Question 1

Which of the following functions is NOT performed by commercial banks?

Accepted Answer

A)  They provide a safe opportunity for savers to earn interest on their savings. 
B)  They direct money to its highest valued uses. 
C)  They help form the bridge between savers and investors. 
D)  They organize initial public offerings for firms. 
A)  They provide a safe opportunity for savers to earn interest on their savings. 
B)  They direct money to its highest valued uses. 
C)  They help form the bridge between savers and investors. 
D)  They organize initial public offerings for firms.

Question 2

What does "crowding out" mean?

Accepted Answer

A)  Government borrowing causes private investment and consumption to decrease. 
B)  Too many private lenders make it difficult for the government to borrow. 
C)  Too many private savers compete for higher rates of return. 
D)  The government gives tax breaks to many segments of the economy at one time. 
A)  Government borrowing causes private investment and consumption to decrease. 
B)  Too many private lenders make it difficult for the government to borrow. 
C)  Too many private savers compete for higher rates of return. 
D)  The government gives tax breaks to many segments of the economy at one time.

Question 3

Which of the following is an example of a financial intermediary?

Accepted Answer

A)  commercial banks 
B)  the bond market 
C)  the stock market 
D)  commercial banks,the bond market,and the stock market 
A)  commercial banks 
B)  the bond market 
C)  the stock market 
D)  commercial banks,the bond market,and the stock market

Question 4

Which of the following represents ownership in a corporation?

Accepted Answer

A)  bonds 
B)  IOUs 
C)  stocks 
D)  saving deposits 
A)  bonds 
B)  IOUs 
C)  stocks 
D)  saving deposits

Question 5

Businesses borrow when they expect the return on their investment to be greater than the interest rate.

Accepted Answer

A) True 
 B)False

Question 6

Government borrowing crowds out private savings as a result of its effects on the loanable funds market.

Accepted Answer

A) True 
 B)False

Question 7

What is the largest stock exchange in the world?

Accepted Answer

A)  the Börse in Frankfurt 
B)  the NYSE 
C)  the NASDAQ in New York 
D)  the Tokyo Stock Exchange 
A)  the Börse in Frankfurt 
B)  the NYSE 
C)  the NASDAQ in New York 
D)  the Tokyo Stock Exchange

Question 8

If the government raises taxes on investment returns,then:

Accepted Answer

A)  the demand for loanable funds will increase and the equilibrium interest rate will increase. 
B)  the demand for loanable funds will decrease and the equilibrium interest rate will decrease. 
C)  the supply of loanable funds will decrease and the equilibrium interest rate will increase. 
D)  the supply of loanable funds will increase and the equilibrium interest rate will decrease. 
A)  the demand for loanable funds will increase and the equilibrium interest rate will increase. 
B)  the demand for loanable funds will decrease and the equilibrium interest rate will decrease. 
C)  the supply of loanable funds will decrease and the equilibrium interest rate will increase. 
D)  the supply of loanable funds will increase and the equilibrium interest rate will decrease.

Question 9

Use the following to answer questions 
Figure: Market for Loanable Funds
 
-Trading in the market for loanable funds determines the equilibrium:

Accepted Answer

A)  level of savings. 
B)  amount of borrowing. 
C)  interest rate. 
D)  level of savings,amount of borrowing,and interest rate. 
A)  level of savings. 
B)  amount of borrowing. 
C)  interest rate. 
D)  level of savings,amount of borrowing,and interest rate.

Question 10

If the supply of loanable funds decreases,ceteris paribus,interest rates will:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  change indeterminately. 
A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  change indeterminately.

Question 11

Saving is:

Accepted Answer

A)  the purchase of new capital goods. 
B)  income that is not spent on consumption goods. 
C)  the desire to have goods and services sooner rather than later (all else being equal). 
D)  a sophisticated IOU that documents who owes how much and when payment must be made. 
A)  the purchase of new capital goods. 
B)  income that is not spent on consumption goods. 
C)  the desire to have goods and services sooner rather than later (all else being equal). 
D)  a sophisticated IOU that documents who owes how much and when payment must be made.

Question 12

Critics of securitization leading up to the housing crisis argue that banks often:

Accepted Answer

A)  failed to properly research their borrowers. 
B)  offered interest rates that were too high. 
C)  didn't retain enough loans in-house. 
D)  sold the securitized assets to sovereign wealth funds. 
A)  failed to properly research their borrowers. 
B)  offered interest rates that were too high. 
C)  didn't retain enough loans in-house. 
D)  sold the securitized assets to sovereign wealth funds.

Question 13

Interest rates and bond prices move in opposite directions.

Accepted Answer

A) True 
 B)False

Question 14

Collateral is something of value that by agreement becomes the property of the lender if the borrower defaults.

Accepted Answer

A) True 
 B)False

Question 15

The lifecycle theory of savings predicts individuals will save during:

Accepted Answer

A)  the early years of life. 
B)  the middle years of life. 
C)  the later years of life. 
D)  all phases of life. 
A)  the early years of life. 
B)  the middle years of life. 
C)  the later years of life. 
D)  all phases of life.

Question 16

A share of stock is a certificate of ownership in a corporation.

Accepted Answer

A) True 
 B)False

Question 17

Which is NOT a reason people save during their working lifetimes?

Accepted Answer

A)  They save for retirement,especially if average life expectancy is higher. 
B)  They save to prepare for periods of unemployment. 
C)  They save to prepare for unexpected hospitalizations or illnesses. 
D)  They save to match income and spending from year to year. 
A)  They save for retirement,especially if average life expectancy is higher. 
B)  They save to prepare for periods of unemployment. 
C)  They save to prepare for unexpected hospitalizations or illnesses. 
D)  They save to match income and spending from year to year.

Question 18

The supply of savings function is:

Accepted Answer

A)  upward sloping. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal. 
A)  upward sloping. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal.

Question 19

Use the following to answer questions  
Figure: Loanable Funds Expansion
 
-(Figure: Loanable Funds Expansion)Which of the following reasons could cause the demand curve for loanable funds to shift to the right from DLF to D1LF in the figure?

Accepted Answer

A)  The economy is expected to boom,thereby increasing investment returns. 
B)  Larger investment projects with potentially higher returns get funded. 
C)  Falling interest rates make it less expensive for firms to borrow. 
D)  Rising interest rates make it more attractive for savers to save. 
A)  The economy is expected to boom,thereby increasing investment returns. 
B)  Larger investment projects with potentially higher returns get funded. 
C)  Falling interest rates make it less expensive for firms to borrow. 
D)  Rising interest rates make it more attractive for savers to save.

Question 20

The supply of savings is positively sloped because:

Accepted Answer

A)  firms borrow more when interest rates are low. 
B)  people are enticed to forgo consumption when interest rates are higher. 
C)  when people have more incomes they save more. 
D)  of time preference. 
A)  firms borrow more when interest rates are low. 
B)  people are enticed to forgo consumption when interest rates are higher. 
C)  when people have more incomes they save more. 
D)  of time preference.

Exam 9: Saving,investment,and the Financial System

Which of the following functions is NOT performed by commercial banks?

What does "crowding out" mean?

Which of the following is an example of a financial intermediary?

Which of the following represents ownership in a corporation?

Businesses borrow when they expect the return on their investment to be greater than the interest rate.

Government borrowing crowds out private savings as a result of its effects on the loanable funds market.

What is the largest stock exchange in the world?

If the government raises taxes on investment returns,then:

Use the following to answer questions Figure: Market for Loanable Funds -Trading in the market for loanable funds determines the equilibrium:

If the supply of loanable funds decreases,ceteris paribus,interest rates will:

Saving is:

Critics of securitization leading up to the housing crisis argue that banks often:

Interest rates and bond prices move in opposite directions.

Collateral is something of value that by agreement becomes the property of the lender if the borrower defaults.

The lifecycle theory of savings predicts individuals will save during:

A share of stock is a certificate of ownership in a corporation.

Which is NOT a reason people save during their working lifetimes?

The supply of savings function is:

Use the following to answer questions Figure: Loanable Funds Expansion -(Figure: Loanable Funds Expansion)Which of the following reasons could cause the demand curve for loanable funds to shift to the right from DLF to D1LF in the figure?

The supply of savings is positively sloped because:

The Big Ideas

The Power of Trade

Supply and Demand

Equilibrium- How Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth,capital Accumulation

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations

Transmission and Amplification Mechanisms

The Federal Reserve System

Monetary Policy

The Federal Budget- Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters

Use the following to answer questions Figure: Loanable Funds Expansion -(Figure: Loanable Funds Expansion)Which of the following reasons could cause the demand curve for loanable funds to shift to the right from D_LFto D¹_LF in the figure?