Question 1

When tax code changes reduce saving incentives, the interest rate will _____ and investment will _____.

Accepted Answer

The answer of When tax code changes reduce saving incentives,...

Question 2

If the government institutes policies that diminish incentives to save, then in the loanable funds market

Accepted Answer

A) the demand for loanable funds shifts rightward. 
B) the demand for loanable funds shifts leftward. 
C) the supply of loanable funds shifts rightward. 
D) the supply of loanable funds shifts leftward. 
A) the demand for loanable funds shifts rightward. 
B) the demand for loanable funds shifts leftward. 
C) the supply of loanable funds shifts rightward. 
D) the supply of loanable funds shifts leftward.

Question 3

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 loanable funds would shift rightward and investment would increase. 
B) The supply of loanable funds would shift leftward and investment would decrease. 
C) The demand for loanable funds would shift rightward and investment would increase. 
D) The demand for loanable funds would shift leftward and investment would decrease. 
A) The supply of loanable funds would shift rightward and investment would increase. 
B) The supply of loanable funds would shift leftward and investment would decrease. 
C) The demand for loanable funds would shift rightward and investment would increase. 
D) The demand for loanable funds would shift leftward and investment would decrease.

Question 4

The country of Growpaw does not trade with any other country. Its GDP is $20 billion. Its government purchases $3 billion worth of goods and services each year, collects $4 billion in taxes, and provides $2 billion in transfer payments to households. Private saving in Growpaw is $4 billion. What is investment in Growpaw?

Accepted Answer

A) $5 billion 
B) $4 billion 
C) $3 billion 
D) $11 billion 
A) $5 billion 
B) $4 billion 
C) $3 billion 
D) $11 billion

Question 5

If there is a surplus of loanable funds, then

Accepted Answer

A) the quantity demanded is greater than the quantity supplied and the interest rate will rise. 
B) the quantity demanded is greater than the quantity supplied and the interest rate will fall. 
C) the quantity supplied is greater than the quantity demanded and the interest rate will rise. 
D) the quantity supplied is greater than the quantity demanded and the interest rate will fall. 
A) the quantity demanded is greater than the quantity supplied and the interest rate will rise. 
B) the quantity demanded is greater than the quantity supplied and the interest rate will fall. 
C) the quantity supplied is greater than the quantity demanded and the interest rate will rise. 
D) the quantity supplied is greater than the quantity demanded and the interest rate will fall.

Question 6

Which of the following events could explain an increase in interest rates together with an increase in investment?

Accepted Answer

A) The government runs a larger deficit. 
B) The government institutes an investment tax credit. 
C) The government replaces the income tax with a consumption tax. 
D) None of the above is correct. 
A) The government runs a larger deficit. 
B) The government institutes an investment tax credit. 
C) The government replaces the income tax with a consumption tax. 
D) None of the above is correct.

Question 7

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.  
-Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from   to  
?

Accepted Answer

A) The tax code is reformed to encourage greater saving. 
B) The tax code is reformed to encourage greater investment. 
C) The government starts running a budget deficit. 
D) The government starts running a budget surplus. 
A) The tax code is reformed to encourage greater saving. 
B) The tax code is reformed to encourage greater investment. 
C) The government starts running a budget deficit. 
D) The government starts running a budget surplus.

Question 8

In addition to

Accepted Answer

A) performing financial intermediation, banks are important in that they help create a medium of exchange. 
B) serving as financial markets, mutual funds are important in that they help create a store of value. 
C) serving as stores of value, stocks and bonds also serve as media of exchange. 
D) All of the above are correct. 
A) performing financial intermediation, banks are important in that they help create a medium of exchange. 
B) serving as financial markets, mutual funds are important in that they help create a store of value. 
C) serving as stores of value, stocks and bonds also serve as media of exchange. 
D) All of the above are correct.

Question 9

What is the main function of the financial system?

Accepted Answer

Matching s

Question 10

On a graph that depicts the market for loanable funds, the nominal interest rate is measured along the vertical axis.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Accepted Answer

As shown in the graph below, the economy

Question 13

The nominal interest rate is the

Accepted Answer

A) interest rate corrected for inflation. 
B) interest rate as usually reported by banks. 
C) real rate of return to the lender. 
D) real cost of borrowing to the borrower. 
A) interest rate corrected for inflation. 
B) interest rate as usually reported by banks. 
C) real rate of return to the lender. 
D) real cost of borrowing to the borrower.

Question 14

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to private and national saving?

Accepted Answer

A) private and national saving would rise 
B) private and national saving would fall 
C) private saving would rise and national saving would fall 
D) private saving would fall and national saving would rise 
A) private and national saving would rise 
B) private and national saving would fall 
C) private saving would rise and national saving would fall 
D) private saving would fall and national saving would rise

Question 15

Which of the following bonds has the highest interest rate?

Accepted Answer

A) a high credit risk and a short term. 
B) a low credit risk and a short term. 
C) a long term and a high credit risk. 
D) a long term and a low credit risk. 
A) a high credit risk and a short term. 
B) a low credit risk and a short term. 
C) a long term and a high credit risk. 
D) a long term and a low credit risk.

Question 16

A higher interest rate makes _____ more attractive. Therefore the quantity of loanable funds supplied increases.

Accepted Answer

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

Question 17

A particular stock pays an annual dividend of $2 per share and the annual dividend yield is 2.5 percent. The price of a share of this stock is

Accepted Answer

A) $2.05. 
B) $5.00. 
C) $80.00 
D) $50.00. 
A) $2.05. 
B) $5.00. 
C) $80.00 
D) $50.00.

Question 18

If a firm sells a total of 100 shares of stock, then

Accepted Answer

A) each share represents 1 percent of the firm's indebtedness. 
B) each share represents ownership of 1 percent of the firm. 
C) the firm is engaging in term finance. 
D) All of the above are correct. 
A) each share represents 1 percent of the firm's indebtedness. 
B) each share represents ownership of 1 percent of the firm. 
C) the firm is engaging in term finance. 
D) All of the above are correct.

Question 19

Suppose a country had a smaller increase in debt in 2011 than it had in 2010. Then other things the same, we would expect

Accepted Answer

A) lower interest rates and investment in 2011 than in 2010. 
B) lower interest rates and greater investment in 2011 than in 2010. 
C) higher interest rates and greater investment in 2011 than in 2010. 
D) higher interest rates and lower investment in 2011 than in 2010. 
A) lower interest rates and investment in 2011 than in 2010. 
B) lower interest rates and greater investment in 2011 than in 2010. 
C) higher interest rates and greater investment in 2011 than in 2010. 
D) higher interest rates and lower investment in 2011 than in 2010.

Question 20

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

Accepted Answer

The answer of Bond A and Bond B are identical...

Exam 26: Saving, Investment, and the Financial System

When tax code changes reduce saving incentives, the interest rate will _____ and investment will _____.

If the government institutes policies that diminish incentives to save, then in the loanable funds market

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

If there is a surplus of loanable funds, then

Which of the following events could explain an increase in interest rates together with an increase in investment?

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from to ?

In addition to

What is the main function of the financial system?

On a graph that depicts the market for loanable funds, the nominal interest rate is measured along the vertical axis.

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

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

The nominal interest rate is the

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to private and national saving?

Which of the following bonds has the highest interest rate?

A higher interest rate makes _____ more attractive. Therefore the quantity of loanable funds supplied increases.

A particular stock pays an annual dividend of $2 per share and the annual dividend yield is 2.5 percent. The price of a share of this stock is

If a firm sells a total of 100 shares of stock, then

Suppose a country had a smaller increase in debt in 2011 than it had in 2010. Then other things the same, we would expect

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

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 reduce saving incentives, the interest rate will _ and investment will _.