Question 1

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is investment?

Accepted Answer

The answer of In a closed economy private saving is...

Question 2

Which of the following would be included as investment in the GDP accounts?

Accepted Answer

A)  the government buys goods from another country 
B)  someone buys stock in an American company 
C)  a firm increases its capital stock 
D)  All of the above are correct. 
A)  the government buys goods from another country 
B)  someone buys stock in an American company 
C)  a firm increases its capital stock 
D)  All of the above are correct.

Question 3

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

Accepted Answer

A)  The demand for loanable funds shifted rightward. 
B)  The demand for loanable funds shifted leftward. 
C)  The supply of loanable funds shifted rightward. 
D)  The supply of loanable funds shifted leftward. 
A)  The demand for loanable funds shifted rightward. 
B)  The demand for loanable funds shifted leftward. 
C)  The supply of loanable funds shifted rightward. 
D)  The supply of loanable funds shifted leftward.

Question 4

Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to Joan's purchase as investment.

Accepted Answer

A) True 
 B)False

Question 5

By definition, government purchases and taxes are zero for a closed economy.

Accepted Answer

A) True 
 B)False

Question 6

If there is a surplus of loanable funds, then

Accepted Answer

A)  the quantity demanded is greater than the quantity supplied and the interest rate will rise. 
B)  the quantity demanded is greater than the quantity supplied and the interest rate will fall. 
C)  the quantity supplied is greater than the quantity demanded and the interest rate will rise. 
D)  the quantity supplied is greater than the quantity demanded and the interest rate will fall. 
A)  the quantity demanded is greater than the quantity supplied and the interest rate will rise. 
B)  the quantity demanded is greater than the quantity supplied and the interest rate will fall. 
C)  the quantity supplied is greater than the quantity demanded and the interest rate will rise. 
D)  the quantity supplied is greater than the quantity demanded and the interest rate will fall.

Question 7

Which of the following bonds has the highest interest rate?

Accepted Answer

A)  a high credit risk and a short term. 
B)  a low credit risk and a short term. 
C)  a long term and a high credit risk. 
D)  a long term and a low credit risk. 
A)  a high credit risk and a short term. 
B)  a low credit risk and a short term. 
C)  a long term and a high credit risk. 
D)  a long term and a low credit risk.

Question 8

A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because

Accepted Answer

A)  in our model of the loanable funds market, we define "loanable funds" as the flow of resources available to fund private investment. 
B)  in our model of the loanable funds market, we define "loanable funds" as the flow of resources available from private saving. 
C)  markets for government debt are fundamentally different from markets for private debt. 
D)  of our assumption that the economy is closed. 
A)  in our model of the loanable funds market, we define "loanable funds" as the flow of resources available to fund private investment. 
B)  in our model of the loanable funds market, we define "loanable funds" as the flow of resources available from private saving. 
C)  markets for government debt are fundamentally different from markets for private debt. 
D)  of our assumption that the economy is closed.

Question 9

In 2013, ABC Corporation had total earnings of $200 million and 40 million shares of the corporation's stock were outstanding. If the price-earnings ratio for ABC is 20, then what is the price of a share of its stock?

Accepted Answer

A)  $5 
B)  b. $10 
C)  c. $80 
D)  $100 
A)  $5 
B)  b. $10 
C)  c. $80 
D)  $100

Question 10

Which of the following is correct?

Accepted Answer

A)  Some bonds have terms as short as a few months. 
B)  Because they are so risky, junk bonds pay a low rate of interest. 
C)  Corporations buy bonds to raise funds. 
D)  All of the above are correct. 
A)  Some bonds have terms as short as a few months. 
B)  Because they are so risky, junk bonds pay a low rate of interest. 
C)  Corporations buy bonds to raise funds. 
D)  All of the above are correct.

Question 11

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 the government going from a budget surplus to a budget deficit?

Accepted Answer

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

Question 12

Lenders sell bonds and borrowers buy them.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)  The government went from surplus to deficit. 
B)  The government instituted an investment tax credit. 
C)  The government reduced the tax rate on savings. 
D)  None of the above is correct. 
A)  The government went from surplus to deficit. 
B)  The government instituted an investment tax credit. 
C)  The government reduced the tax rate on savings. 
D)  None of the above is correct.

Question 14

If a firm's price­earnings ratio is relatively low, then it might be an indication that

Accepted Answer

A)  the demand for the stock is relatively high. 
B)  the supply of the stock is relatively low. 
C)  people expect the firm's earnings to rise. 
D)  people expect the firm's earnings to fall. 
A)  the demand for the stock is relatively high. 
B)  the supply of the stock is relatively low. 
C)  people expect the firm's earnings to rise. 
D)  people expect the firm's earnings to fall.

Question 15

Who accepts all of the risk associated with a mutual fund's portfolio of stocks and/or bonds?

Accepted Answer

A)  the fund's managers 
B)  the fund's shareholders 
C)  the federal government 
D)  the corporations that originally issued the stocks and/or bonds held by the fund 
A)  the fund's managers 
B)  the fund's shareholders 
C)  the federal government 
D)  the corporations that originally issued the stocks and/or bonds held by the fund

Question 16

Index funds

Accepted Answer

A)  buy all the stocks in a given stock index. 
B)  promise to beat the market by a certain percentage known as an index. 
C)  provide a return that is adjusted for changes in the consumer price index. 
D)  buy industries within a particular category of the North American Industry Classification System. 
A)  buy all the stocks in a given stock index. 
B)  promise to beat the market by a certain percentage known as an index. 
C)  provide a return that is adjusted for changes in the consumer price index. 
D)  buy industries within a particular category of the North American Industry Classification System.

Question 17

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 would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit?

Accepted Answer

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

Question 18

A higher interest rate makes less attractive. Therefore the quantity of loanable funds demanded decreases.

Accepted Answer

The answer of A higher interest rate makes less attractive....

Question 19

Other things the same, the effects of an increase in transfer payments on the government's budget deficit will lead to

Accepted Answer

A)  greater investment. 
B)  a higher interest rate. 
C)  higher public saving. 
D)  All of the above are correct. 
A)  greater investment. 
B)  a higher interest rate. 
C)  higher public saving. 
D)  All of the above are correct.

Question 20

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to private and national saving?

Accepted Answer

A)  private and national saving would rise 
B)  private and national saving would fall 
C)  private saving would rise and national saving would fall 
D)  private saving would fall and national saving would rise 
A)  private and national saving would rise 
B)  private and national saving would fall 
C)  private saving would rise and national saving would fall 
D)  private saving would fall and national saving would rise

Exam 13: Saving, Investment, and the Financial System

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is investment?

Which of the following would be included as investment in the GDP accounts?

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to Joan's purchase as investment.

By definition, government purchases and taxes are zero for a closed economy.

If there is a surplus of loanable funds, then

Which of the following bonds has the highest interest rate?

A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because

In 2013, ABC Corporation had total earnings of $200 million and 40 million shares of the corporation's stock were outstanding. If the price-earnings ratio for ABC is 20, then what is the price of a share of its stock?

Which of the following 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. Which of the following movements shows the effects of the government going from a budget surplus to a budget deficit?

Lenders sell bonds and borrowers buy them.

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

If a firm's price­earnings ratio is relatively low, then it might be an indication that

Who accepts all of the risk associated with a mutual fund's portfolio of stocks and/or bonds?

Index funds

A higher interest rate makes less attractive. Therefore the quantity of loanable funds demanded decreases.

Other things the same, the effects of an increase in transfer payments on the government's budget deficit will lead to

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to private 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

If a firm's priceearnings ratio is relatively low, then it might be an indication that