Question 1

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Accepted Answer

A) The supply of and demand for loanable funds would shift right. 
B) The supply of and demand for loanable funds would shift left. 
C) The supply of loanable funds would shift right and the demand for loanable funds would shift left. 
D) None of the above is correct. 
A) The supply of and demand for loanable funds would shift right. 
B) The supply of and demand for loanable funds would shift left. 
C) The supply of loanable funds would shift right and the demand for loanable funds would shift left. 
D) None of the above is correct.

Question 2

Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one of its breweries.

Accepted Answer

A) Fran and Miller are both investing. 
B) Fran and Miller are both saving. 
C) Fran is investing; Miller is saving. 
D) Fran is saving; Miller is investing. 
A) Fran and Miller are both investing. 
B) Fran and Miller are both saving. 
C) Fran is investing; Miller is saving. 
D) Fran is saving; Miller is investing.

Question 3

A low P/E for a stock indicates that

Accepted Answer

A) people may expect earnings to fall in the future, perhaps because the firm will be faced with increased competition. 
B) its dividends have been low so that no one is willing to pay very much for it. 
C) the corporation is possibly overvalued. 
D) All of the above are correct. 
A) people may expect earnings to fall in the future, perhaps because the firm will be faced with increased competition. 
B) its dividends have been low so that no one is willing to pay very much for it. 
C) the corporation is possibly overvalued. 
D) All of the above are correct.

Question 4

The indirect provision of funds by savers to borrowers is accomplished by

Accepted Answer

A) banks and other financial markets. 
B) banks and other financial intermediaries. 
C) stock markets and other financial markets. 
D) All of the above are correct. 
A) banks and other financial markets. 
B) banks and other financial intermediaries. 
C) stock markets and other financial markets. 
D) All of the above are correct.

Question 5

In which case would people desire to borrow the most?

Accepted Answer

A) the nominal interest rate is 8% and the inflation rate is 7% 
B) the nominal interest rate is 7% and the inflation rate is 5% 
C) the nominal interest rate is 6% and the inflation rate is 3% 
D) the nominal interest rate is 5% and the inflation rate is 1% 
A) the nominal interest rate is 8% and the inflation rate is 7% 
B) the nominal interest rate is 7% and the inflation rate is 5% 
C) the nominal interest rate is 6% and the inflation rate is 3% 
D) the nominal interest rate is 5% and the inflation rate is 1%

Question 6

Morgan, a financial advisor, has told her clients the following things. Which of her statements is not correct?

Accepted Answer

A) "U.S. government bonds generally pay a higher rate of interest than corporate bonds." 
B) "The interest received on corporate bonds is taxable." 
C) "U.S. government bonds have the lowest default risk." 
D) "If you purchase a municipal bond, you can sell it before it matures." 
A) "U.S. government bonds generally pay a higher rate of interest than corporate bonds." 
B) "The interest received on corporate bonds is taxable." 
C) "U.S. government bonds have the lowest default risk." 
D) "If you purchase a municipal bond, you can sell it before it matures."

Question 7

For a closed economy, GDP is $18 trillion, consumption is $13 trillion, taxes are $2 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

Accepted Answer

A) $3 trillion and $1 trillion, respectively 
B) $3 trillion and $2 trillion, respectively 
C) $2 trillion and $3 trillion, respectively 
D) $2 trillion and $2 trillion, respectively 
A) $3 trillion and $1 trillion, respectively 
B) $3 trillion and $2 trillion, respectively 
C) $2 trillion and $3 trillion, respectively 
D) $2 trillion and $2 trillion, respectively

Question 8

An increase in the demand for loanable funds increases the equilibrium interest rate and decreases the equilibrium level of saving.

Accepted Answer

A) True 
 B)False

Question 9

On which of these bonds is the prospect of default most likely?

Accepted Answer

A) a junk bond 
B) a municipal bond 
C) a U.S. government bond 
D) a corporate bond issued by Proctor & Gamble Corporation 
A) a junk bond 
B) a municipal bond 
C) a U.S. government bond 
D) a corporate bond issued by Proctor & Gamble Corporation

Question 10

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.  
-Refer to Figure 26-3. A shift of the supply curve from S1 to S2 is called

Accepted Answer

A) an increase in the supply of loanable funds. 
B) an increase in the quantity of loanable funds supplied. 
C) a decrease in the supply of loanable funds. 
D) a decrease in the quantity of loanable funds supplied. 
A) an increase in the supply of loanable funds. 
B) an increase in the quantity of loanable funds supplied. 
C) a decrease in the supply of loanable funds. 
D) a decrease in the quantity of loanable funds supplied.

Question 11

If Congress increased the tax rate on interest income, investment

Accepted Answer

A) would increase and saving would decrease. 
B) would decrease and saving would increase. 
C) and saving would increase. 
D) and saving would decrease. 
A) would increase and saving would decrease. 
B) would decrease and saving would increase. 
C) and saving would increase. 
D) and saving would decrease.

Question 12

Index funds

Accepted Answer

A) buy all the stocks in a given stock index. 
B) promise to beat the market by a certain percentage known as an index. 
C) provide a return that is adjusted for changes in the consumer price index. 
D) buy industries within a particular category of the North American Industry Classification System. 
A) buy all the stocks in a given stock index. 
B) promise to beat the market by a certain percentage known as an index. 
C) provide a return that is adjusted for changes in the consumer price index. 
D) buy industries within a particular category of the North American Industry Classification System.

Question 13

Use the following table to answer the following questions.
Table 26-1  
-Refer to Table 26-1. Assume that the closing price was also the average price at which each stock transaction took place. What was the total dollar volume of Graco stock traded that day?

Accepted Answer

A) $68,770,900 
B) $6,877,090 
C) $687,709 
D) $6,877.1 
A) $68,770,900 
B) $6,877,090 
C) $687,709 
D) $6,877.1

Question 14

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Accepted Answer

A) There would be an increase in the amount of loanable funds borrowed. 
B) There would be a reduction in the amount of loanable funds borrowed. 
C) There would be no change in the amount of loanable funds borrowed. 
D) The change in loanable funds is uncertain. 
A) There would be an increase in the amount of loanable funds borrowed. 
B) There would be a reduction in the amount of loanable funds borrowed. 
C) There would be no change in the amount of loanable funds borrowed. 
D) The change in loanable funds is uncertain.

Question 15

The sale of either stocks or bonds to raise money is known as equity finance.

Accepted Answer

A) True 
 B)False

Question 16

Higher education subsidies in the form of the federal government's student loan program have the potential to

Accepted Answer

A) reduce the number of people who attend college. 
B) reduce the number of universities and colleges in the future. 
C) create a credit bubble and debt crisis. 
D) reduce the default risk on student loans. 
A) reduce the number of people who attend college. 
B) reduce the number of universities and colleges in the future. 
C) create a credit bubble and debt crisis. 
D) reduce the default risk on student loans.

Question 17

If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,

Accepted Answer

A) there is a surplus and the interest rate is above the equilibrium level. 
B) there is a surplus and the interest rate is below the equilibrium level. 
C) there is a shortage and the interest rate is above the equilibrium level. 
D) there is a shortage and the interest rate is below the equilibrium level. 
A) there is a surplus and the interest rate is above the equilibrium level. 
B) there is a surplus and the interest rate is below the equilibrium level. 
C) there is a shortage and the interest rate is above the equilibrium level. 
D) there is a shortage and the interest rate is below the equilibrium level.

Question 18

The supply of loanable funds slopes

Accepted Answer

A) upward because an increase in the interest rate induces people to save more. 
B) downward because an increase in the interest rate induces people to save less. 
C) downward because an increase in the interest rate induces people to invest less. 
D) upward because an increase in the interest rate induces people to invest more. 
A) upward because an increase in the interest rate induces people to save more. 
B) downward because an increase in the interest rate induces people to save less. 
C) downward because an increase in the interest rate induces people to invest less. 
D) upward because an increase in the interest rate induces people to invest more.

Question 19

If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would happen to interest rates?

Accepted Answer

There is a

Question 20

A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a

Accepted Answer

A) bond. 
B) stock. 
C) mutual fund. 
D) All of the above are correct. 
A) bond. 
B) stock. 
C) mutual fund. 
D) All of the above are correct.

Exam 26: Saving, Investment, and the Financial System

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one of its breweries.

A low P/E for a stock indicates that

The indirect provision of funds by savers to borrowers is accomplished by

In which case would people desire to borrow the most?

Morgan, a financial advisor, has told her clients the following things. Which of her statements is not correct?

For a closed economy, GDP is $18 trillion, consumption is $13 trillion, taxes are $2 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

An increase in the demand for loanable funds increases the equilibrium interest rate and decreases the equilibrium level of saving.

On which of these bonds is the prospect of default most likely?

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. A shift of the supply curve from S1 to S2 is called

If Congress increased the tax rate on interest income, investment

Index funds

Use the following table to answer the following questions. Table 26-1 -Refer to Table 26-1. Assume that the closing price was also the average price at which each stock transaction took place. What was the total dollar volume of Graco stock traded that day?

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

The sale of either stocks or bonds to raise money is known as equity finance.

Higher education subsidies in the form of the federal government's student loan program have the potential to

If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,

The supply of loanable funds slopes

If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would happen to interest rates?

A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a

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

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. A shift of the supply curve from S₁ to S₂ is called