Question 1

A mutual fund

Accepted Answer

A)  is a financial institution that stands between savers and borrowers. 
B)  is a financial intermediary. 
C)  allows people with small amounts of money to diversify their holdings. 
D)  All of the above are correct. 
A)  is a financial institution that stands between savers and borrowers. 
B)  is a financial intermediary. 
C)  allows people with small amounts of money to diversify their holdings. 
D)  All of the above are correct.

Question 2

Use the following table to answer the following questions.
Table 26-2
  
-Refer to Table 26-2. Which company had the highest earnings per share?

Accepted Answer

A)  Boeing Co. 
B)  Eli Lilly and Co. 
C)  Kraft 
D)  Kellogg Co. 
A)  Boeing Co. 
B)  Eli Lilly and Co. 
C)  Kraft 
D)  Kellogg Co.

Question 3

Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent. The dividend is

Accepted Answer

A)  $0.25 and the price-earnings ratio is 5. 
B)  $.25 and the price-earnings ratio is 6.7. 
C)  $1.25 and the price-earnings ratio is 5. 
D)  $1.25 and the price-earnings ratio is 6.7. 
A)  $0.25 and the price-earnings ratio is 5. 
B)  $.25 and the price-earnings ratio is 6.7. 
C)  $1.25 and the price-earnings ratio is 5. 
D)  $1.25 and the price-earnings ratio is 6.7.

Question 4

If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500.

Accepted Answer

A) True 
 B)False

Question 5

Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds?

Accepted Answer

A)  The interest rate and investment would fall. 
B)  The interest rate and investment would rise. 
C)  The interest rate would rise and investment would fall. 
D)  None of the above is necessarily correct. 
A)  The interest rate and investment would fall. 
B)  The interest rate and investment would rise. 
C)  The interest rate would rise and investment would fall. 
D)  None of the above is necessarily correct.

Question 6

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Accepted Answer

A)  credit risk. 
B)  interest risk. 
C)  term risk. 
D)  private risk. 
A)  credit risk. 
B)  interest risk. 
C)  term risk. 
D)  private risk.

Question 7

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Accepted Answer

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

Question 8

Suppose that Congress were to repeal an investment tax credit. What would happen in the market for loanable funds?

Accepted Answer

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

Question 9

Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free. This would shift the

Accepted Answer

A)  supply of loanable funds to the right, causing interest rates to fall. 
B)  supply of loanable funds to the left, causing interest rates to rise. 
C)  demand for loanable funds to the right, causing interest rates to rise. 
D)  demand for loanable funds to the left, causing interest rates to fall. 
A)  supply of loanable funds to the right, causing interest rates to fall. 
B)  supply of loanable funds to the left, causing interest rates to rise. 
C)  demand for loanable funds to the right, causing interest rates to rise. 
D)  demand for loanable funds to the left, causing interest rates to fall.

Question 10

The U.S. government increases its budget deficit, but at the same time Congress eliminates an investment tax credit. Which of the following is correct?

Accepted Answer

A)  The interest rate will increase; investment may increase or decrease. 
B)  The interest rate will decrease; investment may increase or decrease. 
C)  The interest rate may increase or decrease; investment will decrease. 
D)  The interest rate may increase or decrease; investment will increase. 
A)  The interest rate will increase; investment may increase or decrease. 
B)  The interest rate will decrease; investment may increase or decrease. 
C)  The interest rate may increase or decrease; investment will decrease. 
D)  The interest rate may increase or decrease; investment will increase.

Question 11

Corporations receive no proceeds from the resale of their stock.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following events could explain an increase in interest rates together with an increase in investment?

Accepted Answer

A)  The government runs a larger deficit. 
B)  The government institutes an investment tax credit. 
C)  The government replaces the income tax with a consumption tax. 
D)  None of the above is correct. 
A)  The government runs a larger deficit. 
B)  The government institutes an investment tax credit. 
C)  The government replaces the income tax with a consumption tax. 
D)  None of the above is correct.

Question 13

Which of the following involves financial intermediation?

Accepted Answer

A)  a bank makes a loan 
B)  a household buys stock issued by a corporation 
C)  a foreign government purchases U.S. government bonds 
D)  All of the above are correct. 
A)  a bank makes a loan 
B)  a household buys stock issued by a corporation 
C)  a foreign government purchases U.S. government bonds 
D)  All of the above are correct.

Question 14

Use the following table to answer the following questions.
Table 26-2
  
-Refer to Table 26-2. Which company had the lowest dollar dividend per share?

Accepted Answer

A)  Boeing Co. 
B)  Eli Lilly and Co. 
C)  Kraft 
D)  Kellogg Co. 
A)  Boeing Co. 
B)  Eli Lilly and Co. 
C)  Kraft 
D)  Kellogg Co.

Question 15

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 16

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Accepted Answer

A) True 
 B)False

Question 17

When the government's budget deficit increases

Accepted Answer

A)  the government is borrowing less and public savings falls. 
B)  the government is borrowing less and public savings increases. 
C)  the government is borrowing more and public savings falls. 
D)  the government is borrowing more and public savings increases. 
A)  the government is borrowing less and public savings falls. 
B)  the government is borrowing less and public savings increases. 
C)  the government is borrowing more and public savings falls. 
D)  the government is borrowing more and public savings increases.

Question 18

The prices of stock traded on exchanges are determined by

Accepted Answer

A)  the Corporate Stock Administration. 
B)  the administrators of NASDAQ. 
C)  the supply of, and demand for, the stock. 
D)  All of the above are correct. 
A)  the Corporate Stock Administration. 
B)  the administrators of NASDAQ. 
C)  the supply of, and demand for, the stock. 
D)  All of the above are correct.

Question 19

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

Accepted Answer

A)  crowding out would not be a consequence of an increase in the budget deficit. 
B)  higher interest rates would not be a consequence of an increase in the budget deficit. 
C)  an increase in the budget deficit would cause the demand for loanable funds to decrease. 
D)  we would be making only a semantic change in how we analyze the effects of government budget deficits. 
A)  crowding out would not be a consequence of an increase in the budget deficit. 
B)  higher interest rates would not be a consequence of an increase in the budget deficit. 
C)  an increase in the budget deficit would cause the demand for loanable funds to decrease. 
D)  we would be making only a semantic change in how we analyze the effects of government budget deficits.

Question 20

Which of the following is not correct?

Accepted Answer

A)  If you buy a bond from a corporation, you can sell the bond to someone else before it matures. 
B)  Term refers to the scheduling of periodic interest rate payments on a bond. 
C)  A bond is an IOU. 
D)  There are millions of different bonds in the U.S. economy. 
A)  If you buy a bond from a corporation, you can sell the bond to someone else before it matures. 
B)  Term refers to the scheduling of periodic interest rate payments on a bond. 
C)  A bond is an IOU. 
D)  There are millions of different bonds in the U.S. economy.

Exam 13: Saving, Investment, and the Financial System

A mutual fund

Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2. Which company had the highest earnings per share?

Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent. The dividend is

If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500.

Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds?

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Suppose that Congress were to repeal an investment tax credit. What would happen in the market for loanable funds?

Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free. This would shift the

The U.S. government increases its budget deficit, but at the same time Congress eliminates an investment tax credit. Which of the following is correct?

Corporations receive no proceeds from the resale of their stock.

Which of the following events could explain an increase in interest rates together with an increase in investment?

Which of the following involves financial intermediation?

Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2. Which company had the lowest dollar dividend per share?

A stock's dividend yield is the

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

When the government's budget deficit increases

The prices of stock traded on exchanges are determined by

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

Which of the following 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

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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