Question 1

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 2

In the small closed economy of San Lucretia,the currency is the denar.Statistics for last year show that private saving was 60 billion denars,taxes were 70 billion denars,government purchases of goods and services were 80 billion denars,there were no transfer payments by the government,and GDP was 400 billion denars.What were consumption and investment in San Lucretia?

Accepted Answer

A)  270 billion denars,50 billion denars 
B)  260 billion denars,60 billion denars 
C)  250 billion denars,70 billion denars 
D)  None of the above is correct. 
A)  270 billion denars,50 billion denars 
B)  260 billion denars,60 billion denars 
C)  250 billion denars,70 billion denars 
D)  None of the above is correct.

Question 3

Other things the same,a higher interest rate induces people to

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 4

Corporations receive no proceeds from the resale of their stock.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Stock in Creole Cuisine Restaurants is selling at $25 per share.Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent.The dividend is

Accepted Answer

A)  $0.25 and the price-earnings ratio is 5. 
B)  $.25 and the price-earnings ratio is 6.7. 
C)  $1.25 and the price-earnings ratio is 5. 
D)  $1.25 and the price-earnings ratio is 6.7. 
A)  $0.25 and the price-earnings ratio is 5. 
B)  $.25 and the price-earnings ratio is 6.7. 
C)  $1.25 and the price-earnings ratio is 5. 
D)  $1.25 and the price-earnings ratio is 6.7.

Question 8

If the budget deficit increases then

Accepted Answer

A)  saving and the interest rate rise 
B)  saving rises and the interest rate falls 
C)  saving falls and the interest rate rises 
D)  saving and the interest rate falls 
A)  saving and the interest rate rise 
B)  saving rises and the interest rate falls 
C)  saving falls and the interest rate rises 
D)  saving and the interest rate falls

Question 9

Which of the following counts as part of the supply of loanable funds?

Accepted Answer

A)  bank deposits and purchases of bonds 
B)  bank deposits but not purchases of bonds 
C)  purchases of bonds but not bank deposits 
D)  neither purchases of bonds nor bank deposits 
A)  bank deposits and purchases of bonds 
B)  bank deposits but not purchases of bonds 
C)  purchases of bonds but not bank deposits 
D)  neither purchases of bonds nor bank deposits

Question 10

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 11

To state that public saving is equal to investment,for a closed economy,is to state an accounting identity.

Accepted Answer

A) True 
 B)False

Question 12

Scenario 26-1.Assume the following information for an imaginary,closed economy.
GDP = $110,000;consumption = $70,000;private saving = $8,000;national
saving = $12,000.
-Refer to Scenario 26-1.For this economy,taxes amount to

Accepted Answer

A)  $16,000. 
B)  $24,000. 
C)  $28,000. 
D)  $32,000. 
A)  $16,000. 
B)  $24,000. 
C)  $28,000. 
D)  $32,000.

Question 13

Suppose a country has a consumption tax that is similar to a state sales tax.If its government were to eliminate the consumption tax and replace it with an income tax that includes an income tax on interest from savings,what would happen?

Accepted Answer

A)  There would be no change in the interest rate or saving. 
B)  The interest rate would decrease and saving would increase. 
C)  The interest rate would increase and saving would decrease. 
D)  None of the above is correct. 
A)  There would be no change in the interest rate or saving. 
B)  The interest rate would decrease and saving would increase. 
C)  The interest rate would increase and saving would decrease. 
D)  None of the above is correct.

Question 14

Jerry has the choice of two bonds,one that pays 3 percent interest and one that pays 6 percent interest.Which of the following is most likely?

Accepted Answer

A)  The 6 percent bond is less risky than the 3 percent bond. 
B)  The 6 percent bond is a U.S.government bond,and the 3 percent bond is a junk bond. 
C)  The 6 percent bond has a longer term than the 3 percent bond. 
D)  The 6 percent bond is a municipal bond,and the 3 percent bond is a U.S.government bond. 
A)  The 6 percent bond is less risky than the 3 percent bond. 
B)  The 6 percent bond is a U.S.government bond,and the 3 percent bond is a junk bond. 
C)  The 6 percent bond has a longer term than the 3 percent bond. 
D)  The 6 percent bond is a municipal bond,and the 3 percent bond is a U.S.government bond.

Question 15

The single most important piece of information about a stock is its

Accepted Answer

A)  term. 
B)  dividend. 
C)  daily volume. 
D)  price. 
A)  term. 
B)  dividend. 
C)  daily volume. 
D)  price.

Question 16

Table 26-2
  
-Refer to Table 26-2.For which company's stock is the P/E ratio closest to what is historically typical?

Accepted Answer

A)  Boeing Co. 
B)  Eli Lilly and Co. 
C)  H.J.Heinz and Co. 
D)  Kellog Co. 
A)  Boeing Co. 
B)  Eli Lilly and Co. 
C)  H.J.Heinz and Co. 
D)  Kellog Co.

Question 17

Figure 26-1.The figure depicts a demand-for-loanable-funds curve and two
supply-of-loanable-funds curves.  
-Refer to Figure 26-1.Which of the following events would shift the supply curve from S1 to S2?

Accepted Answer

A)  In response to tax reform,firms are encouraged to invest more than they previously invested. 
B)  In response to tax reform,households are encouraged to save more than they previously saved. 
C)  Government goes from running a balanced budget to running a budget deficit. 
D)  Any of the above events would shift the supply curve from S1 to S2. 
A)  In response to tax reform,firms are encouraged to invest more than they previously invested. 
B)  In response to tax reform,households are encouraged to save more than they previously saved. 
C)  Government goes from running a balanced budget to running a budget deficit. 
D)  Any of the above events would shift the supply curve from S1 to S2.

Question 18

Interest rates fall and investment falls.Which of the following could explain these changes?

Accepted Answer

A)  The government goes from a surplus to a deficit. 
B)  The government repeals an investment tax credit. 
C)  The government replaces a consumption tax with an income tax. 
D)  None of the above is correct. 
A)  The government goes from a surplus to a deficit. 
B)  The government repeals an investment tax credit. 
C)  The government replaces a consumption tax with an income tax. 
D)  None of the above is correct.

Question 19

Which advantage(s)do mutual funds claim to provide?

Accepted Answer

A)  diversification and access to the skills of professional money managers 
B)  diversification but not access to the skills of professional money managers 
C)  access to the skills of professional money managers but not diversification 
D)  neither diversification nor access to the skills of professional money managers. 
A)  diversification and access to the skills of professional money managers 
B)  diversification but not access to the skills of professional money managers 
C)  access to the skills of professional money managers but not diversification 
D)  neither diversification nor access to the skills of professional money managers.

Question 20

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.

Exam 26: Saving, investment, and the Financial System

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

Other things the same,a higher interest rate induces people to

Corporations receive no proceeds from the resale of their stock.

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

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

Stock in Creole Cuisine Restaurants is selling at $25 per share.Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent.The dividend is

If the budget deficit increases then

Which of the following counts as part of the supply of loanable funds?

In a closed economy,private saving is

To state that public saving is equal to investment,for a closed economy,is to state an accounting identity.

Scenario 26-1.Assume the following information for an imaginary,closed economy. GDP = $110,000;consumption = $70,000;private saving = $8,000;national saving = $12,000. -Refer to Scenario 26-1.For this economy,taxes amount to

Suppose a country has a consumption tax that is similar to a state sales tax.If its government were to eliminate the consumption tax and replace it with an income tax that includes an income tax on interest from savings,what would happen?

Jerry has the choice of two bonds,one that pays 3 percent interest and one that pays 6 percent interest.Which of the following is most likely?

The single most important piece of information about a stock is its

Table 26-2 -Refer to Table 26-2.For which company's stock is the P/E ratio closest to what is historically typical?

Figure 26-1.The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1.Which of the following events would shift the supply curve from S1 to S2?

Interest rates fall and investment falls.Which of the following could explain these changes?

Which advantage(s)do mutual funds claim to provide?

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

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

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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