Question 1

A budget surplus

Accepted Answer

A) occurs when the government has debt equal to zero. 
B) causes government debt to increase. 
C) exists when government spending is greater than tax revenues. 
D) reduces the government's debt. 
A) occurs when the government has debt equal to zero. 
B) causes government debt to increase. 
C) exists when government spending is greater than tax revenues. 
D) reduces the government's debt.

Question 2

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

Accepted Answer

A) The supply of loanable funds would shift right. 
B) The demand for loanable funds would shift right. 
C) The supply of loanable funds would shift left. 
D) The demand for loanable funds would shift left. 
A) The supply of loanable funds would shift right. 
B) The demand for loanable funds would shift right. 
C) The supply of loanable funds would shift left. 
D) The demand for loanable funds would shift left.

Question 3

Camp Company had total earnings of $600 million in 2013, out of which it retained 20 percent for future investments. In 2013, its stock featured a dividend yield of 4 percent and 100 million shares were outstanding. The price-earnings ratio for Camp Company stock was

Accepted Answer

A) 5. 
B) 150. 
C) 20. 
D) 25. 
A) 5. 
B) 150. 
C) 20. 
D) 25.

Question 4

Which of the following statements is correct?

Accepted Answer

A) A large, well-known corporation such as Proctor and Gamble would generally use financial intermediation to finance expansion of its factories. 
B) On average, indexed funds outperform managed funds. 
C) Unlike corporate bonds and stocks, checking accounts are a store of value. 
D) Financial intermediaries are institutions through which savers can directly provide funds to borrowers. 
A) A large, well-known corporation such as Proctor and Gamble would generally use financial intermediation to finance expansion of its factories. 
B) On average, indexed funds outperform managed funds. 
C) Unlike corporate bonds and stocks, checking accounts are a store of value. 
D) Financial intermediaries are institutions through which savers can directly provide funds to borrowers.

Question 5

The fictional country of Alpetra increases the income tax rate so that tax revenues increase by $50 million. If GDP, consumption, and government spending remains the same and Alpetra is a closed economy, what is the change in investment?

Accepted Answer

A) $50 million 
B) $100 million 
C) No change 
D) Cannot be determined from the information given 
A) $50 million 
B) $100 million 
C) No change 
D) Cannot be determined from the information given

Question 6

A decrease in the budget deficit

Accepted Answer

A) makes investment spending fall. 
B) makes investment spending rise. 
C) does not affect investment spending. 
D) may increase, decrease, or not affect investment spending if private saving doesn't change. 
A) makes investment spending fall. 
B) makes investment spending rise. 
C) does not affect investment spending. 
D) may increase, decrease, or not affect investment spending if private saving doesn't change.

Question 7

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 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. A shift of the demand curve from D1 to D2 is called

Accepted Answer

A) an increase in the demand for loanable funds, and that increase would originate from people who had some extra income they wanted to lend. 
B) an increase in the demand for loanable funds, and that increase would originate from households and firms who wish to borrow to make investments. 
C) a decrease in the demand for loanable funds, and that decrease would originate from people who had some extra income they wanted to lend. 
D) a decrease in the demand for loanable funds, and that decrease would originate from households and firms who wish to borrow to make investments. 
A) an increase in the demand for loanable funds, and that increase would originate from people who had some extra income they wanted to lend. 
B) an increase in the demand for loanable funds, and that increase would originate from households and firms who wish to borrow to make investments. 
C) a decrease in the demand for loanable funds, and that decrease would originate from people who had some extra income they wanted to lend. 
D) a decrease in the demand for loanable funds, and that decrease would originate from households and firms who wish to borrow to make investments.

Question 9

Which of the following would likely make the interest rate on a bond higher than otherwise?

Accepted Answer

A) both high credit risk and a long term 
B) high credit risk but not a long term 
C) a long term but not a high credit risk 
D) neither high credit risk nor a long term 
A) both high credit risk and a long term 
B) high credit risk but not a long term 
C) a long term but not a high credit risk 
D) neither high credit risk nor a long term

Question 10

Which of the following numbers is not associated with shares of a company's stock?

Accepted Answer

A) term 
B) dividend 
C) price 
D) price-earnings ratio 
A) term 
B) dividend 
C) price 
D) price-earnings ratio

Question 11

Suppose a country repealed its investment tax credit. The effects of this are represented by shifting the

Accepted Answer

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

Question 12

Long-term bonds are

Accepted Answer

A) riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
B) riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
C) less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
D) less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
A) riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
B) riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
C) less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
D) less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

Question 13

If in the past Congress had taken additional actions to make saving more rewarding, then today it is likely that the equilibrium interest rate

Accepted Answer

A) and the equilibrium quantity of loanable funds both would be lower. 
B) and the equilibrium quantity of loanable funds both would be higher. 
C) would be higher and the equilibrium quantity of loanable funds would be lower. 
D) would be lower and the equilibrium quantity of loanable funds would be higher. 
A) and the equilibrium quantity of loanable funds both would be lower. 
B) and the equilibrium quantity of loanable funds both would be higher. 
C) would be higher and the equilibrium quantity of loanable funds would be lower. 
D) would be lower and the equilibrium quantity of loanable funds would be higher.

Question 14

If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500.

Accepted Answer

A) True 
 B)False

Question 15

Table 26-3. The following table presents information about a closed economy whose market for loanable funds is in equilibrium.  
-Refer to Table 26-3. Determine the quantity of private saving.

Accepted Answer

A) $0.2 trillion 
B) $1.6 trillion 
C) $1.8 trillion 
D) $2.6 trillion 
A) $0.2 trillion 
B) $1.6 trillion 
C) $1.8 trillion 
D) $2.6 trillion

Question 16

Suppose that you are a broker and people tell you the following about themselves. What sort of bond would you recommend to each? Defend your choices.
a."I am in a high federal income tax bracket and I don't want to take very much risk."
b."I want a high return and I am willing to take a lot of risk to get it."
c."I want a decent return and I have enough deductions that I don't value tax breaks highly."

Accepted Answer

a.A municipal bond. Municipal bonds gene

Question 17

In a closed economy, investment must be equal to private saving.

Accepted Answer

A) True 
 B)False

Question 18

A higher interest rate makes _____ less attractive. Therefore the quantity of loanable funds demanded decreases.

Accepted Answer

The answer of A higher interest rate makes _____ less...

Question 19

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

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 20

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.

Accepted Answer

A) True 
 B)False

Exam 26: Saving, Investment, and the Financial System

A budget surplus

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

Camp Company had total earnings of $600 million in 2013, out of which it retained 20 percent for future investments. In 2013, its stock featured a dividend yield of 4 percent and 100 million shares were outstanding. The price-earnings ratio for Camp Company stock was

Which of the following statements is correct?

The fictional country of Alpetra increases the income tax rate so that tax revenues increase by $50 million. If GDP, consumption, and government spending remains the same and Alpetra is a closed economy, what is the change in investment?

A decrease in the budget deficit

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

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 demand curve from D1 to D2 is called

Which of the following would likely make the interest rate on a bond higher than otherwise?

Which of the following numbers is not associated with shares of a company's stock?

Suppose a country repealed its investment tax credit. The effects of this are represented by shifting the

Long-term bonds are

If in the past Congress had taken additional actions to make saving more rewarding, then today it is likely that the equilibrium interest rate

If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500.

Table 26-3. The following table presents information about a closed economy whose market for loanable funds is in equilibrium. -Refer to Table 26-3. Determine the quantity of private saving.

In a closed economy, investment must be equal to private saving.

A higher interest rate makes _____ less attractive. Therefore the quantity of loanable funds demanded decreases.

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

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as 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

Filters

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

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 demand curve from D₁ to D₂ is called