Question 1

In a closed economy, public saving is the amount of

Accepted Answer

A)  income that households have left after paying for taxes and consumption. 
B)  income that businesses have left after paying for the factors of production. 
C)  tax revenue that the government has left after paying for its spending. 
D)  spending that the government undertakes in excess of the taxes it collects. 
A)  income that households have left after paying for taxes and consumption. 
B)  income that businesses have left after paying for the factors of production. 
C)  tax revenue that the government has left after paying for its spending. 
D)  spending that the government undertakes in excess of the taxes it collects. C

Question 2

Scenario 26-1. Assume the following information for an imaginary, closed economy.
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000.
-Refer to Scenario 26-1. For this economy, investment amounts to

Accepted Answer

A)  $38,000. 
B)  $18,000. 
C)  $12,000. 
D)  $15,000. 
A)  $38,000. 
B)  $18,000. 
C)  $12,000. 
D)  $15,000. D

Question 3

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines the equilibrium level of

Accepted Answer

A)  the inflation rate. 
B)  gross domestic product. 
C)  the real interest rate. 
D)  the nominal interest rate. 
A)  the inflation rate. 
B)  gross domestic product. 
C)  the real interest rate. 
D)  the nominal interest rate. C

Question 4

Long-term bonds are

Accepted Answer

A)  riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
B)  riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
C)  less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
D)  less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
A)  riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
B)  riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
C)  less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
D)  less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

Question 5

What are the basic differences between bonds and stocks?

Accepted Answer

A bond is a certificate of indebtedness

Question 6

An increase in the quantity of loanable funds traded means that

Accepted Answer

A)  firms are borrowing less and investment decreases. 
B)  firms are borrowing less and investment increases. 
C)  firms are borrowing more and investment increases. 
D)  firms are borrowing more and investment decreases. 
A)  firms are borrowing less and investment decreases. 
B)  firms are borrowing less and investment increases. 
C)  firms are borrowing more and investment increases. 
D)  firms are borrowing more and investment decreases.

Question 7

Public saving is equal to national saving minus private saving.

Accepted Answer

A) True 
 B)False

Question 8

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?

Accepted Answer

The earnings per share is $45 million -

Question 9

Mutual funds

Accepted Answer

A)  provide diversification. Shareholders assume all of the risk associated with the mutual fund. 
B)  provide diversification. Government insurance eliminates the risk of mutual fund shareholders. 
C)  do not provide diversification. Shareholders assume all of the risk associated with the mutual fund 
D)  do not provide diversification. Government insurance eliminates the risk of mutual fund shareholders. 
A)  provide diversification. Shareholders assume all of the risk associated with the mutual fund. 
B)  provide diversification. Government insurance eliminates the risk of mutual fund shareholders. 
C)  do not provide diversification. Shareholders assume all of the risk associated with the mutual fund 
D)  do not provide diversification. Government insurance eliminates the risk of mutual fund shareholders.

Question 10

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

Accepted Answer

A)  a junk bond 
B)  a municipal bond 
C)  a U.S. government bond 
D)  a corporate bond issued by Proctor & Gamble Corporation 
A)  a junk bond 
B)  a municipal bond 
C)  a U.S. government bond 
D)  a corporate bond issued by Proctor & Gamble Corporation

Question 11

Atlas Corporation is in sound financial condition. It sells a long-term bond. Which of the following make the interest rate on this bond lower than otherwise?

Accepted Answer

A)  Both Altas' sound finances and the long term of the bond. 
B)  Atlas' sound finances but not the long term of the bond. 
C)  The long term of the bond but not Atlas' sound finances. 
D)  Neither Atlas' sound finances nor the long term of the bond. 
A)  Both Altas' sound finances and the long term of the bond. 
B)  Atlas' sound finances but not the long term of the bond. 
C)  The long term of the bond but not Atlas' sound finances. 
D)  Neither Atlas' sound finances nor the long term of the bond.

Question 12

Scenario 26-1. Assume the following information for an imaginary, closed economy.
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000.
-Refer to Scenario 26-1. For this economy, private saving amounts to

Accepted Answer

A)  $22,000. 
B)  $18,000. 
C)  $15,000. 
D)  $37,000. 
A)  $22,000. 
B)  $18,000. 
C)  $15,000. 
D)  $37,000.

Question 13

If a reform of the tax laws encourages greater saving, the result would be

Accepted Answer

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

Question 14

If Huedepool Beer runs into financial difficulty, the stockholders as

Accepted Answer

A)  part owners of Huedepool are paid before bondholders get paid anything at all. 
B)  part owners of Huedepool are paid after bondholders get paid. 
C)  creditors of Huedepool are paid before bondholders get paid anything at all. 
D)  creditors of Huedepool are paid after bondholders get paid. 
A)  part owners of Huedepool are paid before bondholders get paid anything at all. 
B)  part owners of Huedepool are paid after bondholders get paid. 
C)  creditors of Huedepool are paid before bondholders get paid anything at all. 
D)  creditors of Huedepool are paid after bondholders get paid.

Question 15

An increase in the government's budget surplus means

Accepted Answer

A)  public saving is greater than $0 and increasing. 
B)  public saving is greater than $0 and decreasing. 
C)  public saving is less than $0 and increasing. 
D)  public saving is less than $0 and decreasing. 
A)  public saving is greater than $0 and increasing. 
B)  public saving is greater than $0 and decreasing. 
C)  public saving is less than $0 and increasing. 
D)  public saving is less than $0 and decreasing.

Question 16

Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds?

Accepted Answer

A)  The interest rate and investment would fall. 
B)  The interest rate and investment would rise. 
C)  The interest rate would rise and investment would fall. 
D)  None of the above is necessarily correct. 
A)  The interest rate and investment would fall. 
B)  The interest rate and investment would rise. 
C)  The interest rate would rise and investment would fall. 
D)  None of the above is necessarily correct.

Question 17

In the terminology of macroeconomics, what's the difference between a saver and an investor?

Accepted Answer

A saver earns more than he spe

Question 18

Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401k) and 403b) tax- deferred retirement accounts?

Accepted Answer

A)  the interest rate and quantity of loanable funds would increase 
B)  the interest rate and quantity of loanable funds would decrease. 
C)  the interest rate would increase and the quantity of loanable funds would decrease. 
D)  the interest rate would decrease and the quantity of loanable funds would increase. 
A)  the interest rate and quantity of loanable funds would increase 
B)  the interest rate and quantity of loanable funds would decrease. 
C)  the interest rate would increase and the quantity of loanable funds would decrease. 
D)  the interest rate would decrease and the quantity of loanable funds would increase.

Question 19

Borrowers can and sometimes do) default on their loans when

Accepted Answer

A)  the dividend yield on their shares of stock reaches zero. 
B)  they convert their bonds into perpetuities. 
C)  they declare bankruptcy. 
D)  they cannot find enough buyers of their bonds to sell all the bonds they wish to sell. 
A)  the dividend yield on their shares of stock reaches zero. 
B)  they convert their bonds into perpetuities. 
C)  they declare bankruptcy. 
D)  they cannot find enough buyers of their bonds to sell all the bonds they wish to sell.

Question 20

Which of the following involves financial intermediation?

Accepted Answer

A)  a bank makes a loan 
B)  a household buys stock issued by a corporation 
C)  a foreign government purchases U.S. government bonds 
D)  All of the above are correct. 
A)  a bank makes a loan 
B)  a household buys stock issued by a corporation 
C)  a foreign government purchases U.S. government bonds 
D)  All of the above are correct.

Exam 18: Saving, Investment, and the Financial System

In a closed economy, public saving is the amount of

Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. -Refer to Scenario 26-1. For this economy, investment amounts to

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines the equilibrium level of

Long-term bonds are

What are the basic differences between bonds and stocks?

An increase in the quantity of loanable funds traded means that

Public saving is equal to national saving minus private saving.

Mutual funds

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

Atlas Corporation is in sound financial condition. It sells a long-term bond. Which of the following make the interest rate on this bond lower than otherwise?

Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. -Refer to Scenario 26-1. For this economy, private saving amounts to

If a reform of the tax laws encourages greater saving, the result would be

If Huedepool Beer runs into financial difficulty, the stockholders as

An increase in the government's budget surplus means

Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds?

In the terminology of macroeconomics, what's the difference between a saver and an investor?

Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401k) and 403b) tax- deferred retirement accounts?

Borrowers can and sometimes do) default on their loans when

Which of the following involves financial intermediation?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

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