Question 1

Which of the following is correct?

Accepted Answer

A)  Joan takes some of her income and buys mutual fund shares.Joan's purchase will be included in the investment category of GDP. 
B)  If a share of stock in Virtual Pizza Corporation sells for $77,the earnings per share are $5,and the dividend per share is $2,then the P/E ratio is 11. 
C)  In order to use equity finance,a firm must sell about equal values of stocks and bonds. 
D)  None of the above is correct. 
A)  Joan takes some of her income and buys mutual fund shares.Joan's purchase will be included in the investment category of GDP. 
B)  If a share of stock in Virtual Pizza Corporation sells for $77,the earnings per share are $5,and the dividend per share is $2,then the P/E ratio is 11. 
C)  In order to use equity finance,a firm must sell about equal values of stocks and bonds. 
D)  None of the above is correct.

Question 2

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Accepted Answer

A)  credit risk. 
B)  interest risk. 
C)  term risk. 
D)  private risk. 
A)  credit risk. 
B)  interest risk. 
C)  term risk. 
D)  private risk.

Question 3

Index funds

Accepted Answer

A)  buy all the stocks in a given stock index. 
B)  promise to beat the market by a certain percentage known as an index. 
C)  provide a return that is adjusted for changes in the consumer price index. 
D)  buy industries within a particular category of the North American Industry Classification System. 
A)  buy all the stocks in a given stock index. 
B)  promise to beat the market by a certain percentage known as an index. 
C)  provide a return that is adjusted for changes in the consumer price index. 
D)  buy industries within a particular category of the North American Industry Classification System.

Question 4

A government may use deficit financing to smooth tax rates over time.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not correct?

Accepted Answer

A)  American families save a larger fraction of their incomes than their counterparts in many other countries such as Germany and Japan. 
B)  Saving is an important long-run determinant of a nation's standard of living. 
C)  A change in tax laws that encouraged greater saving would lower interest rates. 
D)  Taxes on interest income can substantially decrease the future value of current saving. 
A)  American families save a larger fraction of their incomes than their counterparts in many other countries such as Germany and Japan. 
B)  Saving is an important long-run determinant of a nation's standard of living. 
C)  A change in tax laws that encouraged greater saving would lower interest rates. 
D)  Taxes on interest income can substantially decrease the future value of current saving.

Question 6

Table 26-2
  
-Refer to Table 26-2.Which company had the highest 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 7

At the broadest level,the financial system moves the economy's scarce resources from

Accepted Answer

A)  the rich to the poor. 
B)  financial institutions to business firms and government. 
C)  households to financial institutions. 
D)  savers to borrowers. 
A)  the rich to the poor. 
B)  financial institutions to business firms and government. 
C)  households to financial institutions. 
D)  savers to borrowers.

Question 8

Table 26-1
  
-Refer to Table 26-1.In dollar terms,which company paid the highest dividend per share?

Accepted Answer

A)  GenMills 
B)  Gillette 
C)  Graco 
D)  Hershey 
A)  GenMills 
B)  Gillette 
C)  Graco 
D)  Hershey

Question 9

A low P/E for a stock indicates that

Accepted Answer

A)  people may expect earnings to fall in the future,perhaps because the firm will be faced with increased competition. 
B)  its dividends have been low so that no one is willing to pay very much for it. 
C)  the corporation is possibly overvalued. 
D)  All of the above are correct. 
A)  people may expect earnings to fall in the future,perhaps because the firm will be faced with increased competition. 
B)  its dividends have been low so that no one is willing to pay very much for it. 
C)  the corporation is possibly overvalued. 
D)  All of the above are correct.

Question 10

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.  
-Refer to Figure 26-3.A shift of the supply curve from S1 to S2 is called

Accepted Answer

A)  an increase in the supply of loanable funds. 
B)  an increase in the quantity of loanable funds supplied. 
C)  a decrease in the supply of loanable funds. 
D)  a decrease in the quantity of loanable funds supplied. 
A)  an increase in the supply of loanable funds. 
B)  an increase in the quantity of loanable funds supplied. 
C)  a decrease in the supply of loanable funds. 
D)  a decrease in the quantity of loanable funds supplied.

Question 11

People who buy stock in a corporation such as General Electric become

Accepted Answer

A)  creditors of General Electric,so the benefits of holding the stock depend on General Electric's profits. 
B)  creditors of General Electric,but the benefits of holding the stock do not depend on General Electric's profits. 
C)  part owners of General Electric,so the benefits of holding the stock depend on General Electric's profits. 
D)  part owners of General Electric,but the benefits of holding the stock do not depend on General Electric's profits. 
A)  creditors of General Electric,so the benefits of holding the stock depend on General Electric's profits. 
B)  creditors of General Electric,but the benefits of holding the stock do not depend on General Electric's profits. 
C)  part owners of General Electric,so the benefits of holding the stock depend on General Electric's profits. 
D)  part owners of General Electric,but the benefits of holding the stock do not depend on General Electric's profits.

Question 12

Municipal bonds pay a relatively

Accepted Answer

A)  low rate of interest because of their high default risk and because the interest they pay is subject to federal income tax. 
B)  low rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax. 
C)  high rate of interest because of their high default risk and because federal taxes must be paid on the interest they pay. 
D)  high rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax. 
A)  low rate of interest because of their high default risk and because the interest they pay is subject to federal income tax. 
B)  low rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax. 
C)  high rate of interest because of their high default risk and because federal taxes must be paid on the interest they pay. 
D)  high rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax.

Question 13

All or part of a firm's profits may be paid out to the firm's stockholders in the form of

Accepted Answer

A)  retained earnings. 
B)  dividends. 
C)  interest payments. 
D)  capital accounts. 
A)  retained earnings. 
B)  dividends. 
C)  interest payments. 
D)  capital accounts.

Question 14

As a money management fee,mutual funds usually charge their customers

Accepted Answer

A)  between 0.5 and 2.0 percent of assets each year. 
B)  between 1.5 and 3.0 percent of assets each year. 
C)  nothing,because they receive commissions from the firms whose stock they buy. 
D)  a flat fee of about $50. 
A)  between 0.5 and 2.0 percent of assets each year. 
B)  between 1.5 and 3.0 percent of assets each year. 
C)  nothing,because they receive commissions from the firms whose stock they buy. 
D)  a flat fee of about $50.

Question 15

In a small closed economy investment is $20 billion and private saving is $22 billion.What are public saving and national saving?

Accepted Answer

A)  $24 billion and $2 billion 
B)  $20 billion and -$2 billion 
C)  $2 billion and $24 billion 
D)  -$2 billion and $20 billion 
A)  $24 billion and $2 billion 
B)  $20 billion and -$2 billion 
C)  $2 billion and $24 billion 
D)  -$2 billion and $20 billion

Question 16

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

Accepted Answer

A)  The government runs a larger deficit. 
B)  The government institutes an investment tax credit. 
C)  The government replaces the income tax with a consumption tax. 
D)  None of the above is correct. 
A)  The government runs a larger deficit. 
B)  The government institutes an investment tax credit. 
C)  The government replaces the income tax with a consumption tax. 
D)  None of the above is correct.

Question 17

In the market for loanable funds,the interaction of the demand for,and supply of,loanable funds determines the equilibrium level of

Accepted Answer

A)  the inflation rate. 
B)  gross domestic product. 
C)  the real interest rate. 
D)  the nominal interest rate. 
A)  the inflation rate. 
B)  gross domestic product. 
C)  the real interest rate. 
D)  the nominal interest rate.

Question 18

Other things the same,corporate bonds generally feature higher interest rates than U.S.government bonds.

Accepted Answer

A) True 
 B)False

Question 19

Other things the same,an increase in the interest rate

Accepted Answer

A)  would shift the demand for loanable funds to the right. 
B)  would shift the demand for loanable funds to the left. 
C)  would increase the quantity of loanable funds demanded. 
D)  would decrease the quantity of loanable funds demanded. 
A)  would shift the demand for loanable funds to the right. 
B)  would shift the demand for loanable funds to the left. 
C)  would increase the quantity of loanable funds demanded. 
D)  would decrease the quantity of loanable funds demanded.

Question 20

The primary economic function of the financial system is to

Accepted Answer

A)  keep interest rates low. 
B)  provide expert advice to savers and investors. 
C)  match one person's consumption expenditures with another person's capital expenditures. 
D)  match one person's saving with another person's investment. 
A)  keep interest rates low. 
B)  provide expert advice to savers and investors. 
C)  match one person's consumption expenditures with another person's capital expenditures. 
D)  match one person's saving with another person's investment.

Exam 26: Saving, investment, and the Financial System

Which of the following is correct?

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Index funds

A government may use deficit financing to smooth tax rates over time.

Which of the following is not correct?

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

At the broadest level,the financial system moves the economy's scarce resources from

Table 26-1 -Refer to Table 26-1.In dollar terms,which company paid the highest dividend per share?

A low P/E for a stock indicates that

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3.A shift of the supply curve from S1 to S2 is called

People who buy stock in a corporation such as General Electric become

Municipal bonds pay a relatively

All or part of a firm's profits may be paid out to the firm's stockholders in the form of

As a money management fee,mutual funds usually charge their customers

In a small closed economy investment is $20 billion and private saving is $22 billion.What are public saving and national saving?

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

In the market for loanable funds,the interaction of the demand for,and supply of,loanable funds determines the equilibrium level of

Other things the same,corporate bonds generally feature higher interest rates than U.S.government bonds.

Other things the same,an increase in the interest rate

The primary economic function of the financial system is to

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

Filters

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3.A shift of the supply curve from S₁ to S₂ is called