Question 1

Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.

Accepted Answer

A) True 
 B)False

Question 2

The assumption of a closed economy

Accepted Answer

A) applies to the world economy. 
B) applies to most national economies. 
C) requires us to assume that the government's budget is always balanced. 
D) All of the above are correct. 
A) applies to the world economy. 
B) applies to most national economies. 
C) requires us to assume that the government's budget is always balanced. 
D) All of the above are correct.

Question 3

If Congress instituted an investment tax credit, the equilibrium quantity of loanable funds would

Accepted Answer

A) rise. 
B) fall. 
C) be unchanged. 
D) move in an uncertain direction. 
A) rise. 
B) fall. 
C) be unchanged. 
D) move in an uncertain direction.

Question 4

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Accepted Answer

A) True 
 B)False

Question 5

Scenario 26-2. Assume the following information for an imaginary, closed economy.
GDP = $5 trillion; consumption = $3.1 trillion;
government purchases = $0.7 trillion; and taxes = $0.9 trillion.
-Refer to Scenario 26-2. For this economy, private saving is equal to

Accepted Answer

A) $0.3 trillion. 
B) $1.2 trillion. 
C) $1.0 trillion. 
D) $1.7 trillion. 
A) $0.3 trillion. 
B) $1.2 trillion. 
C) $1.0 trillion. 
D) $1.7 trillion.

Question 6

The price of a stock will rise if

Accepted Answer

A) the managers of a stock exchange decide the price should be higher. 
B) the demand for the stock rises. 
C) the supply of the stock rises. 
D) None of the above are correct. 
A) the managers of a stock exchange decide the price should be higher. 
B) the demand for the stock rises. 
C) the supply of the stock rises. 
D) None of the above are correct.

Question 7

People who buy stock in a corporation such as General Electric become

Accepted Answer

A) creditors of General Electric, so the benefits of holding the stock depend on General Electric's profits. 
B) creditors of General Electric, but the benefits of holding the stock do not depend on General Electric's profits. 
C) part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits. 
D) part owners of General Electric, but the benefits of holding the stock do not depend on General Electric's profits. 
A) creditors of General Electric, so the benefits of holding the stock depend on General Electric's profits. 
B) creditors of General Electric, but the benefits of holding the stock do not depend on General Electric's profits. 
C) part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits. 
D) part owners of General Electric, but the benefits of holding the stock do not depend on General Electric's profits.

Question 8

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 shows the effects of the government going from a budget surplus to a budget deficit?

Accepted Answer

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

Question 9

A government reduces its budget deficit, but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default. Which of the following is correct?

Accepted Answer

A) The reduced budget deficit will raise interest rates in general. The increased risk of default will raise interest rates on government bonds. 
B) The reduced budget deficit will raise interest rates in general. The increased risk of default will reduce interest rates on government bonds. 
C) The reduced budget deficit will reduce interest rates in general. The increased risk of default will raise interest rates on government bonds. 
D) The reduced budget deficit will reduce interest rates in general. The increased risk of default will reduce interest rates on government bonds. 
A) The reduced budget deficit will raise interest rates in general. The increased risk of default will raise interest rates on government bonds. 
B) The reduced budget deficit will raise interest rates in general. The increased risk of default will reduce interest rates on government bonds. 
C) The reduced budget deficit will reduce interest rates in general. The increased risk of default will raise interest rates on government bonds. 
D) The reduced budget deficit will reduce interest rates in general. The increased risk of default will reduce interest rates on government bonds.

Question 10

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

Accepted Answer

A) The demand for loanable funds shifted rightward. 
B) The demand for loanable funds shifted leftward. 
C) The supply of loanable funds shifted rightward. 
D) The supply of loanable funds shifted leftward. 
A) The demand for loanable funds shifted rightward. 
B) The demand for loanable funds shifted leftward. 
C) The supply of loanable funds shifted rightward. 
D) The supply of loanable funds shifted leftward.

Question 11

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Accepted Answer

A) stock markets 
B) financial institutions 
C) financial markets 
D) financial intermediaries 
A) stock markets 
B) financial institutions 
C) financial markets 
D) financial intermediaries

Question 12

Draw and label a graph showing equilibrium in the market for loanable funds.

Accepted Answer

Market for

Question 13

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Accepted Answer

A) True 
 B)False

Question 14

Other things the same, corporate bonds generally feature higher interest rates than U.S. government bonds.

Accepted Answer

A) True 
 B)False

Question 15

It is claimed that a secondary advantage of mutual funds is that

Accepted Answer

A) an investor can avoid investment charges and fees. 
B) they give ordinary people access to loanable funds for investing. 
C) they usually outperform stock market indexes. 
D) they give ordinary people access to the skills of professional money managers. 
A) an investor can avoid investment charges and fees. 
B) they give ordinary people access to loanable funds for investing. 
C) they usually outperform stock market indexes. 
D) they give ordinary people access to the skills of professional money managers.

Question 16

What is the source of the supply of loanable funds?

Accepted Answer

The answer of What is the source of the supply...

Question 17

Other things the same, an increase in the budget deficit

Accepted Answer

A) shifts the demand for loanable funds right, so the interest rate rises. 
B) shifts the demand for loanable funds left, so the interest rate falls. 
C) shifts the supply of loanable funds right, so the interest rate falls. 
D) shifts the supply of loanable funds left, so the interest rate rises. 
A) shifts the demand for loanable funds right, so the interest rate rises. 
B) shifts the demand for loanable funds left, so the interest rate falls. 
C) shifts the supply of loanable funds right, so the interest rate falls. 
D) shifts the supply of loanable funds left, so the interest rate rises.

Exam 26: Saving, Investment, and the Financial System

Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.

The assumption of a closed economy

If Congress instituted an investment tax credit, the equilibrium quantity of loanable funds would

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, private saving is equal to

The price of a stock will rise if

People who buy stock in a corporation such as General Electric become

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 shows the effects of the government going from a budget surplus to a budget deficit?

A government reduces its budget deficit, but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default. Which of the following is correct?

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Draw and label a graph showing equilibrium in the market for loanable funds.

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Other things the same, corporate bonds generally feature higher interest rates than U.S. government bonds.

It is claimed that a secondary advantage of mutual funds is that

What is the source of the supply of loanable funds?

Other things the same, an increase in the budget deficit

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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