Question 1

The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:

Accepted Answer

A)  "Buy low­risk bonds." 
B)  "Use a medium of exchange." 
C)  "Diversify." 
D)  "Intermediate." 
A)  "Buy low­risk bonds." 
B)  "Use a medium of exchange." 
C)  "Diversify." 
D)  "Intermediate."

Question 2

Other things the same, an increase in the budget deficit

Accepted Answer

A)  shifts the demand for loanable funds right, so the interest rate rises. 
B)  shifts the demand for loanable funds left, so the interest rate falls. 
C)  shifts the supply of loanable funds right, so the interest rate falls. 
D)  shifts the supply of loanable funds left, so the interest rate rises. 
A)  shifts the demand for loanable funds right, so the interest rate rises. 
B)  shifts the demand for loanable funds left, so the interest rate falls. 
C)  shifts the supply of loanable funds right, so the interest rate falls. 
D)  shifts the supply of loanable funds left, so the interest rate rises.

Question 3

If Congress increased the tax rate on interest income, investment

Accepted Answer

A)  would increase and saving would decrease. 
B)  would decrease and saving would increase. 
C)  and saving would increase. 
D)  and saving would decrease. 
A)  would increase and saving would decrease. 
B)  would decrease and saving would increase. 
C)  and saving would increase. 
D)  and saving would decrease.

Question 4

An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

Accepted Answer

A) True 
 B)False

Question 5

List three characteristics of a bond that would make its interest rate higher than otherwise.

Accepted Answer

it has a longer term to maturi

Question 6

If a firm sells a total of 100 shares of stock, then

Accepted Answer

A)  the supply of, and demand for, those shares determine the price per share. 
B)  each share represents ownership of 1 percent of the firm. 
C)  the firm is engaging in equity finance. 
D)  All of the above are correct. 
A)  the supply of, and demand for, those shares determine the price per share. 
B)  each share represents ownership of 1 percent of the firm. 
C)  the firm is engaging in equity finance. 
D)  All of the above are correct.

Question 7

The country of Yokovia does not trade with any other country. Its GDP is $20 billion. Its government collects $2 billion in taxes. Consumption equals $15 billion and investment equals $2 billion. What is public saving in Yokovia, and what is the value of the goods and services purchased by the government of Yokovia?

Accepted Answer

A)  -$2 billion and $1 billion. 
B)  $1 billion and $1 billion. 
C)  -$1 billion and $3 billion. 
D)  -$2 billion and $3 billion. 
A)  -$2 billion and $1 billion. 
B)  $1 billion and $1 billion. 
C)  -$1 billion and $3 billion. 
D)  -$2 billion and $3 billion.

Question 8

If the government budget deficit increases, which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

Accepted Answer

The supply of loanab

Question 9

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following would necessarily increase the equilibrium interest rate?

Accepted Answer

A)  The demand for and the supply of loanable funds shift right. 
B)  The demand for and the supply of loanable funds shift left. 
C)  The demand for loanable funds shifts right and the supply of loanable funds shifts left. 
D)  The demand for loanable funds shifts left and the supply of loanable funds shifts right. 
A)  The demand for and the supply of loanable funds shift right. 
B)  The demand for and the supply of loanable funds shift left. 
C)  The demand for loanable funds shifts right and the supply of loanable funds shifts left. 
D)  The demand for loanable funds shifts left and the supply of loanable funds shifts right.

Question 11

According to the definitions of national saving and private saving, if Y, C, and G remained the same, an increase in taxes would

Accepted Answer

A)  raise both national saving and private saving. 
B)  raise national saving and reduce private saving. 
C)  leave national saving and private saving unchanged. 
D)  leave national saving unchanged and reduce private saving. 
A)  raise both national saving and private saving. 
B)  raise national saving and reduce private saving. 
C)  leave national saving and private saving unchanged. 
D)  leave national saving unchanged and reduce private saving.

Question 12

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves.  
-Refer to Figure 26-1. What is measured along the vertical axis of the graph?

Accepted Answer

A)  the nominal interest rate 
B)  the real interest rate 
C)  the quantity of investment 
D)  the quantity of saving 
A)  the nominal interest rate 
B)  the real interest rate 
C)  the quantity of investment 
D)  the quantity of saving

Question 13

Other things the same, bonds are likely to have higher interest rates if they have

Accepted Answer

A)  tax exemptions and short terms. 
B)  tax exemptions and long terms. 
C)  no tax exemptions and short terms. 
D)  no tax exemptions and long terms. 
A)  tax exemptions and short terms. 
B)  tax exemptions and long terms. 
C)  no tax exemptions and short terms. 
D)  no tax exemptions and long terms.

Question 14

When tax code changes increase investment incentives, the _____ for loanable funds curve shifts to the _____. This results in an) _____ in the interest rate and an) _____ in investment.

Accepted Answer

demand, ri

Question 15

Index funds

Accepted Answer

A)  buy all the stocks in a given stock index. 
B)  promise to beat the market by a certain percentage known as an index. 
C)  provide a return that is adjusted for changes in the consumer price index. 
D)  buy industries within a particular category of the North American Industry Classification System. 
A)  buy all the stocks in a given stock index. 
B)  promise to beat the market by a certain percentage known as an index. 
C)  provide a return that is adjusted for changes in the consumer price index. 
D)  buy industries within a particular category of the North American Industry Classification System.

Question 16

In a closed economy taxes are $750 billion, government transfers are $400 billion, government expenditures are $500 billion, and investment is $400 billion. What are private saving, public saving and national saving?

Accepted Answer

Private saving is $550 billion

Question 17

The economy's two most important financial markets are

Accepted Answer

A)  the investment market and the saving market. 
B)  the bond market and the stock market. 
C)  banks and the stock market. 
D)  financial markets and financial institutions. 
A)  the investment market and the saving market. 
B)  the bond market and the stock market. 
C)  banks and the stock market. 
D)  financial markets and financial institutions.

Question 18

Figure 26-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves.  
-Refer to Figure 26-2. What is measured along the horizontal axis of the graph?

Accepted Answer

A)  the quantity of loanable funds 
B)  the size of the government budget deficit or surplus 
C)  the real interest rate 
D)  the nominal interest rate 
A)  the quantity of loanable funds 
B)  the size of the government budget deficit or surplus 
C)  the real interest rate 
D)  the nominal interest rate

Question 19

Morgan, a financial advisor, has told her clients the following things. Which of her statements is not correct?

Accepted Answer

A)  "U.S. government bonds generally pay a higher rate of interest than corporate bonds." 
B)  "The interest received on corporate bonds is taxable." 
C)  "U.S. government bonds have the lowest default risk." 
D)  "If you purchase a municipal bond, you can sell it before it matures." 
A)  "U.S. government bonds generally pay a higher rate of interest than corporate bonds." 
B)  "The interest received on corporate bonds is taxable." 
C)  "U.S. government bonds have the lowest default risk." 
D)  "If you purchase a municipal bond, you can sell it before it matures."

Question 20

Identify each of the following acts as representing either saving or investment.
a. Fred uses some of his income to buy government bonds.
b. Julie takes some of her income and buys mutual funds.
c. Alex purchases a new truck for his delivery business using borrowed funds.
d. Elaine uses some of her income to buy stock in a major corporation.
e. Henrietta hires a builder to construct a new building for her bicycle shop.

Accepted Answer

a. Fred is saving.
b. Julie is

Exam 18: Saving, Investment, and the Financial System

The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:

Other things the same, an increase in the budget deficit

If Congress increased the tax rate on interest income, investment

An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

List three characteristics of a bond that would make its interest rate higher than otherwise.

If a firm sells a total of 100 shares of stock, then

If the government budget deficit increases, which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

Which of the following would necessarily increase the equilibrium interest rate?

According to the definitions of national saving and private saving, if Y, C, and G remained the same, an increase in taxes would

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1. What is measured along the vertical axis of the graph?

Other things the same, bonds are likely to have higher interest rates if they have

When tax code changes increase investment incentives, the _____ for loanable funds curve shifts to the _____. This results in an) _____ in the interest rate and an) _____ in investment.

Index funds

In a closed economy taxes are $750 billion, government transfers are $400 billion, government expenditures are $500 billion, and investment is $400 billion. What are private saving, public saving and national saving?

The economy's two most important financial markets are

Figure 26-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. -Refer to Figure 26-2. What is measured along the horizontal axis of the graph?

Morgan, a financial advisor, has told her clients the following things. Which of her statements is not correct?

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

When tax code changes increase investment incentives, the ___ for loanable funds curve shifts to the _. This results in an) _ in the interest rate and an) ___ in investment.