Question 1

A higher interest rate makes more attractive. Therefore the quantity of loanable funds supplied increases.

Accepted Answer

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

Question 2

Which of the following statements is correct?

Accepted Answer

A)  Stocks, bonds, and deposits are all similar in that each provides a common medium of exchange. 
B)  Most buyers of stocks and bonds prefer those issued by large and familiar companies. 
C)  Banks charge borrowers a slightly lower interest rate than they pay to depositors. 
D)  None of the above is correct. 
A)  Stocks, bonds, and deposits are all similar in that each provides a common medium of exchange. 
B)  Most buyers of stocks and bonds prefer those issued by large and familiar companies. 
C)  Banks charge borrowers a slightly lower interest rate than they pay to depositors. 
D)  None of the above is correct.

Question 3

Stock represents

Accepted Answer

A)  a claim to a share of the profits of a firm. 
B)  ownership in a firm. 
C)  equity finance. 
D)  All of the above are correct 
A)  a claim to a share of the profits of a firm. 
B)  ownership in a firm. 
C)  equity finance. 
D)  All of the above are correct

Question 4

Which of the following statements is correct?

Accepted Answer

A)  The interest rate that is usually reported is the interest rate that has been corrected for inflation. 
B)  The supply of, and demand for, loanable funds depend on the real rather than nominal) interest rate. 
C)  If the nominal interest rate has decreased and the real interest rate has also decreased, then the inflation rate must have decreased as well. 
D)  All of the above are correct. 
A)  The interest rate that is usually reported is the interest rate that has been corrected for inflation. 
B)  The supply of, and demand for, loanable funds depend on the real rather than nominal) interest rate. 
C)  If the nominal interest rate has decreased and the real interest rate has also decreased, then the inflation rate must have decreased as well. 
D)  All of the above are correct.

Question 5

When the government has a budget surplus

Accepted Answer

A)  it buys more of its bonds from the public than it sells to the public. 
B)  it spends more than it receives in tax revenue. 
C)  private saving is greater than zero. 
D)  exports are greater than imports. 
A)  it buys more of its bonds from the public than it sells to the public. 
B)  it spends more than it receives in tax revenue. 
C)  private saving is greater than zero. 
D)  exports are greater than imports.

Question 6

The source of the supply of loanable funds

Accepted Answer

A)  is saving and the source of demand for loanable funds is investment. 
B)  is investment and the source of demand for loanable funds is saving. 
C)  and the demand for loanable funds is saving. 
D)  and the demand for loanable funds is investment. 
A)  is saving and the source of demand for loanable funds is investment. 
B)  is investment and the source of demand for loanable funds is saving. 
C)  and the demand for loanable funds is saving. 
D)  and the demand for loanable funds is investment.

Question 7

Lenders sell bonds and borrowers buy them.

Accepted Answer

A) True 
 B)False

Question 8

Suppose government expenditures on goods and services increase, transfers are unchanged, and taxes rise by less than the increase in expenditures. These changes in the government's budget cause

Accepted Answer

A)  both the equilibrium interest rate and the equilibrium quantity of loanable funds to fall. 
B)  both the equilibrium interest rate and the equilibrium quantity of loanable funds to rise. 
C)  the equilibrium interest rate to rise and the equilibrium quantity of loanable funds to fall. 
D)  the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to rise. 
A)  both the equilibrium interest rate and the equilibrium quantity of loanable funds to fall. 
B)  both the equilibrium interest rate and the equilibrium quantity of loanable funds to rise. 
C)  the equilibrium interest rate to rise and the equilibrium quantity of loanable funds to fall. 
D)  the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to rise.

Question 9

In a closed economy, if Y remained the same, but G rose, T rose by the same amount as G, and C fell but by less than the increase in T, what would happen to private and national saving?

Accepted Answer

A)  national saving would fall and private saving would rise 
B)  national saving would rise and private saving would fall 
C)  both national saving and private saving would fall 
D)  None of the above is correct. 
A)  national saving would fall and private saving would rise 
B)  national saving would rise and private saving would fall 
C)  both national saving and private saving would fall 
D)  None of the above is correct.

Question 10

A mutual fund

Accepted Answer

A)  is a financial institution that stands between savers and borrowers. 
B)  is a financial intermediary. 
C)  allows people with small amounts of money to diversify their holdings. 
D)  All of the above are correct. 
A)  is a financial institution that stands between savers and borrowers. 
B)  is a financial intermediary. 
C)  allows people with small amounts of money to diversify their holdings. 
D)  All of the above are correct.

Question 11

Which of the following would not be a result of replacing the income tax with a consumption tax so that interest income was no longer taxed?

Accepted Answer

A)  The interest rate would decrease. 
B)  Investment would decrease. 
C)  The standard of living would eventually rise. 
D)  The supply of loanable funds would shift right. 
A)  The interest rate would decrease. 
B)  Investment would decrease. 
C)  The standard of living would eventually rise. 
D)  The supply of loanable funds would shift right.

Question 12

Compared to bondholders, stockholders

Accepted Answer

A)  face higher risk and have the potential for higher returns. 
B)  face higher risk but receive a fixed payment. 
C)  face lower risk and have the potential for higher returns. 
D)  face lower risk but receive a fixed payment. 
A)  face higher risk and have the potential for higher returns. 
B)  face higher risk but receive a fixed payment. 
C)  face lower risk and have the potential for higher returns. 
D)  face lower risk but receive a fixed payment.

Question 13

and are the two most important financial intermediaries.

Accepted Answer

Banks, Mut

Question 14

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Accepted Answer

A)  stock markets 
B)  financial institutions 
C)  financial markets 
D)  financial intermediaries 
A)  stock markets 
B)  financial institutions 
C)  financial markets 
D)  financial intermediaries

Question 15

For a closed economy, GDP is $12 trillion, consumption is $7 trillion, taxes net of transfers are $3 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

Accepted Answer

A)  $5 trillion and $3 trillion, respectively 
B)  $5 trillion and $1 trillion, respectively 
C)  $2 trillion and $3 trillion, respectively 
D)  $2 trillion and $1 trillion, respectively 
A)  $5 trillion and $3 trillion, respectively 
B)  $5 trillion and $1 trillion, respectively 
C)  $2 trillion and $3 trillion, respectively 
D)  $2 trillion and $1 trillion, respectively

Question 16

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

Accepted Answer

A)  raise the demand for existing shares of the stock, causing the price to rise 
B)  decrease the demand for existing shares of the stock, causing the price to fall 
C)  raise the supply of the existing shares of stock, causing the price to rise 
D)  raise the supply of the existing shares of stock, causing the price to fall 
A)  raise the demand for existing shares of the stock, causing the price to rise 
B)  decrease the demand for existing shares of the stock, causing the price to fall 
C)  raise the supply of the existing shares of stock, causing the price to rise 
D)  raise the supply of the existing shares of stock, causing the price to fall

Question 17

A budget deficit

Accepted Answer

A)  changes the supply of loanable funds. 
B)  changes the demand for loanable funds. 
C)  changes both the supply of and demand for loanable funds. 
D)  does not influence the supply of or the demand for loanable funds. 
A)  changes the supply of loanable funds. 
B)  changes the demand for loanable funds. 
C)  changes both the supply of and demand for loanable funds. 
D)  does not influence the supply of or the demand for loanable funds.

Question 18

Other things the same, corporate bonds generally feature higher interest rates than U.S. government bonds.

Accepted Answer

A) True 
 B)False

Question 19

Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.

Accepted Answer

A) True 
 B)False

Question 20

The length of time until a bond matures is called the

Accepted Answer

A)  perpetuity. 
B)  term. 
C)  maturity. 
D)  intermediation. 
A)  perpetuity. 
B)  term. 
C)  maturity. 
D)  intermediation.

Exam 18: Saving, Investment, and the Financial System

A higher interest rate makes more attractive. Therefore the quantity of loanable funds supplied increases.

Which of the following statements is correct?

Stock represents

Which of the following statements is correct?

When the government has a budget surplus

The source of the supply of loanable funds

Lenders sell bonds and borrowers buy them.

Suppose government expenditures on goods and services increase, transfers are unchanged, and taxes rise by less than the increase in expenditures. These changes in the government's budget cause

In a closed economy, if Y remained the same, but G rose, T rose by the same amount as G, and C fell but by less than the increase in T, what would happen to private and national saving?

A mutual fund

Which of the following would not be a result of replacing the income tax with a consumption tax so that interest income was no longer taxed?

Compared to bondholders, stockholders

and are the two most important financial intermediaries.

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

For a closed economy, GDP is $12 trillion, consumption is $7 trillion, taxes net of transfers are $3 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

A budget deficit

Other things the same, corporate bonds generally feature higher interest rates than U.S. government bonds.

Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.

The length of time until a bond matures is called the

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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