Question 1

What does the maturity of a bond indicate?

Accepted Answer

The date a

Question 2

A perpetuity is

Accepted Answer

A) a financial intermediary that has existed throughout recorded history. 
B) an instrument of equity finance. 
C) a stock that pays dividends forever. 
D) a bond that pays interest forever. 
A) a financial intermediary that has existed throughout recorded history. 
B) an instrument of equity finance. 
C) a stock that pays dividends forever. 
D) a bond that pays interest forever.

Question 3

If the nominal interest rate is 2.5 percent and the inflation rate is 2 percent, what is the real interest rate?

Accepted Answer

A) .5 percent 
B) 1.25 percent 
C) 4.5 percent 
D) None of the above is correct. 
A) .5 percent 
B) 1.25 percent 
C) 4.5 percent 
D) None of the above is correct.

Question 4

If a reform of the tax laws encourages greater saving, the result would be

Accepted Answer

A) higher interest rates and greater investment. 
B) higher interest rates and less investment. 
C) lower interest rates and greater investment. 
D) lower interest rate and less investment. 
A) higher interest rates and greater investment. 
B) higher interest rates and less investment. 
C) lower interest rates and greater investment. 
D) lower interest rate and less investment.

Question 5

Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free. This would shift the

Accepted Answer

A) supply of loanable funds to the right, causing interest rates to fall. 
B) supply of loanable funds to the left, causing interest rates to rise. 
C) demand for loanable funds to the right, causing interest rates to rise. 
D) demand for loanable funds to the left, causing interest rates to fall. 
A) supply of loanable funds to the right, causing interest rates to fall. 
B) supply of loanable funds to the left, causing interest rates to rise. 
C) demand for loanable funds to the right, causing interest rates to rise. 
D) demand for loanable funds to the left, causing interest rates to fall.

Question 6

In a closed economy, what does (Y - T - C) represent?

Accepted Answer

A) national saving 
B) government tax revenue 
C) public saving 
D) private saving 
A) national saving 
B) government tax revenue 
C) public saving 
D) private saving

Question 7

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 8

A municipal bond is

Accepted Answer

A) issued by the federal government. 
B) issued by state and local governments. 
C) issued by corporations. 
D) issued by households. 
A) issued by the federal government. 
B) issued by state and local governments. 
C) issued by corporations. 
D) issued by households.

Question 9

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy.  
-Refer to Figure 26-5. Starting at point A, a change in tax laws that encouraged households to save more would likely cause

Accepted Answer

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

Question 10

Identify each of the following acts as representing either saving or investment.
a.Fred uses some of his income to buy government bonds.
b.Julie takes some of her income and buys mutual funds.
c.Alex purchases a new truck for his delivery business using borrowed funds.
d.Elaine uses some of her income to buy stock in a major corporation.
e.
Henrietta hires a builder to construct a new building for her bicycle shop.

Accepted Answer

a.Fred is saving.b.J

Question 11

Which of the following equations represents GDP for an open economy?

Accepted Answer

A) Y = C + I + G + NX 
B) NX = I - G 
C) I = Y - C + G + NX 
D) Y = C + I + G 
A) Y = C + I + G + NX 
B) NX = I - G 
C) I = Y - C + G + NX 
D) Y = C + I + G

Question 12

When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____.

Accepted Answer

deficit, i

Question 13

If the nominal interest rate is 3 percent and the inflation rate is 4 percent, then the real interest rate is

Accepted Answer

A) 7 percent. 
B) -1 percent. 
C) 3 percent. 
D) 4 percent. 
A) 7 percent. 
B) -1 percent. 
C) 3 percent. 
D) 4 percent.

Question 14

The primary advantage of mutual funds is that they

Accepted Answer

A) always provide the highest return. 
B) always allow people to "beat the market." 
C) allow people to diversify and reduce risk. 
D) allow people to diversify, which increases risk and return. 
A) always provide the highest return. 
B) always allow people to "beat the market." 
C) allow people to diversify and reduce risk. 
D) allow people to diversify, which increases risk and return.

Question 15

Which of the following is not an important stock exchange in the United States?

Accepted Answer

A) New York Stock Exchange 
B) American Stock Exchange 
C) Chicago Mercantile Exchange 
D) NASDAQ 
A) New York Stock Exchange 
B) American Stock Exchange 
C) Chicago Mercantile Exchange 
D) NASDAQ

Question 16

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion?

Accepted Answer

A) C = $8 trillion, G = $3 trillion 
B) C = $13 trillion, G = -$1 trillion 
C) C = $9 trillion, G = $5 trillion 
D) C = $7 trillion, G = $1 trillion 
A) C = $8 trillion, G = $3 trillion 
B) C = $13 trillion, G = -$1 trillion 
C) C = $9 trillion, G = $5 trillion 
D) C = $7 trillion, G = $1 trillion

Question 17

In the language of macroeconomics, investment refers to

Accepted Answer

A) saving. 
B) the purchase of new capital. 
C) the purchase of stocks, bonds, or mutual funds. 
D) All of the above are correct. 
A) saving. 
B) the purchase of new capital. 
C) the purchase of stocks, bonds, or mutual funds. 
D) All of the above are correct.

Question 18

Use the following table to answer the following questions.
Table 26-2  
-Refer to Table 26-2. For which stock(s) is(are) the P/E ratio less than what is historically typical?

Accepted Answer

A) Boeing Co. 
B) Eli Lilly and Co. 
C) Boeing Co. and Eli Lilly and Co. 
D) All are higher than what is historically typical. 
A) Boeing Co. 
B) Eli Lilly and Co. 
C) Boeing Co. and Eli Lilly and Co. 
D) All are higher than what is historically typical.

Question 19

The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:

Accepted Answer

A) "Buy low-risk bonds." 
B) "Use a medium of exchange." 
C) "Diversify." 
D) "Intermediate." 
A) "Buy low-risk bonds." 
B) "Use a medium of exchange." 
C) "Diversify." 
D) "Intermediate."

Question 20

National saving is the sum of _____ and _____. In a closed economy it is equal to _____ in equilibrium.

Accepted Answer

private saving, publ

Exam 26: Saving, Investment, and the Financial System

What does the maturity of a bond indicate?

A perpetuity is

If the nominal interest rate is 2.5 percent and the inflation rate is 2 percent, what is the real interest rate?

If a reform of the tax laws encourages greater saving, the result would be

Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free. This would shift the

In a closed economy, what does (Y - T - C) represent?

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

A municipal bond is

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. -Refer to Figure 26-5. Starting at point A, a change in tax laws that encouraged households to save more would likely cause

Which of the following equations represents GDP for an open economy?

When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____.

If the nominal interest rate is 3 percent and the inflation rate is 4 percent, then the real interest rate is

The primary advantage of mutual funds is that they

Which of the following is not an important stock exchange in the United States?

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion?

In the language of macroeconomics, investment refers to

Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2. For which stock(s) is(are) the P/E ratio less than what is historically typical?

The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:

National saving is the sum of _____ and _____. In a closed economy it is equal to _____ in equilibrium.

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 the government increases its borrowing, the budget ___ increases and government debt _. The resulting change in investment due to this increased government borrowing is called ___.

National saving is the sum of ___ and _. In a closed economy it is equal to ___ in equilibrium.