Question 1

When a firm wants to borrow directly from the public to finance the purchase of new equipment,it does so by selling bonds.

Accepted Answer

A) True 
 B)False

Question 2

Stocks and bonds

Accepted Answer

A)  and checking accounts are all stores of value and commonly function as mediums of exchange. 
B)  and checking accounts are all stores of value,but only stocks and bonds commonly function as mediums of exchange. 
C)  and checking accounts are all stores of value,but only checking accounts commonly function as mediums of exchange. 
D)  and checking accounts all commonly function as mediums of exchange,but only stocks and bonds are a store of value. 
A)  and checking accounts are all stores of value and commonly function as mediums of exchange. 
B)  and checking accounts are all stores of value,but only stocks and bonds commonly function as mediums of exchange. 
C)  and checking accounts are all stores of value,but only checking accounts commonly function as mediums of exchange. 
D)  and checking accounts all commonly function as mediums of exchange,but only stocks and bonds are a store of value.

Question 3

Suppose that the tires of a certain tire manufacturer are discovered to be defective.Other things the same,this news would cause

Accepted Answer

A)  the demand for this company's stock to decrease,so the price would rise. 
B)  the demand for this company's stock to decrease,so the price would fall. 
C)  the supply of this company's stock to decrease,so the price would fall. 
D)  the supply of this company's stock to decrease,so the price would rise. 
A)  the demand for this company's stock to decrease,so the price would rise. 
B)  the demand for this company's stock to decrease,so the price would fall. 
C)  the supply of this company's stock to decrease,so the price would fall. 
D)  the supply of this company's stock to decrease,so the price would rise.

Question 4

If there is surplus of loanable funds,then

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 5

Buskin's Corporation has issued 2 million shares of stock.Its earnings were $10 million,of which it retained $6 million.What was the dividend per share?

Accepted Answer

A)  $2. 
B)  $3. 
C)  $5 
D)  None of the above is correct. 
A)  $2. 
B)  $3. 
C)  $5 
D)  None of the above is correct.

Question 6

The supply of loanable funds slopes

Accepted Answer

A)  upward because an increase in the interest rate induces people to save more. 
B)  downward because an increase in the interest rate induces people to save less. 
C)  downward because an increase in the interest rate induces people to invest less. 
D)  upward because an increase in the interest rate induces people to invest more. 
A)  upward because an increase in the interest rate induces people to save more. 
B)  downward because an increase in the interest rate induces people to save less. 
C)  downward because an increase in the interest rate induces people to invest less. 
D)  upward because an increase in the interest rate induces people to invest more.

Question 7

You have some estimates of national accounts numbers for a closed economy for the coming year.Under one set of expectations,government purchases will be $30 billion,transfer payments will be $10 billion,and taxes will be $45 billion.Under another set of expectations,GDP will be $200 billion,taxes will be $50 billion,transfer payments will be $20 billion,consumption will be $120 million,and investment will be $40 billion.Based on these numbers in the first case there should be a

Accepted Answer

A)  $15 billion surplus,and in the second case a $10 billion surplus. 
B)  $15 billion surplus,and in the second case a $10 billion deficit. 
C)  $5 billion surplus,and in the second case a $10 billion surplus. 
D)  $5 billion surplus,and in the second case a $10 billion deficit. 
A)  $15 billion surplus,and in the second case a $10 billion surplus. 
B)  $15 billion surplus,and in the second case a $10 billion deficit. 
C)  $5 billion surplus,and in the second case a $10 billion surplus. 
D)  $5 billion surplus,and in the second case a $10 billion deficit.

Question 8

Suppose a country has only a sales tax.Now suppose it replaces the sales tax with an income tax that includes a tax on interest income.This would make equilibrium

Accepted Answer

A)  interest rates and the equilibrium quantity of loanable funds rise. 
B)  interest rates rise and the equilibrium quantity of loanable funds fall. 
C)  interest rates fall and the equilibrium quantity of loanable funds rise. 
D)  interest rates and the equilibrium quantity of loanable funds fall. 
A)  interest rates and the equilibrium quantity of loanable funds rise. 
B)  interest rates rise and the equilibrium quantity of loanable funds fall. 
C)  interest rates fall and the equilibrium quantity of loanable funds rise. 
D)  interest rates and the equilibrium quantity of loanable funds fall.

Question 9

Two bonds have the same term to maturity.The first was issued by a state government and the probability of default is believed to be low.The other was issued by a corporation and the probability of default is believed to be high.Which of the following is correct?

Accepted Answer

A)  Because they have the same term to maturity the interest rates should be the same. 
B)  Because of the differences in tax treatment and credit risk,the state bond should have the higher interest rate. 
C)  Because of the differences in tax treatment and credit risk,the corporate bond should have the higher interest rate. 
D)  It is not possible to say if one bond has a higher interest rate than the other. 
A)  Because they have the same term to maturity the interest rates should be the same. 
B)  Because of the differences in tax treatment and credit risk,the state bond should have the higher interest rate. 
C)  Because of the differences in tax treatment and credit risk,the corporate bond should have the higher interest rate. 
D)  It is not possible to say if one bond has a higher interest rate than the other.

Question 10

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 11

PacknCamp Corporation has a stock price of $50,has issued 2,000,000 shares of stock,has retained earnings of $4 million dollars,and a dividend yield of 4 percent.The price-earnings ratio of PacknCamp is

Accepted Answer

A)  25,which is high compared to historical standards of the market. 
B)  25,which is low compared to historical standards of the market. 
C)  12.5,which is low compared to historical standards of the market. 
D)  12.5,which is high compared to historical standards of the market. 
A)  25,which is high compared to historical standards of the market. 
B)  25,which is low compared to historical standards of the market. 
C)  12.5,which is low compared to historical standards of the market. 
D)  12.5,which is high compared to historical standards of the market.

Question 12

Which of the following equations represents GDP for an open economy?

Accepted Answer

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

Question 13

In examining the national income accounts of the closed economy of Nepotocracy you see that this year it had taxes of $100 billion,transfers of $40 billion,and government purchases of goods and services of $80 billion.You also notice that last year 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)  this year and last year 
B)  this year but not last year 
C)  last year but not this year 
D)  neither this year nor last year 
A)  this year and last year 
B)  this year but not last year 
C)  last year but not this year 
D)  neither this year nor last year

Question 14

The term crowding out refers to decreases in the interest rate caused by government budget surpluses.

Accepted Answer

A) True 
 B)False

Question 15

The source of the supply of loanable funds

Accepted Answer

A)  is saving and the source of demand for loanable funds is investment. 
B)  is investment and the source of demand for loanable funds is saving. 
C)  and the demand for loanable funds is saving. 
D)  and the demand for loanable funds is investment. 
A)  is saving and the source of demand for loanable funds is investment. 
B)  is investment and the source of demand for loanable funds is saving. 
C)  and the demand for loanable funds is saving. 
D)  and the demand for loanable funds is investment.

Question 16

Other things the same,which bond would you expect to pay the lowest interest rate?

Accepted Answer

A)  a bond issued by a state with a very good credit rating 
B)  a bond issued by the U.S.government 
C)  a bond issued by a fairly new company doing genetic research 
D)  a bond issued by Nabisco 
A)  a bond issued by a state with a very good credit rating 
B)  a bond issued by the U.S.government 
C)  a bond issued by a fairly new company doing genetic research 
D)  a bond issued by Nabisco

Question 17

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 18

Which of the following statements is correct?

Accepted Answer

A)  A general,persistent decline in stock prices may signal that the economy is about to enter a boom period because people will be able to buy stock for less money. 
B)  A general,persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits. 
C)  A general,persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past. 
D)  Expectations about the business cycle have no impact on stock prices. 
A)  A general,persistent decline in stock prices may signal that the economy is about to enter a boom period because people will be able to buy stock for less money. 
B)  A general,persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits. 
C)  A general,persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past. 
D)  Expectations about the business cycle have no impact on stock prices.

Question 19

Table 26-2
  
-Refer to Table 26-2.Which company had the lowest earnings per share?

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 20

When a large,well-known corporation wishes to borrow directly from the public,it can

Accepted Answer

A)  sell bonds. 
B)  sell shares of stock. 
C)  go to a bank for a loan. 
D)  All of the above are correct. 
A)  sell bonds. 
B)  sell shares of stock. 
C)  go to a bank for a loan. 
D)  All of the above are correct.

Exam 26: Saving, investment, and the Financial System

When a firm wants to borrow directly from the public to finance the purchase of new equipment,it does so by selling bonds.

Stocks and bonds

Suppose that the tires of a certain tire manufacturer are discovered to be defective.Other things the same,this news would cause

If there is surplus of loanable funds,then

Buskin's Corporation has issued 2 million shares of stock.Its earnings were $10 million,of which it retained $6 million.What was the dividend per share?

The supply of loanable funds slopes

Suppose a country has only a sales tax.Now suppose it replaces the sales tax with an income tax that includes a tax on interest income.This would make equilibrium

Two bonds have the same term to maturity.The first was issued by a state government and the probability of default is believed to be low.The other was issued by a corporation and the probability of default is believed to be high.Which of the following is correct?

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

PacknCamp Corporation has a stock price of $50,has issued 2,000,000 shares of stock,has retained earnings of $4 million dollars,and a dividend yield of 4 percent.The price-earnings ratio of PacknCamp is

Which of the following equations represents GDP for an open economy?

The term crowding out refers to decreases in the interest rate caused by government budget surpluses.

The source of the supply of loanable funds

Other things the same,which bond would you expect to pay the lowest interest rate?

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

Which of the following statements is correct?

Table 26-2 -Refer to Table 26-2.Which company had the lowest earnings per share?

When a large,well-known corporation wishes to borrow directly from the public,it can

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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