Question 1

Financial crises seldom involve economic downturns.

Accepted Answer

A) True 
 B)False

Question 2

The country of Growpaw does not trade with any other country. Its GDP is $20 billion. Its government purchases $3 billion worth of goods and services each year, collects $6 billion in taxes, and provides $2 billion in transfer payments to households. Private saving in Growpaw is $4 billion. What is investment in Growpaw?

Accepted Answer

A) $5 billion 
B) $4 billion 
C) $3 billion 
D) $2 billion 
A) $5 billion 
B) $4 billion 
C) $3 billion 
D) $2 billion

Question 3

Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same?

Accepted Answer

A) The government reduces the amount that people may put into savings accounts on which the interest is tax exempt. 
B) Because they are optimistic about the future of the economy, firms desire to borrow more to purchase physical capital. 
C) Consumers decide to decrease consumption and work more. 
D) All of the above could explain why the interest rate would be unchanged. 
A) The government reduces the amount that people may put into savings accounts on which the interest is tax exempt. 
B) Because they are optimistic about the future of the economy, firms desire to borrow more to purchase physical capital. 
C) Consumers decide to decrease consumption and work more. 
D) All of the above could explain why the interest rate would be unchanged.

Question 4

A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because

Accepted Answer

A) in our model of the loanable funds market, we define "loanable funds" as the flow of resources available to fund private investment. 
B) in our model of the loanable funds market, we define "loanable funds" as the flow of resources available from private saving. 
C) markets for government debt are fundamentally different from markets for private debt. 
D) of our assumption that the economy is closed. 
A) in our model of the loanable funds market, we define "loanable funds" as the flow of resources available to fund private investment. 
B) in our model of the loanable funds market, we define "loanable funds" as the flow of resources available from private saving. 
C) markets for government debt are fundamentally different from markets for private debt. 
D) of our assumption that the economy is closed.

Question 5

The price of a stock will rise if

Accepted Answer

A) the managers of a stock exchange decide the price should be higher. 
B) the demand for the stock rises. 
C) the supply of the stock rises. 
D) None of the above are correct. 
A) the managers of a stock exchange decide the price should be higher. 
B) the demand for the stock rises. 
C) the supply of the stock rises. 
D) None of the above are correct.

Question 6

If there is a surplus of loanable funds, then

Accepted Answer

A) the quantity demanded is greater than the quantity supplied and the interest rate will rise. 
B) the quantity demanded is greater than the quantity supplied and the interest rate will fall. 
C) the quantity supplied is greater than the quantity demanded and the interest rate will rise. 
D) the quantity supplied is greater than the quantity demanded and the interest rate will fall. 
A) the quantity demanded is greater than the quantity supplied and the interest rate will rise. 
B) the quantity demanded is greater than the quantity supplied and the interest rate will fall. 
C) the quantity supplied is greater than the quantity demanded and the interest rate will rise. 
D) the quantity supplied is greater than the quantity demanded and the interest rate will fall.

Question 7

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 8

Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating. Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate?

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 9

Index funds

Accepted Answer

A) typically have a higher rate of return and higher costs than managed mutual funds. 
B) typically have a higher rate of return and lower costs than managed mutual funds. 
C) typically have a lower rate of return and higher costs than managed mutual funds. 
D) typically have a lower rate of return and lower costs than managed mutual funds. 
A) typically have a higher rate of return and higher costs than managed mutual funds. 
B) typically have a higher rate of return and lower costs than managed mutual funds. 
C) typically have a lower rate of return and higher costs than managed mutual funds. 
D) typically have a lower rate of return and lower costs than managed mutual funds.

Question 10

Which of the following events could explain a decrease in interest rates together with an increase in investment?

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 11

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

Accepted Answer

A) True 
 B)False

Question 12

Figure 13-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.  
-Refer to Figure 13-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from $D _ { 1 }$ to $D _ { 2 }$ ?

Accepted Answer

A) The tax code is reformed to encourage greater saving. 
B) The tax code is reformed to encourage greater investment. 
C) The government starts running a budget deficit. 
D) The government starts running a budget surplus. 
A) The tax code is reformed to encourage greater saving. 
B) The tax code is reformed to encourage greater investment. 
C) The government starts running a budget deficit. 
D) The government starts running a budget surplus.

Question 13

Which of the following is correct?

Accepted Answer

A) Lenders sell bonds and borrowers buy them. 
B) Long-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier. 
C) The term junk bonds refers to bonds that have been resold many times. 
D) None of the above is correct. 
A) Lenders sell bonds and borrowers buy them. 
B) Long-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier. 
C) The term junk bonds refers to bonds that have been resold many times. 
D) None of the above is correct.

Question 14

Which of the following both make the interest rate on a bond higher than otherwise?

Accepted Answer

A) the interest it pays is taxed and it was issued by a financially strong corporation 
B) the interest it pays is taxed and it was issued by a financially weak corporation 
C) the interest it pays is tax exempt and it was issued by a financially strong corporation 
D) the interest it pays is tax exempt and it was issued by a financially weak corporation 
A) the interest it pays is taxed and it was issued by a financially strong corporation 
B) the interest it pays is taxed and it was issued by a financially weak corporation 
C) the interest it pays is tax exempt and it was issued by a financially strong corporation 
D) the interest it pays is tax exempt and it was issued by a financially weak corporation

Question 15

Other things the same, the higher the rate of saving and investment in a country, the higher will be the standard of living in the future.

Accepted Answer

A) True 
 B)False

Question 16

The sale of stocks

Accepted Answer

A) and bonds to raise money is called debt finance. 
B) and bonds to raise money is called equity finance. 
C) to raise money is called debt finance, while the sale of bonds to raise funds is called equity finance. 
D) to raise money is called equity finance, while the sale of bonds to raise funds is called debt finance. 
A) and bonds to raise money is called debt finance. 
B) and bonds to raise money is called equity finance. 
C) to raise money is called debt finance, while the sale of bonds to raise funds is called equity finance. 
D) to raise money is called equity finance, while the sale of bonds to raise funds is called debt finance.

Question 17

Which of the following is not an important stock exchange in the United States?

Accepted Answer

A) New York Stock Exchange 
B) American Stock Exchange 
C) Chicago Mercantile Exchange 
D) NASDAQ 
A) New York Stock Exchange 
B) American Stock Exchange 
C) Chicago Mercantile Exchange 
D) NASDAQ

Question 18

Which of the following statements is correct?

Accepted Answer

A) The expected future profitability of a corporation influences the demand for that corporation's stock. 
B) When a corporation sells stock as a means of raising funds it is engaging in debt finance. 
C) The owners of bonds sold by the Microsoft Corporation are part owners of that corporation. 
D) All bonds are, by definition, perpetuities. 
A) The expected future profitability of a corporation influences the demand for that corporation's stock. 
B) When a corporation sells stock as a means of raising funds it is engaging in debt finance. 
C) The owners of bonds sold by the Microsoft Corporation are part owners of that corporation. 
D) All bonds are, by definition, perpetuities.

Question 19

All or part of a firm's profits may be paid out to the firm's stockholders in the form of

Accepted Answer

A) retained earnings. 
B) dividends. 
C) interest payments. 
D) capital accounts. 
A) retained earnings. 
B) dividends. 
C) interest payments. 
D) capital accounts.

Question 20

People who buy stock in a corporation such as General Electric become

Accepted Answer

A) creditors of General Electric, so the benefits of holding the stock depend on General Electric's profits. 
B) creditors of General Electric, but the benefits of holding the stock do not depend on General Electric's profits. 
C) part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits. 
D) part owners of General Electric, but the benefits of holding the stock do not depend on General Electric's profits. 
A) creditors of General Electric, so the benefits of holding the stock depend on General Electric's profits. 
B) creditors of General Electric, but the benefits of holding the stock do not depend on General Electric's profits. 
C) part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits. 
D) part owners of General Electric, but the benefits of holding the stock do not depend on General Electric's profits.

Exam 13: Saving, Investment, and the Financial System

Financial crises seldom involve economic downturns.

Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same?

A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because

The price of a stock will rise if

If there is a surplus of loanable funds, then

A U.S. Treasury bond is a

Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating. Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate?

Index funds

Which of the following events could explain a decrease in interest rates together with an increase in investment?

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

Figure 13-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 13-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D1D _ { 1 }D1​ to D2D _ { 2 }D2​ ?

Which of the following is correct?

Which of the following both make the interest rate on a bond higher than otherwise?

Other things the same, the higher the rate of saving and investment in a country, the higher will be the standard of living in the future.

The sale of stocks

Which of the following is not an important stock exchange in the United States?

Which of the following statements is correct?

All or part of a firm's profits may be paid out to the firm's stockholders in the form of

People who buy stock in a corporation such as General Electric become

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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