point F 
D) a movement from Point C to Point B 
A) a movement from Point A to Point C 
B) a movement from Point B to Point A 
C) a movement from Point B to Point F 
D) a movement from Point C to Point B

Question 13

Suppose the Move It! exercise chain has revenues of $45 million, accounting costs of $15 million, and currently has issued 10 million shares of stocks selling at $90 each. Compute the price-earning ratio. Show your work. Is this ratio relatively high or low? What might an increase in the price-earnings ratio indicate?

Accepted Answer

The earnings per share is ($45 million -

Question 14

Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

Accepted Answer

A) the interest rate and investment would rise. 
B) the interest rate would rise and investment would fall. 
C) the interest rate would fall and investment would rise. 
D) the interest rate and investment would fall. 
A) the interest rate and investment would rise. 
B) the interest rate would rise and investment would fall. 
C) the interest rate would fall and investment would rise. 
D) the interest rate and investment would fall.

Question 15

Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market?

Accepted Answer

A) an increase in the supply of or a decrease in the demand for loanable funds 
B) an increase in the supply of or an increase in the demand for loanable funds 
C) a decrease in the supply of or a decrease in the demand for loanable funds 
D) a decrease in the supply of or an increase in the demand for loanable funds 
A) an increase in the supply of or a decrease in the demand for loanable funds 
B) an increase in the supply of or an increase in the demand for loanable funds 
C) a decrease in the supply of or a decrease in the demand for loanable funds 
D) a decrease in the supply of or an increase in the demand for loanable funds

Question 16

When tax code changes reduce saving incentives, the interest rate will _____ and investment will _____.

Accepted Answer

The answer of When tax code changes reduce saving incentives,...

Question 17

Northwest Wholesale Foods sells common stock. The company is using

Accepted Answer

A) equity financing and the return shareholders earn is fixed. 
B) equity financing and the return shareholders earn depends on how profitable the company is. 
C) debt financing and the return shareholders earn is fixed. 
D) debt financing and the return shareholders earn depends on how profitable the company is. 
A) equity financing and the return shareholders earn is fixed. 
B) equity financing and the return shareholders earn depends on how profitable the company is. 
C) debt financing and the return shareholders earn is fixed. 
D) debt financing and the return shareholders earn depends on how profitable the company is.

Question 18

Which of the following restrictions implies that saving and investment are equal for a closed economy?

Accepted Answer

A) Private saving is equal to zero. 
B) Public saving is equal to zero. 
C) The economy's government is running neither a surplus nor a deficit. 
D) No restriction is necessary; saving and investment are equal for all closed economies. 
A) Private saving is equal to zero. 
B) Public saving is equal to zero. 
C) The economy's government is running neither a surplus nor a deficit. 
D) No restriction is necessary; saving and investment are equal for all closed economies.

Question 19

Which of the following statements about the term of a bond is correct?

Accepted Answer

A) Term refers to the various characteristics of a bond, including its interest rate and tax treatment. 
B) The term of a bond is determined entirely by its credit risk. 
C) The term of a bond is determined entirely by how much sales charge the buyer of the bond pays when he or she purchases the bond. 
D) Interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
A) Term refers to the various characteristics of a bond, including its interest rate and tax treatment. 
B) The term of a bond is determined entirely by its credit risk. 
C) The term of a bond is determined entirely by how much sales charge the buyer of the bond pays when he or she purchases the bond. 
D) Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

Question 20

Which of the following is included in the demand for loanable funds?

Accepted Answer

A) investment and government borrowing 
B) investment but not government borrowing 
C) government borrowing but not investment 
D) neither government borrowing nor investment 
A) investment and government borrowing 
B) investment but not government borrowing 
C) government borrowing but not investment 
D) neither government borrowing nor investment

Exam 26: Saving, Investment, and the Financial System

In a closed economy, each unit of output is either consumed by households or invested.

We associate the term debt finance with

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

In a closed economy, Y - C - G equals _____. The variable Y is _____, C is _____, and G is _____.

We interpret the meaning of "loanable funds" as the

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

Which of the following is not correct?

Other things the same, a government budget deficit

The prices of stock traded on exchanges are determined by

How do banks make profits?

Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market?

When tax code changes reduce saving incentives, the interest rate will _____ and investment will _____.

Northwest Wholesale Foods sells common stock. The company is using

Which of the following restrictions implies that saving and investment are equal for a closed economy?

Which of the following statements about the term of a bond is correct?

Which of the following is included in the demand for loanable funds?

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

In a closed economy, Y - C - G equals ___. The variable Y is _, C is _, and G is ___.

When tax code changes reduce saving incentives, the interest rate will _ and investment will _.