Question 1

When expected inflation was high during the 1970s, interest rates were low.

Accepted Answer

A) True 
 B)False

Question 2

Crowding out hampers the economy by:

Accepted Answer

A) decreasing government borrowing. 
B) decreasing consumption. 
C) increasing private borrowing. 
D) reducing private investment spending on physical capital. 
A) decreasing government borrowing. 
B) decreasing consumption. 
C) increasing private borrowing. 
D) reducing private investment spending on physical capital.

Question 3

About 75% of the financial assets that Americans own are held through financial intermediaries rather than directly.

Accepted Answer

A) True 
 B)False

Question 4

A liquid asset:

Accepted Answer

A) can be easily converted to a loan. 
B) can be easily converted to cash with little or no loss of value. 
C) are the only assets which financial markets work with. 
D) carries no financial risk. 
A) can be easily converted to a loan. 
B) can be easily converted to cash with little or no loss of value. 
C) are the only assets which financial markets work with. 
D) carries no financial risk.

Question 5

Suppose the federal government has a balanced budget, the economy is open, and there is a positive capital inflow from foreign citizens. Using the savings-investment spending identity, explain how this affects investment spending.

Accepted Answer

National savings equals private savings

Question 6

A person who is risk-averse:

Accepted Answer

A) is more sensitive to a loss than to a gain of an equal dollar amount. 
B) is less sensitive to a loss than to a gain of an equal dollar amount. 
C) is willing to pay any price to avoid risk. 
D) enjoys taking risks, especially in financial markets. 
A) is more sensitive to a loss than to a gain of an equal dollar amount. 
B) is less sensitive to a loss than to a gain of an equal dollar amount. 
C) is willing to pay any price to avoid risk. 
D) enjoys taking risks, especially in financial markets.

Question 7

If the price of a share of stock is expected to rise, then demanders will demand more of it today, owners will be less willing to sell it today, and its price will rise today.

Accepted Answer

A) True 
 B)False

Question 8

Use the following to answer questions:
Figure: Loanable Funds Market  
-(Figure: Loanable Funds Market) Look at the figure Loanable Funds Market. If the interest rate is 8%, businesses will want to borrow approximately:

Accepted Answer

A) $3 trillion. 
B) $2 trillion. 
C) $4 trillion. 
D) $1 trillion. 
A) $3 trillion. 
B) $2 trillion. 
C) $4 trillion. 
D) $1 trillion.

Question 9

Stocks are usually riskier than bonds but also typically earn a higher rate of return than bonds.

Accepted Answer

A) True 
 B)False

Question 10

Use the following to answer questions :
Figure: Crowding Out  
-(Figure: Crowding Out) If the supply of loanable funds curve shifts to the right, the result will be a(n) _____ in the total amount of borrowing and a(n) _____ in the interest rate.

Accepted Answer

A) increase; increase 
B) decrease; decrease 
C) increase; decrease 
D) decrease; increase 
A) increase; increase 
B) decrease; decrease 
C) increase; decrease 
D) decrease; increase

Question 11

From the standpoint of economic growth, banks are important to:

Accepted Answer

A) fight inflation. 
B) keep interest rates low. 
C) channel savings into investment. 
D) channel investment into savings. 
A) fight inflation. 
B) keep interest rates low. 
C) channel savings into investment. 
D) channel investment into savings.

Question 12

A firm does NOT want to borrow money for a project when:

Accepted Answer

A) the interest rate is higher than the rate of return on the project. 
B) the interest rate is lower than the rate of return on the project. 
C) the interest rate is positive. 
D) the rate of return on the project is positive. 
A) the interest rate is higher than the rate of return on the project. 
B) the interest rate is lower than the rate of return on the project. 
C) the interest rate is positive. 
D) the rate of return on the project is positive.

Question 13

Explain how a commercial bank meets both the short-term and long-term needs of its customers.

Accepted Answer

When individuals and businesses put mone

Question 14

Which of the following qualifies as an asset from the viewpoint of a household?

Accepted Answer

A) a house 
B) mortgage 
C) credit card debt 
D) car loan 
A) a house 
B) mortgage 
C) credit card debt 
D) car loan

Question 15

Which of the following is (are) a serious challenge(s) to the efficient markets hypothesis?

Accepted Answer

A) Stock prices fluctuate more than can be explained by news about fundamentals. 
B) Individual investors behave in systematically irrational ways. 
C) Stock prices follow a random walk. 
D) Stock prices fluctuate more than can be explained by news about fundamentals, and individual investors behave in systematically irrational ways. 
A) Stock prices fluctuate more than can be explained by news about fundamentals. 
B) Individual investors behave in systematically irrational ways. 
C) Stock prices follow a random walk. 
D) Stock prices fluctuate more than can be explained by news about fundamentals, and individual investors behave in systematically irrational ways.

Question 16

The term liquidity means that the:

Accepted Answer

A) asset is used in a barter exchange. 
B) asset is used as the medium of exchange. 
C) asset is readily convertible to cash without much loss of value. 
D) market interest rate is too low. 
A) asset is used in a barter exchange. 
B) asset is used as the medium of exchange. 
C) asset is readily convertible to cash without much loss of value. 
D) market interest rate is too low.

Question 17

Use the following to answer questions :
Figure: The Market for Loanable Funds II  
-(Figure: The Market for Loanable Funds II) Look at the figure The Market for Loanable Funds II. Other things being equal, a decrease in taxes on savings and investment income will shift _____ to the _____ and _____ the interest rate.

Accepted Answer

A) demand; right; increase 
B) demand; left; decrease 
C) supply; right; decrease 
D) supply; left; increase 
A) demand; right; increase 
B) demand; left; decrease 
C) supply; right; decrease 
D) supply; left; increase

Question 18

The budget balance equals:

Accepted Answer

A) taxes plus government spending. 
B) taxes minus government spending. 
C) consumption plus investment. 
D) imports minus exports. 
A) taxes plus government spending. 
B) taxes minus government spending. 
C) consumption plus investment. 
D) imports minus exports.

Question 19

In a closed economy, national savings equals:

Accepted Answer

A) (disposable income minus consumption spending) minus (tax receipts minus government spending). 
B) (disposable income minus consumption spending) plus (government spending minus tax receipts). 
C) (disposable income minus consumption spending) plus (tax receipts minus government spending). 
D) (consumption spending minus disposable income) plus (government spending minus tax receipts). 
A) (disposable income minus consumption spending) minus (tax receipts minus government spending). 
B) (disposable income minus consumption spending) plus (government spending minus tax receipts). 
C) (disposable income minus consumption spending) plus (tax receipts minus government spending). 
D) (consumption spending minus disposable income) plus (government spending minus tax receipts).

Question 20

The present value of a $110 payment in one year, given an annual 10% interest rate, is:

Accepted Answer

A) $10. 
B) $11. 
C) $100. 
D) $110. 
A) $10. 
B) $11. 
C) $100. 
D) $110.

When expected inflation was high during the 1970s, interest rates were low.

Crowding out hampers the economy by:

About 75% of the financial assets that Americans own are held through financial intermediaries rather than directly.

A liquid asset:

Suppose the federal government has a balanced budget, the economy is open, and there is a positive capital inflow from foreign citizens. Using the savings-investment spending identity, explain how this affects investment spending.

A person who is risk-averse:

If the price of a share of stock is expected to rise, then demanders will demand more of it today, owners will be less willing to sell it today, and its price will rise today.

Use the following to answer questions: Figure: Loanable Funds Market -(Figure: Loanable Funds Market) Look at the figure Loanable Funds Market. If the interest rate is 8%, businesses will want to borrow approximately:

Stocks are usually riskier than bonds but also typically earn a higher rate of return than bonds.

Use the following to answer questions : Figure: Crowding Out -(Figure: Crowding Out) If the supply of loanable funds curve shifts to the right, the result will be a(n) _ in the total amount of borrowing and a(n) _ in the interest rate.

From the standpoint of economic growth, banks are important to:

A firm does NOT want to borrow money for a project when:

Explain how a commercial bank meets both the short-term and long-term needs of its customers.

Which of the following qualifies as an asset from the viewpoint of a household?

Which of the following is (are) a serious challenge(s) to the efficient markets hypothesis?

The term liquidity means that the:

The budget balance equals:

In a closed economy, national savings equals:

The present value of a $110 payment in one year, given an annual 10% interest rate, is:

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

Exam 10: Savings, Investment Spending, and the Financial System

When expected inflation was high during the 1970s, interest rates were low.

Crowding out hampers the economy by:

About 75% of the financial assets that Americans own are held through financial intermediaries rather than directly.

A liquid asset:

Suppose the federal government has a balanced budget, the economy is open, and there is a positive capital inflow from foreign citizens. Using the savings-investment spending identity, explain how this affects investment spending.

A person who is risk-averse:

If the price of a share of stock is expected to rise, then demanders will demand more of it today, owners will be less willing to sell it today, and its price will rise today.

Use the following to answer questions: Figure: Loanable Funds Market -(Figure: Loanable Funds Market) Look at the figure Loanable Funds Market. If the interest rate is 8%, businesses will want to borrow approximately:

Stocks are usually riskier than bonds but also typically earn a higher rate of return than bonds.

Use the following to answer questions : Figure: Crowding Out -(Figure: Crowding Out) If the supply of loanable funds curve shifts to the right, the result will be a(n) _____ in the total amount of borrowing and a(n) _____ in the interest rate.

From the standpoint of economic growth, banks are important to:

A firm does NOT want to borrow money for a project when:

Explain how a commercial bank meets both the short-term and long-term needs of its customers.

Which of the following qualifies as an asset from the viewpoint of a household?

Which of the following is (are) a serious challenge(s) to the efficient markets hypothesis?

The term liquidity means that the:

The budget balance equals:

In a closed economy, national savings equals:

The present value of a $110 payment in one year, given an annual 10% interest rate, is:

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

Use the following to answer questions : Figure: Crowding Out -(Figure: Crowding Out) If the supply of loanable funds curve shifts to the right, the result will be a(n) _ in the total amount of borrowing and a(n) _ in the interest rate.