Question 1

The sale of bonds

Accepted Answer

A)  and stocks to raise money is called debt finance. 
B)  and stocks to raise money is called equity finance. 
C)  to raise money is called debt finance, while the sale of stocks to raise funds is called equity finance. 
D)  to raise money is called equity finance, while the sale of stocks to raise funds is called debt finance. 
A)  and stocks to raise money is called debt finance. 
B)  and stocks to raise money is called equity finance. 
C)  to raise money is called debt finance, while the sale of stocks to raise funds is called equity finance. 
D)  to raise money is called equity finance, while the sale of stocks to raise funds is called debt finance.

Question 2

A closed economy

Accepted Answer

A)  does not engage in international trade of goods and services. 
B)  does not engage in international borrowing or lending. 
C)  both A and B 
D)  engages in international borrowing and lending. 
A)  does not engage in international trade of goods and services. 
B)  does not engage in international borrowing or lending. 
C)  both A and B 
D)  engages in international borrowing and lending.

Question 3

Figure 26-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves.  
-Refer to Figure 26-2. Which of the following events would shift the demand curve from D1 to D2?

Accepted Answer

A)  The government goes from running a budget deficit to running a budget surplus. 
B)  Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories. 
C)  A change in the tax laws encourages people to consume less and save more. 
D)  A change in the tax laws encourages people to consume more and save less. 
A)  The government goes from running a budget deficit to running a budget surplus. 
B)  Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories. 
C)  A change in the tax laws encourages people to consume less and save more. 
D)  A change in the tax laws encourages people to consume more and save less.

Question 4

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

Accepted Answer

Its price to earnings ratio is

Question 5

The purchase of a new house is the one form of

Accepted Answer

A)  investment that is financed by private saving rather than public saving. 
B)  household spending that is not counted as part of investment in the national income accounts. 
C)  household spending that is investment rather than consumption. 
D)  household spending that does not contribute to GDP. 
A)  investment that is financed by private saving rather than public saving. 
B)  household spending that is not counted as part of investment in the national income accounts. 
C)  household spending that is investment rather than consumption. 
D)  household spending that does not contribute to GDP.

Question 6

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the

Accepted Answer

A)  supply of existing shares of the stock and the price will both rise. 
B)  supply of existing shares of the stock and the price will both fall. 
C)  demand for existing shares of the stock and the price will both rise. 
D)  demand for existing shares of the stock and the price will both fall. 
A)  supply of existing shares of the stock and the price will both rise. 
B)  supply of existing shares of the stock and the price will both fall. 
C)  demand for existing shares of the stock and the price will both rise. 
D)  demand for existing shares of the stock and the price will both fall.

Question 7

Suppose the economy is closed and consumption is 8 million, taxes are 2 million, and government purchases are 1.75 million. If national saving amounts to 1.25 million, then what is GDP?

Accepted Answer

A)  9 million. 
B)  9.5 million. 
C)  13 million. 
D)  11 million. 
A)  9 million. 
B)  9.5 million. 
C)  13 million. 
D)  11 million.

Question 8

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.

Accepted Answer

A) True 
 B)False

Question 9

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Accepted Answer

A)  The supply of and demand for loanable funds would shift right. 
B)  The supply of and demand for loanable funds would shift left. 
C)  The supply of loanable funds would shift right and the demand for loanable funds would shift left. 
D)  None of the above is correct. 
A)  The supply of and demand for loanable funds would shift right. 
B)  The supply of and demand for loanable funds would shift left. 
C)  The supply of loanable funds would shift right and the demand for loanable funds would shift left. 
D)  None of the above is correct.

Question 10

Which of the following is correct?

Accepted Answer

A)  The maturity of a bond refers to the amount to be paid back. 
B)  The principal of the bond refers to the person selling the bond. 
C)  A bond buyer cannot sell a bond before it matures. 
D)  None of the above is correct. 
A)  The maturity of a bond refers to the amount to be paid back. 
B)  The principal of the bond refers to the person selling the bond. 
C)  A bond buyer cannot sell a bond before it matures. 
D)  None of the above is correct.

Question 11

If the demand for 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

Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a

Accepted Answer

A)  saver or as a supplier of funds. 
B)  saver or as a demander of funds. 
C)  borrower or as a supplier of funds. 
D)  borrower or as a demander of funds. 
A)  saver or as a supplier of funds. 
B)  saver or as a demander of funds. 
C)  borrower or as a supplier of funds. 
D)  borrower or as a demander of funds.

Question 13

An increase in the government's budget deficit 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 14

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Accepted Answer

A)  credit risk. 
B)  interest risk. 
C)  term risk. 
D)  private risk. 
A)  credit risk. 
B)  interest risk. 
C)  term risk. 
D)  private risk.

Question 15

A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a

Accepted Answer

A)  bond. 
B)  stock. 
C)  mutual fund. 
D)  All of the above are correct. 
A)  bond. 
B)  stock. 
C)  mutual fund. 
D)  All of the above are correct.

Question 16

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

Accepted Answer

A)  crowding out would not be a consequence of an increase in the budget deficit. 
B)  higher interest rates would not be a consequence of an increase in the budget deficit. 
C)  an increase in the budget deficit would cause the demand for loanable funds to decrease. 
D)  we would be making only a semantic change in how we analyze the effects of government budget deficits. 
A)  crowding out would not be a consequence of an increase in the budget deficit. 
B)  higher interest rates would not be a consequence of an increase in the budget deficit. 
C)  an increase in the budget deficit would cause the demand for loanable funds to decrease. 
D)  we would be making only a semantic change in how we analyze the effects of government budget deficits.

Question 17

The primary economic function of the financial system is to

Accepted Answer

A)  keep interest rates low. 
B)  provide expert advice to savers and investors. 
C)  match one person's consumption expenditures with another person's capital expenditures. 
D)  match one person's saving with another person's investment. 
A)  keep interest rates low. 
B)  provide expert advice to savers and investors. 
C)  match one person's consumption expenditures with another person's capital expenditures. 
D)  match one person's saving with another person's investment.

Question 18

Which of the following would both make the interest rate on a bond higher than otherwise?

Accepted Answer

A)  the interest it pays is taxed and it is long term 
B)  the interest it pays is taxed and it is short term 
C)  the interest it pays is tax exempt and it is long term 
D)  the interest it pays is tax exempt and it is short term 
A)  the interest it pays is taxed and it is long term 
B)  the interest it pays is taxed and it is short term 
C)  the interest it pays is tax exempt and it is long term 
D)  the interest it pays is tax exempt and it is short term

Question 19

Generally, if people begin to expect a company to have higher future profits, the price of the company's stock will begin to decrease.

Accepted Answer

A) True 
 B)False

Question 20

A decrease in government spending and the enactment of an investment tax credit would definitely cause

Accepted Answer

A)  the quantity of loanable funds traded to increase. 
B)  the interest rate to increase. 
C)  the quantity of loanable funds traded to decrease. 
D)  the interest rate to decrease. 
A)  the quantity of loanable funds traded to increase. 
B)  the interest rate to increase. 
C)  the quantity of loanable funds traded to decrease. 
D)  the interest rate to decrease.

Exam 18: Saving, Investment, and the Financial System

The sale of bonds

A closed economy

Figure 26-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. -Refer to Figure 26-2. Which of the following events would shift the demand curve from D1 to D2?

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

The purchase of a new house is the one form of

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the

Suppose the economy is closed and consumption is 8 million, taxes are 2 million, and government purchases are 1.75 million. If national saving amounts to 1.25 million, then what is GDP?

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Which of the following is correct?

If the demand for loanable funds shifts to the right, then the equilibrium interest rate

Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a

An increase in the government's budget deficit means

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

The primary economic function of the financial system is to

Which of the following would both make the interest rate on a bond higher than otherwise?

Generally, if people begin to expect a company to have higher future profits, the price of the company's stock will begin to decrease.

A decrease in government spending and the enactment of an investment tax credit would definitely cause

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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