Question 1

If the government ceases to tax income earned on savings,other things equal,it is likely that interest rates would rise.

Accepted Answer

A) True 
 B)False

Question 2

On the basis of their role in the financial system,venture capitalists are BEST described as:

Accepted Answer

A)  borrowers. 
B)  savers. 
C)  financial intermediaries. 
D)  investors. 
A)  borrowers. 
B)  savers. 
C)  financial intermediaries. 
D)  investors.

Question 3

When individuals become more willing to save because their incomes have increased,the interest rate _____ and the quantity of borrowing and lending _____.

Accepted Answer

A)  increases;increases 
B)  increases;decreases 
C)  decreases;decreases 
D)  decreases;increases 
A)  increases;increases 
B)  increases;decreases 
C)  decreases;decreases 
D)  decreases;increases

Question 4

Savings are necessary for capital accumulation.

Accepted Answer

A) True 
 B)False

Question 5

The AIDS epidemic _____ the savings rate in Africa.

Accepted Answer

A)  maintains 
B)  increases 
C)  decreases 
D)  indeterminately changes 
A)  maintains 
B)  increases 
C)  decreases 
D)  indeterminately changes

Question 6

Workers who put 10% of their income into a retirement account each year are:

Accepted Answer

A)  consuming all of their income. 
B)  smoothing consumption. 
C)  dissaving. 
D)  trying to match income and spending. 
A)  consuming all of their income. 
B)  smoothing consumption. 
C)  dissaving. 
D)  trying to match income and spending.

Question 7

The issuer of a bond is a borrower.

Accepted Answer

A) True 
 B)False

Question 8

Why do ratings agencies rate bonds?

Accepted Answer

A)  to indicate the chance of a bond being repaid 
B)  to show a bond's probable rate of return 
C)  to validate the amount of collateral involved 
D)  to verify the cost of the bond 
A)  to indicate the chance of a bond being repaid 
B)  to show a bond's probable rate of return 
C)  to validate the amount of collateral involved 
D)  to verify the cost of the bond

Question 9

Firms primarily raise money by using which two methods?

Accepted Answer

A)  selling stocks and issuing treasury bills 
B)  selling stocks and issuing corporate bonds 
C)  borrowing from banks and borrowing from the government 
D)  borrowing from international countries and from the government 
A)  selling stocks and issuing treasury bills 
B)  selling stocks and issuing corporate bonds 
C)  borrowing from banks and borrowing from the government 
D)  borrowing from international countries and from the government

Question 10

How do banks engage in specialization and division of labor?

Accepted Answer

A)  Banks are the only avenue for savers to save their money and for borrowers to borrow for projects. 
B)  Banks specialize in lending to risky borrowers. 
C)  Banks coordinate the collection of lenders' funds and employ specialists in risk assessment to assure that the funds are safely used. 
D)  Banks specialize in facilitating IPOs. 
A)  Banks are the only avenue for savers to save their money and for borrowers to borrow for projects. 
B)  Banks specialize in lending to risky borrowers. 
C)  Banks coordinate the collection of lenders' funds and employ specialists in risk assessment to assure that the funds are safely used. 
D)  Banks specialize in facilitating IPOs.

Question 11

The buyer of a bond is a:

Accepted Answer

A)  borrower. 
B)  lender. 
C)  stockholder. 
D)  banker. 
A)  borrower. 
B)  lender. 
C)  stockholder. 
D)  banker.

Question 12

In the loanable funds market,an increase in government borrowing will most likely:

Accepted Answer

A)  decrease bond prices and increase interest rates. 
B)  increase bond prices and decrease interest rates. 
C)  increase both bond prices and interest rates. 
D)  decrease both bond prices and interest rates. 
A)  decrease bond prices and increase interest rates. 
B)  increase bond prices and decrease interest rates. 
C)  increase both bond prices and interest rates. 
D)  decrease both bond prices and interest rates.

Question 13

If the supply of loanable funds increases and the demand for loanable funds decreases at the same time,interest rates will:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  increase,decrease,or remain the same. 
A)  increase. 
B)  decrease. 
C)  remain the same. 
D)  increase,decrease,or remain the same.

Question 14

Trading in the market for loanable funds determines the equilibrium interest rate.

Accepted Answer

A) True 
 B)False

Question 15

Use the following to answer questions 
Figure: Loanable Funds Market
 
-(Figure: Loanable Funds Market)Refer to the figure of the loanable funds market.At an interest rate of 3% in this market,there is a _____ of loanable funds of _____.

Accepted Answer

A)  shortage;$320 
B)  surplus;$250 
C)  shortage;$250 
D)  surplus;$320 
A)  shortage;$320 
B)  surplus;$250 
C)  shortage;$250 
D)  surplus;$320

Question 16

If the government offers an investment tax credit,other things equal,it is likely that interest rates would fall.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is NOT a characteristic of stocks that are sold at initial public offerings?

Accepted Answer

A)  They are being sold for the first time. 
B)  They allow the firm selling the stock to acquire funds for investment. 
C)  They transfer ownership of the company. 
D)  They represent ownership of government-run enterprises only. 
A)  They are being sold for the first time. 
B)  They allow the firm selling the stock to acquire funds for investment. 
C)  They transfer ownership of the company. 
D)  They represent ownership of government-run enterprises only.

Question 18

Which of the following is NOT a characteristic of a Treasury Bill (T-bill)?

Accepted Answer

A)  It has an implicit interest rate. 
B)  It reaches maturity after 30 years. 
C)  It is sold at a discount from its face value. 
D)  It has almost zero default risk. 
A)  It has an implicit interest rate. 
B)  It reaches maturity after 30 years. 
C)  It is sold at a discount from its face value. 
D)  It has almost zero default risk.

Question 19

An investment tax credit results in:

Accepted Answer

A)  an increase in the demand for loanable funds and an increase in the interest rate. 
B)  a decrease in the demand for loanable funds and a decrease in the interest rate. 
C)  an increase in the supply of loanable funds and an increase in the interest rate. 
D)  a decrease in the supply of loanable funds and a decrease in the interest rate. 
A)  an increase in the demand for loanable funds and an increase in the interest rate. 
B)  a decrease in the demand for loanable funds and a decrease in the interest rate. 
C)  an increase in the supply of loanable funds and an increase in the interest rate. 
D)  a decrease in the supply of loanable funds and a decrease in the interest rate.

Question 20

People will usually save more if the interest rate:

Accepted Answer

A)  is higher. 
B)  is lower. 
C)  moves erratically. 
D)  is zero. 
A)  is higher. 
B)  is lower. 
C)  moves erratically. 
D)  is zero.

Exam 9: Saving,investment,and the Financial System

If the government ceases to tax income earned on savings,other things equal,it is likely that interest rates would rise.

On the basis of their role in the financial system,venture capitalists are BEST described as:

When individuals become more willing to save because their incomes have increased,the interest rate _____ and the quantity of borrowing and lending _____.

Savings are necessary for capital accumulation.

The AIDS epidemic _____ the savings rate in Africa.

Workers who put 10% of their income into a retirement account each year are:

The issuer of a bond is a borrower.

Why do ratings agencies rate bonds?

Firms primarily raise money by using which two methods?

How do banks engage in specialization and division of labor?

The buyer of a bond is a:

In the loanable funds market,an increase in government borrowing will most likely:

If the supply of loanable funds increases and the demand for loanable funds decreases at the same time,interest rates will:

Trading in the market for loanable funds determines the equilibrium interest rate.

Use the following to answer questions Figure: Loanable Funds Market -(Figure: Loanable Funds Market)Refer to the figure of the loanable funds market.At an interest rate of 3% in this market,there is a _____ of loanable funds of _____.

If the government offers an investment tax credit,other things equal,it is likely that interest rates would fall.

Which of the following is NOT a characteristic of stocks that are sold at initial public offerings?

Which of the following is NOT a characteristic of a Treasury Bill (T-bill)?

An investment tax credit results in:

People will usually save more if the interest rate:

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

When individuals become more willing to save because their incomes have increased,the interest rate _ and the quantity of borrowing and lending _.

Use the following to answer questions Figure: Loanable Funds Market -(Figure: Loanable Funds Market)Refer to the figure of the loanable funds market.At an interest rate of 3% in this market,there is a _ of loanable funds of _.