Exam 8: Saving, Investment, and the Financial System

Suppose the Move It! exercise chain has revenues of $45 million, accounting costs of $15 million, and currently has issued 10 million shares of stocks selling at $90 each. Compute the price-earning ratio. Show your work. Is this ratio relatively high or low? What might an increase in the price-earnings ratio indicate?

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

When someone borrows to purchase capital goods, he is using someone else's to fund his .

If the nominal interest rate is 2.5 percent and the inflation rate is 2 percent, what is the real interest rate?

A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

Suppose the economy is closed with national saving of $3 trillion, consumption of $10 trillion, and government purchases of $4 trillion. What is GDP?

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion?

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1. What is measured along the vertical axis of the graph?

Mallard Corporation had a price-earnings ratio of 15, paid a dividend of $3, and retained earnings of $1 a share. What was the price of a share of Mallard stock?

The nominal interest rate is the

Which of the following would be included as investment in the GDP accounts?

Which of the following is an example of financial intermediation?

An increase in the government budget deficit causes national saving to _____, the interest rate to _____, and investment to _____.

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

When the government increases spending holding taxes constant), the budget balance _____. This causes the interest rate in the market for loanable funds to _____ and investment to _____.

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, private saving is equal to

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to public and national saving?

On which of these bonds is the prospect of default most likely?

As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then