Question 1

If the government currently has a budget deficit, then

Accepted Answer

A)  it does not necessarily have a debt. 
B)  its debt is increasing. 
C)  government expenditures are greater than taxes. 
D)  All of the above are correct. 
A)  it does not necessarily have a debt. 
B)  its debt is increasing. 
C)  government expenditures are greater than taxes. 
D)  All of the above are correct.

Question 2

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

Accepted Answer

A)  invest in physical capital. 
B)  use equity finance. 
C)  sell bonds. 
D)  purchase bonds. 
A)  invest in physical capital. 
B)  use equity finance. 
C)  sell bonds. 
D)  purchase bonds.

Question 3

A decrease in the budget deficit

Accepted Answer

A)  makes investment spending fall. 
B)  makes investment spending rise. 
C)  does not affect investment spending. 
D)  may increase, decrease, or not affect investment spending if private saving doesn't change. 
A)  makes investment spending fall. 
B)  makes investment spending rise. 
C)  does not affect investment spending. 
D)  may increase, decrease, or not affect investment spending if private saving doesn't change.

Question 4

The bond market, the stock market, banks, pension funds, and insurance companies are all financial

Accepted Answer

A)  systems. 
B)  markets. 
C)  institutions. 
D)  intermediaries. 
A)  systems. 
B)  markets. 
C)  institutions. 
D)  intermediaries.

Question 5

Managed funds

Accepted Answer

A)  typically have a higher rate of return and higher costs than index funds. 
B)  typically have a higher rate of return and lower costs than index funds. 
C)  typically have a lower rate of return and higher costs than index funds. 
D)  typically have a lower rate of return and lower costs than index funds. 
A)  typically have a higher rate of return and higher costs than index funds. 
B)  typically have a higher rate of return and lower costs than index funds. 
C)  typically have a lower rate of return and higher costs than index funds. 
D)  typically have a lower rate of return and lower costs than index funds.

Question 6

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Accepted Answer

A)  The supply of and demand for loanable funds would shift right. 
B)  The supply of and demand for loanable funds would shift left. 
C)  The supply of loanable funds would shift right and the demand for loanable funds would shift left. 
D)  None of the above is correct. 
A)  The supply of and demand for loanable funds would shift right. 
B)  The supply of and demand for loanable funds would shift left. 
C)  The supply of loanable funds would shift right and the demand for loanable funds would shift left. 
D)  None of the above is correct.

Question 7

Index funds

Accepted Answer

A)  typically have a higher rate of return and higher costs than managed mutual funds. 
B)  typically have a higher rate of return and lower costs than managed mutual funds. 
C)  typically have a lower rate of return and higher costs than managed mutual funds. 
D)  typically have a lower rate of return and lower costs than managed mutual funds. 
A)  typically have a higher rate of return and higher costs than managed mutual funds. 
B)  typically have a higher rate of return and lower costs than managed mutual funds. 
C)  typically have a lower rate of return and higher costs than managed mutual funds. 
D)  typically have a lower rate of return and lower costs than managed mutual funds.

Question 8

Which of the following is an example of financial intermediation?

Accepted Answer

A)  John buys shares of stock issued by a fast food company. 
B)  A foreign government buys bonds issued by the U.S. Treasury. 
C)  Susan makes a deposit at a bank and the bank uses this money to make an auto loan to Ferguson. 
D)  None of the above is correct. 
A)  John buys shares of stock issued by a fast food company. 
B)  A foreign government buys bonds issued by the U.S. Treasury. 
C)  Susan makes a deposit at a bank and the bank uses this money to make an auto loan to Ferguson. 
D)  None of the above is correct.

Question 9

Financial crises seldom involve economic downturns.

Accepted Answer

A) True 
 B)False

Question 10

How do banks make profits?

Accepted Answer

They charge borrower

Question 11

Which of the following numbers is not associated with shares of a company's stock?

Accepted Answer

A)  term 
B)  dividend 
C)  price 
D)  price-earnings ratio 
A)  term 
B)  dividend 
C)  price 
D)  price-earnings ratio

Question 12

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

Accepted Answer

A) True 
 B)False

Question 13

If the government institutes policies that diminish incentives to save, then in the loanable funds market

Accepted Answer

A)  the demand for loanable funds shifts rightward. 
B)  the demand for loanable funds shifts leftward. 
C)  the supply of loanable funds shifts rightward. 
D)  the supply of loanable funds shifts leftward. 
A)  the demand for loanable funds shifts rightward. 
B)  the demand for loanable funds shifts leftward. 
C)  the supply of loanable funds shifts rightward. 
D)  the supply of loanable funds shifts leftward.

Question 14

Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one of its breweries.

Accepted Answer

A)  Fran and Miller are both investing. 
B)  Fran and Miller are both saving. 
C)  Fran is investing; Miller is saving. 
D)  Fran is saving; Miller is investing. 
A)  Fran and Miller are both investing. 
B)  Fran and Miller are both saving. 
C)  Fran is investing; Miller is saving. 
D)  Fran is saving; Miller is investing.

Question 15

Suppose a country has a consumption tax that is similar to a state sales tax. If its government were to eliminate the consumption tax and replace it with an income tax that includes an income tax on interest from savings, what would happen?

Accepted Answer

A)  There would be no change in the interest rate or saving. 
B)  The interest rate would decrease and saving would increase. 
C)  The interest rate would increase and saving would decrease. 
D)  None of the above is correct. 
A)  There would be no change in the interest rate or saving. 
B)  The interest rate would decrease and saving would increase. 
C)  The interest rate would increase and saving would decrease. 
D)  None of the above is correct.

Question 16

If Congress instituted an investment tax credit, the equilibrium quantity of loanable funds would

Accepted Answer

A)  rise. 
B)  fall. 
C)  be unchanged. 
D)  move in an uncertain direction. 
A)  rise. 
B)  fall. 
C)  be unchanged. 
D)  move in an uncertain direction.

Question 17

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 18

Scenario 26-2. Assume the following information for an imaginary, closed economy.
GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion.
-Refer to Scenario 26-2. For this economy, public saving is equal to

Accepted Answer

A)  $0.2 trillion and the government is running a budget surplus of $0.2 trillion. 
B)  $0.2 trillion and the government is running a budget deficit of $0.2 trillion. 
C)  -$0.2 trillion and the government is running a budget deficit of $0.2 trillion. 
D)  -$0.2 trillion and the government is running a budget surplus of $0.2 trillion. 
A)  $0.2 trillion and the government is running a budget surplus of $0.2 trillion. 
B)  $0.2 trillion and the government is running a budget deficit of $0.2 trillion. 
C)  -$0.2 trillion and the government is running a budget deficit of $0.2 trillion. 
D)  -$0.2 trillion and the government is running a budget surplus of $0.2 trillion.

Question 19

A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

Accepted Answer

A)  the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic. 
B)  the demand for loanable funds is more inelastic and the supply of loanable funds is more elastic. 
C)  both the demand for and supply of loanable funds are more elastic. 
D)  both the demand for and supply of loanable funds are more inelastic. 
A)  the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic. 
B)  the demand for loanable funds is more inelastic and the supply of loanable funds is more elastic. 
C)  both the demand for and supply of loanable funds are more elastic. 
D)  both the demand for and supply of loanable funds are more inelastic.

Question 20

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

Accepted Answer

A) True 
 B)False

Exam 13: Saving, Investment, and the Financial System

If the government currently has a budget deficit, then

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

A decrease in the budget deficit

The bond market, the stock market, banks, pension funds, and insurance companies are all financial

Managed funds

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Index funds

Which of the following is an example of financial intermediation?

Financial crises seldom involve economic downturns.

How do banks make profits?

Which of the following numbers is not associated with shares of a company's stock?

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

If the government institutes policies that diminish incentives to save, then in the loanable funds market

Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one of its breweries.

Suppose a country has a consumption tax that is similar to a state sales tax. If its government were to eliminate the consumption tax and replace it with an income tax that includes an income tax on interest from savings, what would happen?

If Congress instituted an investment tax credit, the equilibrium quantity of loanable funds would

A corporation's earnings are

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, public saving is equal to

A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

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

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