Question 1

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is not correct?

Accepted Answer

A)  Gross domestic product is both total income in an economy and total expenditures on the economy's output of goods and services. 
B)  In a closed economy net exports are zero. 
C)  National saving is the sum of private saving and public saving. 
D)  Purchases of capital goods are excluded from GDP. 
A)  Gross domestic product is both total income in an economy and total expenditures on the economy's output of goods and services. 
B)  In a closed economy net exports are zero. 
C)  National saving is the sum of private saving and public saving. 
D)  Purchases of capital goods are excluded from GDP.

Question 3

The slope of the supply of loanable funds curve represents the

Accepted Answer

A)  positive relation between the real interest rate and investment. 
B)  positive relation between the real interest rate and saving. 
C)  negative relation between the real interest rate and investment. 
D)  negative relation between the real interest rate and saving. 
A)  positive relation between the real interest rate and investment. 
B)  positive relation between the real interest rate and saving. 
C)  negative relation between the real interest rate and investment. 
D)  negative relation between the real interest rate and saving.

Question 4

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

Accepted Answer

A) True 
 B)False

Question 5

In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving?

Accepted Answer

Investment = $100, T

Question 6

The prices of stock traded on exchanges are determined by

Accepted Answer

A)  the Corporate Stock Administration. 
B)  the administrators of NASDAQ. 
C)  the supply of, and demand for, the stock. 
D)  All of the above are correct. 
A)  the Corporate Stock Administration. 
B)  the administrators of NASDAQ. 
C)  the supply of, and demand for, the stock. 
D)  All of the above are correct.

Question 7

The bond market, the stock market, banks, pension funds, and insurance companies are all financial

Accepted Answer

A)  systems. 
B)  markets. 
C)  institutions. 
D)  intermediaries. 
A)  systems. 
B)  markets. 
C)  institutions. 
D)  intermediaries.

Question 8

Concerns about the bankruptcy of an appliance manufacturer diminish after a new CEO is appointed and some of the company's less productive factories are sold. What type of risk for bondholders falls? What happens to the interest rate on this company's bonds?

Accepted Answer

default ri

Question 9

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.  
-Refer to Figure 26-4. If the equilibrium quantity of loanable funds is $50 billion and if the equilibrium nominal interest rate is 8 percent, then

Accepted Answer

A)  there is an excess supply of loanable funds at a real interest rate of 6 percent. 
B)  there is an excess demand for loanable funds at a real interest rate of 8 percent. 
C)  the rate of inflation is approximately 2 percent. 
D)  the rate of inflation is approximately 14 percent. 
A)  there is an excess supply of loanable funds at a real interest rate of 6 percent. 
B)  there is an excess demand for loanable funds at a real interest rate of 8 percent. 
C)  the rate of inflation is approximately 2 percent. 
D)  the rate of inflation is approximately 14 percent.

Question 10

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

Accepted Answer

A)  increased both interest rates and investment. 
B)  increased interest rates and decreased investment. 
C)  decreased interest rates and increased investment. 
D)  decreased both interest rates and investment. 
A)  increased both interest rates and investment. 
B)  increased interest rates and decreased investment. 
C)  decreased interest rates and increased investment. 
D)  decreased both interest rates and investment.

Question 11

Alpha Corporation has a price of $5 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio which is

Accepted Answer

A)  high, perhaps indicating that people expect future earnings to rise. 
B)  high, perhaps indicating that people expect future earnings to fall. 
C)  low, perhaps indicating that people expect future earnings to rise. 
D)  low, perhaps indicating that people expect future earnings to fall. 
A)  high, perhaps indicating that people expect future earnings to rise. 
B)  high, perhaps indicating that people expect future earnings to fall. 
C)  low, perhaps indicating that people expect future earnings to rise. 
D)  low, perhaps indicating that people expect future earnings to fall.

Question 12

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.  
-Refer to Figure 26-3. What, specifically, does the label on the vertical axis, i, represent?

Accepted Answer

A)  the nominal interest rate 
B)  the real interest rate 
C)  the inflation rate 
D)  the dividend yield 
A)  the nominal interest rate 
B)  the real interest rate 
C)  the inflation rate 
D)  the dividend yield

Question 13

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.  
-Refer to Figure 26-4. The position and/or slope of the Supply curve are influenced by

Accepted Answer

A)  the level of public saving. 
B)  the level of national saving. 
C)  decisions made by people who have extra income they want to save and lend out. 
D)  All of the above are correct. 
A)  the level of public saving. 
B)  the level of national saving. 
C)  decisions made by people who have extra income they want to save and lend out. 
D)  All of the above are correct.

Question 14

If there is a shortage of loanable funds, then

Accepted Answer

A)  the quantity demanded is greater than the quantity supplied and the interest rate will rise. 
B)  the quantity demanded is greater than the quantity supplied and the interest rate will fall. 
C)  the quantity supplied is greater than the quantity demanded and the interest rate will rise. 
D)  the quantity supplied is greater than the quantity demanded and the interest rate will fall. 
A)  the quantity demanded is greater than the quantity supplied and the interest rate will rise. 
B)  the quantity demanded is greater than the quantity supplied and the interest rate will fall. 
C)  the quantity supplied is greater than the quantity demanded and the interest rate will rise. 
D)  the quantity supplied is greater than the quantity demanded and the interest rate will fall.

Question 15

Scenario 26-2. Assume the following information for an imaginary, closed economy.
GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion.
-Refer to Scenario 26-2. For this economy, public saving is equal to

Accepted Answer

A)  $0.2 trillion and the government is running a budget surplus of $0.2 trillion. 
B)  $0.2 trillion and the government is running a budget deficit of $0.2 trillion. 
C)  -$0.2 trillion and the government is running a budget deficit of $0.2 trillion. 
D)  -$0.2 trillion and the government is running a budget surplus of $0.2 trillion. 
A)  $0.2 trillion and the government is running a budget surplus of $0.2 trillion. 
B)  $0.2 trillion and the government is running a budget deficit of $0.2 trillion. 
C)  -$0.2 trillion and the government is running a budget deficit of $0.2 trillion. 
D)  -$0.2 trillion and the government is running a budget surplus of $0.2 trillion.

Question 16

For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $1,000 and the quantity of loanable funds supplied is $1,000. Currently, the nominal interest rate is 9 percent and the inflation rate is 2 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 17

A high demand for a company's stock is an indication that

Accepted Answer

A)  the company is in need of funds. 
B)  the company has recently sold a large quantity of bonds. 
C)  people are optimistic about the company's future. 
D)  people are pessimistic about the company's future. 
A)  the company is in need of funds. 
B)  the company has recently sold a large quantity of bonds. 
C)  people are optimistic about the company's future. 
D)  people are pessimistic about the company's future.

Question 18

When someone borrows to purchase capital goods, he is using someone else's to fund his .

Accepted Answer

The answer of When someone borrows to purchase capital goods,...

Question 19

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

Accepted Answer

A)  the interest it pays is taxed and it was issued by a financially strong corporation 
B)  the interest it pays is taxed and it was issued by a financially weak corporation 
C)  the interest it pays is tax exempt and it was issued by a financially strong corporation 
D)  the interest it pays is tax exempt and it was issued by a financially weak corporation 
A)  the interest it pays is taxed and it was issued by a financially strong corporation 
B)  the interest it pays is taxed and it was issued by a financially weak corporation 
C)  the interest it pays is tax exempt and it was issued by a financially strong corporation 
D)  the interest it pays is tax exempt and it was issued by a financially weak corporation

Question 20

When the government budget deficit rises, national saving is reduced, interest rates rise, and investment falls.

Accepted Answer

A) True 
 B)False

Exam 18: Saving, Investment, and the Financial System

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

Which of the following is not correct?

The slope of the supply of loanable funds curve represents the

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving?

The prices of stock traded on exchanges are determined by

The bond market, the stock market, banks, pension funds, and insurance companies are all financial

Concerns about the bankruptcy of an appliance manufacturer diminish after a new CEO is appointed and some of the company's less productive factories are sold. What type of risk for bondholders falls? What happens to the interest rate on this company's bonds?

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. If the equilibrium quantity of loanable funds is $50 billion and if the equilibrium nominal interest rate is 8 percent, then

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

Alpha Corporation has a price of $5 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio which is

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. What, specifically, does the label on the vertical axis, i, represent?

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. The position and/or slope of the Supply curve are influenced by

If there is a shortage of loanable funds, then

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, public saving is equal to

For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $1,000 and the quantity of loanable funds supplied is $1,000. Currently, the nominal interest rate is 9 percent and the inflation rate is 2 percent. Currently,

A high demand for a company's stock is an indication that

When someone borrows to purchase capital goods, he is using someone else's to fund his .

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

When the government budget deficit rises, national saving is reduced, interest rates rise, and investment falls.

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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