Question 1

Which of the following is not a characteristic of a bond?

Accepted Answer

A)  its tax treatment 
B)  its credit risk 
C)  its term 
D)  its dividend yield 
A)  its tax treatment 
B)  its credit risk 
C)  its term 
D)  its dividend yield

Question 2

For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that

Accepted Answer

A)  S = I. 
B)  S = 0. 
C)  I = S + NX. 
D)  S = I + NX. 
A)  S = I. 
B)  S = 0. 
C)  I = S + NX. 
D)  S = I + NX.

Question 3

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

Accepted Answer

A)  The demand for loanable funds shifted rightward. 
B)  The demand for loanable funds shifted leftward. 
C)  The supply of loanable funds shifted rightward. 
D)  The supply of loanable funds shifted leftward. 
A)  The demand for loanable funds shifted rightward. 
B)  The demand for loanable funds shifted leftward. 
C)  The supply of loanable funds shifted rightward. 
D)  The supply of loanable funds shifted leftward.

Question 4

Buskin's Corporation has issued 2 million shares of stock. Its earnings were $10 million, of which it retained 40 percent. What was the dividend per share?

Accepted Answer

A)  $2. 
B)  $3. 
C)  $5. 
D)  $8. 
A)  $2. 
B)  $3. 
C)  $5. 
D)  $8.

Question 5

A budget surplus

Accepted Answer

A)  occurs when the government has debt equal to zero. 
B)  causes government debt to increase. 
C)  exists when government spending is greater than tax revenues. 
D)  reduces the government's debt. 
A)  occurs when the government has debt equal to zero. 
B)  causes government debt to increase. 
C)  exists when government spending is greater than tax revenues. 
D)  reduces the government's debt.

Question 6

By definition, government purchases and taxes are zero for a closed economy.

Accepted Answer

A) True 
 B)False

Question 7

If the supply for loanable funds shifts to the left, 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 8

It is claimed that a secondary advantage of mutual funds is that

Accepted Answer

A)  an investor can avoid investment charges and fees. 
B)  they give ordinary people access to loanable funds for investing. 
C)  they usually outperform stock market indexes. 
D)  they give ordinary people access to the skills of professional money managers. 
A)  an investor can avoid investment charges and fees. 
B)  they give ordinary people access to loanable funds for investing. 
C)  they usually outperform stock market indexes. 
D)  they give ordinary people access to the skills of professional money managers.

Question 9

Crowding out occurs when

Accepted Answer

A)  investment declines because a budget deficit makes interest rates rise. 
B)  investment declines because a budget deficit makes interest rates fall. 
C)  investment increases because a budget surplus makes interest rates rise. 
D)  investment increases because a budget surplus makes interest rates fall. 
A)  investment declines because a budget deficit makes interest rates rise. 
B)  investment declines because a budget deficit makes interest rates fall. 
C)  investment increases because a budget surplus makes interest rates rise. 
D)  investment increases because a budget surplus makes interest rates fall.

Question 10

If an economy is closed and if it has no government, then

Accepted Answer

A)  national saving = 0. 
B)  national saving = private saving. 
C)  public saving = investment. 
D)  gross domestic product = consumption. 
A)  national saving = 0. 
B)  national saving = private saving. 
C)  public saving = investment. 
D)  gross domestic product = consumption.

Question 11

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

Accepted Answer

A)  both Midwestern corporation and Southern corporation 
B)  Midwestern corporation but not Southern corporation 
C)  Southern corporation but not Midwestern corporation 
D)  neither Midwestern nor Southern corporation 
A)  both Midwestern corporation and Southern corporation 
B)  Midwestern corporation but not Southern corporation 
C)  Southern corporation but not Midwestern corporation 
D)  neither Midwestern nor Southern corporation

Question 12

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Accepted Answer

When the interest rate rises investment

Question 13

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

Accepted Answer

A) True 
 B)False

Question 14

A closed economy

Accepted Answer

A)  does not trade with other economies. 
B)  is centrally-planned. 
C)  does not allow financial intermediation. 
D)  All of the above are correct. 
A)  does not trade with other economies. 
B)  is centrally-planned. 
C)  does not allow financial intermediation. 
D)  All of the above are correct.

Question 15

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then

Accepted Answer

A)  the demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. 
B)  the demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate. 
C)  the supply of loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. 
D)  the supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate. 
A)  the demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. 
B)  the demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate. 
C)  the supply of loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. 
D)  the supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.

Question 16

When the government goes from running a balanced budget to running a budget surplus,

Accepted Answer

A)  national saving decreases, the interest rate rises, and the economy's long­run growth rate is likely to decrease. 
B)  national saving increases, the interest rate falls, and the economy's long­run growth rate is likely to decrease. 
C)  national saving decreases, the interest rate rises, and the economy's long­run growth rate is likely to increase. 
D)  national saving increases, the interest rate falls, and the economy's long­run growth rate is likely to increase. 
A)  national saving decreases, the interest rate rises, and the economy's long­run growth rate is likely to decrease. 
B)  national saving increases, the interest rate falls, and the economy's long­run growth rate is likely to decrease. 
C)  national saving decreases, the interest rate rises, and the economy's long­run growth rate is likely to increase. 
D)  national saving increases, the interest rate falls, and the economy's long­run growth rate is likely to increase.

Question 17

Melinda buys new equipment for her dental office with funds she borrowed from a bank that raised funds from depositors. Which of the following is correct?

Accepted Answer

A)  Melinda is an investor. 
B)  The depositors are investors. 
C)  Both Melinda and the depositors are investors. 
D)  Neither Melinda nor the depositors are investors. 
A)  Melinda is an investor. 
B)  The depositors are investors. 
C)  Both Melinda and the depositors are investors. 
D)  Neither Melinda nor the depositors are investors.

Question 18

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

Accepted Answer

The claim that an increase in the intere

Question 19

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

Accepted Answer

A)  there is a surplus so interest rates will rise. 
B)  there is a surplus so interest rates will fall. 
C)  there is a shortage so interest rates will rise. 
D)  there is a shortage so interest rates will fall. 
A)  there is a surplus so interest rates will rise. 
B)  there is a surplus so interest rates will fall. 
C)  there is a shortage so interest rates will rise. 
D)  there is a shortage so interest rates will fall.

Question 20

Banks

Accepted Answer

A)  play a role in creating an asset that people can use as a medium of exchange. 
B)  are financial intermediaries, but mutual funds are not financial intermediaries. 
C)  are financial markets, as are bond markets. 
D)  All of the above are correct. 
A)  play a role in creating an asset that people can use as a medium of exchange. 
B)  are financial intermediaries, but mutual funds are not financial intermediaries. 
C)  are financial markets, as are bond markets. 
D)  All of the above are correct.

Exam 18: Saving, Investment, and the Financial System

Which of the following is not a characteristic of a bond?

For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

Buskin's Corporation has issued 2 million shares of stock. Its earnings were $10 million, of which it retained 40 percent. What was the dividend per share?

A budget surplus

By definition, government purchases and taxes are zero for a closed economy.

If the supply for loanable funds shifts to the left, then the equilibrium interest rate

It is claimed that a secondary advantage of mutual funds is that

Crowding out occurs when

If an economy is closed and if it has no government, then

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

A closed economy

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then

When the government goes from running a balanced budget to running a budget surplus,

Melinda buys new equipment for her dental office with funds she borrowed from a bank that raised funds from depositors. Which of the following is correct?

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

Banks

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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