Question 1

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Accepted Answer

When the interest rate rises investment

Question 2

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 3

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 gen

Question 4

At the broadest level, the financial system moves the economy's scarce resources from

Accepted Answer

A) the rich to the poor. 
B) financial institutions to business firms and government. 
C) households to financial institutions. 
D) savers to borrowers. 
A) the rich to the poor. 
B) financial institutions to business firms and government. 
C) households to financial institutions. 
D) savers to borrowers.

Question 5

The financial system coordinates investment and saving, which are important determinants of long-run real GDP.

Accepted Answer

A) True 
 B)False

Question 6

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 7

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 8

Institutions that help to match one person's saving with another person's investment are collectively called the

Accepted Answer

A) Federal Reserve system. 
B) banking system. 
C) monetary system. 
D) financial system. 
A) Federal Reserve system. 
B) banking system. 
C) monetary system. 
D) financial system.

Question 9

The price of a stock will rise if the

Accepted Answer

A) managers of a stock exchange decide the price should be higher. 
B) demand for the stock rises. 
C) supply of the stock rises. 
D) demand for the stock falls. 
A) managers of a stock exchange decide the price should be higher. 
B) demand for the stock rises. 
C) supply of the stock rises. 
D) demand for the stock falls.

Question 10

Managed mutual funds perform better on average than index funds because stock prices are usually a good predictor of a company's true value.

Accepted Answer

A) True 
 B)False

Question 11

Figure 26-4
This figure shows the loanable funds market for a closed economy.   ​
-Refer to Figure 26-4. Starting at point A, the enactment of an investment tax credit would likely cause the quantity of loanable funds traded to

Accepted Answer

A) increase to $180 and the interest rate to rise to 12% (point 
C) . 
B) decrease to $60 and the interest rate to fall to 4% (point 
B) . 
C) decrease to $60 and the interest rate to rise to 12% (point 
E) . 
D) increase to $180 and the interest rate to fall to 4% (point 
D) . 
A) increase to $180 and the interest rate to rise to 12% (point 
C) . 
B) decrease to $60 and the interest rate to fall to 4% (point 
B) . 
C) decrease to $60 and the interest rate to rise to 12% (point 
E) . 
D) increase to $180 and the interest rate to fall to 4% (point 
D) .

Question 12

What is the main function of the financial system?

Accepted Answer

Matching s

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Accepted Answer

A) True 
 B)False

Question 15

Robert buys bonds. Rachel buys a new truck for her landscaping business. Identify both as savers, investors, both, or neither.

Accepted Answer

Robert is

Question 16

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 tax rate 
B) The interest rate 
C) The quantity of investment 
D) The quantity of saving 
A) The tax rate 
B) The interest rate 
C) The quantity of investment 
D) The quantity of saving

Question 17

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 18

The term loanable funds refers to all income that is not used for consumption or government expenditures.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is a certificate of indebtedness?

Accepted Answer

A) Both stocks and bonds 
B) Stocks but not bonds 
C) Bonds but not stocks 
D) Neither stocks nor bonds 
A) Both stocks and bonds 
B) Stocks but not bonds 
C) Bonds but not stocks 
D) Neither stocks nor bonds

Question 20

Index funds typically have a

Accepted Answer

A) higher rate of return and higher costs than managed mutual funds. 
B) higher rate of return and lower costs than managed mutual funds. 
C) lower rate of return and higher costs than managed mutual funds. 
D) lower rate of return and lower costs than managed mutual funds. 
A) higher rate of return and higher costs than managed mutual funds. 
B) higher rate of return and lower costs than managed mutual funds. 
C) lower rate of return and higher costs than managed mutual funds. 
D) lower rate of return and lower costs than managed mutual funds.

Exam 26: Saving, Investment, and the Financial System

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

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

At the broadest level, the financial system moves the economy's scarce resources from

The financial system coordinates investment and saving, which are important determinants of long-run real GDP.

Which of the following bonds has the highest interest rate?

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

Institutions that help to match one person's saving with another person's investment are collectively called the

The price of a stock will rise if the

Managed mutual funds perform better on average than index funds because stock prices are usually a good predictor of a company's true value.

Figure 26-4 This figure shows the loanable funds market for a closed economy. ​ -Refer to Figure 26-4. Starting at point A, the enactment of an investment tax credit would likely cause the quantity of loanable funds traded to

What is the main function of the financial system?

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

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Robert buys bonds. Rachel buys a new truck for her landscaping business. Identify both as savers, investors, both, or neither.

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, public saving is the amount of

The term loanable funds refers to all income that is not used for consumption or government expenditures.

Which of the following is a certificate of indebtedness?

Index funds typically have a

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 Nations 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

Figure 26-4 This figure shows the loanable funds market for a closed economy. -Refer to Figure 26-4. Starting at point A, the enactment of an investment tax credit would likely cause the quantity of loanable funds traded to