Question 1

Other things the same,a government budget deficit

Accepted Answer

A) reduces public saving, but not national saving.. 
B) reduces national saving, but not public saving. 
C) reduces both public and national saving. 
D) reduces neither public saving nor national saving. 
A) reduces public saving, but not national saving.. 
B) reduces national saving, but not public saving. 
C) reduces both public and national saving. 
D) reduces neither public saving nor national saving.

Question 2

Thomas Publishing has a price of $20 a share,outstanding shares of 2.5 million,retained earnings of $1 million dollars,and a dividend yield of 1 percent.It has a price to earnings ratio which is

Accepted Answer

A) high, perhaps indicating that people expect future earnings to rise. 
B) high, perhaps indicating that people expect future earnings to fall. 
C) low, perhaps indicating that people expect future earnings to rise. 
D) low, perhaps indicating that people expect future earnings to fall. 
A) high, perhaps indicating that people expect future earnings to rise. 
B) high, perhaps indicating that people expect future earnings to fall. 
C) low, perhaps indicating that people expect future earnings to rise. 
D) low, perhaps indicating that people expect future earnings to fall.

Question 3

Consider T-G and Y-T-C.

Accepted Answer

A) Each one of these is equal to national saving. 
B) Each one of these is equal to public saving. 
C) The first of these is private saving, the second one is public saving. 
D) The first of these is public saving, the second one is private saving. 
A) Each one of these is equal to national saving. 
B) Each one of these is equal to public saving. 
C) The first of these is private saving, the second one is public saving. 
D) The first of these is public saving, the second one is private saving.

Question 4

Index funds

Accepted Answer

A) buy all the stocks in a given stock index. 
B) promise to beat the market by a certain percentage known as an index. 
C) provide a return that is adjusted for changes in the consumer price index. 
D) buy industries within a particular category of the North American Industry Classification System. 
A) buy all the stocks in a given stock index. 
B) promise to beat the market by a certain percentage known as an index. 
C) provide a return that is adjusted for changes in the consumer price index. 
D) buy industries within a particular category of the North American Industry Classification System.

Question 5

A decrease in taxes on interest income would increase the interest rate.

Accepted Answer

A) True 
 B)False

Question 6

Other things the same,as the maturity of a bond becomes longer,the bond will pay

Accepted Answer

A) less interest because it has less risk. 
B) less interest because it has more risk. 
C) more interest because it has more risk 
D) There is no relation between term to maturity and risk. 
A) less interest because it has less risk. 
B) less interest because it has more risk. 
C) more interest because it has more risk 
D) There is no relation between term to maturity and risk.

Question 7

Assuming that the bonds below have the same term and principal and that the state or local government which issues the municipal bond has a good credit rating,which list has bonds ordered from the one that pays the most interest to the one that pays the least interest?

Accepted Answer

A) corporate bond, municipal bond, U.S.government bond 
B) corporate bond, U.S.government bond, municipal bond 
C) municipal bond, U.S.government bond, corporate bond 
D) U.S.government bond, municipal bond, corporate bond 
A) corporate bond, municipal bond, U.S.government bond 
B) corporate bond, U.S.government bond, municipal bond 
C) municipal bond, U.S.government bond, corporate bond 
D) U.S.government bond, municipal bond, corporate bond

Question 8

If the inflation rate is 2 percent and the real interest rate is 3 percent,then the nominal interest rate is

Accepted Answer

A) 5 percent. 
B) 1 percent. 
C) 1.5 percent 
D) .67 percent. 
A) 5 percent. 
B) 1 percent. 
C) 1.5 percent 
D) .67 percent.

Question 9

A bond that never matures is known as a

Accepted Answer

A) perpetuity. 
B) an intermediary bond. 
C) an indexed bond. 
D) a junk bond. 
A) perpetuity. 
B) an intermediary bond. 
C) an indexed bond. 
D) a junk bond.

Question 10

Which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why.
a.a U.S.government bond or a Brazilian government bond
b.a U.S.government bond or a municipal bond with the same term and issued by a creditworthy municipality.
c.a 6-month Treasury bill or a 20-year Treasury bond
d.a Microsoft bond or a bond issued by a new recording company

Accepted Answer

a. The Brazilian government bond would l

Question 11

In examining the national income accounts of the closed economy of Nepotocracy you see that in this year it had taxes of $100 billion,transfers of $40 billion,and government purchases of goods and services of $80 billion.You also notice that last year it had private saving of $50 billion and investment of $70 billion.In which year did Nepotcracy have a budget deficit of $20 billion?

Accepted Answer

A) this year and last year 
B) this year but not last year 
C) last year but not this year 
D) neither this year nor last year 
A) this year and last year 
B) this year but not last year 
C) last year but not this year 
D) neither this year nor last year

Question 12

If a share of stock in Skylight Chili sells for $75,the retained earnings per share are $5,and the divided per share is $2,then the price-earnings ratio is 15.

Accepted Answer

A) True 
 B)False

Question 13

In a closed economy,private saving is

Accepted Answer

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

Question 14

A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a

Accepted Answer

A) bond. 
B) stock. 
C) mutual fund. 
D) All of the above are correct. 
A) bond. 
B) stock. 
C) mutual fund. 
D) All of the above are correct.

Question 15

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

Accepted Answer

A) raise national saving and public saving. 
B) raise national saving and raise public saving. 
C) leave national saving and public saving unchanged. 
D) leave national saving unchanged and raise public saving. 
A) raise national saving and public saving. 
B) raise national saving and raise public saving. 
C) leave national saving and public saving unchanged. 
D) leave national saving unchanged and raise public saving.

Question 16

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

Accepted Answer

A) raise national saving and private saving. 
B) raise national saving and reduce private saving. 
C) leave national saving and private saving unchanged. 
D) leave national saving unchanged and reduce private saving. 
A) raise national saving and private saving. 
B) raise national saving and reduce private saving. 
C) leave national saving and private saving unchanged. 
D) leave national saving unchanged and reduce private saving.

Question 17

A perpetuity is distinguished from other bonds in that it

Accepted Answer

A) pays continuously compounded interest. 
B) pays interest only when it matures. 
C) never matures. 
D) will be used to purchase another bond when it matures unless the owner specifies otherwise. 
A) pays continuously compounded interest. 
B) pays interest only when it matures. 
C) never matures. 
D) will be used to purchase another bond when it matures unless the owner specifies otherwise.

Question 18

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

Accepted Answer

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

Question 19

Suppose a country repealed its investment tax credit.The effects of this are represented by shifting the

Accepted Answer

A) demand for and the supply of loanable funds to the right. 
B) demand for and the supply of loanable funds to the left. 
C) supply of loanable funds to the right and the demand for loanable funds to the left. 
D) None of the above is correct. 
A) demand for and the supply of loanable funds to the right. 
B) demand for and the supply of loanable funds to the left. 
C) supply of loanable funds to the right and the demand for loanable funds to the left. 
D) None of the above is correct.

Question 20

In the late summer of 2005 some regions of the country were suffering from drought.What effect would we expect this to have on the stock of companies like John Deere that manufacture farm equipment?

Accepted Answer

A) raise the demand for existing shares of the stock, causing the price to rise 
B) decrease the demand for existing shares of the stock, causing the price to fall 
C) raise the supply of the existing shares of stock, causing the price to rise 
D) raise the supply of the existing shares of stock, causing the price to fall 
A) raise the demand for existing shares of the stock, causing the price to rise 
B) decrease the demand for existing shares of the stock, causing the price to fall 
C) raise the supply of the existing shares of stock, causing the price to rise 
D) raise the supply of the existing shares of stock, causing the price to fall

Exam 26: Saving, investment, and the Financial System

Other things the same,a government budget deficit

Thomas Publishing has a price of $20 a share,outstanding shares of 2.5 million,retained earnings of $1 million dollars,and a dividend yield of 1 percent.It has a price to earnings ratio which is

Consider T-G and Y-T-C.

Index funds

A decrease in taxes on interest income would increase the interest rate.

Other things the same,as the maturity of a bond becomes longer,the bond will pay

Assuming that the bonds below have the same term and principal and that the state or local government which issues the municipal bond has a good credit rating,which list has bonds ordered from the one that pays the most interest to the one that pays the least interest?

If the inflation rate is 2 percent and the real interest rate is 3 percent,then the nominal interest rate is

A bond that never matures is known as a

If a share of stock in Skylight Chili sells for $75,the retained earnings per share are $5,and the divided per share is $2,then the price-earnings ratio is 15.

In a closed economy,private saving is

A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a

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

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

A perpetuity is distinguished from other bonds in that it

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

Suppose a country repealed its investment tax credit.The effects of this are represented by shifting the

In the late summer of 2005 some regions of the country were suffering from drought.What effect would we expect this to have on the stock of companies like John Deere that manufacture farm equipment?

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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