Question 1

Other things the same, an increase in the interest rate

Accepted Answer

A)  would shift the demand for loanable funds to the right. 
B)  would shift the demand for loanable funds to the left. 
C)  would increase the quantity of loanable funds demanded. 
D)  would decrease the quantity of loanable funds demanded. 
A)  would shift the demand for loanable funds to the right. 
B)  would shift the demand for loanable funds to the left. 
C)  would increase the quantity of loanable funds demanded. 
D)  would decrease the quantity of loanable funds demanded.

Question 2

In a closed economy, Y - C - G equals . The variable Y is , C is , and G is .

Accepted Answer

national saving/inve

Question 3

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 $56 billion and if the rate of inflation is 4 percent, then the equilibrium real interest rate is

Accepted Answer

A)  lower than 6 percent. 
B)  6 percent. 
C)  between 6 percent and 8 percent. 
D)  higher than 8 percent. 
A)  lower than 6 percent. 
B)  6 percent. 
C)  between 6 percent and 8 percent. 
D)  higher than 8 percent.

Question 4

All financial intermediaries are financial institutions, but not all financial institutions are financial intermediaries.

Accepted Answer

A) True 
 B)False

Question 5

In examining the national income accounts of the closed economy of Nepotocracy you see that this year it had taxes of $100 billion, transfers of $20 billion, and government purchases of goods and services of $70 billion. You also notice that last year it had private saving of $70 billion and investment of $50 billion. In which year did Nepotocracy have a budget deficit of $20 billion?

Accepted Answer

A)  this year and last year 
B)  this year but not last year 
C)  last year but not this year 
D)  neither this year nor last year 
A)  this year and last year 
B)  this year but not last year 
C)  last year but not this year 
D)  neither this year nor last year

Question 6

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy.  
-Refer to Figure 26-5. Starting at point A, a change in tax laws that encouraged households to save more would likely cause

Accepted Answer

A)  the quantity of loanable funds traded to increase to $125 and the interest rate fall to 5% point 
D) . 
B)  the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% point 
C) . 
C)  the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to 5% point 
B) . 
D)  the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to 7% point 
E) . 
A)  the quantity of loanable funds traded to increase to $125 and the interest rate fall to 5% point 
D) . 
B)  the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% point 
C) . 
C)  the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to 5% point 
B) . 
D)  the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to 7% point 
E) .

Question 7

Compared to stocks, bonds offer the holder

Accepted Answer

A)  lower risk and lower potential return. 
B)  lower risk and higher potential return. 
C)  higher risk and lower potential return. 
D)  higher risk and higher potential return. 
A)  lower risk and lower potential return. 
B)  lower risk and higher potential return. 
C)  higher risk and lower potential return. 
D)  higher risk and higher potential return.

Question 8

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves.  
-Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?

Accepted Answer

A)  In response to tax reform, firms are encouraged to invest more than they previously invested. 
B)  In response to tax reform, households are encouraged to save more than they previously saved. 
C)  Government goes from running a balanced budget to running a budget deficit. 
D)  Any of the above events would shift the supply curve from S1 to S2. 
A)  In response to tax reform, firms are encouraged to invest more than they previously invested. 
B)  In response to tax reform, households are encouraged to save more than they previously saved. 
C)  Government goes from running a balanced budget to running a budget deficit. 
D)  Any of the above events would shift the supply curve from S1 to S2.

Question 9

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

Accepted Answer

The answer of Bond A and Bond B are identical...

Question 10

At some point during the financial crisis of 2008-2009, people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions. This phenomenon characterized which element of the financial crisis?

Accepted Answer

A)  the decline in confidence in financial institutions 
B)  the credit crunch 
C)  the economic downturn 
D)  the decline in asset prices 
A)  the decline in confidence in financial institutions 
B)  the credit crunch 
C)  the economic downturn 
D)  the decline in asset prices

Question 11

The first three elements of a financial crisis are correctly represented as taking place in the following order:

Accepted Answer

A)  large decline in some asset prices → insolvencies at financial institutions → decline in confidence in financial institutions 
B)  insolvencies at financial institutions → decline in confidence in financial institutions → large decline in some asset prices 
C)  insolvencies at financial institutions → economic downturn → credit crunch 
D)  insolvencies at financial institutions → credit crunch → economic downturn 
A)  large decline in some asset prices → insolvencies at financial institutions → decline in confidence in financial institutions 
B)  insolvencies at financial institutions → decline in confidence in financial institutions → large decline in some asset prices 
C)  insolvencies at financial institutions → economic downturn → credit crunch 
D)  insolvencies at financial institutions → credit crunch → economic downturn

Question 12

Which of the following is a certificate of indebtedness?

Accepted Answer

A)  both stocks and bonds 
B)  stocks but not bonds 
C)  bonds but not stocks 
D)  neither stocks nor bonds 
A)  both stocks and bonds 
B)  stocks but not bonds 
C)  bonds but not stocks 
D)  neither stocks nor bonds

Question 13

Jerry has the choice of two bonds, one that pays 5 percent interest and one that pays 2 percent interest. Which of the following is most likely?

Accepted Answer

A)  The 2 percent bond is more risky than the 5 percent bond. 
B)  The 5 percent bond is a U.S. government bond, and the 2 percent bond is a junk bond. 
C)  The 2 percent bond has a longer term than the 5 percent bond. 
D)  The 2 percent bond is a municipal bond, and the 5 percent bond is a U.S. government bond. 
A)  The 2 percent bond is more risky than the 5 percent bond. 
B)  The 5 percent bond is a U.S. government bond, and the 2 percent bond is a junk bond. 
C)  The 2 percent bond has a longer term than the 5 percent bond. 
D)  The 2 percent bond is a municipal bond, and the 5 percent bond is a U.S. government bond.

Question 14

A larger budget surplus

Accepted Answer

A)  raises the interest rate and investment. 
B)  reduces the interest rate and investment. 
C)  raises the interest rate and reduces investment. 
D)  reduces the interest rate and raises investment. 
A)  raises the interest rate and investment. 
B)  reduces the interest rate and investment. 
C)  raises the interest rate and reduces investment. 
D)  reduces the interest rate and raises investment.

Question 15

As real interest rates fall, firms desire to

Accepted Answer

A)  buy more new equipment and buildings. This response helps explain why the supply of loanable funds is upward sloping. 
B)  buy more new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping. 
C)  buy less new equipment and buildings. This response helps explain why the supply of loanable funds is upward sloping. 
D)  buy less new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping. 
A)  buy more new equipment and buildings. This response helps explain why the supply of loanable funds is upward sloping. 
B)  buy more new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping. 
C)  buy less new equipment and buildings. This response helps explain why the supply of loanable funds is upward sloping. 
D)  buy less new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping.

Question 16

A stock's dividend yield is the

Accepted Answer

A)  dividend as a percentage of the price per share. 
B)  stock price as a percentage of the dividend. 
C)  dividend as a percentage of the retained earnings per share. 
D)  retained earnings per share as the percentage of the dividend. 
A)  dividend as a percentage of the price per share. 
B)  stock price as a percentage of the dividend. 
C)  dividend as a percentage of the retained earnings per share. 
D)  retained earnings per share as the percentage of the dividend.

Question 17

Which of the following equations will always represent GDP in an open economy?

Accepted Answer

A)  S = I - G 
B)  I = Y - C + G 
C)  Y = C + I + G 
D)  Y = C + I + G + NX 
A)  S = I - G 
B)  I = Y - C + G 
C)  Y = C + I + G 
D)  Y = C + I + G + NX

Question 18

A closed economy does not engage in international trade, therefore

Accepted Answer

A)  national saving is less than investment S  I. 
D)  national saving is zero. 
A)  national saving is less than investment S  I. 
D)  national saving is zero.

Question 19

A corporation's earnings are

Accepted Answer

A)  the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants minus the dividends paid out. 
B)  the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists minus the dividends paid out. 
C)  the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants. 
D)  the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists. 
A)  the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants minus the dividends paid out. 
B)  the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists minus the dividends paid out. 
C)  the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants. 
D)  the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists.

Question 20

Which bond is likely to have higher interest rate due to a higher default risk?

Accepted Answer

A)  A share of stock issued by Apple. 
B)  A corporate bond issued by Apple. 
C)  A junk bond. 
D)  A U.S. government bond. 
A)  A share of stock issued by Apple. 
B)  A corporate bond issued by Apple. 
C)  A junk bond. 
D)  A U.S. government bond.

Exam 18: Saving, Investment, and the Financial System

Other things the same, an increase in the interest rate

In a closed economy, Y - C - G equals . The variable Y is , C is , and G is .

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 $56 billion and if the rate of inflation is 4 percent, then the equilibrium real interest rate is

All financial intermediaries are financial institutions, but not all financial institutions are financial intermediaries.

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. -Refer to Figure 26-5. Starting at point A, a change in tax laws that encouraged households to save more would likely cause

Compared to stocks, bonds offer the holder

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

At some point during the financial crisis of 2008-2009, people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions. This phenomenon characterized which element of the financial crisis?

The first three elements of a financial crisis are correctly represented as taking place in the following order:

Which of the following is a certificate of indebtedness?

Jerry has the choice of two bonds, one that pays 5 percent interest and one that pays 2 percent interest. Which of the following is most likely?

A larger budget surplus

As real interest rates fall, firms desire to

A stock's dividend yield is the

Which of the following equations will always represent GDP in an open economy?

A closed economy does not engage in international trade, therefore

A corporation's earnings are

Which bond is likely to have higher interest rate due to a higher default risk?

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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