Question 1

In a closed economy, public saving is the amount of

Accepted Answer

A) income that households have left after paying for taxes and consumption. 
B) income that businesses have left after paying for the factors of production. 
C) tax revenue that the government has left after paying for its spending. 
D) spending that the government undertakes in excess of the taxes it collects. 
A) income that households have left after paying for taxes and consumption. 
B) income that businesses have left after paying for the factors of production. 
C) tax revenue that the government has left after paying for its spending. 
D) spending that the government undertakes in excess of the taxes it collects.

Question 2

In examining the national income accounts of the closed economy of Nepotocracy you see that this year it had taxes of $100 billion, transfers of $20 billion, and government purchases of goods and services of $70 billion. You also notice that last year it had private saving of $70 billion and investment of $50 billion. In which year did Nepotocracy have a budget deficit of $20 billion?

Accepted Answer

A) this year and last year 
B) this year but not last year 
C) last year but not this year 
D) neither this year nor last year 
A) this year and last year 
B) this year but not last year 
C) last year but not this year 
D) neither this year nor last year

Question 3

Which bond is likely to have higher interest rate due to a higher default risk?

Accepted Answer

A) A share of stock issued by Apple. 
B) A corporate bond issued by Apple. 
C) A junk bond. 
D) A U.S. government bond. 
A) A share of stock issued by Apple. 
B) A corporate bond issued by Apple. 
C) A junk bond. 
D) A U.S. government bond.

Question 4

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines the equilibrium level of

Accepted Answer

A) the inflation rate. 
B) gross domestic product. 
C) the real interest rate. 
D) the nominal interest rate. 
A) the inflation rate. 
B) gross domestic product. 
C) the real interest rate. 
D) the nominal interest rate.

Question 5

After a corporation issues stock, the stock

Accepted Answer

A) cannot be resold. 
B) can be resold only if the corporation wants to buy it back. 
C) can be resold on exchanges; the resale will raise additional funds for the corporation. 
D) None of the above are correct. 
A) cannot be resold. 
B) can be resold only if the corporation wants to buy it back. 
C) can be resold on exchanges; the resale will raise additional funds for the corporation. 
D) None of the above are correct.

Question 6

Scenario 26-3. Assume the following information for an imaginary, open economy.
Consumption = $1,000; investment = $200; net exports = -$50;
taxes = $230; private saving = $225; and national saving = $150.
-Refer to Scenario 26-3. For this economy, government purchases amount to

Accepted Answer

A) $330. 
B) $280. 
C) $305. 
D) $310. 
A) $330. 
B) $280. 
C) $305. 
D) $310.

Question 7

A budget deficit

Accepted Answer

A) changes the supply of loanable funds. 
B) changes the demand for loanable funds. 
C) changes both the supply of and demand for loanable funds. 
D) does not influence the supply of or the demand for loanable funds. 
A) changes the supply of loanable funds. 
B) changes the demand for loanable funds. 
C) changes both the supply of and demand for loanable funds. 
D) does not influence the supply of or the demand for loanable funds.

Question 8

In a closed economy, national saving is

Accepted Answer

A) usually greater than investment. 
B) equal to investment. 
C) usually less than investment because of the leakage of taxes. 
D) always less than investment. 
A) usually greater than investment. 
B) equal to investment. 
C) usually less than investment because of the leakage of taxes. 
D) always less than investment.

Question 9

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

Accepted Answer

A) interest rates and the equilibrium quantity of loanable funds rise. 
B) interest rates rise and the equilibrium quantity of loanable funds fall. 
C) interest rates fall and the equilibrium quantity of loanable funds rise. 
D) interest rates and the equilibrium quantity of loanable funds fall. 
A) interest rates and the equilibrium quantity of loanable funds rise. 
B) interest rates rise and the equilibrium quantity of loanable funds fall. 
C) interest rates fall and the equilibrium quantity of loanable funds rise. 
D) interest rates and the equilibrium quantity of loanable funds fall.

Question 10

If the government instituted an investment tax credit, then which of the following would be higher in equilibrium?

Accepted Answer

A) saving and the interest rate 
B) saving but not the interest rate 
C) the interest rate but not saving 
D) neither saving nor the interest rate 
A) saving and the interest rate 
B) saving but not the interest rate 
C) the interest rate but not saving 
D) neither saving nor the interest rate

Question 11

Other things the same, bonds are likely to have higher interest rates if they have

Accepted Answer

A) tax exemptions and short terms. 
B) tax exemptions and long terms. 
C) no tax exemptions and short terms. 
D) no tax exemptions and long terms. 
A) tax exemptions and short terms. 
B) tax exemptions and long terms. 
C) no tax exemptions and short terms. 
D) no tax exemptions and long terms.

Question 12

How do banks make profits?

Accepted Answer

They charge borrower

Question 13

The financial system is important because it helps to match one person's _____ with another person's _____.

Accepted Answer

The answer of The financial system is important because it...

Question 14

If the government's expenditures exceeded its receipts, it would likely

Accepted Answer

A) lend money to a bank or other financial intermediary. 
B) borrow money from a bank or other financial intermediary. 
C) buy bonds directly from the public. 
D) sell bonds directly to the public. 
A) lend money to a bank or other financial intermediary. 
B) borrow money from a bank or other financial intermediary. 
C) buy bonds directly from the public. 
D) sell bonds directly to the public.

Question 15

Which of the following is correct?

Accepted Answer

A) In a closed economy, equilibrium in the market for loanable funds occurs where saving = investment. 
B) Investment is the source for the supply of loanable funds. 
C) If there is a surplus in the market for loanable funds, the interest rate rises. 
D) All of the above are correct 
A) In a closed economy, equilibrium in the market for loanable funds occurs where saving = investment. 
B) Investment is the source for the supply of loanable funds. 
C) If there is a surplus in the market for loanable funds, the interest rate rises. 
D) All of the above are correct

Question 16

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

Accepted Answer

A) and investment both would increase. 
B) and investment both would decrease. 
C) would increase and investment would decrease. 
D) would decrease and investment would increase. 
A) and investment both would increase. 
B) and investment both would decrease. 
C) would increase and investment would decrease. 
D) would decrease and investment would increase.

Question 17

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

Accepted Answer

A) increased both interest rates and investment. 
B) increased interest rates and decreased investment. 
C) decreased interest rates and increased investment. 
D) decreased both interest rates and investment. 
A) increased both interest rates and investment. 
B) increased interest rates and decreased investment. 
C) decreased interest rates and increased investment. 
D) decreased both interest rates and investment.

Question 18

List three characteristics of a bond that would make its interest rate higher than otherwise.

Accepted Answer

it has a longer term to maturi

Question 19

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

Accepted Answer

A) raise the demand for existing shares of the stock, causing the price to rise 
B) decrease the demand for existing shares of the stock, causing the price to fall 
C) raise the supply of the existing shares of stock, causing the price to rise 
D) raise the supply of the existing shares of stock, causing the price to fall 
A) raise the demand for existing shares of the stock, causing the price to rise 
B) decrease the demand for existing shares of the stock, causing the price to fall 
C) raise the supply of the existing shares of stock, causing the price to rise 
D) raise the supply of the existing shares of stock, causing the price to fall

Question 20

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling shares of stock.

Accepted Answer

A) True 
 B)False

Exam 26: Saving, Investment, and the Financial System

In a closed economy, public saving is the amount of

Which bond is likely to have higher interest rate due to a higher default risk?

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines the equilibrium level of

After a corporation issues stock, the stock

Scenario 26-3. Assume the following information for an imaginary, open economy. Consumption = $1,000; investment = $200; net exports = -$50; taxes = $230; private saving = $225; and national saving = $150. -Refer to Scenario 26-3. For this economy, government purchases amount to

A budget deficit

In a closed economy, national saving is

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

If the government instituted an investment tax credit, then which of the following would be higher in equilibrium?

Other things the same, bonds are likely to have higher interest rates if they have

How do banks make profits?

The financial system is important because it helps to match one person's _____ with another person's _____.

If the government's expenditures exceeded its receipts, it would likely

Which of the following is correct?

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

List three characteristics of a bond that would make its interest rate higher than otherwise.

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling shares of stock.

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 financial system is important because it helps to match one person's _ with another person's _.