Question 1

Net exports must equal zero for any economy

Accepted Answer

A)  that is closed. 
B)  for which Y = C + I + G. 
C)  for which S = Y - C - G. 
D)  All of the above are correct. 
A)  that is closed. 
B)  for which Y = C + I + G. 
C)  for which S = Y - C - G. 
D)  All of the above are correct.

Question 2

An increase in the government budget deficit causes national saving to _____, the interest rate to _____, and investment to _____.

Accepted Answer

decrease,

Question 3

If a share of stock in Dell sells for $70, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 10.

Accepted Answer

A) True 
 B)False

Question 4

The source of the supply of loanable funds is

Accepted Answer

A)  saving, and the source of the demand for loanable funds is investment. 
B)  consumption, and the source of the demand for loanable funds is investment. 
C)  investment, and the source of the demand for loanable funds is saving. 
D)  the interest rate, and the source of the demand for loanable funds is saving. 
A)  saving, and the source of the demand for loanable funds is investment. 
B)  consumption, and the source of the demand for loanable funds is investment. 
C)  investment, and the source of the demand for loanable funds is saving. 
D)  the interest rate, and the source of the demand for loanable funds is saving.

Question 5

To state that public saving is equal to investment, for a closed economy, is to state an accounting identity.

Accepted Answer

A) True 
 B)False

Question 6

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

Accepted Answer

A)  Because they have the same term to maturity the interest rates should be the same. 
B)  Because of the differences in tax treatment and credit risk, the state bond should have the higher interest rate. 
C)  Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate. 
D)  It is not possible to say if one bond has a higher interest rate than the other. 
A)  Because they have the same term to maturity the interest rates should be the same. 
B)  Because of the differences in tax treatment and credit risk, the state bond should have the higher interest rate. 
C)  Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate. 
D)  It is not possible to say if one bond has a higher interest rate than the other.

Question 7

Use the following table to answer the following questions.
Table 26-1
  
-Refer to Table 26-1. Which firm had the P/E ratio that was closest to the historically typical P/E ratio?

Accepted Answer

A)  GenMills 
B)  Microsoft 
C)  Graco 
D)  Hershey 
A)  GenMills 
B)  Microsoft 
C)  Graco 
D)  Hershey

Question 8

A high demand for a company's stock is an indication that

Accepted Answer

A)  the company is in need of funds. 
B)  the company has recently sold a large quantity of bonds. 
C)  people are optimistic about the company's future. 
D)  people are pessimistic about the company's future. 
A)  the company is in need of funds. 
B)  the company has recently sold a large quantity of bonds. 
C)  people are optimistic about the company's future. 
D)  people are pessimistic about the company's future.

Question 9

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

Accepted Answer

A)  -500 
B)  500 
C)  2,000 
D)  None of the above is correct. 
A)  -500 
B)  500 
C)  2,000 
D)  None of the above is correct.

Question 10

A closed economy

Accepted Answer

A)  does not trade with other economies. 
B)  is centrally-planned. 
C)  does not allow financial intermediation. 
D)  All of the above are correct. 
A)  does not trade with other economies. 
B)  is centrally-planned. 
C)  does not allow financial intermediation. 
D)  All of the above are correct.

Question 11

A decrease in taxes on interest income would increase the interest rate.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following are effects of an increased budget deficit?

Accepted Answer

A)  the supply of loanable funds does not change; a higher interest rate reduces private saving 
B)  the supply of loanable funds does not change; a higher interest rate raises private saving 
C)  at any interest rate the supply of loanable funds is less; a higher interest rate reduces private saving 
D)  at any interest rate the supply of loanable funds is less; a higher interest rate raises private saving 
A)  the supply of loanable funds does not change; a higher interest rate reduces private saving 
B)  the supply of loanable funds does not change; a higher interest rate raises private saving 
C)  at any interest rate the supply of loanable funds is less; a higher interest rate reduces private saving 
D)  at any interest rate the supply of loanable funds is less; a higher interest rate raises private saving

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

Profits not paid out to stockholders are

Accepted Answer

A)  retained earnings. 
B)  known as dividends. 
C)  the denominator in the price-earnings ratio. 
D)  All of the above are correct. 
A)  retained earnings. 
B)  known as dividends. 
C)  the denominator in the price-earnings ratio. 
D)  All of the above are correct.

Question 15

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 16

If Huedepool Beer runs into financial difficulty, the stockholders as

Accepted Answer

A)  part owners of Huedepool are paid before bondholders get paid anything at all. 
B)  part owners of Huedepool are paid after bondholders get paid. 
C)  creditors of Huedepool are paid before bondholders get paid anything at all. 
D)  creditors of Huedepool are paid after bondholders get paid. 
A)  part owners of Huedepool are paid before bondholders get paid anything at all. 
B)  part owners of Huedepool are paid after bondholders get paid. 
C)  creditors of Huedepool are paid before bondholders get paid anything at all. 
D)  creditors of Huedepool are paid after bondholders get paid.

Question 17

Two of the economy's most important financial intermediaries are

Accepted Answer

A)  suppliers of funds and demanders of funds. 
B)  banks and the bond market. 
C)  the stock market and the bond market. 
D)  banks and mutual funds. 
A)  suppliers of funds and demanders of funds. 
B)  banks and the bond market. 
C)  the stock market and the bond market. 
D)  banks and mutual funds.

Question 18

Which of the following statements about mutual funds is correct?

Accepted Answer

A)  A mutual fund is not a financial intermediary. 
B)  A disadvantage of buying mutual funds is a lack of diversification 
C)  People who buy shares from a mutual fund are guaranteed a minimum return. 
D)  On average index funds outperform managed funds. 
A)  A mutual fund is not a financial intermediary. 
B)  A disadvantage of buying mutual funds is a lack of diversification 
C)  People who buy shares from a mutual fund are guaranteed a minimum return. 
D)  On average index funds outperform managed funds.

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. What, specifically, does the label on the vertical axis, i, represent?

Accepted Answer

A)  the nominal interest rate 
B)  the real interest rate 
C)  the inflation rate 
D)  the dividend yield 
A)  the nominal interest rate 
B)  the real interest rate 
C)  the inflation rate 
D)  the dividend yield

Question 20

Kroger's grocery chain wants to finance the purchase of a new warehouse. It decides to sell bonds.

Accepted Answer

A)  Kroger's plans to use equity financing and its action is part of the demand for loanable funds. 
B)  Kroger's plans to use equity financing and its action is part of the supply of loanable funds. 
C)  Kroger's plans to use debt financing and its action is part of the demand for loanable funds. 
D)  Kroger's plans to use debt financing and its action is part of the supply of loanable funds. 
A)  Kroger's plans to use equity financing and its action is part of the demand for loanable funds. 
B)  Kroger's plans to use equity financing and its action is part of the supply of loanable funds. 
C)  Kroger's plans to use debt financing and its action is part of the demand for loanable funds. 
D)  Kroger's plans to use debt financing and its action is part of the supply of loanable funds.

Exam 13: Saving, Investment, and the Financial System

Net exports must equal zero for any economy

An increase in the government budget deficit causes national saving to _____, the interest rate to _____, and investment to _____.

If a share of stock in Dell sells for $70, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 10.

The source of the supply of loanable funds is

To state that public saving is equal to investment, for a closed economy, is to state an accounting identity.

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

Use the following table to answer the following questions. Table 26-1 -Refer to Table 26-1. Which firm had the P/E ratio that was closest to the historically typical P/E ratio?

A high demand for a company's stock is an indication that

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

A closed economy

A decrease in taxes on interest income would increase the interest rate.

Which of the following are effects of an increased budget deficit?

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?

Profits not paid out to stockholders are

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

If Huedepool Beer runs into financial difficulty, the stockholders as

Two of the economy's most important financial intermediaries are

Which of the following statements about mutual funds is correct?

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. What, specifically, does the label on the vertical axis, i, represent?

Kroger's grocery chain wants to finance the purchase of a new warehouse. It decides to sell 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

Filters

An increase in the government budget deficit causes national saving to ___, the interest rate to _, and investment to ___.