Question 1

Compared to bondholders,stockholders

Accepted Answer

A)  face higher risk and have the potential for higher returns. 
B)  face higher risk but receive a fixed payment. 
C)  face lower risk and have the potential for higher returns. 
D)  face lower risk but receive a fixed payment. 
A)  face higher risk and have the potential for higher returns. 
B)  face higher risk but receive a fixed payment. 
C)  face lower risk and have the potential for higher returns. 
D)  face lower risk but receive a fixed payment.

Question 2

Figure 26-2.The figure depicts a supply-of-loanable-funds curve and two
demand-for-loanable-funds curves.  
-Refer to Figure 26-2.Which of the following events would shift the demand curve from D1 to D2?

Accepted Answer

A)  The government goes from running a budget deficit to running a budget surplus. 
B)  Firms become optimistic about the future and,as a result,they plan to increase their purchases of new equipment and construction of new factories. 
C)  A change in the tax laws encourages people to consume less and save more. 
D)  A change in the tax laws encourages people to consume more and save less. 
A)  The government goes from running a budget deficit to running a budget surplus. 
B)  Firms become optimistic about the future and,as a result,they plan to increase their purchases of new equipment and construction of new factories. 
C)  A change in the tax laws encourages people to consume less and save more. 
D)  A change in the tax laws encourages people to consume more and save less.

Question 3

If there is a shortage 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 4

A stock index is

Accepted Answer

A)  an average of a group of stock prices. 
B)  an average of a group of stock yields. 
C)  a measure of the risk relative to the profitability of corporations. 
D)  a report in a newspaper or other media outlet on the price of the stock and earnings of the corporation that issued the stock. 
A)  an average of a group of stock prices. 
B)  an average of a group of stock yields. 
C)  a measure of the risk relative to the profitability of corporations. 
D)  a report in a newspaper or other media outlet on the price of the stock and earnings of the corporation that issued the stock.

Question 5

In a closed economy,what remains after paying for consumption and government purchases is

Accepted Answer

A)  national disposable income. 
B)  national saving. 
C)  public saving. 
D)  private saving. 
A)  national disposable income. 
B)  national saving. 
C)  public saving. 
D)  private saving.

Question 6

The length of time until a bond matures is called the

Accepted Answer

A)  perpetuity. 
B)  term. 
C)  maturity. 
D)  intermediation. 
A)  perpetuity. 
B)  term. 
C)  maturity. 
D)  intermediation.

Question 7

If the government currently has a budget deficit,then

Accepted Answer

A)  it does not necessarily have a debt. 
B)  its debt is increasing. 
C)  government expenditures are greater than taxes. 
D)  All of the above are correct. 
A)  it does not necessarily have a debt. 
B)  its debt is increasing. 
C)  government expenditures are greater than taxes. 
D)  All of the above are correct.

Question 8

A mutual fund

Accepted Answer

A)  is a financial market where small firms mutually agree to sell stocks and bonds to raise funds. 
B)  is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community. 
C)  sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. 
D)  is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks,bonds,or both stocks and bonds. 
A)  is a financial market where small firms mutually agree to sell stocks and bonds to raise funds. 
B)  is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community. 
C)  sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. 
D)  is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks,bonds,or both stocks and bonds.

Question 9

Which of the following people purchased the correct asset to meet his or her objective?

Accepted Answer

A)  Michelle wanted to be a part owner of Mamma Rosa's Pizza,so she purchased a bond issued by Mamma Rosa's Pizza. 
B)  Tim wanted a high return,even if it meant taking some risk,so he purchased stock issued by Specific Electric instead of bonds issued by Specific Electric. 
C)  Jennifer wanted to buy equity in Honda,so she purchased bonds sold by Honda. 
D)  All of the above are correct. 
A)  Michelle wanted to be a part owner of Mamma Rosa's Pizza,so she purchased a bond issued by Mamma Rosa's Pizza. 
B)  Tim wanted a high return,even if it meant taking some risk,so he purchased stock issued by Specific Electric instead of bonds issued by Specific Electric. 
C)  Jennifer wanted to buy equity in Honda,so she purchased bonds sold by Honda. 
D)  All of the above are correct.

Question 10

Suppose Congress institutes an investment tax credit.What would happen in the market for loanable funds?

Accepted Answer

A)  The interest rate and investment would fall. 
B)  The interest rate and investment would rise. 
C)  The interest rate would rise and investment would fall. 
D)  None of the above is necessarily correct. 
A)  The interest rate and investment would fall. 
B)  The interest rate and investment would rise. 
C)  The interest rate would rise and investment would fall. 
D)  None of the above is necessarily correct.

Question 11

People who buy newly issued stock in a corporation such as Crate and Barrel provide

Accepted Answer

A)  debt finance and so become part owners of Crate and Barrel. 
B)  debt finance and so become creditors of Crate and Barrel. 
C)  equity finance and so become part owners of Crate and Barrel. 
D)  equity finance and so become creditors of Crate and Barrel. 
A)  debt finance and so become part owners of Crate and Barrel. 
B)  debt finance and so become creditors of Crate and Barrel. 
C)  equity finance and so become part owners of Crate and Barrel. 
D)  equity finance and so become creditors of Crate and Barrel.

Question 12

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.  
-Refer to Figure 26-3.Which of the following movements would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit?

Accepted Answer

A)  a movement from Point A to Point C 
B)  a movement from Point B to Point A 
C)  a movement from Point B to Point F 
D)  a movement from Point C to Point B 
A)  a movement from Point A to Point C 
B)  a movement from Point B to Point A 
C)  a movement from Point B to Point F 
D)  a movement from Point C to Point B

Question 13

Index funds

Accepted Answer

A)  typically have a higher rate of return and higher costs than managed mutual funds. 
B)  typically have a higher rate of return and lower costs than managed mutual funds. 
C)  typically have a lower rate of return and higher costs than managed mutual funds. 
D)  typically have a lower rate of return and lower costs than managed mutual funds. 
A)  typically have a higher rate of return and higher costs than managed mutual funds. 
B)  typically have a higher rate of return and lower costs than managed mutual funds. 
C)  typically have a lower rate of return and higher costs than managed mutual funds. 
D)  typically have a lower rate of return and lower costs than managed mutual funds.

Question 14

It is claimed that mutual funds have two advantages.The first is that mutual funds allow people with small amounts of money to diversify.The second is that mutual funds provide the skills of professional money managers who buy stocks they believe will be the most profitable and thereby increase the return that mutual fund depositors earn on their savings.

Accepted Answer

A)  Economists strongly agree with both claims. 
B)  Economists are skeptical of both claims. 
C)  Economists are skeptical of the first claim,but strongly agree with the second. 
D)  Economists strongly agree with the first claim,but are skeptical of the second. 
A)  Economists strongly agree with both claims. 
B)  Economists are skeptical of both claims. 
C)  Economists are skeptical of the first claim,but strongly agree with the second. 
D)  Economists strongly agree with the first claim,but are skeptical of the second.

Question 15

A bond that never matures is known as a

Accepted Answer

A)  perpetuity. 
B)  an intermediary bond. 
C)  an indexed bond. 
D)  a junk bond. 
A)  perpetuity. 
B)  an intermediary bond. 
C)  an indexed bond. 
D)  a junk bond.

Question 16

The term loanable funds refers to all income that is not used for consumption or government expenditures.

Accepted Answer

A) True 
 B)False

Question 17

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds,rather than the supply of loanable funds,then

Accepted Answer

A)  crowding out would not be a consequence of an increase in the budget deficit. 
B)  higher interest rates would not be a consequence of an increase in the budget deficit. 
C)  an increase in the budget deficit would cause the demand for loanable funds to decrease. 
D)  we would be making only a semantic change in how we analyze the effects of government budget deficits. 
A)  crowding out would not be a consequence of an increase in the budget deficit. 
B)  higher interest rates would not be a consequence of an increase in the budget deficit. 
C)  an increase in the budget deficit would cause the demand for loanable funds to decrease. 
D)  we would be making only a semantic change in how we analyze the effects of government budget deficits.

Question 18

A high demand for a company's stock is an indication that

Accepted Answer

A)  the company is in need of funds. 
B)  the company has recently sold a large quantity of bonds. 
C)  people are optimistic about the company's future. 
D)  people are pessimistic about the company's future. 
A)  the company is in need of funds. 
B)  the company has recently sold a large quantity of bonds. 
C)  people are optimistic about the company's future. 
D)  people are pessimistic about the company's future.

Question 19

Lenders sell bonds and borrowers buy them.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is correct?

Accepted Answer

A)  A corporation receives a monetary payment every time its shares of stock are traded by stockholders on organized stock exchanges. 
B)  When a corporation sells bonds as a means of raising funds it is engaging in debt finance. 
C)  A share of stock is an IOU. 
D)  The two most important financial markets in the economy are the stock market and financial intermediaries. 
A)  A corporation receives a monetary payment every time its shares of stock are traded by stockholders on organized stock exchanges. 
B)  When a corporation sells bonds as a means of raising funds it is engaging in debt finance. 
C)  A share of stock is an IOU. 
D)  The two most important financial markets in the economy are the stock market and financial intermediaries.

Exam 26: Saving, investment, and the Financial System

Compared to bondholders,stockholders

Figure 26-2.The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. -Refer to Figure 26-2.Which of the following events would shift the demand curve from D1 to D2?

If there is a shortage of loanable funds,then

A stock index is

In a closed economy,what remains after paying for consumption and government purchases is

The length of time until a bond matures is called the

If the government currently has a budget deficit,then

A mutual fund

Which of the following people purchased the correct asset to meet his or her objective?

Suppose Congress institutes an investment tax credit.What would happen in the market for loanable funds?

People who buy newly issued stock in a corporation such as Crate and Barrel provide

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3.Which of the following movements would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit?

Index funds

A bond that never matures is known as a

The term loanable funds refers to all income that is not used for consumption or government expenditures.

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds,rather than the supply of loanable funds,then

A high demand for a company's stock is an indication that

Lenders sell bonds and borrowers buy them.

Which of the following statements is correct?

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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