Question 1

A perpetuity is distinguished from other bonds in that it

Accepted Answer

A)  pays continuously compounded interest. 
B)  pays interest only when it matures. 
C)  never matures. 
D)  will be used to purchase another bond when it matures unless the owner specifies otherwise. 
A)  pays continuously compounded interest. 
B)  pays interest only when it matures. 
C)  never matures. 
D)  will be used to purchase another bond when it matures unless the owner specifies otherwise.

Question 2

Which of the following is both a store of value and a common medium of exchange?

Accepted Answer

A)  corporate bonds 
B)  mutual funds 
C)  checking account balances 
D)  All of the above are correct. 
A)  corporate bonds 
B)  mutual funds 
C)  checking account balances 
D)  All of the above are correct.

Question 3

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy.  
-Refer to Figure 26-5. Starting at point A, a reduction in government spending would cause

Accepted Answer

A)  the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% point 
C) . 
B)  the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to 5% point 
B) . 
C)  the quantity of loanable funds traded to increase to $125 and the interest rate to fall to 5% point 
D) . 
D)  the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to 7% point 
E) . 
A)  the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% point 
C) . 
B)  the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to 5% point 
B) . 
C)  the quantity of loanable funds traded to increase to $125 and the interest rate to fall to 5% point 
D) . 
D)  the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to 7% point 
E) .

Question 4

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 _____.

Accepted Answer

falls, inc

Question 5

Which of the following could explain a decrease in the equilibrium interest rate and in the equilibrium quantity of loanable funds?

Accepted Answer

A)  The demand for loanable funds shifted rightward. 
B)  The demand for loanable funds shifted leftward. 
C)  The supply of loanable funds shifted rightward. 
D)  The supply of loanable funds shifted leftward. 
A)  The demand for loanable funds shifted rightward. 
B)  The demand for loanable funds shifted leftward. 
C)  The supply of loanable funds shifted rightward. 
D)  The supply of loanable funds shifted leftward.

Question 6

Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same?

Accepted Answer

A)  The government reduces the amount that people may put into savings accounts on which the interest is tax exempt. 
B)  Because they are optimistic about the future of the economy, firms desire to borrow more to purchase physical capital. 
C)  Consumers decide to decrease consumption and work more. 
D)  All of the above could explain why the interest rate would be unchanged. 
A)  The government reduces the amount that people may put into savings accounts on which the interest is tax exempt. 
B)  Because they are optimistic about the future of the economy, firms desire to borrow more to purchase physical capital. 
C)  Consumers decide to decrease consumption and work more. 
D)  All of the above could explain why the interest rate would be unchanged.

Question 7

People who buy stock in a corporation such as General Electric become

Accepted Answer

A)  creditors of General Electric, so the benefits of holding the stock depend on General Electric's profits. 
B)  creditors of General Electric, but the benefits of holding the stock do not depend on General Electric's profits. 
C)  part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits. 
D)  part owners of General Electric, but the benefits of holding the stock do not depend on General Electric's profits. 
A)  creditors of General Electric, so the benefits of holding the stock depend on General Electric's profits. 
B)  creditors of General Electric, but the benefits of holding the stock do not depend on General Electric's profits. 
C)  part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits. 
D)  part owners of General Electric, but the benefits of holding the stock do not depend on General Electric's profits.

Question 8

A restaurant chain announces declining revenues. What's the name of the type of risk that this news raises for holders of this chain's bonds? What does this news to do the interest rate on this chain's bonds?

Accepted Answer

default ri

Question 9

When tax code changes increase saving incentives, the interest rate will and investment will .

Accepted Answer

The answer of When tax code changes increase saving incentives,...

Question 10

When the U.S. government is in debt during a given year, it follows that its budget is in deficit for that year.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following would a macroeconomist consider as investment?

Accepted Answer

A)  Marisa purchases a bond issued by Proctor and Gamble Corp. 
B)  Karlee purchases stock issued by Texas Instruments, Inc. 
C)  Charlie builds a new coffee shop. 
D)  All of the above are correct. 
A)  Marisa purchases a bond issued by Proctor and Gamble Corp. 
B)  Karlee purchases stock issued by Texas Instruments, Inc. 
C)  Charlie builds a new coffee shop. 
D)  All of the above are correct.

Question 12

Table 26-3. The following table presents information about a closed economy whose market for loanable funds is in equilibrium.
  
-Refer to Table 26-3. Determine the quantity of private saving.

Accepted Answer

A)  $0.2 trillion 
B)  $1.6 trillion 
C)  $1.8 trillion 
D)  $2.6 trillion 
A)  $0.2 trillion 
B)  $1.6 trillion 
C)  $1.8 trillion 
D)  $2.6 trillion

Question 13

Which of the following events could explain an increase in interest rates together with a decrease in investment?

Accepted Answer

A)  The government budget went from surplus to deficit. 
B)  The government instituted an investment tax credit. 
C)  The government reduced the tax rate on savings. 
D)  None of the above is correct. 
A)  The government budget went from surplus to deficit. 
B)  The government instituted an investment tax credit. 
C)  The government reduced the tax rate on savings. 
D)  None of the above is correct.

Question 14

An article in the textbook suggests that one method to correct the higher education inefficiency is to

Accepted Answer

A)  provide free higher education to all Americans. 
B)  have college students sell equity in themselves. 
C)  reduce interest rates on student loans. 
D)  increase the number of colleges and universities in the United States. 
A)  provide free higher education to all Americans. 
B)  have college students sell equity in themselves. 
C)  reduce interest rates on student loans. 
D)  increase the number of colleges and universities in the United States.

Question 15

In the Coen Brothers' movie The Hudsucker Proxy the board of directors picks someone to run the company who they believe will make poor decisions. If things turn out as they plan,

Accepted Answer

A)  the price of a share of stock in the Hudsucker corporation should decline as the demand for shares falls. 
B)  the price of a share of stock in the Hudsucker corporation should rise as the demand for shares rises. 
C)  the price of a share of stock in the Hudsucker corporation should decline as the supply of existing shares falls. 
D)  the price of a share of stock in the Hudsucker corporation should rise as the supply of existing shares rises. 
A)  the price of a share of stock in the Hudsucker corporation should decline as the demand for shares falls. 
B)  the price of a share of stock in the Hudsucker corporation should rise as the demand for shares rises. 
C)  the price of a share of stock in the Hudsucker corporation should decline as the supply of existing shares falls. 
D)  the price of a share of stock in the Hudsucker corporation should rise as the supply of existing shares rises.

Question 16

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

Accepted Answer

A)  Because they have the same term to maturity the interest rates should be the same. 
B)  Because of the differences in tax treatment and credit risk, the state bond should have the higher interest rate. 
C)  Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate. 
D)  It is not possible to say if one bond has a higher interest rate than the other. 
A)  Because they have the same term to maturity the interest rates should be the same. 
B)  Because of the differences in tax treatment and credit risk, the state bond should have the higher interest rate. 
C)  Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate. 
D)  It is not possible to say if one bond has a higher interest rate than the other.

Question 17

The interest rate will and the quantity of loanable funds invested will when the government decreases the budget deficit.

Accepted Answer

The answer of The interest rate will and the quantity...

Question 18

Suppose the Congress and president decreased the maximum annual contributions limits to retirement accounts and at the same time reduced the budget deficit. What would happen to the interest rate?

Accepted Answer

A)  It would decrease. 
B)  It would increase. 
C)  It would stay the same. 
D)  It might do any of the above. 
A)  It would decrease. 
B)  It would increase. 
C)  It would stay the same. 
D)  It might do any of the above.

Question 19

Which of the following are financial intermediaries?

Accepted Answer

A)  both banks and mutual funds 
B)  banks but not mutual funds 
C)  mutual funds but not banks 
D)  neither banks or mutual funds 
A)  both banks and mutual funds 
B)  banks but not mutual funds 
C)  mutual funds but not banks 
D)  neither banks or mutual funds

Question 20

Which of the following is a certificate of indebtedness?

Accepted Answer

A)  stocks and bonds 
B)  stocks but not bonds 
C)  bonds but not stocks 
D)  neither stocks nor bonds 
A)  stocks and bonds 
B)  stocks but not bonds 
C)  bonds but not stocks 
D)  neither stocks nor bonds

Exam 18: Saving, Investment, and the Financial System

A perpetuity is distinguished from other bonds in that it

Which of the following is both a store of value and a common medium of exchange?

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. -Refer to Figure 26-5. Starting at point A, a reduction in government spending would cause

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 _____.

Which of the following could explain a decrease in the equilibrium interest rate and in the equilibrium quantity of loanable funds?

Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same?

People who buy stock in a corporation such as General Electric become

A restaurant chain announces declining revenues. What's the name of the type of risk that this news raises for holders of this chain's bonds? What does this news to do the interest rate on this chain's bonds?

When tax code changes increase saving incentives, the interest rate will and investment will .

When the U.S. government is in debt during a given year, it follows that its budget is in deficit for that year.

Which of the following would a macroeconomist consider as investment?

Table 26-3. The following table presents information about a closed economy whose market for loanable funds is in equilibrium. -Refer to Table 26-3. Determine the quantity of private saving.

Which of the following events could explain an increase in interest rates together with a decrease in investment?

An article in the textbook suggests that one method to correct the higher education inefficiency is to

In the Coen Brothers' movie The Hudsucker Proxy the board of directors picks someone to run the company who they believe will make poor decisions. If things turn out as they plan,

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

The interest rate will and the quantity of loanable funds invested will when the government decreases the budget deficit.

Suppose the Congress and president decreased the maximum annual contributions limits to retirement accounts and at the same time reduced the budget deficit. What would happen to the interest rate?

Which of the following are financial intermediaries?

Which of the following is a certificate of indebtedness?

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

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 ___.