Question 1

A mutual fund

Accepted Answer

A) is a financial market where small firms mutually agree to sell stocks and bonds to raise funds. 
B) is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community. 
C) sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. 
D) is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds. 
A) is a financial market where small firms mutually agree to sell stocks and bonds to raise funds. 
B) is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community. 
C) sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. 
D) is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds.

Question 2

Which of the following people purchased the correct asset to meet his or her objective?

Accepted Answer

A) Michelle wanted to be a part owner of Mamma Rosa's Pizza, so she purchased a bond issued by Mamma Rosa's Pizza. 
B) Tim wanted a high return, even if it meant taking some risk, so he purchased stock issued by Specific Electric instead of bonds issued by Specific Electric. 
C) Jennifer wanted to buy equity in Honda, so she purchased bonds sold by Honda. 
D) All of the above are correct. 
A) Michelle wanted to be a part owner of Mamma Rosa's Pizza, so she purchased a bond issued by Mamma Rosa's Pizza. 
B) Tim wanted a high return, even if it meant taking some risk, so he purchased stock issued by Specific Electric instead of bonds issued by Specific Electric. 
C) Jennifer wanted to buy equity in Honda, so she purchased bonds sold by Honda. 
D) All of the above are correct.

Question 3

In a closed economy, if Y remained the same, but G rose, T rose by the same amount as G, and C fell but by less than the increase in T, what would happen to private and national saving?

Accepted Answer

A) national saving would fall and private saving would rise 
B) national saving would rise and private saving would fall 
C) both national saving and private saving would fall 
D) None of the above is correct. 
A) national saving would fall and private saving would rise 
B) national saving would rise and private saving would fall 
C) both national saving and private saving would fall 
D) None of the above is correct.

Question 4

Use the following table to answer the following questions.
Table 26-2  
-Refer to Table 26-2. Which company had the highest earnings per share?

Accepted Answer

A) Boeing Co. 
B) Eli Lilly and Co. 
C) Kraft 
D) Kellogg Co. 
A) Boeing Co. 
B) Eli Lilly and Co. 
C) Kraft 
D) Kellogg Co.

Question 5

In 2013, XYZ Corporation had total earnings of $500 million and XYZ retained 20 percent of its earnings for future investments. If the price of a share of XYZ stock is $70 and if 100 million shares of its stock is outstanding, then what is the price-earnings ratio?

Accepted Answer

A) 6.25 
B) 11.2 
C) 14.0 
D) 17.5 
A) 6.25 
B) 11.2 
C) 14.0 
D) 17.5

Question 6

Which of the following is not a nonsensical headline?

Accepted Answer

A) British perpetuities about to mature. 
B) Disney issues new bonds with term of 7 percent. 
C) Corporate bonds currently pay higher interest rates than government bonds. 
D) Standard and Poor's judges new junk bond to have very low credit risk. 
A) British perpetuities about to mature. 
B) Disney issues new bonds with term of 7 percent. 
C) Corporate bonds currently pay higher interest rates than government bonds. 
D) Standard and Poor's judges new junk bond to have very low credit risk.

Question 7

Consider three different closed economies with the following national income statistics. Country A has taxes of $40 billion, transfers of $20 billion, and government expenditures on goods and services of $30 billion. County B has private savings of $60 billion, and investment expenditures of $40 billion. Country C has GDP of $300 billion, investment of $90, consumption of $180 billion, taxes of $60 billion and transfers of $20 billion. From this information, we know that

Accepted Answer

A) country A has the largest government budget deficit. 
B) country B has the largest government budget deficit. 
C) country C has the largest government budget deficit. 
D) The government budget deficit is equal in all three countries. 
A) country A has the largest government budget deficit. 
B) country B has the largest government budget deficit. 
C) country C has the largest government budget deficit. 
D) The government budget deficit is equal in all three countries.

Question 8

An increase in the government's budget deficit 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 9

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.  
-Refer to Figure 26-4. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 4 percent, then the equilibrium real interest rate is

Accepted Answer

A) lower than 6 percent. 
B) 6 percent. 
C) between 6 percent and 8 percent. 
D) higher than 8 percent. 
A) lower than 6 percent. 
B) 6 percent. 
C) between 6 percent and 8 percent. 
D) higher than 8 percent.

Question 10

Banks and mutual funds are examples of financial markets.

Accepted Answer

A) True 
 B)False

Question 11

A restaurant chain announces declining revenues. What's the name of the type of risk that this news raises for holders of this chain's bonds? What does this news to do the interest rate on this chain's bonds?

Accepted Answer

default ri

Question 12

The purchase of a new house is the one form of

Accepted Answer

A) investment that is financed by private saving rather than public saving. 
B) household spending that is not counted as part of investment in the national income accounts. 
C) household spending that is investment rather than consumption. 
D) household spending that does not contribute to GDP. 
A) investment that is financed by private saving rather than public saving. 
B) household spending that is not counted as part of investment in the national income accounts. 
C) household spending that is investment rather than consumption. 
D) household spending that does not contribute to GDP.

Question 13

ABC Co. sells newly issued bonds. JLG Co. sells newly issued stocks. Which company is raising funds in financial markets?

Accepted Answer

A) only ABC 
B) only JLG 
C) both ABC and JLG 
D) neither ABC nor JLG 
A) only ABC 
B) only JLG 
C) both ABC and JLG 
D) neither ABC nor JLG

Question 14

Congress and the President allow people to make greater contributions to tax-deferred savings accounts. Which curve in the market for loanable funds would shift, which direction would it shift, what would happen to the interest rate, and what would happen to investment spending?

Accepted Answer

The supply of loanable funds w

Question 15

Other things the same, a higher interest rate induces people to

Accepted Answer

A) save more, so the supply of loanable funds slopes upward. 
B) save less, so the supply of loanable funds slopes downward. 
C) invest more, so the supply of loanable funds slopes upward. 
D) invest less, so the supply of loanable funds slopes downward. 
A) save more, so the supply of loanable funds slopes upward. 
B) save less, so the supply of loanable funds slopes downward. 
C) invest more, so the supply of loanable funds slopes upward. 
D) invest less, so the supply of loanable funds slopes downward.

Question 16

Consider the expressions T - G and Y - T - C. Which of the following statements is correct?

Accepted Answer

A) Each one of these is equal to national saving. 
B) Each one of these is equal to public saving. 
C) The first of these is private saving; the second one is public saving. 
D) The first of these is public saving; the second one is private saving. 
A) Each one of these is equal to national saving. 
B) Each one of these is equal to public saving. 
C) The first of these is private saving; the second one is public saving. 
D) The first of these is public saving; the second one is private saving.

Question 17

Suppose that in a closed economy GDP is equal to 20,000, consumption equal to 15,000, government purchases equal 4,000 and taxes equal 3,000. What are private saving, public saving, and national saving?

Accepted Answer

A) -2,000, 1,000, and 2,000, respectively. 
B) 1,000, 2,000, and 3,000, respectively. 
C) 2,000, -1,000, and 1,000, respectively. 
D) 2,000, 1,000, and 2,000, respectively. 
A) -2,000, 1,000, and 2,000, respectively. 
B) 1,000, 2,000, and 3,000, respectively. 
C) 2,000, -1,000, and 1,000, respectively. 
D) 2,000, 1,000, and 2,000, respectively.

Question 18

Most entrepreneurs finance their purchases of real capital using their past saving.

Accepted Answer

A) True 
 B)False

Question 19

A company is called insolvent when

Accepted Answer

A) ​there is a rapid decline in an asset price. 
B) ​its debts exceed the value of its assets. 
C) ​there is a decline in confidence in the company. 
D) ​it experiences a credit crunch. 
A) ​there is a rapid decline in an asset price. 
B) ​its debts exceed the value of its assets. 
C) ​there is a decline in confidence in the company. 
D) ​it experiences a credit crunch.

Question 20

If consumers reduced their spending, what would happen to the interest rate and investment?

Accepted Answer

The interest rate wo

Exam 26: Saving, Investment, and the Financial System

A mutual fund

Which of the following people purchased the correct asset to meet his or her objective?

In a closed economy, if Y remained the same, but G rose, T rose by the same amount as G, and C fell but by less than the increase in T, what would happen to private and national saving?

Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2. Which company had the highest earnings per share?

In 2013, XYZ Corporation had total earnings of $500 million and XYZ retained 20 percent of its earnings for future investments. If the price of a share of XYZ stock is $70 and if 100 million shares of its stock is outstanding, then what is the price-earnings ratio?

Which of the following is not a nonsensical headline?

An increase in the government's budget deficit means

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 4 percent, then the equilibrium real interest rate is

Banks and mutual funds are examples of financial markets.

A restaurant chain announces declining revenues. What's the name of the type of risk that this news raises for holders of this chain's bonds? What does this news to do the interest rate on this chain's bonds?

The purchase of a new house is the one form of

ABC Co. sells newly issued bonds. JLG Co. sells newly issued stocks. Which company is raising funds in financial markets?

Congress and the President allow people to make greater contributions to tax-deferred savings accounts. Which curve in the market for loanable funds would shift, which direction would it shift, what would happen to the interest rate, and what would happen to investment spending?

Other things the same, a higher interest rate induces people to

Consider the expressions T - G and Y - T - C. Which of the following statements is correct?

Suppose that in a closed economy GDP is equal to 20,000, consumption equal to 15,000, government purchases equal 4,000 and taxes equal 3,000. What are private saving, public saving, and national saving?

Most entrepreneurs finance their purchases of real capital using their past saving.

A company is called insolvent when

If consumers reduced their spending, what would happen to the interest rate and investment?

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

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