Question 1

XDF Corp.had a price-earnings ratio of 15,paid a dividend of $1,and retained earnings of $2 a share.What was the price of a share of XDF stock?

Accepted Answer

A)  $15 
B)  $30 
C)  $45 
D)  None of the above is correct. 
A)  $15 
B)  $30 
C)  $45 
D)  None of the above is correct.

Question 2

Potential buyers of ABC Corporation bonds are not concerned about ABC Corporation declaring bankruptcy.Potential buyers of XYZ Corporation bonds are concerned that XYZ Corporation may declare bankruptcy.Which of the following statements is correct?

Accepted Answer

A)  Other things equal,the interest rate on XYZ Corporation bonds will be high relative to the interest rate on ABC Corporation bonds. 
B)  An ABC Corporation bond is a perpetuity,whereas an XYZ Corporation bond is not a perpetuity. 
C)  XYZ Corporation bonds carry more interest-rate risk than do ABC Corporation bonds. 
D)  All of the above are correct. 
A)  Other things equal,the interest rate on XYZ Corporation bonds will be high relative to the interest rate on ABC Corporation bonds. 
B)  An ABC Corporation bond is a perpetuity,whereas an XYZ Corporation bond is not a perpetuity. 
C)  XYZ Corporation bonds carry more interest-rate risk than do ABC Corporation bonds. 
D)  All of the above are correct.

Question 3

A larger budget deficit

Accepted Answer

A)  raises the interest rate and investment. 
B)  reduces the interest rate and investment. 
C)  raises the interest rate and reduces investment. 
D)  reduces the interest rate and raises investment. 
A)  raises the interest rate and investment. 
B)  reduces the interest rate and investment. 
C)  raises the interest rate and reduces investment. 
D)  reduces the interest rate and raises investment.

Question 4

Which of the following statements about mutual funds is correct?

Accepted Answer

A)  A mutual fund is a financial intermediary. 
B)  A mutual fund acquires its funds primarily by selling shares to the public. 
C)  People who buy shares from a mutual fund accept all of the risk and return associated with the mutual fund's portfolio. 
D)  All of the above are correct. 
A)  A mutual fund is a financial intermediary. 
B)  A mutual fund acquires its funds primarily by selling shares to the public. 
C)  People who buy shares from a mutual fund accept all of the risk and return associated with the mutual fund's portfolio. 
D)  All of the above are correct.

Question 5

Papa Mario's Pizza Company sells common stock.The company is using

Accepted Answer

A)  equity financing and the return shareholders earn is fixed. 
B)  equity financing and the return shareholders earn depends on how profitable the company is. 
C)  debt financing and the return shareholders earn is fixed. 
D)  debt financing and the return shareholders earn depends on how profitable the company is. 
A)  equity financing and the return shareholders earn is fixed. 
B)  equity financing and the return shareholders earn depends on how profitable the company is. 
C)  debt financing and the return shareholders earn is fixed. 
D)  debt financing and the return shareholders earn depends on how profitable the company is.

Question 6

Suppose that in a closed economy GDP is equal to 11,000,taxes are equal to 1,500,consumption equals 7,500,and government purchases equal 2,000.What is national saving?

Accepted Answer

A)  -500 
B)  0 
C)  1,500 
D)  None of the above is correct. 
A)  -500 
B)  0 
C)  1,500 
D)  None of the above is correct.

Question 7

We associate the term debt finance with

Accepted Answer

A)  the bond market,and we associate the term equity finance with the stock market. 
B)  the stock market,and we associate the term equity finance with the bond market. 
C)  financial intermediaries,and we associate the term equity finance with financial markets. 
D)  financial markets,and we associate the term equity finance with financial intermediaries. 
A)  the bond market,and we associate the term equity finance with the stock market. 
B)  the stock market,and we associate the term equity finance with the bond market. 
C)  financial intermediaries,and we associate the term equity finance with financial markets. 
D)  financial markets,and we associate the term equity finance with financial intermediaries.

Question 8

The country of Yokovia does not trade with any other country.Its GDP is $30 billion.Its government purchases $5 billion worth of goods and services each year,collects $7 billion in taxes,and provides $3 billion in transfer payments to households.Private saving in Yokovia amounts to $5 billion.What are consumption and investment in Yokovia?

Accepted Answer

A)  $18 billion and $5 billion,respectively 
B)  $21 billion and $4 billion,respectively 
C)  $13 billion and $7 billion,respectively 
D)  There is not enough information to answer the question. 
A)  $18 billion and $5 billion,respectively 
B)  $21 billion and $4 billion,respectively 
C)  $13 billion and $7 billion,respectively 
D)  There is not enough information to answer the question.

Question 9

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Accepted Answer

A)  The supply of loanable funds would shift rightward and investment would increase. 
B)  The supply of loanable funds would shift leftward and investment would decrease. 
C)  The demand for loanable funds would shift rightward and investment would increase. 
D)  The demand for loanable funds would shift leftward and investment would decrease. 
A)  The supply of loanable funds would shift rightward and investment would increase. 
B)  The supply of loanable funds would shift leftward and investment would decrease. 
C)  The demand for loanable funds would shift rightward and investment would increase. 
D)  The demand for loanable funds would shift leftward and investment would decrease.

Question 10

A high price-earnings ratio for a stock indicates that either the stock is

Accepted Answer

A)  undervalued or people are relatively optimistic about the corporation's prospects. 
B)  overvalued or people are relatively optimistic about the corporation's prospects. 
C)  overvalued or people are relatively pessimistic about the corporation's prospects. 
D)  undervalued or people are relatively pessimistic about the corporation's prospects. 
A)  undervalued or people are relatively optimistic about the corporation's prospects. 
B)  overvalued or people are relatively optimistic about the corporation's prospects. 
C)  overvalued or people are relatively pessimistic about the corporation's prospects. 
D)  undervalued or people are relatively pessimistic about the corporation's prospects.

Question 11

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

Accepted Answer

A)  The demand for loanable funds shifted right. 
B)  The demand for loanable funds shifted left. 
C)  The supply of loanable funds shifted right. 
D)  The supply of loanable funds shifted left. 
A)  The demand for loanable funds shifted right. 
B)  The demand for loanable funds shifted left. 
C)  The supply of loanable funds shifted right. 
D)  The supply of loanable funds shifted left.

Question 12

Suppose that in a closed economy GDP is equal to 11,000,taxes are equal to 2,500 consumption equals 7,500 and government purchases equal 2,000.What are private saving,public saving,and national saving?

Accepted Answer

A)  1,500,1,000,and 500,respectively 
B)  1,000,500,and 1,500,respectively 
C)  500,1,500,and 1,000,respectively 
D)  None of the above is correct. 
A)  1,500,1,000,and 500,respectively 
B)  1,000,500,and 1,500,respectively 
C)  500,1,500,and 1,000,respectively 
D)  None of the above is correct.

Question 13

After a corporation issues stock,the stock

Accepted Answer

A)  can not be resold. 
B)  can be resold only if the corporation wants to buy it back. 
C)  can be resold on exchanges;the resale will raise additional funds for the corporation. 
D)  None of the above are correct. 
A)  can not be resold. 
B)  can be resold only if the corporation wants to buy it back. 
C)  can be resold on exchanges;the resale will raise additional funds for the corporation. 
D)  None of the above are correct.

Question 14

The assumption of a closed economy

Accepted Answer

A)  applies to the world economy. 
B)  applies to most national economies. 
C)  requires us to assume that the government's budget is always balanced. 
D)  All of the above are correct. 
A)  applies to the world economy. 
B)  applies to most national economies. 
C)  requires us to assume that the government's budget is always balanced. 
D)  All of the above are correct.

Question 15

For a closed economy,GDP is $11 trillion,consumption is $7 trillion,taxes are $2 trillion and the government runs a deficit of $1 trillion.What are private saving and national saving?

Accepted Answer

A)  $4 trillion and $1 trillion,respectively 
B)  $4 trillion and $-1 trillion,respectively 
C)  $2 trillion and $1 trillion,respectively 
D)  $2 trillion and $-1 trillion,respectively 
A)  $4 trillion and $1 trillion,respectively 
B)  $4 trillion and $-1 trillion,respectively 
C)  $2 trillion and $1 trillion,respectively 
D)  $2 trillion and $-1 trillion,respectively

Question 16

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

Accepted Answer

A)  national saving 
B)  government tax revenue 
C)  public saving 
D)  private saving 
A)  national saving 
B)  government tax revenue 
C)  public saving 
D)  private saving

Question 17

Which of the following statements is correct?

Accepted Answer

A)  The total income in the economy that remains after paying for consumption and government purchases is called private saving. 
B)  The sum of private saving and national saving is called public saving. 
C)  For a closed economy,the sum of private saving and public saving must equal investment. 
D)  For a closed economy,the sum of consumption,national saving,and taxes must equal GDP. 
A)  The total income in the economy that remains after paying for consumption and government purchases is called private saving. 
B)  The sum of private saving and national saving is called public saving. 
C)  For a closed economy,the sum of private saving and public saving must equal investment. 
D)  For a closed economy,the sum of consumption,national saving,and taxes must equal GDP.

Question 18

You observe a closed economy that has a government deficit and positive investment.Which of the following is correct?

Accepted Answer

A)  Private and public saving are both positive. 
B)  Private saving is positive;public saving is negative. 
C)  Private saving is negative;public saving is positive. 
D)  Both private saving and public saving are negative. 
A)  Private and public saving are both positive. 
B)  Private saving is positive;public saving is negative. 
C)  Private saving is negative;public saving is positive. 
D)  Both private saving and public saving are negative.

Question 19

The country of Cedarland does not trade with any other country.Its GDP is $20 billion.Its government purchases $3 billion worth of goods and services each year,collects $6 billion in taxes,and provides $2 billion in transfer payments to households.Private saving in Cedarland is $4 billion.What is investment in Cedarland?

Accepted Answer

A)  $5 billion 
B)  $4 billion 
C)  $3 billion 
D)  $2 billion 
A)  $5 billion 
B)  $4 billion 
C)  $3 billion 
D)  $2 billion

Question 20

Short-term bonds are generally

Accepted Answer

A)  less risky than long-term bonds and so they feature higher interest rates. 
B)  less risky than long-term bonds and so they feature lower interest rates. 
C)  more risky than long-term bonds and so they feature higher interest rates. 
D)  more risky than long-term bonds and so they feature lower interest rates. 
A)  less risky than long-term bonds and so they feature higher interest rates. 
B)  less risky than long-term bonds and so they feature lower interest rates. 
C)  more risky than long-term bonds and so they feature higher interest rates. 
D)  more risky than long-term bonds and so they feature lower interest rates.

Exam 26: Saving, investment, and the Financial System

XDF Corp.had a price-earnings ratio of 15,paid a dividend of $1,and retained earnings of $2 a share.What was the price of a share of XDF stock?

Potential buyers of ABC Corporation bonds are not concerned about ABC Corporation declaring bankruptcy.Potential buyers of XYZ Corporation bonds are concerned that XYZ Corporation may declare bankruptcy.Which of the following statements is correct?

A larger budget deficit

Which of the following statements about mutual funds is correct?

Papa Mario's Pizza Company sells common stock.The company is using

Suppose that in a closed economy GDP is equal to 11,000,taxes are equal to 1,500,consumption equals 7,500,and government purchases equal 2,000.What is national saving?

We associate the term debt finance with

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

A high price-earnings ratio for a stock indicates that either the stock is

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

Suppose that in a closed economy GDP is equal to 11,000,taxes are equal to 2,500 consumption equals 7,500 and government purchases equal 2,000.What are private saving,public saving,and national saving?

After a corporation issues stock,the stock

The assumption of a closed economy

For a closed economy,GDP is $11 trillion,consumption is $7 trillion,taxes are $2 trillion and the government runs a deficit of $1 trillion.What are private saving and national saving?

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

Which of the following statements is correct?

You observe a closed economy that has a government deficit and positive investment.Which of the following is correct?

Short-term bonds are generally

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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