Question 1

Historically, the typical price-earnings ratio for stocks is about

Accepted Answer

A)  3 
B)  8 
C)  15 
D)  26 
A)  3 
B)  8 
C)  15 
D)  26

Question 2

In a closed economy, if Y, C, and T remained the same, a decrease in G would

Accepted Answer

A)  reduce private saving and public saving. 
B)  increase private saving but not public saving. 
C)  increase public saving but not private saving. 
D)  increase neither private nor public saving. 
A)  reduce private saving and public saving. 
B)  increase private saving but not public saving. 
C)  increase public saving but not private saving. 
D)  increase neither private nor public saving.

Question 3

Long-term bonds are

Accepted Answer

A)  riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
B)  riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
C)  less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
D)  less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
A)  riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
B)  riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
C)  less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
D)  less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

Question 4

When the government budget deficit rises, national saving is reduced, interest rates rise, and investment falls.

Accepted Answer

A) True 
 B)False

Question 5

Longview Corporation has a stock price of $60, has issued 1,000,000 shares of stock, has retained earnings of $3 million dollars, and a dividend yield of 5 percent. The price-earnings ratio for Longview stock is

Accepted Answer

A)  20, which is high compared to historical standards of the market. 
B)  20, which is low compared to historical standards of the market. 
C)  10, which is low compared to historical standards of the market. 
D)  10, which is high compared to historical standards of the market. 
A)  20, which is high compared to historical standards of the market. 
B)  20, which is low compared to historical standards of the market. 
C)  10, which is low compared to historical standards of the market. 
D)  10, which is high compared to historical standards of the market.

Question 6

Higher education subsidies in the form of the federal government's student loan program

Accepted Answer

A)  induce more people to attend colleges and universities. 
B)  keep interest rates low on student loans. 
C)  cause lenders to take on more risk. 
D)  All of the above are correct. 
A)  induce more people to attend colleges and universities. 
B)  keep interest rates low on student loans. 
C)  cause lenders to take on more risk. 
D)  All of the above are correct.

Question 7

When economists refer to investment, they mean the purchasing of stocks and bonds and other types of saving.

Accepted Answer

A) True 
 B)False

Question 8

When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____.

Accepted Answer

deficit, i

Question 9

An increase in the government's budget surplus means

Accepted Answer

A)  public saving is greater than $0 and increasing. 
B)  public saving is greater than $0 and decreasing. 
C)  public saving is less than $0 and increasing. 
D)  public saving is less than $0 and decreasing. 
A)  public saving is greater than $0 and increasing. 
B)  public saving is greater than $0 and decreasing. 
C)  public saving is less than $0 and increasing. 
D)  public saving is less than $0 and decreasing.

Question 10

If an economy is closed and if it has no government, then

Accepted Answer

A)  national saving = private saving. 
B)  total income = consumption + investment. 
C)  saving = total income - consumption. 
D)  All of the above are correct. 
A)  national saving = private saving. 
B)  total income = consumption + investment. 
C)  saving = total income - consumption. 
D)  All of the above are correct.

Question 11

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.  
-Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D1 to D2?

Accepted Answer

A)  The tax code is reformed to encourage greater saving. 
B)  The tax code is reformed to encourage greater investment. 
C)  The government starts running a budget deficit. 
D)  The government starts running a budget surplus. 
A)  The tax code is reformed to encourage greater saving. 
B)  The tax code is reformed to encourage greater investment. 
C)  The government starts running a budget deficit. 
D)  The government starts running a budget surplus.

Question 12

Which of the following statements is correct?

Accepted Answer

A)  NASDAQ is an important stock exchange in the United States. 
B)  The Standard & Poor's 500 Index and the New York Stock Exchange are two examples of stock indexes. 
C)  The most significant influence on the demand for a corporation's stock is the number of shares of the stock that the corporation has issued. 
D)  All of the above are correct. 
A)  NASDAQ is an important stock exchange in the United States. 
B)  The Standard & Poor's 500 Index and the New York Stock Exchange are two examples of stock indexes. 
C)  The most significant influence on the demand for a corporation's stock is the number of shares of the stock that the corporation has issued. 
D)  All of the above are correct.

Question 13

For an imaginary economy, when the real interest rate is 7 percent, the quantity of loanable funds demanded is $500 and the quantity of loanable funds supplied is $500. Currently, the nominal interest rate is 9 percent and the inflation rate is 4 percent. Currently,

Accepted Answer

A)  the market for loanable funds is in equilibrium. 
B)  the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will rise. 
C)  the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall. 
D)  the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, and as a result the real interest rate will rise. 
A)  the market for loanable funds is in equilibrium. 
B)  the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will rise. 
C)  the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall. 
D)  the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, and as a result the real interest rate will rise.

Question 14

In examining the national income accounts of the closed economy of Nepotocracy you see that this year it had taxes of $100 billion, transfers of $20 billion, and government purchases of goods and services of $70 billion. You also notice that last year it had private saving of $70 billion and investment of $50 billion. In which year did Nepotocracy have a budget deficit of $20 billion?

Accepted Answer

A)  this year and last year 
B)  this year but not last year 
C)  last year but not this year 
D)  neither this year nor last year 
A)  this year and last year 
B)  this year but not last year 
C)  last year but not this year 
D)  neither this year nor last year

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, private saving amounts to

Accepted Answer

A)  $22,000. 
B)  $18,000. 
C)  $15,000. 
D)  $37,000. 
A)  $22,000. 
B)  $18,000. 
C)  $15,000. 
D)  $37,000.

Question 16

A national chain of grocery stores wants to finance the construction of several new stores. The firm has limited internal funds, so it likely will

Accepted Answer

A)  demand the required funds by buying bonds. 
B)  demand the required funds by selling bonds. 
C)  supply the required funds by buying bonds. 
D)  supply the required funds by selling bonds. 
A)  demand the required funds by buying bonds. 
B)  demand the required funds by selling bonds. 
C)  supply the required funds by buying bonds. 
D)  supply the required funds by selling bonds.

Question 17

In the language of macroeconomics, investment refers to

Accepted Answer

A)  saving. 
B)  the purchase of new capital. 
C)  the purchase of stocks, bonds, or mutual funds. 
D)  All of the above are correct. 
A)  saving. 
B)  the purchase of new capital. 
C)  the purchase of stocks, bonds, or mutual funds. 
D)  All of the above are correct.

Question 18

In 2009 and 2010, the federal government's budget deficit was about

Accepted Answer

A)  5 percent of GDP, and this was the highest debt-GDP ratio in U.S history. 
B)  10 percent of GDP, and this was the highest debt-GDP ratio in U.S history. 
C)  5 percent of GDP, and this was the highest debt-GDP ratio since World War II. 
D)  10 percent of GDP, and this was the highest debt-GDP ratio since World War II. 
A)  5 percent of GDP, and this was the highest debt-GDP ratio in U.S history. 
B)  10 percent of GDP, and this was the highest debt-GDP ratio in U.S history. 
C)  5 percent of GDP, and this was the highest debt-GDP ratio since World War II. 
D)  10 percent of GDP, and this was the highest debt-GDP ratio since World War II.

Question 19

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. We would expect that this would

Accepted Answer

A)  raise the demand for existing shares of the stock, causing the price to rise. 
B)  decrease the demand for existing shares of the stock, causing the price to fall. 
C)  raise the supply of the existing shares of stock, causing the price to rise. 
D)  raise the supply of the existing shares of stock, causing the price to fall. 
A)  raise the demand for existing shares of the stock, causing the price to rise. 
B)  decrease the demand for existing shares of the stock, causing the price to fall. 
C)  raise the supply of the existing shares of stock, causing the price to rise. 
D)  raise the supply of the existing shares of stock, causing the price to fall.

Question 20

Other things the same, when the interest rate rises,

Accepted Answer

A)  people would want to lend more, making the supply of loanable funds increase. 
B)  people would want to lend less, making the supply of loanable funds decrease. 
C)  people would want to lend more, making the quantity of loanable funds supplied increase. 
D)  people would want to lend less, making the quantity of loanable funds supplied decrease. 
A)  people would want to lend more, making the supply of loanable funds increase. 
B)  people would want to lend less, making the supply of loanable funds decrease. 
C)  people would want to lend more, making the quantity of loanable funds supplied increase. 
D)  people would want to lend less, making the quantity of loanable funds supplied decrease.

Exam 13: Saving, Investment, and the Financial System

Historically, the typical price-earnings ratio for stocks is about

In a closed economy, if Y, C, and T remained the same, a decrease in G would

Long-term bonds are

When the government budget deficit rises, national saving is reduced, interest rates rise, and investment falls.

Longview Corporation has a stock price of $60, has issued 1,000,000 shares of stock, has retained earnings of $3 million dollars, and a dividend yield of 5 percent. The price-earnings ratio for Longview stock is

Higher education subsidies in the form of the federal government's student loan program

When economists refer to investment, they mean the purchasing of stocks and bonds and other types of saving.

When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____.

An increase in the government's budget surplus means

If an economy is closed and if it has no government, then

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D1 to D2?

Which of the following statements is correct?

For an imaginary economy, when the real interest rate is 7 percent, the quantity of loanable funds demanded is $500 and the quantity of loanable funds supplied is $500. Currently, the nominal interest rate is 9 percent and the inflation rate is 4 percent. Currently,

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, private saving amounts to

A national chain of grocery stores wants to finance the construction of several new stores. The firm has limited internal funds, so it likely will

In the language of macroeconomics, investment refers to

In 2009 and 2010, the federal government's budget deficit was about

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. We would expect that this would

Other things the same, when the interest rate rises,

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 the government increases its borrowing, the budget ___ increases and government debt _. The resulting change in investment due to this increased government borrowing is called ___.

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D₁ to D₂?