Question 1

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

Accepted Answer

A)  each share represents 1 percent of the firm's indebtedness. 
B)  each share represents ownership of 1 percent of the firm. 
C)  the firm is engaging in term finance. 
D)  All of the above are correct. 
A)  each share represents 1 percent of the firm's indebtedness. 
B)  each share represents ownership of 1 percent of the firm. 
C)  the firm is engaging in term finance. 
D)  All of the above are correct.

Question 2

Which of the following counts as part of the supply of loanable funds?

Accepted Answer

A)  bank deposits and purchases of bonds 
B)  bank deposits but not purchases of bonds 
C)  purchases of bonds but not bank deposits 
D)  neither purchases of bonds nor bank deposits 
A)  bank deposits and purchases of bonds 
B)  bank deposits but not purchases of bonds 
C)  purchases of bonds but not bank deposits 
D)  neither purchases of bonds nor bank deposits

Question 3

Which of the following is not correct?

Accepted Answer

A)  By saving a larger portion of its GDP, a country can raise its output per worker. 
B)  Savers supply their money to the financial system with the expectation that they will get it back with interest at a later date. 
C)  Financial intermediaries are the only type of financial institution. 
D)  The financial system helps match people's saving with other people's borrowing. 
A)  By saving a larger portion of its GDP, a country can raise its output per worker. 
B)  Savers supply their money to the financial system with the expectation that they will get it back with interest at a later date. 
C)  Financial intermediaries are the only type of financial institution. 
D)  The financial system helps match people's saving with other people's borrowing.

Question 4

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 5

What are the basic differences between bonds and stocks?

Accepted Answer

A bond is a certificate of indebtedness

Question 6

A low P/E for a stock indicates that

Accepted Answer

A)  people may expect earnings to fall in the future, perhaps because the firm will be faced with increased competition. 
B)  its dividends have been low so that no one is willing to pay very much for it. 
C)  the corporation is possibly overvalued. 
D)  All of the above are correct. 
A)  people may expect earnings to fall in the future, perhaps because the firm will be faced with increased competition. 
B)  its dividends have been low so that no one is willing to pay very much for it. 
C)  the corporation is possibly overvalued. 
D)  All of the above are correct.

Question 7

Which of the following equations represents GDP for a closed economy?

Accepted Answer

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

Question 8

You have some estimates of national accounts numbers for a closed economy for the coming year. Under one set of expectations, government purchases will be $30 billion, transfer payments will be $10 billion, and taxes will be $45 billion. Under another set of expectations, GDP will be $200 billion, taxes will be $50 billion, transfer payments will be $20 billion, consumption will be $120 million, and investment will be $40 billion. Based on these numbers in the first case there should be a

Accepted Answer

A)  $15 billion surplus, and in the second case a $10 billion surplus. 
B)  $15 billion surplus, and in the second case a $30 billion deficit. 
C)  $5 billion surplus, and in the second case a $10 billion deficit. 
D)  $5 billion surplus, and in the second case a $30 billion deficit. 
A)  $15 billion surplus, and in the second case a $10 billion surplus. 
B)  $15 billion surplus, and in the second case a $30 billion deficit. 
C)  $5 billion surplus, and in the second case a $10 billion deficit. 
D)  $5 billion surplus, and in the second case a $30 billion deficit.

Question 9

What variable adjusts to balance demand and supply in the market for loanable funds?

Accepted Answer

The real i

Question 10

If consumers reduced their spending, what would happen to the interest rate and investment?

Accepted Answer

The interest rate wo

Question 11

Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same?

Accepted Answer

A)  The government reduces the amount that people may put into savings accounts on which the interest is tax exempt. 
B)  Because they are optimistic about the future of the economy, firms desire to borrow more to purchase physical capital. 
C)  Consumers decide to decrease consumption and work more. 
D)  All of the above could explain why the interest rate would be unchanged. 
A)  The government reduces the amount that people may put into savings accounts on which the interest is tax exempt. 
B)  Because they are optimistic about the future of the economy, firms desire to borrow more to purchase physical capital. 
C)  Consumers decide to decrease consumption and work more. 
D)  All of the above could explain why the interest rate would be unchanged.

Question 12

When tax code changes reduce 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, le

Question 13

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 14

A government may use deficit financing to smooth tax rates over time.

Accepted Answer

A) True 
 B)False

Question 15

Scenario 26-1. Assume the following information for an imaginary, closed economy.
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000.
-Refer to Scenario 26-1. For this economy, investment amounts to

Accepted Answer

A)  $38,000. 
B)  $18,000. 
C)  $12,000. 
D)  $15,000. 
A)  $38,000. 
B)  $18,000. 
C)  $12,000. 
D)  $15,000.

Question 16

Index funds are usually outperformed by mutual funds that are actively managed by professional money managers.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A)  a bond issued by the U.S. government 
B)  a bond issued by Microsoft Corporation 
C)  a bond issued by the state of Montana 
D)  a bond issued by a new chain of Brazilian-style restaurants 
A)  a bond issued by the U.S. government 
B)  a bond issued by Microsoft Corporation 
C)  a bond issued by the state of Montana 
D)  a bond issued by a new chain of Brazilian-style restaurants

Question 18

Crowding out occurs when investment declines because

Accepted Answer

A)  a budget deficit makes interest rates rise. 
B)  a budget deficit makes interest rates fall. 
C)  a budget surplus makes interest rates rise. 
D)  a budget surplus makes interest rates fall. 
A)  a budget deficit makes interest rates rise. 
B)  a budget deficit makes interest rates fall. 
C)  a budget surplus makes interest rates rise. 
D)  a budget surplus makes interest rates fall.

Question 19

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.  
-Refer to Figure 26-3. Which of the following movements shows the effects of households' decision to save more?

Accepted Answer

A)  a movement from Point A to Point B 
B)  a movement from Point F to Point A 
C)  a movement from Point C to Point F 
D)  a movement from Point B to Point C 
A)  a movement from Point A to Point B 
B)  a movement from Point F to Point A 
C)  a movement from Point C to Point F 
D)  a movement from Point B to Point C

Question 20

For a closed economy, GDP is $18 trillion, consumption is $13 trillion, taxes are $2 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

Accepted Answer

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

Exam 13: Saving, Investment, and the Financial System

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

Which of the following counts as part of the supply of loanable funds?

Which of the following is not correct?

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?

What are the basic differences between bonds and stocks?

A low P/E for a stock indicates that

Which of the following equations represents GDP for a closed economy?

What variable adjusts to balance demand and supply in the market for loanable funds?

If consumers reduced their spending, what would happen to the interest rate and investment?

Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same?

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

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

A government may use deficit financing to smooth tax rates over time.

Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. -Refer to Scenario 26-1. For this economy, investment amounts to

Index funds are usually outperformed by mutual funds that are actively managed by professional money managers.

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

Crowding out occurs when investment declines because

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. Which of the following movements shows the effects of households' decision to save more?

For a closed economy, GDP is $18 trillion, consumption is $13 trillion, taxes are $2 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

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

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

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

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