Question 1

Which of the following is not correct?

Accepted Answer

A)  Gross domestic product is both total income in an economy and total expenditures on the economy's output of goods and services. 
B)  In a closed economy net exports are zero. 
C)  National saving is the sum of private saving and public saving. 
D)  Purchases of capital goods are excluded from GDP. 
A)  Gross domestic product is both total income in an economy and total expenditures on the economy's output of goods and services. 
B)  In a closed economy net exports are zero. 
C)  National saving is the sum of private saving and public saving. 
D)  Purchases of capital goods are excluded from GDP.

Question 2

Which of the following is both a financial institution and a financial intermediary?

Accepted Answer

A)  banks 
B)  stock exchanges 
C)  the bond market 
D)  All of the above are correct. 
A)  banks 
B)  stock exchanges 
C)  the bond market 
D)  All of the above are correct.

Question 3

Table 26-2
  
-Refer to Table 26-2.Which company had the highest 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 4

In 2008,CDZ Corporation had total earnings of $500 million and CDZ retained 30 percent of its earnings for future investments.If the price of a share of CDZ stock is $70 and if 80 million shares of its stock were outstanding,then what is the price-earnings ratio?

Accepted Answer

A)  0.14 
B)  11.2 
C)  16.0 
D)  37.3 
A)  0.14 
B)  11.2 
C)  16.0 
D)  37.3

Question 5

On which of these bonds is the prospect of default most likely?

Accepted Answer

A)  a junk bond 
B)  a municipal bond 
C)  a U.S.government bond 
D)  a corporate bond issued by General Electric Corporation 
A)  a junk bond 
B)  a municipal bond 
C)  a U.S.government bond 
D)  a corporate bond issued by General Electric Corporation

Question 6

Mutual funds are a type of financial intermediary.

Accepted Answer

A) True 
 B)False

Question 7

Table 26-1
  
-Refer to Table 26-1.Assume that the closing price was also the average price at which each stock transaction took place.What was the total dollar volume of Gillette stock traded that day?

Accepted Answer

A)  $912,840,000 
B)  $91,284,000 
C)  $9,128,400 
D)  $912,840 
A)  $912,840,000 
B)  $91,284,000 
C)  $9,128,400 
D)  $912,840

Question 8

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 9

Which of the following is a financial intermediary?

Accepted Answer

A)  a mutual fund 
B)  the stock market 
C)  a U.S.government bond 
D)  a wealthy individual who regularly buys and holds large quantities of government bonds 
A)  a mutual fund 
B)  the stock market 
C)  a U.S.government bond 
D)  a wealthy individual who regularly buys and holds large quantities of government bonds

Question 10

Table 26-2
  
-Refer to Table 26-2.Which company had the lowest dollar dividend?

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 11

If a reform of the tax laws encourages greater saving,the result would be

Accepted Answer

A)  higher interest rates and greater investment. 
B)  higher interest rates and less investment. 
C)  lower interest rates and greater investment. 
D)  lower interest rate and less investment. 
A)  higher interest rates and greater investment. 
B)  higher interest rates and less investment. 
C)  lower interest rates and greater investment. 
D)  lower interest rate and less investment.

Question 12

When the U.S.government is in debt during a given year,it follows that its budget is in deficit for that year.

Accepted Answer

A) True 
 B)False

Question 13

According to the definitions of private and public saving,if Y,C,and G remained the same,an increase in taxes would

Accepted Answer

A)  raise both private and public saving. 
B)  raise private saving and lower public saving. 
C)  lower private saving and raise public saving. 
D)  lower private and public saving. 
A)  raise both private and public saving. 
B)  raise private saving and lower public saving. 
C)  lower private saving and raise public saving. 
D)  lower private and public saving.

Question 14

A closed economy does not

Accepted Answer

A)  trade with other economies. 
B)  have free markets. 
C)  allow financial intermediation. 
D)  All of the above are correct. 
A)  trade with other economies. 
B)  have free markets. 
C)  allow financial intermediation. 
D)  All of the above are correct.

Question 15

Using a graph representing the market for loanable funds,show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Accepted Answer

As shown in the graph below,the economy

Question 16

The purchase of a new house is the one form of

Accepted Answer

A)  investment that is financed by private saving rather than public saving. 
B)  household spending that is not counted as part of investment in the national income accounts. 
C)  household spending that is investment rather than consumption. 
D)  household spending that does not contribute to GDP. 
A)  investment that is financed by private saving rather than public saving. 
B)  household spending that is not counted as part of investment in the national income accounts. 
C)  household spending that is investment rather than consumption. 
D)  household spending that does not contribute to GDP.

Question 17

You are thinking of buying a bond from Knight Corporation.You know that this bond is long term and you know that Knight's business ventures are risky and uncertain.You then consider another bond with a shorter term to maturity issued by a company with good prospects and an established reputation.Which of the following is correct?

Accepted Answer

A)  The longer term would tend to make the interest rate on the bond issued by Knight higher,while the higher risk would tend to make the interest rate lower. 
B)  The longer term would tend to make the interest rate on the bond issued by Knight lower,while the higher risk would tend to make the interest rate higher. 
C)  Both the longer term and the higher risk would tend to make the interest rate lower on the bond issued by Knight. 
D)  Both the longer term and the higher risk would tend to make the interest rate higher on the bond issued by Knight. 
A)  The longer term would tend to make the interest rate on the bond issued by Knight higher,while the higher risk would tend to make the interest rate lower. 
B)  The longer term would tend to make the interest rate on the bond issued by Knight lower,while the higher risk would tend to make the interest rate higher. 
C)  Both the longer term and the higher risk would tend to make the interest rate lower on the bond issued by Knight. 
D)  Both the longer term and the higher risk would tend to make the interest rate higher on the bond issued by Knight.

Question 18

Which of the following statements is correct?

Accepted Answer

A)  The interest rate that is usually reported is the interest rate that has been corrected for inflation. 
B)  The supply of,and demand for,loanable funds depend on the real (rather than nominal)interest rate. 
C)  If the nominal interest rate has decreased and the real interest rate has also decreased,then the inflation rate must have decreased as well. 
D)  All of the above are correct. 
A)  The interest rate that is usually reported is the interest rate that has been corrected for inflation. 
B)  The supply of,and demand for,loanable funds depend on the real (rather than nominal)interest rate. 
C)  If the nominal interest rate has decreased and the real interest rate has also decreased,then the inflation rate must have decreased as well. 
D)  All of the above are correct.

Question 19

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following lists correctly identifies the four expenditure categories of GDP?

Accepted Answer

A)  consumption,government purchases,investment,net-exports 
B)  consumption,investment,depreciation,net-exports 
C)  consumption,saving,investment,depreciation, 
D)  consumption,government purchases,investment,savings 
A)  consumption,government purchases,investment,net-exports 
B)  consumption,investment,depreciation,net-exports 
C)  consumption,saving,investment,depreciation, 
D)  consumption,government purchases,investment,savings

Exam 26: Saving, investment, and the Financial System

Which of the following is not correct?

Which of the following is both a financial institution and a financial intermediary?

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

In 2008,CDZ Corporation had total earnings of $500 million and CDZ retained 30 percent of its earnings for future investments.If the price of a share of CDZ stock is $70 and if 80 million shares of its stock were outstanding,then what is the price-earnings ratio?

On which of these bonds is the prospect of default most likely?

Mutual funds are a type of financial intermediary.

Table 26-1 -Refer to Table 26-1.Assume that the closing price was also the average price at which each stock transaction took place.What was the total dollar volume of Gillette stock traded that day?

The price of a stock will rise if

Which of the following is a financial intermediary?

Table 26-2 -Refer to Table 26-2.Which company had the lowest dollar dividend?

If a reform of the tax laws encourages greater saving,the result would be

When the U.S.government is in debt during a given year,it follows that its budget is in deficit for that year.

According to the definitions of private and public saving,if Y,C,and G remained the same,an increase in taxes would

A closed economy does not

Using a graph representing the market for loanable funds,show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

The purchase of a new house is the one form of

Which of the following statements is correct?

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Which of the following lists correctly identifies the four expenditure categories of GDP?

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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