Question 1

A U.S.Treasury bond is a

Accepted Answer

A) store of value and common medium of exchange. 
B) store of value, but not a common medium of exchange. 
C) a common medium of exchange, but not a store of value. 
D) neither a store of value nor a common medium of exchange. 
A) store of value and common medium of exchange. 
B) store of value, but not a common medium of exchange. 
C) a common medium of exchange, but not a store of value. 
D) neither a store of value nor a common medium of exchange.

Question 2

If there is a surplus of loanable funds

Accepted Answer

A) the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium. 
B) the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium. 
C) the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium. 
D) the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium. 
A) the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium. 
B) the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium. 
C) the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium. 
D) the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium.

Question 3

Which of the following is not correct?

Accepted Answer

A) If GDP is rising faster than debt, the government is, in some sense, living within its means. 
B) The ratio of debt to GDP in the United States has always been less than one. 
C) Debts during wars may distribute the burden of fighting the war more evenly across generations. 
D) During times of peace the ratio of debt to GDP sometimes rose. 
A) If GDP is rising faster than debt, the government is, in some sense, living within its means. 
B) The ratio of debt to GDP in the United States has always been less than one. 
C) Debts during wars may distribute the burden of fighting the war more evenly across generations. 
D) During times of peace the ratio of debt to GDP sometimes rose.

Question 4

Figure 26-1
  
-In Figure 26-1 which of the following would be consistent with a decrease in the government budget surplus and the simultaneous repeal of an investment tax credit?

Accepted Answer

A) a move from d to b 
B) a move from d to c 
C) a move from b to a 
D) a move from b to c 
A) a move from d to b 
B) a move from d to c 
C) a move from b to a 
D) a move from b to c

Question 5

If Congress instituted an investment tax credit,the equilibrium quantity of loanable funds would

Accepted Answer

A) rise. 
B) fall. 
C) be unchanged. 
D) move in an uncertain direction. 
A) rise. 
B) fall. 
C) be unchanged. 
D) move in an uncertain direction.

Question 6

Suppose that in a closed economy GDP is equal to 11,000,Taxes are equal to 1,500,Consumption equals 7,500,and Government purchases equal 2,000.What is national saving?

Accepted Answer

A) -500 
B) 0 
C) 1500 
D) None of the above is correct. 
A) -500 
B) 0 
C) 1500 
D) None of the above is correct.

Question 7

Lucy starts her own psychiatric practice,but her expenditures to open the practice exceed her income.Lucy is a

Accepted Answer

A) saver who demands money from the financial system. 
B) saver who supplies money to the financial system. 
C) borrower who demands money from the financial system. 
D) borrower who supplies money to the financial system. 
A) saver who demands money from the financial system. 
B) saver who supplies money to the financial system. 
C) borrower who demands money from the financial system. 
D) borrower who supplies money to the financial system.

Question 8

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 9

Which of the following is not correct?

Accepted Answer

A) When a country saves more, it has more capital. 
B) A supplier of loanable funds borrows money. 
C) The interest rate adjusts to balance the quantity supplied of and the quantity demanded of loanable funds. 
D) If Mary buys equipment for her factory, Mary is engaging in capital investment. 
A) When a country saves more, it has more capital. 
B) A supplier of loanable funds borrows money. 
C) The interest rate adjusts to balance the quantity supplied of and the quantity demanded of loanable funds. 
D) If Mary buys equipment for her factory, Mary is engaging in capital investment.

Question 10

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

Accepted Answer

A) There would be an increase in the amount of loanable funds borrowed. 
B) There would be a reduction in the amount of loanable funds borrowed. 
C) There would be no change in the amount of loanable funds borrowed. 
D) The change in loanable funds is uncertain. 
A) There would be an increase in the amount of loanable funds borrowed. 
B) There would be a reduction in the amount of loanable funds borrowed. 
C) There would be no change in the amount of loanable funds borrowed. 
D) The change in loanable funds is uncertain.

Question 11

Interest rates fall and investment falls.Which of the following could explain these changes?

Accepted Answer

A) the government goes from a surplus to a deficit 
B) the government repeals an investment tax credit 
C) the government replaces a consumption tax with an income tax 
D) None of the above is correct. 
A) the government goes from a surplus to a deficit 
B) the government repeals an investment tax credit 
C) the government replaces a consumption tax with an income tax 
D) None of the above is correct.

Question 12

The Dow Jones Industrial Average has been computed regularly since

Accepted Answer

A) 1976. 
B) 1948. 
C) 1913. 
D) 1896. 
A) 1976. 
B) 1948. 
C) 1913. 
D) 1896.

Question 13

Which of the following could explain an increase in the interest rate and the equilibrium quantity of loanable funds?

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 14

Lenders sell bonds and borrowers buy them.

Accepted Answer

A) True 
 B)False

Question 15

Investment rises and interest rates fall.Which of the following could explain these changes?

Accepted Answer

A) The government went from surplus to deficit. 
B) The government instituted an investment tax credit. 
C) The government reduced the tax rate on savings. 
D) None of the above is correct. 
A) The government went from surplus to deficit. 
B) The government instituted an investment tax credit. 
C) The government reduced the tax rate on savings. 
D) None of the above is correct.

Question 16

The source of the supply of loanable funds

Accepted Answer

A) is saving and the source of demand for loanable funds is investment. 
B) is investment and the source of demand for loanable funds is saving. 
C) and the demand for loanable funds is saving. 
D) and the demand for loanable funds is investment. 
A) is saving and the source of demand for loanable funds is investment. 
B) is investment and the source of demand for loanable funds is saving. 
C) and the demand for loanable funds is saving. 
D) and the demand for loanable funds is investment.

Question 17

Suppose that a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free.This would shift the

Accepted Answer

A) supply for loanable funds right making interest rates fall. 
B) supply of loanable funds left making interest rates rise. 
C) demand for loanable funds right making the interest rate rise. 
D) demand for loanable funds left making the interest rate fall. 
A) supply for loanable funds right making interest rates fall. 
B) supply of loanable funds left making interest rates rise. 
C) demand for loanable funds right making the interest rate rise. 
D) demand for loanable funds left making the interest rate fall.

Question 18

Suppose that the Congress and President increase the maximum annual contributions limits to retirement accounts and at the same time reduce the budget deficit.What happens to the interest rate?

Accepted Answer

A) It decreases. 
B) It increases. 
C) It stays the same. 
D) It might do any of the above. 
A) It decreases. 
B) It increases. 
C) It stays the same. 
D) It might do any of the above.

Question 19

A budget deficit

Accepted Answer

A) changes the supply of loanable funds. 
B) changes the demand for loanable funds. 
C) changes both the supply of and demand for loanable funds. 
D) does not influence the supply of or the demand for loanable funds. 
A) changes the supply of loanable funds. 
B) changes the demand for loanable funds. 
C) changes both the supply of and demand for loanable funds. 
D) does not influence the supply of or the demand for loanable funds.

Question 20

Interest on bonds issued by state and local governments with good credit ratings

Accepted Answer

A) is not subject to federal income tax and so these bonds have a higher interest rate than otherwise comparable bonds issued by the U.S.government. 
B) is not subject to federal income tax and so these bonds have a lower interest rate than otherwise comparable bonds issued by the U.S.government. 
C) is subject to federal income tax and so these bonds have a higher interest rate than otherwise comparable bond issued by the U.S.government. 
D) is subject to federal income tax and so these bonds have a lower interest rate than otherwise comparable bond issued by the U.S.government. 
A) is not subject to federal income tax and so these bonds have a higher interest rate than otherwise comparable bonds issued by the U.S.government. 
B) is not subject to federal income tax and so these bonds have a lower interest rate than otherwise comparable bonds issued by the U.S.government. 
C) is subject to federal income tax and so these bonds have a higher interest rate than otherwise comparable bond issued by the U.S.government. 
D) is subject to federal income tax and so these bonds have a lower interest rate than otherwise comparable bond issued by the U.S.government.

Exam 26: Saving, investment, and the Financial System

A U.S.Treasury bond is a

If there is a surplus of loanable funds

Which of the following is not correct?

Figure 26-1 -In Figure 26-1 which of the following would be consistent with a decrease in the government budget surplus and the simultaneous repeal of an investment tax credit?

If Congress instituted an investment tax credit,the equilibrium quantity of loanable funds would

Suppose that in a closed economy GDP is equal to 11,000,Taxes are equal to 1,500,Consumption equals 7,500,and Government purchases equal 2,000.What is national saving?

Lucy starts her own psychiatric practice,but her expenditures to open the practice exceed her income.Lucy is a

Which of the following is correct?

Which of the following is not correct?

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

Interest rates fall and investment falls.Which of the following could explain these changes?

The Dow Jones Industrial Average has been computed regularly since

Which of the following could explain an increase in the interest rate and the equilibrium quantity of loanable funds?

Lenders sell bonds and borrowers buy them.

Investment rises and interest rates fall.Which of the following could explain these changes?

The source of the supply of loanable funds

Suppose that a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free.This would shift the

Suppose that the Congress and President increase the maximum annual contributions limits to retirement accounts and at the same time reduce the budget deficit.What happens to the interest rate?

A budget deficit

Interest on bonds issued by state and local governments with good credit ratings

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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