Question 1

A mutual fund

Accepted Answer

A)  is a financial market where small firms mutually agree to sell stocks and bonds to raise funds. 
B)  is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community. 
C)  sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. 
D)  is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds. 
A)  is a financial market where small firms mutually agree to sell stocks and bonds to raise funds. 
B)  is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community. 
C)  sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. 
D)  is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds.

Question 2

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.  
-Refer to Figure 26-4. Regard the position of the Supply curve as fixed, as on the graph. If the real interest rate is 8 percent, the inflation rate is 3 percent, and the market for loanable funds is in equilibrium, then the position of the demand-for-loanable-funds curve must be

Accepted Answer

A)  D1. 
B)  D2. 
C)  between D1 and D2. 
D)  to the right of D2. 
A)  D1. 
B)  D2. 
C)  between D1 and D2. 
D)  to the right of D2.

Question 3

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.  
-Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D1 to D2?

Accepted Answer

A)  The tax code is reformed to encourage greater saving. 
B)  The tax code is reformed to encourage greater investment. 
C)  The government starts running a budget deficit. 
D)  The government starts running a budget surplus. 
A)  The tax code is reformed to encourage greater saving. 
B)  The tax code is reformed to encourage greater investment. 
C)  The government starts running a budget deficit. 
D)  The government starts running a budget surplus.

Question 4

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that

Accepted Answer

A)  Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation. 
B)  Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the state of New York. 
C)  Bond A has a term of 1 year and Bond B has a term of 5 years. 
D)  All of the above are correct. 
A)  Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation. 
B)  Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the state of New York. 
C)  Bond A has a term of 1 year and Bond B has a term of 5 years. 
D)  All of the above are correct.

Question 5

Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

Accepted Answer

A)  a larger investment tax credit 
B)  an expansion of eligibility for Individual Retirement Accounts 
C)  an increase in income-tax rates, with no change in the government budget deficit or surplus 
D)  an increase in government purchases, with no change in taxes 
A)  a larger investment tax credit 
B)  an expansion of eligibility for Individual Retirement Accounts 
C)  an increase in income-tax rates, with no change in the government budget deficit or surplus 
D)  an increase in government purchases, with no change in taxes

Question 6

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

Accepted Answer

A)  both Midwestern corporation and Southern corporation 
B)  Midwestern corporation but not Southern corporation 
C)  Southern corporation but not Midwestern corporation 
D)  neither Midwestern nor Southern corporation 
A)  both Midwestern corporation and Southern corporation 
B)  Midwestern corporation but not Southern corporation 
C)  Southern corporation but not Midwestern corporation 
D)  neither Midwestern nor Southern corporation

Question 7

If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, then the real interest rate is

Accepted Answer

A)  7 percent. 
B)  4 percent. 
C)  3 percent. 
D)  10 percent. 
A)  7 percent. 
B)  4 percent. 
C)  3 percent. 
D)  10 percent.

Question 8

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

Accepted Answer

A)  low, indicating that buyers may expect earnings to rise. 
B)  low, indicating that buyers may expect earnings to fall. 
C)  high, indicating that buyers may expect earnings to rise. 
D)  high, indicating that buyers may expect earnings to fall. 
A)  low, indicating that buyers may expect earnings to rise. 
B)  low, indicating that buyers may expect earnings to fall. 
C)  high, indicating that buyers may expect earnings to rise. 
D)  high, indicating that buyers may expect earnings to fall.

Question 9

Suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the loanable funds model, a consequence would be

Accepted Answer

A)  lower interest rates and lower investment. 
B)  lower interest rates and greater investment. 
C)  higher interest rates and lower investment. 
D)  higher interest rates and higher investment. 
A)  lower interest rates and lower investment. 
B)  lower interest rates and greater investment. 
C)  higher interest rates and lower investment. 
D)  higher interest rates and higher investment.

Question 10

The bond market

Accepted Answer

A)  is a financial market, whereas the stock market is a financial intermediary. 
B)  is a financial intermediary, whereas the stock market is a financial market. 
C)  is a financial market, as is the stock market. 
D)  is a financial intermediary, as is the stock market. 
A)  is a financial market, whereas the stock market is a financial intermediary. 
B)  is a financial intermediary, whereas the stock market is a financial market. 
C)  is a financial market, as is the stock market. 
D)  is a financial intermediary, as is the stock market.

Question 11

Which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why.
a. a U.S. government bond or a Venezuelan government bond
b. a U.S. government bond or a municipal bond with the same term and issued by a creditworthy municipality.
c. a 6-month Treasury bill or a 20-year Treasury bond
d. a Microsoft bond or a bond issued by a new recording company

Accepted Answer

a. The Venezuelan government bond would

Question 12

The two most important financial markets are the _____ market and the _____ market.

Accepted Answer

bond, stoc

Question 13

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

Accepted Answer

A) True 
 B)False

Question 14

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.  
-Refer to Figure 26-4. Regard the position of the Supply curve as fixed, as on the graph. If the real interest rate is 4 percent, the inflation rate is 2 percent, and the market for loanable funds is in equilibrium, then the position of the demand-for-loanable-funds curve must be

Accepted Answer

A)  D1. 
B)  D2. 
C)  between D1 and D2. 
D)  to the left of D1. 
A)  D1. 
B)  D2. 
C)  between D1 and D2. 
D)  to the left of D1.

Question 15

Which of the following restrictions implies that saving and investment are equal for a closed economy?

Accepted Answer

A)  Private saving is equal to zero. 
B)  Public saving is equal to zero. 
C)  The economy's government is running neither a surplus nor a deficit. 
D)  No restriction is necessary; saving and investment are equal for all closed economies. 
A)  Private saving is equal to zero. 
B)  Public saving is equal to zero. 
C)  The economy's government is running neither a surplus nor a deficit. 
D)  No restriction is necessary; saving and investment are equal for all closed economies.

Question 16

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

Accepted Answer

A)  invest in physical capital. 
B)  use equity finance. 
C)  sell bonds. 
D)  purchase bonds. 
A)  invest in physical capital. 
B)  use equity finance. 
C)  sell bonds. 
D)  purchase bonds.

Question 17

Use the following table to answer the following questions.
Table 26-2
  
-Refer to Table 26-2. Which company had the lowest dollar dividend per share?

Accepted Answer

A)  Boeing Co. 
B)  Eli Lilly and Co. 
C)  Kraft 
D)  Kellogg Co. 
A)  Boeing Co. 
B)  Eli Lilly and Co. 
C)  Kraft 
D)  Kellogg Co.

Question 18

Which of the following statements is not correct?

Accepted Answer

A)  If GDP is rising faster than debt, the government is, in some sense, living within its means. 
B)  The ratio of debt to GDP in the United States has always been less than one. 
C)  Debts during wars may distribute the burden of fighting the war more evenly across generations. 
D)  During times of peace in the United States, the ratio of debt to GDP sometimes rose. 
A)  If GDP is rising faster than debt, the government is, in some sense, living within its means. 
B)  The ratio of debt to GDP in the United States has always been less than one. 
C)  Debts during wars may distribute the burden of fighting the war more evenly across generations. 
D)  During times of peace in the United States, the ratio of debt to GDP sometimes rose.

Question 19

The slope of the supply of loanable funds curve represents the

Accepted Answer

A)  positive relation between the real interest rate and investment. 
B)  positive relation between the real interest rate and saving. 
C)  negative relation between the real interest rate and investment. 
D)  negative relation between the real interest rate and saving. 
A)  positive relation between the real interest rate and investment. 
B)  positive relation between the real interest rate and saving. 
C)  negative relation between the real interest rate and investment. 
D)  negative relation between the real interest rate and saving.

Question 20

Volume, as reported in stock tables, refers to the

Accepted Answer

A)  number of shares traded. 
B)  percentage of shares outstanding traded. 
C)  number of shares traded times the price they sold at. 
D)  number of shares of a company traded divided by the shares of all companies traded. 
A)  number of shares traded. 
B)  percentage of shares outstanding traded. 
C)  number of shares traded times the price they sold at. 
D)  number of shares of a company traded divided by the shares of all companies traded.

A mutual fund

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D₁ to D₂?

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that

Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, then the real interest rate is

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

Suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the loanable funds model, a consequence would be

The bond market

The two most important financial markets are the _ market and the _ market.

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

Which of the following restrictions implies that saving and investment are equal for a closed economy?

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2. Which company had the lowest dollar dividend per share?

Which of the following statements is not correct?

The slope of the supply of loanable funds curve represents the

Volume, as reported in stock tables, refers to the

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

The Basic Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Exam 8: Saving, Investment, and the Financial System

A mutual fund

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D1 to D2?

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that

Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, then the real interest rate is

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

Suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the loanable funds model, a consequence would be

The bond market

The two most important financial markets are the _____ market and the _____ market.

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

Which of the following restrictions implies that saving and investment are equal for a closed economy?

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2. Which company had the lowest dollar dividend per share?

Which of the following statements is not correct?

The slope of the supply of loanable funds curve represents the

Volume, as reported in stock tables, refers to the

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

The Basic Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D₁ to D₂?

The two most important financial markets are the _ market and the _ market.