Question 1

Incentives for borrowers and savers in the loanable funds market are determined by the nominal interest rate as opposed to the real interest rate.

Accepted Answer

A) True 
 B)False

Question 2

A consumption tax would lead to an increase in the supply of loanable funds and a decrease in real interest rates.

Accepted Answer

A) True 
 B)False

Question 3

According to the crowding-out effect,a budget deficit will lead to:

Accepted Answer

A)  reduced investment spending and a reduction in long-term economic growth. 
B)  reduced investment spending and an increase in long-term economic growth. 
C)  increased investment spending and a reduction in long-term economic growth. 
D)  increased investment spending and an increase in long-term economic growth. 
A)  reduced investment spending and a reduction in long-term economic growth. 
B)  reduced investment spending and an increase in long-term economic growth. 
C)  increased investment spending and a reduction in long-term economic growth. 
D)  increased investment spending and an increase in long-term economic growth.

Question 4

In a closed economy,the formula for private saving is: Sprivate = Y - C - T + TR

Accepted Answer

A) True 
 B)False

Question 5

The term "saving" is a flow concept while the term "savings" is a stock concept.

Accepted Answer

A) True 
 B)False

Question 6

"Saving" refers to ____ while "savings" refers to ____.

Accepted Answer

A)  a stock concept; a flow concept 
B)  how much is saved within a certain time period; accumulated assets 
C)  a stock concept; accumulated assets 
D)  how much is saved within a certain time period; a flow concept 
A)  a stock concept; a flow concept 
B)  how much is saved within a certain time period; accumulated assets 
C)  a stock concept; accumulated assets 
D)  how much is saved within a certain time period; a flow concept

Question 7

Which of the following is true?

Accepted Answer

A)  In 2007, the default rate on fixed rate mortgages was lower than that on ARMs. 
B)  From 2006-2008, housing construction decreased in the U.S. 
C)  Zero-down mortgages decreased the incentive for homeowners to prevent defaulting on their homes. 
D)  all of the above 
A)  In 2007, the default rate on fixed rate mortgages was lower than that on ARMs. 
B)  From 2006-2008, housing construction decreased in the U.S. 
C)  Zero-down mortgages decreased the incentive for homeowners to prevent defaulting on their homes. 
D)  all of the above

Question 8

Housing prices peaked in:

Accepted Answer

A)  1997. 
B)  2000. 
C)  2003. 
D)  2006. 
A)  1997. 
B)  2000. 
C)  2003. 
D)  2006.

Question 9

An increase in real interest rates will lead to an increase in the quantity of loanable funds supplied.

Accepted Answer

A) True 
 B)False

Question 10

Exhibit 21-1   Refer to Exhibit 21-1.Which of the following is true assuming that the average PE ratio in this industry 15?

Accepted Answer

A)  The stock is undervalued in comparison to other firms in the industry. 
B)  The total earnings are 21.86 times greater than the price. 
C)  The price is 21.86 times the earnings per share. 
D)  The earnings per share are 21.86 times the price. 
A)  The stock is undervalued in comparison to other firms in the industry. 
B)  The total earnings are 21.86 times greater than the price. 
C)  The price is 21.86 times the earnings per share. 
D)  The earnings per share are 21.86 times the price.

Question 11

Most economists believe that the financial crisis of 2008 began because of problems in the ____ industry.

Accepted Answer

A)  computer 
B)  automotive 
C)  housing 
D)  banking 
A)  computer 
B)  automotive 
C)  housing 
D)  banking

Question 12

List the various reasons that contributed to the financial crisis that occurred in 2008.

Accepted Answer

Low interest rates from 2002 to 2004 cau

Question 13

Which of the following will increase the demand for loanable funds?

Accepted Answer

A)  a newly established consumption tax 
B)  a decrease in the real interest rate 
C)  an increase in the real interest rate 
D)  creation of an investment tax credit for businesses 
A)  a newly established consumption tax 
B)  a decrease in the real interest rate 
C)  an increase in the real interest rate 
D)  creation of an investment tax credit for businesses

Question 14

If the real interest rate is below equilibrium,which of the following is likely to occur?

Accepted Answer

A)  Lenders will raise their interest rates which will encourage saving. 
B)  Lenders will raise their interest rates which will encourage borrowing. 
C)  Lenders will lower their interest rates which will encourage saving. 
D)  Lenders will lower their interest rates which will encourage borrowing. 
A)  Lenders will raise their interest rates which will encourage saving. 
B)  Lenders will raise their interest rates which will encourage borrowing. 
C)  Lenders will lower their interest rates which will encourage saving. 
D)  Lenders will lower their interest rates which will encourage borrowing.

Question 15

The concept that it is very difficult to consistently pick winners in the stock market without inside information is known as:

Accepted Answer

A)  a random walk. 
B)  a double coincidence of wants. 
C)  the crowding out effect. 
D)  arbitrage. 
A)  a random walk. 
B)  a double coincidence of wants. 
C)  the crowding out effect. 
D)  arbitrage.

Question 16

Which of the following is a method by which a firm can obtain financial resources to invest in capital?

Accepted Answer

A)  use of retained earnings 
B)  borrowing from financial intermediaries 
C)  selling stocks or bonds 
D)  all of the above 
A)  use of retained earnings 
B)  borrowing from financial intermediaries 
C)  selling stocks or bonds 
D)  all of the above

Question 17

Adjustable rate mortgages with extremely low initial interest rates which enable high risk buyers to purchase homes are known as:

Accepted Answer

A)  upside down mortgages. 
B)  ARMs. 
C)  sub-prime loans. 
D)  mortgage backed securities. 
A)  upside down mortgages. 
B)  ARMs. 
C)  sub-prime loans. 
D)  mortgage backed securities.

Question 18

Stocks and bonds are both considered securities.

Accepted Answer

A) True 
 B)False

Question 19

Crowding out will lead to a decrease in supply of loanable funds,a decrease in real interest rates,and subsequently a decrease in spending by households and firms.

Accepted Answer

A) True 
 B)False

Question 20

An increase in the ____ interest rate will lead to an increase in the ____.

Accepted Answer

A)  nominal; demand for loanable funds 
B)  nominal; supply of loanable funds 
C)  real; quantity of loanable funds supplied 
D)  real; quantity of loanable funds demanded 
A)  nominal; demand for loanable funds 
B)  nominal; supply of loanable funds 
C)  real; quantity of loanable funds supplied 
D)  real; quantity of loanable funds demanded

Exam 21: Financial Markets, Saving, and Investment

Incentives for borrowers and savers in the loanable funds market are determined by the nominal interest rate as opposed to the real interest rate.

A consumption tax would lead to an increase in the supply of loanable funds and a decrease in real interest rates.

According to the crowding-out effect,a budget deficit will lead to:

In a closed economy,the formula for private saving is: Sprivate = Y - C - T + TR

The term "saving" is a flow concept while the term "savings" is a stock concept.

"Saving" refers to ____ while "savings" refers to ____.

Which of the following is true?

Housing prices peaked in:

An increase in real interest rates will lead to an increase in the quantity of loanable funds supplied.

Exhibit 21-1 Refer to Exhibit 21-1.Which of the following is true assuming that the average PE ratio in this industry 15?

Most economists believe that the financial crisis of 2008 began because of problems in the ____ industry.

List the various reasons that contributed to the financial crisis that occurred in 2008.

Which of the following will increase the demand for loanable funds?

If the real interest rate is below equilibrium,which of the following is likely to occur?

The concept that it is very difficult to consistently pick winners in the stock market without inside information is known as:

Which of the following is a method by which a firm can obtain financial resources to invest in capital?

Adjustable rate mortgages with extremely low initial interest rates which enable high risk buyers to purchase homes are known as:

Stocks and bonds are both considered securities.

Crowding out will lead to a decrease in supply of loanable funds,a decrease in real interest rates,and subsequently a decrease in spending by households and firms.

An increase in the ____ interest rate will lead to an increase in the ____.

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

Filters

In a closed economy,the formula for private saving is: S_private = Y - C - T + TR

"Saving" refers to while "savings" refers to .

An increase in the interest rate will lead to an increase in the .