Question 1

Other things the same, an increase in taxes with no change in government purchases makes national saving

Accepted Answer

A)  rise. The supply of loanable funds shifts right. 
B)  rise. The demand for loanable funds shifts right. 
C)  fall. The supply of loanable funds shifts left. 
D)  fall. The demand for loanable funds shifts left. 
A)  rise. The supply of loanable funds shifts right. 
B)  rise. The demand for loanable funds shifts right. 
C)  fall. The supply of loanable funds shifts left. 
D)  fall. The demand for loanable funds shifts left.

Question 2

Suppose a country had a smaller increase in debt in 2011 than it had in 2010. Then other things the same, we would expect

Accepted Answer

A)  lower interest rates and investment in 2011 than in 2010. 
B)  lower interest rates and greater investment in 2011 than in 2010. 
C)  higher interest rates and greater investment in 2011 than in 2010. 
D)  higher interest rates and lower investment in 2011 than in 2010. 
A)  lower interest rates and investment in 2011 than in 2010. 
B)  lower interest rates and greater investment in 2011 than in 2010. 
C)  higher interest rates and greater investment in 2011 than in 2010. 
D)  higher interest rates and lower investment in 2011 than in 2010.

Question 3

An increase in the government budget deficit causes national saving to _____, the interest rate to _____, and investment to _____.

Accepted Answer

decrease,

Question 4

Which of the following equations represents GDP for an open economy?

Accepted Answer

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

Question 5

After a corporation issues stock, the stock

Accepted Answer

A)  cannot be resold. 
B)  can be resold only if the corporation wants to buy it back. 
C)  can be resold on exchanges; the resale will raise additional funds for the corporation. 
D)  None of the above are correct. 
A)  cannot be resold. 
B)  can be resold only if the corporation wants to buy it back. 
C)  can be resold on exchanges; the resale will raise additional funds for the corporation. 
D)  None of the above are correct.

Question 6

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

Accepted Answer

A)  both high credit risk and a long term 
B)  high credit risk but not a long term 
C)  a long term but not a high credit risk 
D)  neither high credit risk nor a long term 
A)  both high credit risk and a long term 
B)  high credit risk but not a long term 
C)  a long term but not a high credit risk 
D)  neither high credit risk nor a long term

Question 7

In the national income accounting identity showing the equality between national saving and investment, what are the algebraic expressions for private saving and public saving?

Accepted Answer

Private saving is Y

Question 8

It is claimed that mutual funds have two advantages. The first is that mutual funds allow people with small amounts of money to diversify. The second is that mutual funds provide the skills of professional money managers who buy stocks they believe will be the most profitable and thereby increase the return that mutual fund depositors earn on their savings.

Accepted Answer

A)  Economists strongly agree with both claims. 
B)  Economists are skeptical of both claims. 
C)  Economists are skeptical of the first claim, but strongly agree with the second. 
D)  Economists strongly agree with the first claim, but are skeptical of the second. 
A)  Economists strongly agree with both claims. 
B)  Economists are skeptical of both claims. 
C)  Economists are skeptical of the first claim, but strongly agree with the second. 
D)  Economists strongly agree with the first claim, but are skeptical of the second.

Question 9

Suppose the economy is closed with national saving of $3 trillion, consumption of $10 trillion, and government purchases of $4 trillion. What is GDP?

Accepted Answer

A)  $3 trillion 
B)  $9 trillion 
C)  $11 trillion 
D)  $17 trillion 
A)  $3 trillion 
B)  $9 trillion 
C)  $11 trillion 
D)  $17 trillion

Question 10

National saving

Accepted Answer

A)  is the total income in the economy that remains after paying for consumption. 
B)  is the total income in the economy that remains after paying for consumption and government purchases. 
C)  is always greater than investment for a closed economy. 
D)  is equal to private saving minus public saving. 
A)  is the total income in the economy that remains after paying for consumption. 
B)  is the total income in the economy that remains after paying for consumption and government purchases. 
C)  is always greater than investment for a closed economy. 
D)  is equal to private saving minus public saving.

Question 11

The supply of loanable funds slopes

Accepted Answer

A)  upward because an increase in the interest rate induces people to save more. 
B)  downward because an increase in the interest rate induces people to save less. 
C)  downward because an increase in the interest rate induces people to invest less. 
D)  upward because an increase in the interest rate induces people to invest more. 
A)  upward because an increase in the interest rate induces people to save more. 
B)  downward because an increase in the interest rate induces people to save less. 
C)  downward because an increase in the interest rate induces people to invest less. 
D)  upward because an increase in the interest rate induces people to invest more.

Question 12

In a closed economy, national saving equals

Accepted Answer

A)  investment. 
B)  income minus the sum of consumption and government purchases. 
C)  private saving plus public saving. 
D)  All of the above are correct. 
A)  investment. 
B)  income minus the sum of consumption and government purchases. 
C)  private saving plus public saving. 
D)  All of the above are correct.

Question 13

If people expect future earnings of Galt Corporation to be high relative to current earnings, then

Accepted Answer

A)  the P/E ratio of its stock will be high. A P/E ratio of 8 is relatively high. 
B)  the P/E ratio of its stock will be high. A P/E ratio of 8 is relatively low. 
C)  the P/E ratio of its stock will be low. A P/E ratio of 8 is relatively high. 
D)  the P/E ratio of its stock will be low. A P/E ratio of 8 is relatively low. 
A)  the P/E ratio of its stock will be high. A P/E ratio of 8 is relatively high. 
B)  the P/E ratio of its stock will be high. A P/E ratio of 8 is relatively low. 
C)  the P/E ratio of its stock will be low. A P/E ratio of 8 is relatively high. 
D)  the P/E ratio of its stock will be low. A P/E ratio of 8 is relatively low.

Question 14

Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.

Accepted Answer

A) True 
 B)False

Question 15

Suppose the issuer of a bond fails to pay some of the interest or principal that was promised to the bondholders. This failure is referred to as a

Accepted Answer

A)  breach. 
B)  default. 
C)  risk. 
D)  term failure. 
A)  breach. 
B)  default. 
C)  risk. 
D)  term failure.

Question 16

Which of the following statements about mutual funds is correct?

Accepted Answer

A)  A mutual fund is not a financial intermediary. 
B)  A disadvantage of buying mutual funds is a lack of diversification 
C)  People who buy shares from a mutual fund are guaranteed a minimum return. 
D)  On average index funds outperform managed funds. 
A)  A mutual fund is not a financial intermediary. 
B)  A disadvantage of buying mutual funds is a lack of diversification 
C)  People who buy shares from a mutual fund are guaranteed a minimum return. 
D)  On average index funds outperform managed funds.

Question 17

A higher interest rate makes less attractive. Therefore the quantity of loanable funds demanded decreases.

Accepted Answer

The answer of A higher interest rate makes less attractive....

Question 18

Y = C + I + G + NX is an identity because

Accepted Answer

A)  each symbol identifies a macroeconomic variable. 
B)  the right-hand and left-hand sides are equal when an equilibrium is reached. 
C)  the equality holds due to the way the variables are defined. 
D)  None of the above is correct. 
A)  each symbol identifies a macroeconomic variable. 
B)  the right-hand and left-hand sides are equal when an equilibrium is reached. 
C)  the equality holds due to the way the variables are defined. 
D)  None of the above is correct.

Question 19

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds,

Accepted Answer

A)  the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply. 
B)  the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply. 
C)  the city's high credit rating contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply. 
D)  the city's high credit rating contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply. 
A)  the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply. 
B)  the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply. 
C)  the city's high credit rating contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply. 
D)  the city's high credit rating contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply.

Question 20

Which of the following bond buyers did not buy the bond that best met his or her objective?

Accepted Answer

A)  Jackie wanted a bond with a high interest rate and was willing to take a lot of risk. She purchased a junk bond. 
B)  Andrew wanted a bond that would allow him to legally avoid paying federal income taxes. He purchased a municipal bond. 
C)  Suzy wanted to purchase a bond whose seller was unlikely to default. She purchased a bond that Standards and Poor's rated a low credit risk. 
D)  Cecilia held long-term bonds rather than short-term bonds to avoid risk. 
A)  Jackie wanted a bond with a high interest rate and was willing to take a lot of risk. She purchased a junk bond. 
B)  Andrew wanted a bond that would allow him to legally avoid paying federal income taxes. He purchased a municipal bond. 
C)  Suzy wanted to purchase a bond whose seller was unlikely to default. She purchased a bond that Standards and Poor's rated a low credit risk. 
D)  Cecilia held long-term bonds rather than short-term bonds to avoid risk.

Exam 18: Saving, Investment, and the Financial System

Other things the same, an increase in taxes with no change in government purchases makes national saving

Suppose a country had a smaller increase in debt in 2011 than it had in 2010. Then other things the same, we would expect

An increase in the government budget deficit causes national saving to _____, the interest rate to _____, and investment to _____.

Which of the following equations represents GDP for an open economy?

After a corporation issues stock, the stock

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

In the national income accounting identity showing the equality between national saving and investment, what are the algebraic expressions for private saving and public saving?

Suppose the economy is closed with national saving of $3 trillion, consumption of $10 trillion, and government purchases of $4 trillion. What is GDP?

National saving

The supply of loanable funds slopes

In a closed economy, national saving equals

If people expect future earnings of Galt Corporation to be high relative to current earnings, then

Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.

Suppose the issuer of a bond fails to pay some of the interest or principal that was promised to the bondholders. This failure is referred to as a

Which of the following statements about mutual funds is correct?

A higher interest rate makes less attractive. Therefore the quantity of loanable funds demanded decreases.

Y = C + I + G + NX is an identity because

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds,

Which of the following bond buyers did not buy the bond that best met his or her objective?

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

An increase in the government budget deficit causes national saving to ___, the interest rate to _, and investment to ___.