Question 1

If people become less optimistic about the future earnings of Hyde Park Jazz Studio,then the price of the company's stock will fall.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Which of the following is correct?

Accepted Answer

A)  In the national income accounts,investment and private saving refer to the same thing. 
B)  In a closed economy if national saving is greater than zero,then everyone must be saving. 
C)  The financial system channels funds from savers to borrowers. 
D)  People whose consumption exceeds their income are savers. 
A)  In the national income accounts,investment and private saving refer to the same thing. 
B)  In a closed economy if national saving is greater than zero,then everyone must be saving. 
C)  The financial system channels funds from savers to borrowers. 
D)  People whose consumption exceeds their income are savers.

Question 4

Which of the following bond buyers did not buy the bond that best met his or her objective?

Accepted Answer

A)  Mia wanted a bond with a high interest rate and was willing to take a lot of risk.She purchased a junk bond. 
B)  Anna wanted a bond that would let her best avoid federal income taxes.She purchased a municipal bond. 
C)  Bill wanted to purchase a bond whose seller was unlikely to default.He purchased a bond that Standards and Poor's rated a low credit risk. 
D)  Toby held long-term bonds rather than short-term ones to avoid risk. 
A)  Mia wanted a bond with a high interest rate and was willing to take a lot of risk.She purchased a junk bond. 
B)  Anna wanted a bond that would let her best avoid federal income taxes.She purchased a municipal bond. 
C)  Bill wanted to purchase a bond whose seller was unlikely to default.He purchased a bond that Standards and Poor's rated a low credit risk. 
D)  Toby held long-term bonds rather than short-term ones to avoid risk.

Question 5

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 6

An increase in the demand for loanable funds increases the equilibrium interest rate and decreases the equilibrium level of saving.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  both high credit risk and a long term 
B)  high credit risk but not a long term 
C)  a long term but not a high credit risk 
D)  neither high credit risk nor a long term 
A)  both high credit risk and a long term 
B)  high credit risk but not a long term 
C)  a long term but not a high credit risk 
D)  neither high credit risk nor a long term

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

If Congress reduced the tax rate on interest income,investment

Accepted Answer

A)  would increase and saving would decrease. 
B)  would decrease and saving would increase. 
C)  and saving would increase. 
D)  and saving would decrease. 
A)  would increase and saving would decrease. 
B)  would decrease and saving would increase. 
C)  and saving would increase. 
D)  and saving would decrease.

Question 10

Compared to stocks,bonds offer the holder

Accepted Answer

A)  lower risk and lower potential return. 
B)  lower risk and higher potential return. 
C)  higher risk and lower potential return. 
D)  higher risk and higher potential return. 
A)  lower risk and lower potential return. 
B)  lower risk and higher potential return. 
C)  higher risk and lower potential return. 
D)  higher risk and higher potential return.

Question 11

In national income accounting,we use which of the following pairs of terms interchangeably?

Accepted Answer

A)  "investment" and "private saving" 
B)  "investment" and "purchases of stocks and bonds" 
C)  "saving" and "national saving" 
D)  "public saving" and "government tax revenue minus government spending" 
A)  "investment" and "private saving" 
B)  "investment" and "purchases of stocks and bonds" 
C)  "saving" and "national saving" 
D)  "public saving" and "government tax revenue minus government spending"

Question 12

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding.Last year,Tasty Greens earned $5 million,of which it retained $1 million for future investments.The dividend yield on the stock is

Accepted Answer

A)  1 percent. 
B)  2 percent. 
C)  4 percent. 
D)  5 percent. 
A)  1 percent. 
B)  2 percent. 
C)  4 percent. 
D)  5 percent.

Question 13

Historically,the typical price-earnings ratio for stocks is about

Accepted Answer

A)  3 
B)  8 
C)  15 
D)  26 
A)  3 
B)  8 
C)  15 
D)  26

Question 14

When economists refer to investment,they mean the purchasing of stocks and bonds and other types of saving.

Accepted Answer

A) True 
 B)False

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.

Accepted Answer

A) True 
 B)False

Question 16

A change in the tax laws that increases the supply of loanable funds will have a bigger effect on investment when

Accepted Answer

A)  the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic. 
B)  the demand for loanable funds is more inelastic and the supply of loanable funds is more elastic. 
C)  both the demand for and supply of loanable funds are more elastic. 
D)  both the demand for and supply of loanable funds are more inelastic. 
A)  the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic. 
B)  the demand for loanable funds is more inelastic and the supply of loanable funds is more elastic. 
C)  both the demand for and supply of loanable funds are more elastic. 
D)  both the demand for and supply of loanable funds are more inelastic.

Question 17

In a closed economy,what does (T - G)represent?

Accepted Answer

A)  national saving 
B)  investment 
C)  private saving 
D)  public saving 
A)  national saving 
B)  investment 
C)  private saving 
D)  public saving

Question 18

Suppose government expenditures on goods and services and net taxes both decrease,and expenditures fall by more than net taxes.The effects of these changes on the budget deficit cause

Accepted Answer

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

Question 19

Suppose government expenditures on goods and services increase,transfers are unchanged,and taxes rise by less than the increase in expenditures.These changes in the government's budget cause

Accepted Answer

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

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 26: Saving, investment, and the Financial System

If people become less optimistic about the future earnings of Hyde Park Jazz Studio,then the price of the company's stock will fall.

If there is a surplus of loanable funds,then

Which of the following is correct?

Which of the following bond buyers did not buy the bond that best met his or her objective?

Crowding out occurs when investment declines because

An increase in the demand for loanable funds increases the equilibrium interest rate and decreases the equilibrium level of saving.

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

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

If Congress reduced the tax rate on interest income,investment

Compared to stocks,bonds offer the holder

In national income accounting,we use which of the following pairs of terms interchangeably?

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding.Last year,Tasty Greens earned $5 million,of which it retained $1 million for future investments.The dividend yield on the stock is

Historically,the typical price-earnings ratio for stocks is about

When economists refer to investment,they mean the purchasing of stocks and bonds and other types of saving.

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

A change in the tax laws that increases the supply of loanable funds will have a bigger effect on investment when

In a closed economy,what does (T - G)represent?

Suppose government expenditures on goods and services and net taxes both decrease,and expenditures fall by more than net taxes.The effects of these changes on the budget deficit cause

Suppose government expenditures on goods and services increase,transfers are unchanged,and taxes rise by less than the increase in expenditures.These changes in the government's budget cause

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

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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