Question 1

If people become less optimistic about the future earnings of Hyde Park Jazz Studio,the price of stock in the company will fall.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following equations most simply represents GDP in a closed economy?

Accepted Answer

A) Y = C + I + G + NX 
B) S = I - G 
C) I = Y - C + G 
D) Y = C + I + G 
A) Y = C + I + G + NX 
B) S = I - G 
C) I = Y - C + G 
D) Y = C + I + G

Question 3

Which of the following would necessarily raise the interest rate?

Accepted Answer

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

Question 4

On which bond is default most likely?

Accepted Answer

A) a junk bond 
B) a municipal bond 
C) a U.S.government bond 
D) a corporate bond issued by Proctor and Gamble. 
A) a junk bond 
B) a municipal bond 
C) a U.S.government bond 
D) a corporate bond issued by Proctor and Gamble.

Question 5

Which of the following is correct?

Accepted Answer

A) Stocks, bonds, and deposits are all similar in that each provides a common medium of exchange. 
B) Most buyers of stocks and bonds prefer those issued by large and familiar companies. 
C) Banks charge borrowers a slightly lower interest rate than they pay to depositors. 
D) None of the above is correct. 
A) Stocks, bonds, and deposits are all similar in that each provides a common medium of exchange. 
B) Most buyers of stocks and bonds prefer those issued by large and familiar companies. 
C) Banks charge borrowers a slightly lower interest rate than they pay to depositors. 
D) None of the above is correct.

Question 6

If a reform of the tax laws encourages greater saving,the result would be

Accepted Answer

A) higher interest rates and greater investment. 
B) higher interest rates and less investment. 
C) lower interest rates and greater investment. 
D) lower interest rate and less investment. 
A) higher interest rates and greater investment. 
B) higher interest rates and less investment. 
C) lower interest rates and greater investment. 
D) lower interest rate and less investment.

Question 7

When the U.S.government is in debt,it follows that it has a deficit.

Accepted Answer

A) True 
 B)False

Question 8

In recent years the U.S.national debt has been about

Accepted Answer

A) 10-20 percent of GDP. 
B) 30-40 percent of GDP. 
C) 50-60 percent of GDP. 
D) 70-80 percent of GDP. 
A) 10-20 percent of GDP. 
B) 30-40 percent of GDP. 
C) 50-60 percent of GDP. 
D) 70-80 percent of GDP.

Question 9

Suppose the economy is closed and that national saving is $2 trillion,that consumption is $7 trillion,and that government purchases are $1 trillion.What is GDP?

Accepted Answer

A) $8 trillion 
B) $9 trillion 
C) $10 trillion 
D) $11 trillion 
A) $8 trillion 
B) $9 trillion 
C) $10 trillion 
D) $11 trillion

Question 10

If Congress reduced the tax rate on interest income,investment

Accepted Answer

A) would increase and saving would decrease. 
B) would decrease and saving would increase. 
C) and saving would increase. 
D) and saving would decrease. 
A) would increase and saving would decrease. 
B) would decrease and saving would increase. 
C) and saving would increase. 
D) and saving would decrease.

Question 11

In a closed economy,what does (Y - T - C)represent?

Accepted Answer

A) national saving 
B) government tax revenue 
C) public saving 
D) private saving 
A) national saving 
B) government tax revenue 
C) public saving 
D) private saving

Question 12

The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings.It was planning to use the money to build a new factory.Recently,the rate of interest has increased.The increase in the rate of interest should

Accepted Answer

A) not influence the decision to build the factory because The Eye of Horus doesn't have to borrow any money. 
B) not influence the decision to build the factory because its stockholders are expecting a new factory. 
C) make it more likely that The Eye of Horus will build the factory because a higher interest rate will make the factory more valuable. 
D) make it less likely that The Eye of Horus will build the factory because the opportunity cost of the $10 million is now higher. 
A) not influence the decision to build the factory because The Eye of Horus doesn't have to borrow any money. 
B) not influence the decision to build the factory because its stockholders are expecting a new factory. 
C) make it more likely that The Eye of Horus will build the factory because a higher interest rate will make the factory more valuable. 
D) make it less likely that The Eye of Horus will build the factory because the opportunity cost of the $10 million is now higher.

Question 13

The primary advantage of mutual funds is that they

Accepted Answer

A) always make a return that "beats the market." 
B) allow people with small amounts of money to diversify. 
C) provide customers with a medium of exchange. 
D) All of the above are correct. 
A) always make a return that "beats the market." 
B) allow people with small amounts of money to diversify. 
C) provide customers with a medium of exchange. 
D) All of the above are correct.

Question 14

As a money management fee,mutual funds usually charge their customers

Accepted Answer

A) between 0.5 and 2.0 percent of assets each year. 
B) between 1.5 and 3.0 percent of assets each year. 
C) nothing, because they receive commissions from the firms whose stock they buy. 
D) a flat fee of about $50. 
A) between 0.5 and 2.0 percent of assets each year. 
B) between 1.5 and 3.0 percent of assets each year. 
C) nothing, because they receive commissions from the firms whose stock they buy. 
D) a flat fee of about $50.

Question 15

Corporations receive no proceeds from the resale of their stock.

Accepted Answer

A) True 
 B)False

Question 16

Fred sells newly issued bonds.Ethel sells newly issued stocks.Who uses direct finance?

Accepted Answer

A) Only Fred. 
B) Only Ethel. 
C) Both Fred and Ethel. 
D) Neither Fred nor Ethel. 
A) Only Fred. 
B) Only Ethel. 
C) Both Fred and Ethel. 
D) Neither Fred nor Ethel.

Question 17

A budget surplus

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 18

Which of the following are financial intermediaries?

Accepted Answer

A) both banks and mutual funds 
B) banks but not mutual funds 
C) mutual funds but not banks 
D) neither banks or mutual funds 
A) both banks and mutual funds 
B) banks but not mutual funds 
C) mutual funds but not banks 
D) neither banks or mutual funds

Question 19

Generally,if people expect a company to have higher future profits,the price of the stock will be driven down.

Accepted Answer

A) True 
 B)False

Question 20

Nastech Pharmaceuticals announced they have developed a nasal spray that would reduce hunger cravings.Other things the same we'd expect

Accepted Answer

A) the demand for existing shares of stock in this company decreased, so the price fell. 
B) the demand for existing shares of stock in this company increased, so the price rose. 
C) the supply of stock of existing shares of stock in this company decreased, so the price fell. 
D) the supply of stock of existing shares of stock in this company increased, so the price rose. 
A) the demand for existing shares of stock in this company decreased, so the price fell. 
B) the demand for existing shares of stock in this company increased, so the price rose. 
C) the supply of stock of existing shares of stock in this company decreased, so the price fell. 
D) the supply of stock of existing shares of stock in this company increased, so the price rose.

Exam 26: Saving, investment, and the Financial System

If people become less optimistic about the future earnings of Hyde Park Jazz Studio,the price of stock in the company will fall.

Which of the following equations most simply represents GDP in a closed economy?

Which of the following would necessarily raise the interest rate?

On which bond is default most likely?

Which of the following is correct?

If a reform of the tax laws encourages greater saving,the result would be

When the U.S.government is in debt,it follows that it has a deficit.

In recent years the U.S.national debt has been about

Suppose the economy is closed and that national saving is $2 trillion,that consumption is $7 trillion,and that government purchases are $1 trillion.What is GDP?

If Congress reduced the tax rate on interest income,investment

In a closed economy,what does (Y - T - C)represent?

The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings.It was planning to use the money to build a new factory.Recently,the rate of interest has increased.The increase in the rate of interest should

The primary advantage of mutual funds is that they

As a money management fee,mutual funds usually charge their customers

Corporations receive no proceeds from the resale of their stock.

Fred sells newly issued bonds.Ethel sells newly issued stocks.Who uses direct finance?

A budget surplus

Which of the following are financial intermediaries?

Generally,if people expect a company to have higher future profits,the price of the stock will be driven down.

Nastech Pharmaceuticals announced they have developed a nasal spray that would reduce hunger cravings.Other things the same we'd expect

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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