Question 1

Which of the following counts as part of the supply of loanable funds?

Accepted Answer

A)  bank deposits and purchases of bonds 
B)  bank deposits but not purchases of bonds 
C)  purchases of bonds but not bank deposits 
D)  neither purchases of bonds nor bank deposits 
A)  bank deposits and purchases of bonds 
B)  bank deposits but not purchases of bonds 
C)  purchases of bonds but not bank deposits 
D)  neither purchases of bonds nor bank deposits

Question 2

Consider three different closed economies with the following national income statistics. Country A has taxes of $40 billion, transfers of $20 billion, and government expenditures on goods and services of $30 billion. County B has private savings of $60 billion, and investment expenditures of $40 billion. Country C has GDP of $300 billion, investment of $90, consumption of $180 billion, taxes of $60 billion and transfers of $20 billion. From this information, we know that

Accepted Answer

A)  country A has the largest government budget deficit. 
B)  country B has the largest government budget deficit. 
C)  country C has the largest government budget deficit. 
D)  The government budget deficit is equal in all three countries. 
A)  country A has the largest government budget deficit. 
B)  country B has the largest government budget deficit. 
C)  country C has the largest government budget deficit. 
D)  The government budget deficit is equal in all three countries.

Question 3

The nominal interest rate is the

Accepted Answer

A)  interest rate corrected for inflation. 
B)  interest rate as usually reported by banks. 
C)  real rate of return to the lender. 
D)  real cost of borrowing to the borrower. 
A)  interest rate corrected for inflation. 
B)  interest rate as usually reported by banks. 
C)  real rate of return to the lender. 
D)  real cost of borrowing to the borrower.

Question 4

A U.S. Treasury bond is a

Accepted Answer

A)  store of value and common medium of exchange. 
B)  store of value, but not a common medium of exchange. 
C)  a common medium of exchange, but not a store of value. 
D)  neither a store of value nor a common medium of exchange. 
A)  store of value and common medium of exchange. 
B)  store of value, but not a common medium of exchange. 
C)  a common medium of exchange, but not a store of value. 
D)  neither a store of value nor a common medium of exchange.

Question 5

Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent. The dividend is

Accepted Answer

A)  $0.25 and the price-earnings ratio is 5. 
B)  $.25 and the price-earnings ratio is 6.7. 
C)  $1.25 and the price-earnings ratio is 5. 
D)  $1.25 and the price-earnings ratio is 6.7. 
A)  $0.25 and the price-earnings ratio is 5. 
B)  $.25 and the price-earnings ratio is 6.7. 
C)  $1.25 and the price-earnings ratio is 5. 
D)  $1.25 and the price-earnings ratio is 6.7.

Question 6

If the demand for loanable funds shifts to the right, then initially there is a

Accepted Answer

A)  surplus so the interest rate will fall. 
B)  surplus so the interest rate will rise. 
C)  shortage so the interest rate will fall. 
D)  shortage so the interest rate will rise. 
A)  surplus so the interest rate will fall. 
B)  surplus so the interest rate will rise. 
C)  shortage so the interest rate will fall. 
D)  shortage so the interest rate will rise.

Question 7

A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because

Accepted Answer

A)  in our model of the loanable funds market, we define "loanable funds" as the flow of resources available to fund private investment. 
B)  in our model of the loanable funds market, we define "loanable funds" as the flow of resources available from private saving. 
C)  markets for government debt are fundamentally different from markets for private debt. 
D)  of our assumption that the economy is closed. 
A)  in our model of the loanable funds market, we define "loanable funds" as the flow of resources available to fund private investment. 
B)  in our model of the loanable funds market, we define "loanable funds" as the flow of resources available from private saving. 
C)  markets for government debt are fundamentally different from markets for private debt. 
D)  of our assumption that the economy is closed.

Question 8

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 9

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?

Accepted Answer

A)  $15 
B)  $30 
C)  $45 
D)  $60. 
A)  $15 
B)  $30 
C)  $45 
D)  $60.

Question 10

If the government currently has a budget deficit, then

Accepted Answer

A)  it does not necessarily have a debt. 
B)  its debt is increasing. 
C)  government expenditures are greater than taxes. 
D)  All of the above are correct. 
A)  it does not necessarily have a debt. 
B)  its debt is increasing. 
C)  government expenditures are greater than taxes. 
D)  All of the above are correct.

Question 11

If the supply of loanable funds shifts to the right, then the equilibrium interest rate

Accepted Answer

A)  and quantity of loanable funds rises. 
B)  and quantity of loanable funds falls. 
C)  rises and the quantity of loanable funds falls. 
D)  falls and the quantity of loanable funds rises. 
A)  and quantity of loanable funds rises. 
B)  and quantity of loanable funds falls. 
C)  rises and the quantity of loanable funds falls. 
D)  falls and the quantity of loanable funds rises.

Question 12

Which of the following statements is correct?

Accepted Answer

A)  A general, persistent decline in stock prices may signal that the economy is about to enter a boom period because people will be able to buy stock for less money. 
B)  A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits. 
C)  A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past. 
D)  Expectations about the business cycle have no impact on stock prices. 
A)  A general, persistent decline in stock prices may signal that the economy is about to enter a boom period because people will be able to buy stock for less money. 
B)  A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits. 
C)  A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past. 
D)  Expectations about the business cycle have no impact on stock prices.

Question 13

If there is surplus of loanable funds, then

Accepted Answer

A)  the supply for loanable funds shifts right and the demand shifts left. 
B)  the supply for loanable funds shifts left and the demand shifts right. 
C)  neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium. 
D)  neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium. 
A)  the supply for loanable funds shifts right and the demand shifts left. 
B)  the supply for loanable funds shifts left and the demand shifts right. 
C)  neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium. 
D)  neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.

Question 14

Other things the same, if the government increases transfer payments to households, then the effect of this on the government's budget

Accepted Answer

A)  will make investment rise. 
B)  will make the rate of interest rise. 
C)  will make public saving rise. 
D)  All of the above are correct. 
A)  will make investment rise. 
B)  will make the rate of interest rise. 
C)  will make public saving rise. 
D)  All of the above are correct.

Question 15

If in the past Congress had taken additional actions to make saving more rewarding, then today it is likely that the equilibrium interest rate

Accepted Answer

A)  and the equilibrium quantity of loanable funds both would be lower. 
B)  and the equilibrium quantity of loanable funds both would be higher. 
C)  would be higher and the equilibrium quantity of loanable funds would be lower. 
D)  would be lower and the equilibrium quantity of loanable funds would be higher. 
A)  and the equilibrium quantity of loanable funds both would be lower. 
B)  and the equilibrium quantity of loanable funds both would be higher. 
C)  would be higher and the equilibrium quantity of loanable funds would be lower. 
D)  would be lower and the equilibrium quantity of loanable funds would be higher.

Question 16

Which of the following numbers is not associated with shares of a company's stock?

Accepted Answer

A)  term 
B)  dividend 
C)  price 
D)  price-earnings ratio 
A)  term 
B)  dividend 
C)  price 
D)  price-earnings ratio

Question 17

If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  the government buys goods from another country 
B)  someone buys stock in an American company 
C)  a firm increases its capital stock 
D)  All of the above are correct. 
A)  the government buys goods from another country 
B)  someone buys stock in an American company 
C)  a firm increases its capital stock 
D)  All of the above are correct.

Question 19

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 20

If Canada goes from a large budget deficit to a small budget deficit, it will

Accepted Answer

A)  increase private saving and so shift the supply of loanable funds right. 
B)  increase investment and so shift the demand for loanable funds right. 
C)  increase public saving and so shift the supply of loanable funds right. 
D)  reduce national saving and shift the supply left. 
A)  increase private saving and so shift the supply of loanable funds right. 
B)  increase investment and so shift the demand for loanable funds right. 
C)  increase public saving and so shift the supply of loanable funds right. 
D)  reduce national saving and shift the supply left.

Exam 18: Saving, Investment, and the Financial System

Which of the following counts as part of the supply of loanable funds?

The nominal interest rate is the

A U.S. Treasury bond is a

Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent. The dividend is

If the demand for loanable funds shifts to the right, then initially there is a

A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because

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?

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?

If the government currently has a budget deficit, then

If the supply of loanable funds shifts to the right, then the equilibrium interest rate

Which of the following statements is correct?

If there is surplus of loanable funds, then

Other things the same, if the government increases transfer payments to households, then the effect of this on the government's budget

If in the past Congress had taken additional actions to make saving more rewarding, then today it is likely that the equilibrium interest rate

Which of the following numbers is not associated with shares of a company's stock?

If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500.

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

If Canada goes from a large budget deficit to a small budget deficit, it will

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

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?