Question 1

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

Accepted Answer

A)  their consumption expenditures are being financed by someone else's saving. 
B)  their consumption expenditures are being financed by someone else's investment. 
C)  their investments are being financed by someone else's saving. 
D)  their saving is being financed by someone else's investment. 
A)  their consumption expenditures are being financed by someone else's saving. 
B)  their consumption expenditures are being financed by someone else's investment. 
C)  their investments are being financed by someone else's saving. 
D)  their saving is being financed by someone else's investment.

Question 2

Which of the following is a financial-market transaction?

Accepted Answer

A)  A saver buys shares in a mutual fund. 
B)  A saver deposits money into a credit union. 
C)  A saver buys a bond a corporation has just issued so it can purchase capital. 
D)  None of the above is correct. 
A)  A saver buys shares in a mutual fund. 
B)  A saver deposits money into a credit union. 
C)  A saver buys a bond a corporation has just issued so it can purchase capital. 
D)  None of the above is correct.

Question 3

A creditor of a corporation holds

Accepted Answer

A)  bonds sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders. 
B)  bonds sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders. 
C)  stocks sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders. 
D)  stocks sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders. 
A)  bonds sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders. 
B)  bonds sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders. 
C)  stocks sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders. 
D)  stocks sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders.

Question 4

On a graph that depicts the market for loanable funds, the nominal interest rate is measured along the vertical axis.

Accepted Answer

A) True 
 B)False

Question 5

What does the maturity of a bond indicate?

Accepted Answer

The date a

Question 6

Which government policy raises the interest rate and raises investment spending?

Accepted Answer

An investm

Question 7

Which of the following is correct?

Accepted Answer

A)  Joan takes some of her income and buys mutual fund shares. Joan's purchase will be included in the investment category of GDP. 
B)  If a share of stock in Virtual Pizza Corporation sells for $77, the earnings per share are $5, and the dividend per share is $2, then the P/E ratio is 11. 
C)  In order to use equity finance, a firm must sell about equal values of stocks and bonds. 
D)  None of the above is correct. 
A)  Joan takes some of her income and buys mutual fund shares. Joan's purchase will be included in the investment category of GDP. 
B)  If a share of stock in Virtual Pizza Corporation sells for $77, the earnings per share are $5, and the dividend per share is $2, then the P/E ratio is 11. 
C)  In order to use equity finance, a firm must sell about equal values of stocks and bonds. 
D)  None of the above is correct.

Question 8

The indirect provision of funds by savers to borrowers is accomplished by

Accepted Answer

A)  banks and other financial markets. 
B)  banks and other financial intermediaries. 
C)  stock markets and other financial markets. 
D)  All of the above are correct. 
A)  banks and other financial markets. 
B)  banks and other financial intermediaries. 
C)  stock markets and other financial markets. 
D)  All of the above are correct.

Question 9

A national chain of grocery stores wants to finance the construction of several new stores. The firm has limited internal funds, so it likely will

Accepted Answer

A)  demand the required funds by buying bonds. 
B)  demand the required funds by selling bonds. 
C)  supply the required funds by buying bonds. 
D)  supply the required funds by selling bonds. 
A)  demand the required funds by buying bonds. 
B)  demand the required funds by selling bonds. 
C)  supply the required funds by buying bonds. 
D)  supply the required funds by selling bonds.

Question 10

Lenders buy bonds and borrowers sell them.

Accepted Answer

A) True 
 B)False

Question 11

Compared to short-term bonds, other things the same, long-term bonds generally have

Accepted Answer

A)  more risk and so they pay higher interest rates. 
B)  less risk and so they pay lower interest rates. 
C)  less risk and so they pay higher interest rates. 
D)  about the same risk and so they pay about the same interest rate. 
A)  more risk and so they pay higher interest rates. 
B)  less risk and so they pay lower interest rates. 
C)  less risk and so they pay higher interest rates. 
D)  about the same risk and so they pay about the same interest rate.

Question 12

A bond is a

Accepted Answer

A)  financial intermediary. 
B)  certificate of indebtedness. 
C)  certificate of partial ownership in an enterprise. 
D)  None of the above is correct. 
A)  financial intermediary. 
B)  certificate of indebtedness. 
C)  certificate of partial ownership in an enterprise. 
D)  None of the above is correct.

Question 13

Profits not paid out to stockholders are

Accepted Answer

A)  retained earnings. 
B)  known as dividends. 
C)  the denominator in the price-earnings ratio. 
D)  All of the above are correct. 
A)  retained earnings. 
B)  known as dividends. 
C)  the denominator in the price-earnings ratio. 
D)  All of the above are correct.

Question 14

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

Accepted Answer

A)  low, indicating that buyers may expect earnings to rise. 
B)  low, indicating that buyers may expect earnings to fall. 
C)  high, indicating that buyers may expect earnings to rise. 
D)  high, indicating that buyers may expect earnings to fall. 
A)  low, indicating that buyers may expect earnings to rise. 
B)  low, indicating that buyers may expect earnings to fall. 
C)  high, indicating that buyers may expect earnings to rise. 
D)  high, indicating that buyers may expect earnings to fall.

Question 15

An increase in the budget deficit would cause a

Accepted Answer

A)  shortage of loanable funds at the original interest rate, which would lead to falling interest rates. 
B)  surplus of loanable funds at the original interest rate, which would lead to rising interest rates. 
C)  shortage of loanable funds at the original interest rate, which would lead to rising interest rates. 
D)  surplus of loanable funds at the original interest rate, which would lead to falling interest rates. 
A)  shortage of loanable funds at the original interest rate, which would lead to falling interest rates. 
B)  surplus of loanable funds at the original interest rate, which would lead to rising interest rates. 
C)  shortage of loanable funds at the original interest rate, which would lead to rising interest rates. 
D)  surplus of loanable funds at the original interest rate, which would lead to falling interest rates.

Question 16

Other things the same, a higher interest rate induces people to

Accepted Answer

A)  save more, so the supply of loanable funds slopes upward. 
B)  save less, so the supply of loanable funds slopes downward. 
C)  invest more, so the supply of loanable funds slopes upward. 
D)  invest less, so the supply of loanable funds slopes downward. 
A)  save more, so the supply of loanable funds slopes upward. 
B)  save less, so the supply of loanable funds slopes downward. 
C)  invest more, so the supply of loanable funds slopes upward. 
D)  invest less, so the supply of loanable funds slopes downward.

Question 17

Use the following table to answer the following questions.
Table 26-1
  
-Refer to Table 26-1. What was Hershey's earnings per share?

Accepted Answer

A)  $29.90 
B)  $2.79 
C)  $1.50 
D)  $0.36 
A)  $29.90 
B)  $2.79 
C)  $1.50 
D)  $0.36

Question 18

If Congress instituted an investment tax credit, the interest rate would

Accepted Answer

A)  rise and saving would rise. 
B)  fall and saving would fall. 
C)  rise and saving would fall. 
D)  fall and saving would rise. 
A)  rise and saving would rise. 
B)  fall and saving would fall. 
C)  rise and saving would fall. 
D)  fall and saving would rise.

Question 19

If the government's expenditures exceeded its receipts, it would likely

Accepted Answer

A)  lend money to a bank or other financial intermediary. 
B)  borrow money from a bank or other financial intermediary. 
C)  buy bonds directly from the public. 
D)  sell bonds directly to the public. 
A)  lend money to a bank or other financial intermediary. 
B)  borrow money from a bank or other financial intermediary. 
C)  buy bonds directly from the public. 
D)  sell bonds directly to the public.

Question 20

Other things the same, which bond would you expect to pay the lowest interest rate?

Accepted Answer

A)  a bond issued by a state with a very good credit rating 
B)  a bond issued by the U.S. government 
C)  a bond issued by a fairly new company doing genetic research 
D)  a bond issued by Nabisco 
A)  a bond issued by a state with a very good credit rating 
B)  a bond issued by the U.S. government 
C)  a bond issued by a fairly new company doing genetic research 
D)  a bond issued by Nabisco

Exam 18: Saving, Investment, and the Financial System

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

Which of the following is a financial-market transaction?

A creditor of a corporation holds

On a graph that depicts the market for loanable funds, the nominal interest rate is measured along the vertical axis.

What does the maturity of a bond indicate?

Which government policy raises the interest rate and raises investment spending?

Which of the following is correct?

The indirect provision of funds by savers to borrowers is accomplished by

A national chain of grocery stores wants to finance the construction of several new stores. The firm has limited internal funds, so it likely will

Lenders buy bonds and borrowers sell them.

Compared to short-term bonds, other things the same, long-term bonds generally have

A bond is a

Profits not paid out to stockholders are

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

An increase in the budget deficit would cause a

Other things the same, a higher interest rate induces people to

Use the following table to answer the following questions. Table 26-1 -Refer to Table 26-1. What was Hershey's earnings per share?

If Congress instituted an investment tax credit, the interest rate would

If the government's expenditures exceeded its receipts, it would likely

Other things the same, which bond would you expect to pay the lowest interest rate?

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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