Question 1

Taking out a mortgage to buy a condo, buying a mutual fund, and building a new factory are all examples of investment.

Accepted Answer

A) True 
 B)False

Question 2

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?

Accepted Answer

A) $1.5 trillion and $2.5 trillion, respectively 
B) $2.5 trillion and $1.5 trillion, respectively 
C) $2.5 trillion and $2.5 trillion, respectively 
D) $1.5 trillion and $1.5 trillion, respectively 
A) $1.5 trillion and $2.5 trillion, respectively 
B) $2.5 trillion and $1.5 trillion, respectively 
C) $2.5 trillion and $2.5 trillion, respectively 
D) $1.5 trillion and $1.5 trillion, respectively

Question 3

By definition, government purchases and taxes are zero for a closed economy.

Accepted Answer

A) True 
 B)False

Question 4

When tax code changes increase investment incentives, the _____ for loanable funds curve shifts to the _____. This results in a(n) _____ in the interest rate and a(n) _____ in investment.

Accepted Answer

demand, ri

Question 5

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

Accepted Answer

Its price to earnings ratio is

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is correct?

Accepted Answer

A) A corporation receives a monetary payment every time its shares of stock are traded by stockholders on organized stock exchanges. 
B) When a corporation sells bonds as a means of raising funds it is engaging in debt finance. 
C) A share of stock is an IOU. 
D) The two most important financial markets in the economy are the stock market and financial intermediaries. 
A) A corporation receives a monetary payment every time its shares of stock are traded by stockholders on organized stock exchanges. 
B) When a corporation sells bonds as a means of raising funds it is engaging in debt finance. 
C) A share of stock is an IOU. 
D) The two most important financial markets in the economy are the stock market and financial intermediaries.

Question 8

Mutual funds are a type of financial intermediary.

Accepted Answer

A) True 
 B)False

Question 9

Corporations receive no proceeds from the resale of their stock.

Accepted Answer

A) True 
 B)False

Question 10

The slope of the supply of loanable funds is based on the logic that an increase in interest rates

Accepted Answer

A) makes saving more attractive. 
B) makes saving less attractive. 
C) makes investment more attractive. 
D) makes investment less attractive. 
A) makes saving more attractive. 
B) makes saving less attractive. 
C) makes investment more attractive. 
D) makes investment less attractive.

Question 11

In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?

Accepted Answer

A) $5 billion and $45 billion 
B) -$5 billion and $45 billion 
C) $5 billion and $50 billion 
D) -$5 billion and $50 billion 
A) $5 billion and $45 billion 
B) -$5 billion and $45 billion 
C) $5 billion and $50 billion 
D) -$5 billion and $50 billion

Question 12

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves.  
-Refer to Figure 26-1. What is measured along the vertical axis of the graph?

Accepted Answer

A) the nominal interest rate 
B) the real interest rate 
C) the quantity of investment 
D) the quantity of saving 
A) the nominal interest rate 
B) the real interest rate 
C) the quantity of investment 
D) the quantity of saving

Question 13

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

Accepted Answer

A) national saving 
B) investment 
C) private saving 
D) public saving 
A) national saving 
B) investment 
C) private saving 
D) public saving

Question 14

Which of the following is correct?

Accepted Answer

A) Joan takes some of her income and buys mutual fund shares. Joan's purchase will be included in the investment category of GDP. 
B) If a share of stock in Virtual Pizza Corporation sells for $77, the earnings per share are $5, and the dividend per share is $2, then the P/E ratio is 11. 
C) In order to use equity finance, a firm must sell about equal values of stocks and bonds. 
D) None of the above is correct. 
A) Joan takes some of her income and buys mutual fund shares. Joan's purchase will be included in the investment category of GDP. 
B) If a share of stock in Virtual Pizza Corporation sells for $77, the earnings per share are $5, and the dividend per share is $2, then the P/E ratio is 11. 
C) In order to use equity finance, a firm must sell about equal values of stocks and bonds. 
D) None of the above is correct.

Question 15

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 500. What value of government purchases would make national savings equal to 2,000 and at that value would the government have a deficit or surplus?

Accepted Answer

A) 1,500, deficit 
B) 1,500, surplus 
C) 1,000, deficit 
D) 1,000, surplus 
A) 1,500, deficit 
B) 1,500, surplus 
C) 1,000, deficit 
D) 1,000, surplus

Question 16

After 2012 when the U.S. economy recovered,

Accepted Answer

A) ​the budget deficits shrank, and the increases in the debt-to-GDP ratio became larger. 
B) ​the budget deficits grew, and the decreases in the debt-to-GDP ratio became larger. 
C) ​the budget deficit shrank, and the increases in the debt-to-GDP ratio became smaller. 
D) ​the budget deficits grew, and the decreases in the debt-to-GDP ratio became smaller. 
A) ​the budget deficits shrank, and the increases in the debt-to-GDP ratio became larger. 
B) ​the budget deficits grew, and the decreases in the debt-to-GDP ratio became larger. 
C) ​the budget deficit shrank, and the increases in the debt-to-GDP ratio became smaller. 
D) ​the budget deficits grew, and the decreases in the debt-to-GDP ratio became smaller.

Question 17

The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms.

Accepted Answer

A) True 
 B)False

Question 18

For an imaginary closed economy, T = $5,000; S = $11,000; C = $48,000; and the government is running a budget surplus of $1,000. Then

Accepted Answer

A) private saving = $10,000 and GDP = $55,000. 
B) private saving = $10,000 and GDP = $63,000. 
C) private saving = $12,000 and GDP = $67,000. 
D) private saving = $12,000 and GDP = $69,000. 
A) private saving = $10,000 and GDP = $55,000. 
B) private saving = $10,000 and GDP = $63,000. 
C) private saving = $12,000 and GDP = $67,000. 
D) private saving = $12,000 and GDP = $69,000.

Question 19

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

Accepted Answer

private saving, publ

Question 20

​Index funds are financial intermediaries, but municipal bonds are not.

Accepted Answer

A) True 
 B)False

Exam 26: Saving, Investment, and the Financial System

Taking out a mortgage to buy a condo, buying a mutual fund, and building a new factory are all examples of investment.

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?

By definition, government purchases and taxes are zero for a closed economy.

When tax code changes increase investment incentives, the _____ for loanable funds curve shifts to the _____. This results in a(n) _____ in the interest rate and a(n) _____ in investment.

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

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

Which of the following statements is correct?

Mutual funds are a type of financial intermediary.

Corporations receive no proceeds from the resale of their stock.

The slope of the supply of loanable funds is based on the logic that an increase in interest rates

In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1. What is measured along the vertical axis of the graph?

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

Which of the following is correct?

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 500. What value of government purchases would make national savings equal to 2,000 and at that value would the government have a deficit or surplus?

After 2012 when the U.S. economy recovered,

The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms.

For an imaginary closed economy, T = $5,000; S = $11,000; C = $48,000; and the government is running a budget surplus of $1,000. Then

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

​Index funds are financial intermediaries, but municipal bonds are not.

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 tax code changes increase investment incentives, the ___ for loanable funds curve shifts to the _. This results in a(n) _ in the interest rate and a(n) ___ in investment.

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

Index funds are financial intermediaries, but municipal bonds are not.