Question 1

Suppose that the tires of a certain tire manufacturer are discovered to be defective.Other things the same,this news would make

Accepted Answer

A) the demand for stock of this company decrease, so the price would rise. 
B) the demand for stock of this company decrease, so the price would fall. 
C) the supply of stock of this company decrease and the price would fall. 
D) the supply of stock of this company decrease and the price would rise. 
A) the demand for stock of this company decrease, so the price would rise. 
B) the demand for stock of this company decrease, so the price would fall. 
C) the supply of stock of this company decrease and the price would fall. 
D) the supply of stock of this company decrease and the price would rise.

Question 2

A budget deficit

Accepted Answer

A) raises the interest rate and investment. 
B) reduces the interest rate and investment. 
C) raises the interest rate and reduces investment. 
D) reduces the interest rate and raises investment. 
A) raises the interest rate and investment. 
B) reduces the interest rate and investment. 
C) raises the interest rate and reduces investment. 
D) reduces the interest rate and raises investment.

Question 3

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

Accepted Answer

A) Interest rates would rise. 
B) Interest rates would be unaffected. 
C) Interest rates would fall. 
D) The effect on the interest rate is uncertain. 
A) Interest rates would rise. 
B) Interest rates would be unaffected. 
C) Interest rates would fall. 
D) The effect on the interest rate is uncertain.

Question 4

According to the definitions of private and public saving,if Y,C,and G remained the same,an increase in taxes would

Accepted Answer

A) raise both private and public saving. 
B) raise private saving and lower public saving. 
C) lower private saving and raise public saving. 
D) lower private and public saving. 
A) raise both private and public saving. 
B) raise private saving and lower public saving. 
C) lower private saving and raise public saving. 
D) lower private and public saving.

Question 5

In a closed economy,national saving is

Accepted Answer

A) usually greater than investment. 
B) equal to investment. 
C) usually less than investment because of the leakage of taxes. 
D) always less than investment. 
A) usually greater than investment. 
B) equal to investment. 
C) usually less than investment because of the leakage of taxes. 
D) always less than investment.

Question 6

In 2002 mortgage rates fell and mortgage lending increased.Which of the following could explain both of these changes?

Accepted Answer

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

Question 7

Suppose Congress institutes an investment tax credit.What would happen in the market for loanable funds?

Accepted Answer

A) The interest rate and investment would fall. 
B) The interest rate and investment would rise. 
C) The interest rate would rise and investment would fall. 
D) None of the above is necessarily correct. 
A) The interest rate and investment would fall. 
B) The interest rate and investment would rise. 
C) The interest rate would rise and investment would fall. 
D) None of the above is necessarily correct.

Question 8

You have some estimates of national accounts numbers for a closed economy for the coming year.Under one set of expectations,government expenditures will be $30 billion,transfer payments will be $10 billion,and taxes will be $45 billion.Under another set of expectations,GDP will be $200 billion,taxes will be $50 billion,transfer payments will be $20 billion,consumption will be $120 million,and investment will be $40 billion.Based on these numbers in the first case there should be a

Accepted Answer

A) $15 billion surplus, and in the second case a $10 billion surplus. 
B) $15 billion surplus, and in the second case a $10 billion deficit. 
C) $5 billion surplus, and in the second case a $10 billion surplus. 
D) $5 billion surplus, and in the second case a $10 billion deficit. 
A) $15 billion surplus, and in the second case a $10 billion surplus. 
B) $15 billion surplus, and in the second case a $10 billion deficit. 
C) $5 billion surplus, and in the second case a $10 billion surplus. 
D) $5 billion surplus, and in the second case a $10 billion deficit.

Question 9

Use the following table to answer the following questions.
Table 26-1
  
-Refer to Table 26-1.Which firm had the PE ratio that was closest the to the historically typical PE ratio?

Accepted Answer

A) GenMills 
B) Gillette 
C) Graco 
D) Hershey 
A) GenMills 
B) Gillette 
C) Graco 
D) Hershey

Question 10

Papa Mario's Pizza Company sells common stock.

Accepted Answer

A) They are using equity financing and the return shareholders earn is fixed. 
B) They are using equity financing and the return shareholders earn depends on how profitable the company is. 
C) They are using debt financing and the return shareholders earn is fixed. 
D) They are using debt financing and the return shareholders earn depends on how profitable the company is. 
A) They are using equity financing and the return shareholders earn is fixed. 
B) They are using equity financing and the return shareholders earn depends on how profitable the company is. 
C) They are using debt financing and the return shareholders earn is fixed. 
D) They are using debt financing and the return shareholders earn depends on how profitable the company is.

Question 11

Public saving is equal to national saving minus private saving.

Accepted Answer

A) True 
 B)False

Question 12

Mutual funds are a type of financial intermediary.

Accepted Answer

A) True 
 B)False

Question 13

Suppose that government expenditures on goods and services increase,transfers are unchanged,and taxes rise by less than the increase in expenditures.These changes in the government's budget make

Accepted Answer

A) the interest rate and the equilibrium quantity of loanable funds both fall. 
B) the interest rate and the equilibrium quantity of loanable funds both rise. 
C) the interest rate rise and the equilibrium quantity of loanable funds fall. 
D) the interest rate fall and the equilibrium quantity of loanable funds rise. 
A) the interest rate and the equilibrium quantity of loanable funds both fall. 
B) the interest rate and the equilibrium quantity of loanable funds both rise. 
C) the interest rate rise and the equilibrium quantity of loanable funds fall. 
D) the interest rate fall and the equilibrium quantity of loanable funds rise.

Question 14

Which of the following would necessarily create a surplus at the original interest rate in the loanable funds market?

Accepted Answer

A) an increase in the supply of or a decrease in the demand for loanable funds 
B) an increase in the supply of or an increase in the demand for loanable funds 
C) a decrease in the supply of or a decrease in the demand for loanable funds 
D) a decrease in the supply of or an increase in the demand for loanable funds 
A) an increase in the supply of or a decrease in the demand for loanable funds 
B) an increase in the supply of or an increase in the demand for loanable funds 
C) a decrease in the supply of or a decrease in the demand for loanable funds 
D) a decrease in the supply of or an increase in the demand for loanable funds

Question 15

If the supply for loanable funds shifts left,the equilibrium interest rate

Accepted Answer

A) and quantity of loanable funds rise. 
B) and quantity of loanable funds fall. 
C) rises and the quantity of loanable funds falls. 
D) falls and the quantity of loanable funds rises. 
A) and quantity of loanable funds rise. 
B) and quantity of loanable funds fall. 
C) rises and the quantity of loanable funds falls. 
D) falls and the quantity of loanable funds rises.

Question 16

Financial intermediaries are

Accepted Answer

A) the same as financial markets. 
B) individuals who make profits by buying a stock low and selling it high. 
C) a more general name for financial assets such as stocks, bonds, and checking accounts. 
D) financial institutions through which savers can indirectly provide funds to borrowers. 
A) the same as financial markets. 
B) individuals who make profits by buying a stock low and selling it high. 
C) a more general name for financial assets such as stocks, bonds, and checking accounts. 
D) financial institutions through which savers can indirectly provide funds to borrowers.

Question 17

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

Accepted Answer

A) the demand for loanable funds shifts right. 
B) the demand for loanable funds shifts left. 
C) the supply of loanable funds shifts right. 
D) the supply of loanable funds shifts left. 
A) the demand for loanable funds shifts right. 
B) the demand for loanable funds shifts left. 
C) the supply of loanable funds shifts right. 
D) the supply of loanable funds shifts left.

Question 18

A change in the tax laws which increases the supply of loanable funds will have a bigger effect on investment when

Accepted Answer

A) the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic. 
B) the demand for loanable funds is more inelastic and the supply of loanable funds is more elastic. 
C) both the demand for and supply of loanable funds are more elastic. 
D) both the demand for and supply of loanable funds are more inelastic. 
A) the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic. 
B) the demand for loanable funds is more inelastic and the supply of loanable funds is more elastic. 
C) both the demand for and supply of loanable funds are more elastic. 
D) both the demand for and supply of loanable funds are more inelastic.

Question 19

Which of the following is not a nonsensical headline?

Accepted Answer

A) British perpetuities about to mature. 
B) Disney issues new bonds with term of $1,000 each. 
C) Government bonds currently pay less interest than corporate bonds. 
D) Standard and Poor's judges new junk bond to have very low credit risk. 
A) British perpetuities about to mature. 
B) Disney issues new bonds with term of $1,000 each. 
C) Government bonds currently pay less interest than corporate bonds. 
D) Standard and Poor's judges new junk bond to have very low credit risk.

Question 20

Stock in Precision Instruments is selling at $25 per share.It had earnings of $5 a share and a dividend yield of 5 percent.What is the dividend and the price-earnings ratio?

Accepted Answer

A) $.25, 5 
B) $.25, 6.7 
C) $1.25, 5 
D) $1.25, 6.7 
A) $.25, 5 
B) $.25, 6.7 
C) $1.25, 5 
D) $1.25, 6.7

Exam 26: Saving, investment, and the Financial System

Suppose that the tires of a certain tire manufacturer are discovered to be defective.Other things the same,this news would make

A budget deficit

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

According to the definitions of private and public saving,if Y,C,and G remained the same,an increase in taxes would

In a closed economy,national saving is

In 2002 mortgage rates fell and mortgage lending increased.Which of the following could explain both of these changes?

Suppose Congress institutes an investment tax credit.What would happen in the market for loanable funds?

Use the following table to answer the following questions. Table 26-1 -Refer to Table 26-1.Which firm had the PE ratio that was closest the to the historically typical PE ratio?

Papa Mario's Pizza Company sells common stock.

Public saving is equal to national saving minus private saving.

Mutual funds are a type of financial intermediary.

Suppose that government expenditures on goods and services increase,transfers are unchanged,and taxes rise by less than the increase in expenditures.These changes in the government's budget make

Which of the following would necessarily create a surplus at the original interest rate in the loanable funds market?

If the supply for loanable funds shifts left,the equilibrium interest rate

Financial intermediaries are

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

A change in the tax laws which increases the supply of loanable funds will have a bigger effect on investment when

Which of the following is not a nonsensical headline?

Stock in Precision Instruments is selling at $25 per share.It had earnings of $5 a share and a dividend yield of 5 percent.What is the dividend and the price-earnings ratio?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

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

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

The Basic Tools of Finance

Unemployment

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 Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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