Question 1

If there is shortage 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 2

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 15.

Accepted Answer

A) True 
 B)False

Question 3

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following expressions must be equal to national saving for a closed economy?

Accepted Answer

A)  Y - I - G - NX 
B)  Y - C - G 
C)  Y - I - C 
D)  G + C - Y 
A)  Y - I - G - NX 
B)  Y - C - G 
C)  Y - I - C 
D)  G + C - Y

Question 5

Which of the following is not an important stock exchange in the United States?

Accepted Answer

A)  New York Stock Exchange 
B)  American Stock Exchange 
C)  Chicago Mercantile Exchange 
D)  NASDAQ 
A)  New York Stock Exchange 
B)  American Stock Exchange 
C)  Chicago Mercantile Exchange 
D)  NASDAQ

Question 6

How do banks make profits?

Accepted Answer

They charge borrower

Question 7

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Accepted Answer

A) True 
 B)False

Question 8

A low price-earnings ratio indicates that either the stock is

Accepted Answer

A)  undervalued or people are relatively optimistic about the corporation's prospects. 
B)  overvalued or people are relatively optimistic about the corporation's prospects. 
C)  overvalued or people are relatively pessimistic about the corporation's prospects. 
D)  undervalued or people are relatively pessimistic about the corporation's prospects. 
A)  undervalued or people are relatively optimistic about the corporation's prospects. 
B)  overvalued or people are relatively optimistic about the corporation's prospects. 
C)  overvalued or people are relatively pessimistic about the corporation's prospects. 
D)  undervalued or people are relatively pessimistic about the corporation's prospects.

Question 9

An increase in the demand for loanable funds increases the equilibrium interest rate and decreases the equilibrium level of saving.

Accepted Answer

A) True 
 B)False

Question 10

You observe a closed economy that has a government deficit and positive investment. Which of the following is correct?

Accepted Answer

A)  Private and public saving are both positive. 
B)  Private saving is positive; public saving is negative. 
C)  Private saving is negative; public saving is positive. 
D)  Both private saving and public saving are negative. 
A)  Private and public saving are both positive. 
B)  Private saving is positive; public saving is negative. 
C)  Private saving is negative; public saving is positive. 
D)  Both private saving and public saving are negative.

Question 11

If national saving in a closed economy is greater than zero, which of the following must be true?

Accepted Answer

A)  Either public saving or private saving must be greater than zero. 
B)  Investment is positive. 
C)  Y - C - G > 0. 
D)  All of the above are correct. 
A)  Either public saving or private saving must be greater than zero. 
B)  Investment is positive. 
C)  Y - C - G > 0. 
D)  All of the above are correct.

Question 12

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

Accepted Answer

A)  There would be an increase in the amount of loanable funds borrowed. 
B)  There would be a reduction in the amount of loanable funds borrowed. 
C)  There would be no change in the amount of loanable funds borrowed. 
D)  The change in loanable funds is uncertain. 
A)  There would be an increase in the amount of loanable funds borrowed. 
B)  There would be a reduction in the amount of loanable funds borrowed. 
C)  There would be no change in the amount of loanable funds borrowed. 
D)  The change in loanable funds is uncertain.

Question 13

Suppose a country has a larger increase in debt in 2014 than it had in 2013. Then other things the same,

Accepted Answer

A)  the supply of loanable funds shifts rightward and the interest rate falls. 
B)  the supply of loanable funds shifts leftward and the interest rate rises. 
C)  the demand for loanable funds shifts leftward and the interest rate falls. 
D)  the demand for loanable funds shifts rightward and the interest rate rises. 
A)  the supply of loanable funds shifts rightward and the interest rate falls. 
B)  the supply of loanable funds shifts leftward and the interest rate rises. 
C)  the demand for loanable funds shifts leftward and the interest rate falls. 
D)  the demand for loanable funds shifts rightward and the interest rate rises.

Question 14

If federal tax rates increased, what would happen to the interest rate on municipal bonds?

Accepted Answer

the intere

Question 15

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

Accepted Answer

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

Question 16

Which of the following statements is correct?

Accepted Answer

A)  A corporation receives a monetary payment every time its shares of stock are traded by stockholders on organized stock exchanges. 
B)  When a corporation sells bonds as a means of raising funds it is engaging in debt finance. 
C)  A share of stock is an IOU. 
D)  The two most important financial markets in the economy are the stock market and financial intermediaries. 
A)  A corporation receives a monetary payment every time its shares of stock are traded by stockholders on organized stock exchanges. 
B)  When a corporation sells bonds as a means of raising funds it is engaging in debt finance. 
C)  A share of stock is an IOU. 
D)  The two most important financial markets in the economy are the stock market and financial intermediaries.

Question 17

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 500. What value of government purchases would make national savings equal to 2,000 and at that value would the government have a deficit or surplus?

Accepted Answer

A)  1,500, deficit 
B)  1,500, surplus 
C)  1,000, deficit 
D)  1,000, surplus 
A)  1,500, deficit 
B)  1,500, surplus 
C)  1,000, deficit 
D)  1,000, surplus

Question 18

Most entrepreneurs finance their purchases of real capital using their past saving.

Accepted Answer

A) True 
 B)False

Question 19

Camp Company had total earnings of $600 million in 2013, out of which it retained 20 percent for future investments. In 2013, its stock featured a dividend yield of 4 percent and 100 million shares were outstanding. The price-earnings ratio for Camp Company stock was

Accepted Answer

A)  5. 
B)  150. 
C)  20. 
D)  25. 
A)  5. 
B)  150. 
C)  20. 
D)  25.

Question 20

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

Accepted Answer

A)  The government runs a larger deficit. 
B)  The government institutes an investment tax credit. 
C)  The government replaces the income tax with a consumption tax. 
D)  None of the above is correct. 
A)  The government runs a larger deficit. 
B)  The government institutes an investment tax credit. 
C)  The government replaces the income tax with a consumption tax. 
D)  None of the above is correct.

Exam 18: Saving, Investment, and the Financial System

If there is shortage of loanable funds, then

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 15.

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Which of the following expressions must be equal to national saving for a closed economy?

Which of the following is not an important stock exchange in the United States?

How do banks make profits?

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

A low price-earnings ratio indicates that either the stock is

An increase in the demand for loanable funds increases the equilibrium interest rate and decreases the equilibrium level of saving.

You observe a closed economy that has a government deficit and positive investment. Which of the following is correct?

If national saving in a closed economy is greater than zero, which of the following must be true?

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

Suppose a country has a larger increase in debt in 2014 than it had in 2013. Then other things the same,

If federal tax rates increased, what would happen to the interest rate on municipal bonds?

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

Which of the following statements is correct?

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 500. What value of government purchases would make national savings equal to 2,000 and at that value would the government have a deficit or surplus?

Most entrepreneurs finance their purchases of real capital using their past saving.

Camp Company had total earnings of $600 million in 2013, out of which it retained 20 percent for future investments. In 2013, its stock featured a dividend yield of 4 percent and 100 million shares were outstanding. The price-earnings ratio for Camp Company stock was

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

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 tax code changes reduce saving incentives, the interest rate will _ and investment will _.