Question 1

A nation's saving equals its nominal income less its spending on investment.

Accepted Answer

A) True 
 B)False

Question 2

The yield curve is a graph of the interest rate on bonds of different terms, with the term shown on the horizontal axis and the interest shown on the vertical axis.Based on the discussion in chapter 10, what slope would you expect the yield curve to have?

Accepted Answer

A) no slope - flat 
B) a negative slope - downward-sloping 
C) a positive slope - upward-sloping 
D) negative at first, then positive 
A) no slope - flat 
B) a negative slope - downward-sloping 
C) a positive slope - upward-sloping 
D) negative at first, then positive

Question 3

Private saving is:

Accepted Answer

A) the amount of income that businesses have left after paying for the factors of production 
B) the amount of tax revenue that the government has left after paying for its spending 
C) the amount of income that households have left after paying their taxes and paying for their consumption 
D) always equal to investment 
A) the amount of income that businesses have left after paying for the factors of production 
B) the amount of tax revenue that the government has left after paying for its spending 
C) the amount of income that households have left after paying their taxes and paying for their consumption 
D) always equal to investment

Question 4

Financial markets are the institutions through which a person who wants to save can directly supply funds to a person who wants to borrow.

Accepted Answer

A) True 
 B)False

Question 5

The supply of saving equals desired _____ and the demand for saving equals desired _____.

Accepted Answer

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

Question 6

The supply of loanable funds is upward-sloping because:

Accepted Answer

A) as the interest rate falls, the supply of loanable funds increases 
B) as the interest rate falls, the supply of loanable funds falls 
C) as the interest rate rises, the quantity of loanable funds supplied falls 
D) as the interest rate rises, the quantity of loanable funds supplied rises 
A) as the interest rate falls, the supply of loanable funds increases 
B) as the interest rate falls, the supply of loanable funds falls 
C) as the interest rate rises, the quantity of loanable funds supplied falls 
D) as the interest rate rises, the quantity of loanable funds supplied rises

Question 7

The supply and demand for saving are brought into equilibrium by adjustments of the ____ rate.

Accepted Answer

A) coupon 
B) nominal interest 
C) real interest 
D) dividend 
A) coupon 
B) nominal interest 
C) real interest 
D) dividend

Question 8

Holding other factors constant, a decrease in the tax rate on revenue generated by capital will increase investment.

Accepted Answer

A) True 
 B)False

Question 9

An investment tax credit:

Accepted Answer

A) reduces the supply of loanable funds 
B) shifts the demand curve for loanable funds to the right 
C) does not affect the interest rate 
D) lowers the interest rate 
A) reduces the supply of loanable funds 
B) shifts the demand curve for loanable funds to the right 
C) does not affect the interest rate 
D) lowers the interest rate

Question 10

A price-earnings ratio is:

Accepted Answer

A) the price of a firm's stock divided by the firm's dividend over the past year 
B) the price of a firm's stock divided by the amount the firm earned per share over the past year 
C) the earnings of a firm over the past year divided by the price of the stock at the end of the year 
D) the price of a firm's stock divided by the earnings of the firm over the past year 
A) the price of a firm's stock divided by the firm's dividend over the past year 
B) the price of a firm's stock divided by the amount the firm earned per share over the past year 
C) the earnings of a firm over the past year divided by the price of the stock at the end of the year 
D) the price of a firm's stock divided by the earnings of the firm over the past year

Question 11

Dean Martin's income was $1000 in 1950.If the annual interest rate was five per cent, then the present value of his 1950 income in the year 2000 would be:

Accepted Answer

A) $9524 
B) $10 500 
C) $70 400 
D) $114 674 
A) $9524 
B) $10 500 
C) $70 400 
D) $114 674

Question 12

When James Tobin received a Nobel prize in economics, partly for demonstrating theoretically the rationale for diversifying a portfolio of assets, Charles Kindleberger, President of the American Economic Association, remarked that Tobin had received the prize for proving that 'it doesn't pay to put all your eggs in one basket'.Why might a saver decide to diversify his or her portfolio of assets?

Accepted Answer

Since it is more likely that a single co

Question 13

A dividend yield is:

Accepted Answer

A) the stock price as a percentage of the dividend 
B) the inflation-adjusted dividend payment 
C) the dividend as a percentage of the stock price 
D) the real rate of interest on the stock 
A) the stock price as a percentage of the dividend 
B) the inflation-adjusted dividend payment 
C) the dividend as a percentage of the stock price 
D) the real rate of interest on the stock

Question 14

Where Y is GDP, C is consumption, T is net taxes and G is government spending, if there is no international trade, then public saving equals:

Accepted Answer

A) G - T 
B) Y - G 
C) Y + T - G 
D) Y - T 
A) G - T 
B) Y - G 
C) Y + T - G 
D) Y - T

Question 15

A budget surplus is created when the government:

Accepted Answer

A) spends more than it receives in tax revenue 
B) buys back more bonds than it issues 
C) receives more tax revenue than it spends 
D) raises interest rates 
A) spends more than it receives in tax revenue 
B) buys back more bonds than it issues 
C) receives more tax revenue than it spends 
D) raises interest rates

Question 16

An excess of tax revenue over government spending is called a budget deficit.

Accepted Answer

A) True 
 B)False

Question 17

Sony is thinking about investing in a new project.Suppose that the project costs $10 million and will yield the company $20 million in 10 years.If the interest rate is five per cent, what is the present value of the yield in 10 years?

Accepted Answer

A) $9.5 million 
B) $10.5 million 
C) $12.3 million 
D) $16.3 million 
A) $9.5 million 
B) $10.5 million 
C) $12.3 million 
D) $16.3 million

Question 18

Import receipts are not an addition to a country's GDP.

Accepted Answer

A) True 
 B)False

Question 19

The supply of loanable funds shows the:

Accepted Answer

A) quantity of loanable funds supplied at each possible nominal interest rate 
B) equilibrium quantity of money that will be offered by savers at each possible nominal interest rate 
C) equilibrium quantity of money that will be offered by savers at each possible real interest rate 
D) quantity of loanable funds supplied at each possible real interest rate 
A) quantity of loanable funds supplied at each possible nominal interest rate 
B) equilibrium quantity of money that will be offered by savers at each possible nominal interest rate 
C) equilibrium quantity of money that will be offered by savers at each possible real interest rate 
D) quantity of loanable funds supplied at each possible real interest rate

Question 20

All else being equal, when people become less optimistic about a company's future, then:

Accepted Answer

A) the demand for the stock (and thus the price) rises 
B) the demand for the stock (and thus the price) falls 
C) the supply of the stock (and thus the price) rises 
D) the supply of the stock (and thus the price) falls 
A) the demand for the stock (and thus the price) rises 
B) the demand for the stock (and thus the price) falls 
C) the supply of the stock (and thus the price) rises 
D) the supply of the stock (and thus the price) falls

Exam 27: Saving, Investment and the Financial System

A nation's saving equals its nominal income less its spending on investment.

The yield curve is a graph of the interest rate on bonds of different terms, with the term shown on the horizontal axis and the interest shown on the vertical axis.Based on the discussion in chapter 10, what slope would you expect the yield curve to have?

Private saving is:

Financial markets are the institutions through which a person who wants to save can directly supply funds to a person who wants to borrow.

The supply of saving equals desired _____ and the demand for saving equals desired _____.

The supply of loanable funds is upward-sloping because:

The supply and demand for saving are brought into equilibrium by adjustments of the ____ rate.

Holding other factors constant, a decrease in the tax rate on revenue generated by capital will increase investment.

An investment tax credit:

A price-earnings ratio is:

Dean Martin's income was $1000 in 1950.If the annual interest rate was five per cent, then the present value of his 1950 income in the year 2000 would be:

A dividend yield is:

Where Y is GDP, C is consumption, T is net taxes and G is government spending, if there is no international trade, then public saving equals:

A budget surplus is created when the government:

An excess of tax revenue over government spending is called a budget deficit.

Sony is thinking about investing in a new project.Suppose that the project costs $10 million and will yield the company $20 million in 10 years.If the interest rate is five per cent, what is the present value of the yield in 10 years?

Import receipts are not an addition to a country's GDP.

The supply of loanable funds shows the:

All else being equal, when people become less optimistic about a company's future, then:

Ten Lessons From 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

Application: 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

Business Strategy and Oligopoly

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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 Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

Filters

The supply of saving equals desired _ and the demand for saving equals desired _.