Question 1

Suppose that investment rises and interest rates fall. Which of the following best explains 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D) The government repealed an investment tax credit. 
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D) The government repealed an investment tax credit.

Question 2

If there is shortage of loanable funds, which of the following is most likely to happen?

Accepted Answer

A) The supply for loanable funds shifts right and the demand shifts left. 
B) The supply for loanable funds shifts left and the demand shifts right. 
C) Neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium. 
D) Neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium. 
A) The supply for loanable funds shifts right and the demand shifts left. 
B) The supply for loanable funds shifts left and the demand shifts right. 
C) Neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium. 
D) Neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.

Question 3

The sale of stocks or bonds to raise money is known as equity finance.

Accepted Answer

A) True 
 B)False

Question 4

Index funds are usually outperformed by mutual funds that are actively managed by professional money managers.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following determines the price of stocks traded on exchanges?

Accepted Answer

A) the Corporate Stock Administration 
B) the NASDAQ 
C) the supply and demand for the stock 
D) the Montreal Stock Exchange 
A) the Corporate Stock Administration 
B) the NASDAQ 
C) the supply and demand for the stock 
D) the Montreal Stock Exchange

Question 6

Lucy wants to start her own psychiatric practice, but her expenditures exceed her income. Which of the following best describes Lucy?

Accepted Answer

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

Question 7

Which of the following would an increase in the budget deficit most likely cause?

Accepted Answer

A) a shortage of loanable funds at the original interest rate, which would lead to falling interest rates 
B) a surplus of loanable funds at the original interest rate, which would lead to rising interest rates 
C) a shortage of loanable funds at the original interest rate, which would lead to rising interest rates 
D) a surplus of loanable funds at the original interest rate, which would lead to falling interest rates 
A) a shortage of loanable funds at the original interest rate, which would lead to falling interest rates 
B) a surplus of loanable funds at the original interest rate, which would lead to rising interest rates 
C) a shortage of loanable funds at the original interest rate, which would lead to rising interest rates 
D) a surplus of loanable funds at the original interest rate, which would lead to falling interest rates

Question 8

Which of the following terms refers to the profits NOT paid out to shareholders?

Accepted Answer

A) retained earnings 
B) dividends 
C) revenue 
D) costs 
A) retained earnings 
B) dividends 
C) revenue 
D) costs

Question 9

Which of the following terms refers to a certificate of indebtedness that specifies the obligations of the borrower to the holder?

Accepted Answer

A) bond 
B) stock 
C) mutual fund 
D) savings plan 
A) bond 
B) stock 
C) mutual fund 
D) savings plan

Question 10

Which of the following would NOT result from replacing the income tax with a consumption tax?

Accepted Answer

A) The interest rate would decrease. 
B) Investment would decrease. 
C) The standard of living would eventually rise. 
D) The supply of loanable funds would shift right. 
A) The interest rate would decrease. 
B) Investment would decrease. 
C) The standard of living would eventually rise. 
D) The supply of loanable funds would shift right.

Question 11

When the government runs a budget deficit, national saving is reduced, interest rates rise, and investment falls.

Accepted Answer

A) True 
 B)False

Question 12

What does a higher interest rate induce people to do?

Accepted Answer

A) save more, so the supply of loanable funds slopes upward 
B) save less, so the supply of loanable funds slopes downward 
C) invest more, so the supply of loanable funds slopes upward 
D) invest less, so the supply of loanable funds slopes downward 
A) save more, so the supply of loanable funds slopes upward 
B) save less, so the supply of loanable funds slopes downward 
C) invest more, so the supply of loanable funds slopes upward 
D) invest less, so the supply of loanable funds slopes downward

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

If Huedepool Beer runs into financial difficulty, how are bondholders and shareholders paid?

Accepted Answer

A) Shareholders are paid before bondholders. 
B) Shareholders are paid after bondholders. 
C) Shareholders and bondholders are paid proportional shares of the company's assets. 
D) Shareholders receive all the company's assets. 
A) Shareholders are paid before bondholders. 
B) Shareholders are paid after bondholders. 
C) Shareholders and bondholders are paid proportional shares of the company's assets. 
D) Shareholders receive all the company's assets.

Question 15

Figure 8-1  
-Refer to Figure 8-1. Which of the graphs in the figure shows the effects of instituting a national sales tax and simultaneously lowering the income tax rate?

Accepted Answer

A) graph 1 
B) graph 2 
C) graph 3 
D) none of the three graphs 
A) graph 1 
B) graph 2 
C) graph 3 
D) none of the three graphs

Question 16

If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, what is the real interest rate?

Accepted Answer

A) 12 percent 
B) 10 percent 
C) 8 percent 
D) 4 percent 
A) 12 percent 
B) 10 percent 
C) 8 percent 
D) 4 percent

Question 17

Stock in Synergistic Corporation is selling at $25 per share. It had earnings of $5 a share and a dividend yield of 5 percent. What is the dividend?

Accepted Answer

A) $0.05 
B) $0.25 
C) $1.25 
D) $125 
A) $0.05 
B) $0.25 
C) $1.25 
D) $125

Question 18

In examining the national income accounts of the closed economy of Nepotocracy, you see that it in 2007 it had taxes of $100 billion, transfers of $40 billion, and government purchases of goods and services of $80 billion. You also notice that in 2006 it had private saving of $50 billion and investment of $70 billion. In which year did Nepotocracy have a budget deficit of $20 billion?

Accepted Answer

A) 2007 and 2006 
B) 2007 but not 2006 
C) 2006 but not 2007 
D) neither 2006 nor 2007 
A) 2007 and 2006 
B) 2007 but not 2006 
C) 2006 but not 2007 
D) neither 2006 nor 2007

Question 19

What is the effect of an increase in budget deficit?

Accepted Answer

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

Question 20

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

Accepted Answer

A) True 
 B)False

Suppose that investment rises and interest rates fall. Which of the following best explains these changes?

If there is shortage of loanable funds, which of the following is most likely to happen?

The sale of stocks or bonds to raise money is known as equity finance.

Index funds are usually outperformed by mutual funds that are actively managed by professional money managers.

Which of the following determines the price of stocks traded on exchanges?

Lucy wants to start her own psychiatric practice, but her expenditures exceed her income. Which of the following best describes Lucy?

Which of the following would an increase in the budget deficit most likely cause?

Which of the following terms refers to the profits NOT paid out to shareholders?

Which of the following terms refers to a certificate of indebtedness that specifies the obligations of the borrower to the holder?

Which of the following would NOT result from replacing the income tax with a consumption tax?

When the government runs a budget deficit, national saving is reduced, interest rates rise, and investment falls.

What does a higher interest rate induce people to do?

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

If Huedepool Beer runs into financial difficulty, how are bondholders and shareholders paid?

Figure 8-1 -Refer to Figure 8-1. Which of the graphs in the figure shows the effects of instituting a national sales tax and simultaneously lowering the income tax rate?

If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, what is the real interest rate?

Stock in Synergistic Corporation is selling at $25 per share. It had earnings of $5 a share and a dividend yield of 5 percent. What is the dividend?

What is the effect of an increase in budget deficit?

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

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Unemployment and Its Natural Rate

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 Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 8: Saving, Investment, and the Financial System

Suppose that investment rises and interest rates fall. Which of the following best explains these changes?

If there is shortage of loanable funds, which of the following is most likely to happen?

The sale of stocks or bonds to raise money is known as equity finance.

Index funds are usually outperformed by mutual funds that are actively managed by professional money managers.

Which of the following determines the price of stocks traded on exchanges?

Lucy wants to start her own psychiatric practice, but her expenditures exceed her income. Which of the following best describes Lucy?

Which of the following would an increase in the budget deficit most likely cause?

Which of the following terms refers to the profits NOT paid out to shareholders?

Which of the following terms refers to a certificate of indebtedness that specifies the obligations of the borrower to the holder?

Which of the following would NOT result from replacing the income tax with a consumption tax?

When the government runs a budget deficit, national saving is reduced, interest rates rise, and investment falls.

What does a higher interest rate induce people to do?

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

If Huedepool Beer runs into financial difficulty, how are bondholders and shareholders paid?

Figure 8-1 -Refer to Figure 8-1. Which of the graphs in the figure shows the effects of instituting a national sales tax and simultaneously lowering the income tax rate?

If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, what is the real interest rate?

Stock in Synergistic Corporation is selling at $25 per share. It had earnings of $5 a share and a dividend yield of 5 percent. What is the dividend?

What is the effect of an increase in budget deficit?

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

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Unemployment and Its Natural Rate

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 Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters