Question 1

The PE ratio is determined by dividing the earnings per share by the current market price of the stock.

Accepted Answer

A) True 
 B)False

Question 2

What is the present value of $1,000 to be received in two years if the current market interest rate is 8.0%?

Accepted Answer

A)  $481 
B)  $556 
C)  $857 
D)  $926 
A)  $481 
B)  $556 
C)  $857 
D)  $926

Question 3

The substantial risks taken by financial intermediaries like Sallie Mae because they are effectively insured are examples of what economists refer to as:

Accepted Answer

A)  sub-prime behavior. 
B)  asymmetric information. 
C)  moral hazard. 
D)  countercyclical policy. 
A)  sub-prime behavior. 
B)  asymmetric information. 
C)  moral hazard. 
D)  countercyclical policy.

Question 4

The PE ratio is a measure of how highly a stock is valued relative to its current earnings..

Accepted Answer

A) True 
 B)False

Question 5

A decrease in real interest rates will lead to an increase in the demand for loanable funds.

Accepted Answer

A) True 
 B)False

Question 6

A bond can be:

Accepted Answer

A)  partial ownership in a corporation. 
B)  a debt obligation of a company. 
C)  a debt obligation of a government or government agency. 
D)  both B and C above 
A)  partial ownership in a corporation. 
B)  a debt obligation of a company. 
C)  a debt obligation of a government or government agency. 
D)  both B and C above

Question 7

Owners of preferred stock received fixed dividend payments while owners of common stock receive dividend payments that vary with the level of profits.

Accepted Answer

A) True 
 B)False

Question 8

Because of fixed interest rates,there is no risk involved with holding corporate bonds.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is a type of ownership that features a fixed payment?

Accepted Answer

A)  common stock 
B)  preferred stock 
C)  retained earnings 
D)  bonds 
A)  common stock 
B)  preferred stock 
C)  retained earnings 
D)  bonds

Question 10

Which of the following is not true regarding bonds?

Accepted Answer

A)  Bonds can be purchased from corporations as well as governments. 
B)  Interest must be paid to bondholders before dividends are paid to stockholders. 
C)  Bondholders face no risk from changing market interest rates on bonds that have a fixed interest rate. 
D)  The capital gains on bonds are generally more limited than the capital gains on stocks. 
A)  Bonds can be purchased from corporations as well as governments. 
B)  Interest must be paid to bondholders before dividends are paid to stockholders. 
C)  Bondholders face no risk from changing market interest rates on bonds that have a fixed interest rate. 
D)  The capital gains on bonds are generally more limited than the capital gains on stocks.

Question 11

Other things equal,which of the following is the result of increased saving?

Accepted Answer

A)  a decrease in interest rates 
B)  a decrease in prices 
C)  forgone consumption 
D)  all of the above 
A)  a decrease in interest rates 
B)  a decrease in prices 
C)  forgone consumption 
D)  all of the above

Question 12

Which of the following must be true?

Accepted Answer

A)  Savings must equal investment in an open economy. 
B)  Savings must equal investment in a closed economy. 
C)  Savings must equal consumption in an open economy. 
D)  Savings must equal consumption in a closed economy. 
A)  Savings must equal investment in an open economy. 
B)  Savings must equal investment in a closed economy. 
C)  Savings must equal consumption in an open economy. 
D)  Savings must equal consumption in a closed economy.

Question 13

Explain how a consumption tax could lead to a decrease in real interest rates.

Accepted Answer

A tax on consumption would discourage in

Question 14

Which of the following is a government sponsored enterprise that funds or guarantees a substantial number of mortgage loans in the U.S.?

Accepted Answer

A)  Fannie Mae 
B)  Freddy Mac 
C)  both A and B above 
D)  neither A nor B above 
A)  Fannie Mae 
B)  Freddy Mac 
C)  both A and B above 
D)  neither A nor B above

Question 15

The 2008 financial crisis was caused by the decline of real estate values as well as several other factors.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 21-1   Refer to Exhibit 21-1.Which of the following is true?

Accepted Answer

A)  The stock is trading near its 52-week high. 
B)  The stock pays a dividend of $0.90 per share. 
C)  The price of the stock is nearly 22 times greater than the earnings per share. 
D)  all of the above 
A)  The stock is trading near its 52-week high. 
B)  The stock pays a dividend of $0.90 per share. 
C)  The price of the stock is nearly 22 times greater than the earnings per share. 
D)  all of the above

Question 17

In a closed economy,the formula for public saving is: Sprivate = T + G + TR

Accepted Answer

A) True 
 B)False

Question 18

The crowding-out effect indicates that increased government borrowing will lead to:

Accepted Answer

A)  an increase in consumption by households and an increase in investment spending by firms. 
B)  an increase in consumption by households and a decrease in investment spending by firms. 
C)  a decrease in consumption by households and an increase in investment spending by firms. 
D)  a decrease in consumption by households and a decrease in investment spending by firms. 
A)  an increase in consumption by households and an increase in investment spending by firms. 
B)  an increase in consumption by households and a decrease in investment spending by firms. 
C)  a decrease in consumption by households and an increase in investment spending by firms. 
D)  a decrease in consumption by households and a decrease in investment spending by firms.

Question 19

A stock is an obligation issued by a corporation that promises the holder to receive fixed annual interest payments and payment of the principal upon maturity.

Accepted Answer

A) True 
 B)False

Question 20

A government budget deficit will lead to:

Accepted Answer

A)  an increase in the supply of loanable funds and an increase in real interest rates. 
B)  a decrease in the supply of loanable funds and an increase in real interest rates. 
C)  an increase in the supply of loanable funds and a decrease in real interest rates. 
D)  a decrease in the supply of loanable funds and a decrease in real interest rates. 
A)  an increase in the supply of loanable funds and an increase in real interest rates. 
B)  a decrease in the supply of loanable funds and an increase in real interest rates. 
C)  an increase in the supply of loanable funds and a decrease in real interest rates. 
D)  a decrease in the supply of loanable funds and a decrease in real interest rates.

Exam 21: Financial Markets, Saving, and Investment

The PE ratio is determined by dividing the earnings per share by the current market price of the stock.

What is the present value of $1,000 to be received in two years if the current market interest rate is 8.0%?

The substantial risks taken by financial intermediaries like Sallie Mae because they are effectively insured are examples of what economists refer to as:

The PE ratio is a measure of how highly a stock is valued relative to its current earnings..

A decrease in real interest rates will lead to an increase in the demand for loanable funds.

A bond can be:

Owners of preferred stock received fixed dividend payments while owners of common stock receive dividend payments that vary with the level of profits.

Because of fixed interest rates,there is no risk involved with holding corporate bonds.

Which of the following is a type of ownership that features a fixed payment?

Which of the following is not true regarding bonds?

Other things equal,which of the following is the result of increased saving?

Which of the following must be true?

Explain how a consumption tax could lead to a decrease in real interest rates.

Which of the following is a government sponsored enterprise that funds or guarantees a substantial number of mortgage loans in the U.S.?

The 2008 financial crisis was caused by the decline of real estate values as well as several other factors.

Exhibit 21-1 Refer to Exhibit 21-1.Which of the following is true?

In a closed economy,the formula for public saving is: Sprivate = T + G + TR

The crowding-out effect indicates that increased government borrowing will lead to:

A stock is an obligation issued by a corporation that promises the holder to receive fixed annual interest payments and payment of the principal upon maturity.

A government budget deficit will lead to:

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 public saving is: S_private = T + G + TR