Question 1

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Accepted Answer

A) True 
 B)False

Question 2

The nominal interest rate is the

Accepted Answer

A) interest rate corrected for inflation. 
B) interest rate as usually reported by banks. 
C) real rate of return to the lender. 
D) real cost of borrowing to the borrower. 
A) interest rate corrected for inflation. 
B) interest rate as usually reported by banks. 
C) real rate of return to the lender. 
D) real cost of borrowing to the borrower.

Question 3

Which of the following would necessarily increase the equilibrium 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

In a closed economy, if Y, C, and T remained the same, an increase in G would reduce

Accepted Answer

A) private saving and public saving. 
B) private saving but not public saving. 
C) public saving but not private saving. 
D) neither private nor public saving. 
A) private saving and public saving. 
B) private saving but not public saving. 
C) public saving but not private saving. 
D) neither private nor public saving.

Question 5

If the supply for loanable funds shifts to the left, then 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 6

The term loanable funds refers to all income that is not used for consumption.

Accepted Answer

A) True 
 B)False

Question 7

If a share of stock in Dell sells for $70, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 10.

Accepted Answer

A) True 
 B)False

Question 8

If there is a shortage of loanable funds, then

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 9

Which of the following restrictions implies that private saving and investment are equal for a closed economy?

Accepted Answer

A) Consumption and private saving are equal. 
B) The economy's government is running neither a surplus nor a deficit. 
C) Private saving and public saving are both zero. 
D) No restriction is necessary; private saving and investment are equal for all closed economies. 
A) Consumption and private saving are equal. 
B) The economy's government is running neither a surplus nor a deficit. 
C) Private saving and public saving are both zero. 
D) No restriction is necessary; private saving and investment are equal for all closed economies.

Question 10

Which of the following is not a characteristic of a bond?

Accepted Answer

A) its tax treatment 
B) its credit risk 
C) its term 
D) its dividend yield 
A) its tax treatment 
B) its credit risk 
C) its term 
D) its dividend yield

Question 11

Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to Joan's purchase as investment.

Accepted Answer

A) True 
 B)False

Question 12

If you were to start a business delivering documents, you might need to purchase cell phones, bicycles, desks, and chairs.

Accepted Answer

A) These purchases are called capital investment. If you raise the funds to purchase them from others you are a saver. 
B) These purchases are called capital investment. If you raise the funds to purchase them from others you are a borrower. 
C) These purchases are called consumption. If you raise the funds to purchase them from others you are a saver. 
D) These purchases are called consumption. If you raise the funds to purchase them from others you are a borrower. 
A) These purchases are called capital investment. If you raise the funds to purchase them from others you are a saver. 
B) These purchases are called capital investment. If you raise the funds to purchase them from others you are a borrower. 
C) These purchases are called consumption. If you raise the funds to purchase them from others you are a saver. 
D) These purchases are called consumption. If you raise the funds to purchase them from others you are a borrower.

Question 13

Crowding out occurs when investment declines because

Accepted Answer

A) a budget deficit makes interest rates rise. 
B) a budget deficit makes interest rates fall. 
C) a budget surplus makes interest rates rise. 
D) a budget surplus makes interest rates fall. 
A) a budget deficit makes interest rates rise. 
B) a budget deficit makes interest rates fall. 
C) a budget surplus makes interest rates rise. 
D) a budget surplus makes interest rates fall.

Question 14

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

Accepted Answer

A) there is a surplus and the interest rate is above the equilibrium level. 
B) there is a surplus and the interest rate is below the equilibrium level. 
C) there is a shortage and the interest rate is above the equilibrium level. 
D) there is a shortage and the interest rate is below the equilibrium level. 
A) there is a surplus and the interest rate is above the equilibrium level. 
B) there is a surplus and the interest rate is below the equilibrium level. 
C) there is a shortage and the interest rate is above the equilibrium level. 
D) there is a shortage and the interest rate is below the equilibrium level.

Question 15

Other things the same, when the interest rate rises,

Accepted Answer

A) people would want to lend more, making the supply of loanable funds increase. 
B) people would want to lend less, making the supply of loanable funds decrease. 
C) people would want to lend more, making the quantity of loanable funds supplied increase. 
D) people would want to lend less, making the quantity of loanable funds supplied decrease. 
A) people would want to lend more, making the supply of loanable funds increase. 
B) people would want to lend less, making the supply of loanable funds decrease. 
C) people would want to lend more, making the quantity of loanable funds supplied increase. 
D) people would want to lend less, making the quantity of loanable funds supplied decrease.

Question 16

In the language of macroeconomics, investment refers to

Accepted Answer

A) saving. 
B) the purchase of new capital. 
C) the purchase of stocks, bonds, or mutual funds. 
D) All of the above are correct. 
A) saving. 
B) the purchase of new capital. 
C) the purchase of stocks, bonds, or mutual funds. 
D) All of the above are correct.

Question 17

Scenario 13-1. Assume the following information for an imaginary, closed economy. $$\begin{array} { l } 
\text { GDP } = \$ 120,000 ; \text { consumption } = \$ 70,000 ; \text { private savng } = \$ 9,000 \text {; } \
\text { national saving } = \$ 12,000
\end{array}$$
-Refer to Scenario 13-1. For this economy, taxes amount to

Accepted Answer

A) $28,000. 
B) $38,000. 
C) $41,000. 
D) $44,000. 
A) $28,000. 
B) $38,000. 
C) $41,000. 
D) $44,000.

Question 18

When the government runs a budget deficit,

Accepted Answer

A) interest rates are lower than they would be if the budget were balanced. 
B) national saving is higher than it would be if the budget were balanced. 
C) investment is lower than it would be if the budget were balanced. 
D) All of the above are correct. 
A) interest rates are lower than they would be if the budget were balanced. 
B) national saving is higher than it would be if the budget were balanced. 
C) investment is lower than it would be if the budget were balanced. 
D) All of the above are correct.

Question 19

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 rightward. 
B) The demand for loanable funds shifted leftward. 
C) The supply of loanable funds shifted rightward. 
D) The supply of loanable funds shifted leftward. 
A) The demand for loanable funds shifted rightward. 
B) The demand for loanable funds shifted leftward. 
C) The supply of loanable funds shifted rightward. 
D) The supply of loanable funds shifted leftward.

Question 20

A perpetuity is

Accepted Answer

A) a financial intermediary that has existed throughout recorded history. 
B) an instrument of equity finance. 
C) a stock that pays dividends forever. 
D) a bond that pays interest forever. 
A) a financial intermediary that has existed throughout recorded history. 
B) an instrument of equity finance. 
C) a stock that pays dividends forever. 
D) a bond that pays interest forever.

Exam 13: Saving, Investment, and the Financial System

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

The nominal interest rate is the

Which of the following would necessarily increase the equilibrium interest rate?

In a closed economy, if Y, C, and T remained the same, an increase in G would reduce

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

The term loanable funds refers to all income that is not used for consumption.

If a share of stock in Dell sells for $70, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 10.

If there is a shortage of loanable funds, then

Which of the following restrictions implies that private saving and investment are equal for a closed economy?

Which of the following is not a characteristic of a bond?

Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to Joan's purchase as investment.

If you were to start a business delivering documents, you might need to purchase cell phones, bicycles, desks, and chairs.

Crowding out occurs when investment declines because

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

Other things the same, when the interest rate rises,

In the language of macroeconomics, investment refers to

Scenario 13-1. Assume the following information for an imaginary, closed economy. GDP =\ 120,000; consumption =\ 70,000; private savng =\ 9,000 ; national saving =\ 12,000 -Refer to Scenario 13-1. For this economy, taxes amount to

When the government runs a budget deficit,

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

A perpetuity is

Ten Principles of 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

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 Macroeconomic Models

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

Six Debates Over Macroeconomic Policy

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