Question 1

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Accepted Answer

A) True 
 B)False

Question 2

Public saving is T - G, while private saving is Y - T - C.

Accepted Answer

A) True 
 B)False

Question 3

Municipal bonds pay a relatively

Accepted Answer

A)  low rate of interest because of their high default risk and because the interest they pay is subject to federal income tax. 
B)  low rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax. 
C)  high rate of interest because of their high default risk and because federal taxes must be paid on the interest they pay. 
D)  high rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax. 
A)  low rate of interest because of their high default risk and because the interest they pay is subject to federal income tax. 
B)  low rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax. 
C)  high rate of interest because of their high default risk and because federal taxes must be paid on the interest they pay. 
D)  high rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax.

Question 4

Larry buys stock in A to Z Express Company. Curly Corporation builds a new factory. Whose transaction would be an act of investment in the language of macroeconomics?

Accepted Answer

A)  only Larry's 
B)  only Curly Corporation's 
C)  Larry's and Curly Corporation's 
D)  neither Larry's nor Curly Corporation's 
A)  only Larry's 
B)  only Curly Corporation's 
C)  Larry's and Curly Corporation's 
D)  neither Larry's nor Curly Corporation's

Question 5

If the Apple corporation sells a bond it is

Accepted Answer

A)  borrowing directly from the public. 
B)  borrowing indirectly from the public. 
C)  selling shares of ownership directly to the public. 
D)  selling shares of ownership indirectly to the public. 
A)  borrowing directly from the public. 
B)  borrowing indirectly from the public. 
C)  selling shares of ownership directly to the public. 
D)  selling shares of ownership indirectly to the public.

Question 6

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is investment?

Accepted Answer

The answer of In a closed economy private saving is...

Question 7

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 8

Which of the following is not correct?

Accepted Answer

A)  If you buy a bond from a corporation, you can sell the bond to someone else before it matures. 
B)  Term refers to the scheduling of periodic interest rate payments on a bond. 
C)  A bond is an IOU. 
D)  There are millions of different bonds in the U.S. economy. 
A)  If you buy a bond from a corporation, you can sell the bond to someone else before it matures. 
B)  Term refers to the scheduling of periodic interest rate payments on a bond. 
C)  A bond is an IOU. 
D)  There are millions of different bonds in the U.S. economy.

Question 9

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

Accepted Answer

A)  -500 
B)  500 
C)  2,000 
D)  None of the above is correct. 
A)  -500 
B)  500 
C)  2,000 
D)  None of the above is correct.

Question 10

If an economy is closed and if it has no government, then

Accepted Answer

A)  national saving = private saving. 
B)  total income = consumption + investment. 
C)  saving = total income - consumption. 
D)  All of the above are correct. 
A)  national saving = private saving. 
B)  total income = consumption + investment. 
C)  saving = total income - consumption. 
D)  All of the above are correct.

Question 11

What is the source of the supply of loanable funds?

Accepted Answer

The answer of What is the source of the supply...

Question 12

Kathleen is considering expanding her dress shop. If interest rates rise she is

Accepted Answer

A)  less likely to expand. This illustrates why the supply of loanable funds slopes downward. 
B)  more likely to expand. This illustrates why the supply of loanable funds slopes upward. 
C)  less likely to expand. This illustrates why the demand for loanable funds slopes downward. 
D)  more likely to expand. This illustrates why the demand for loanable funds slopes upward. 
A)  less likely to expand. This illustrates why the supply of loanable funds slopes downward. 
B)  more likely to expand. This illustrates why the supply of loanable funds slopes upward. 
C)  less likely to expand. This illustrates why the demand for loanable funds slopes downward. 
D)  more likely to expand. This illustrates why the demand for loanable funds slopes upward.

Question 13

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)  the credit risk associated with Bond A is lower than the credit risk associated with Bond B. 
B)  Bond A was issued by the Apple corporation and Bond B was issued by the city of Houston. 
C)  Bond A has a term of 20 years and Bond B has a term of 2 years. 
D)  All of the above are correct. 
A)  the credit risk associated with Bond A is lower than the credit risk associated with Bond B. 
B)  Bond A was issued by the Apple corporation and Bond B was issued by the city of Houston. 
C)  Bond A has a term of 20 years and Bond B has a term of 2 years. 
D)  All of the above are correct.

Question 14

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Accepted Answer

As shown in the graph below, the economy

Question 15

For an imaginary economy, when the real interest rate is 7 percent, the quantity of loanable funds demanded is $500 and the quantity of loanable funds supplied is $500. Currently, the nominal interest rate is 9 percent and the inflation rate is 4 percent. Currently,

Accepted Answer

A)  the market for loanable funds is in equilibrium. 
B)  the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will rise. 
C)  the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall. 
D)  the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, and as a result the real interest rate will rise. 
A)  the market for loanable funds is in equilibrium. 
B)  the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will rise. 
C)  the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall. 
D)  the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, and as a result the real interest rate will rise.

Question 16

Higher education subsidies in the form of the federal government's student loan program

Accepted Answer

A)  induce more people to attend colleges and universities. 
B)  keep interest rates low on student loans. 
C)  cause lenders to take on more risk. 
D)  All of the above are correct. 
A)  induce more people to attend colleges and universities. 
B)  keep interest rates low on student loans. 
C)  cause lenders to take on more risk. 
D)  All of the above are correct.

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

Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

Accepted Answer

A)  the interest rate and investment would rise. 
B)  the interest rate would rise and investment would fall. 
C)  the interest rate would fall and investment would rise. 
D)  the interest rate and investment would fall. 
A)  the interest rate and investment would rise. 
B)  the interest rate would rise and investment would fall. 
C)  the interest rate would fall and investment would rise. 
D)  the interest rate and investment would fall.

Question 19

Congress and the President implement an investment tax credit. Which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

Accepted Answer

The demand for loana

Question 20

Because of differences in tax treatment, municipal bonds pay a higher interest rate than do corporate bonds.

Accepted Answer

A) True 
 B)False

Exam 18: Saving, Investment, and the Financial System

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Public saving is T - G, while private saving is Y - T - C.

Municipal bonds pay a relatively

Larry buys stock in A to Z Express Company. Curly Corporation builds a new factory. Whose transaction would be an act of investment in the language of macroeconomics?

If the Apple corporation sells a bond it is

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is investment?

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

Which of the following is not correct?

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

If an economy is closed and if it has no government, then

What is the source of the supply of loanable funds?

Kathleen is considering expanding her dress shop. If interest rates rise she is

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

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

For an imaginary economy, when the real interest rate is 7 percent, the quantity of loanable funds demanded is $500 and the quantity of loanable funds supplied is $500. Currently, the nominal interest rate is 9 percent and the inflation rate is 4 percent. Currently,

Higher education subsidies in the form of the federal government's student loan program

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?

Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

Congress and the President implement an investment tax credit. Which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

Because of differences in tax treatment, municipal bonds pay a higher interest rate than do corporate bonds.

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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