Question 1

In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?

Accepted Answer

A)  $5 billion and $45 billion 
B)  -$5 billion and $45 billion 
C)  $5 billion and $50 billion 
D)  -$5 billion and $50 billion 
A)  $5 billion and $45 billion 
B)  -$5 billion and $45 billion 
C)  $5 billion and $50 billion 
D)  -$5 billion and $50 billion

Question 2

If the nominal interest rate is 3 percent and the inflation rate is 4 percent, then the real interest rate is

Accepted Answer

A)  7 percent. 
B)  -1 percent. 
C)  3 percent. 
D)  4 percent. 
A)  7 percent. 
B)  -1 percent. 
C)  3 percent. 
D)  4 percent.

Question 3

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

Accepted Answer

A)  low, indicating that buyers may expect earnings to rise. 
B)  low, indicating that buyers may expect earnings to fall. 
C)  high, indicating that buyers may expect earnings to rise. 
D)  high, indicating that buyers may expect earnings to fall. 
A)  low, indicating that buyers may expect earnings to rise. 
B)  low, indicating that buyers may expect earnings to fall. 
C)  high, indicating that buyers may expect earnings to rise. 
D)  high, indicating that buyers may expect earnings to fall.

Question 4

The first element of a financial crisis is

Accepted Answer

A)  inflation. 
B)  a decline in confidence in financial institutions. 
C)  a relaxation of rules and regulations that pertain to the financial system. 
D)  a large decline in some asset prices. 
A)  inflation. 
B)  a decline in confidence in financial institutions. 
C)  a relaxation of rules and regulations that pertain to the financial system. 
D)  a large decline in some asset prices.

Question 5

In a closed economy, national saving is

Accepted Answer

A)  usually greater than investment. 
B)  equal to investment. 
C)  usually less than investment because of the leakage of taxes. 
D)  always less than investment. 
A)  usually greater than investment. 
B)  equal to investment. 
C)  usually less than investment because of the leakage of taxes. 
D)  always less than investment.

Question 6

Concerns about the bankruptcy of an appliance manufacturer diminish after a new CEO is appointed and some of the company's less productive factories are sold. What type of risk for bondholders falls? What happens to the interest rate on this company's bonds?

Accepted Answer

default ri

Question 7

For an imaginary closed economy, T = $5,000; S = $11,000; C = $48,000; and the government is running a budget surplus of $1,000. Then

Accepted Answer

A)  private saving = $10,000 and GDP = $55,000. 
B)  private saving = $10,000 and GDP = $63,000. 
C)  private saving = $12,000 and GDP = $67,000. 
D)  private saving = $12,000 and GDP = $69,000. 
A)  private saving = $10,000 and GDP = $55,000. 
B)  private saving = $10,000 and GDP = $63,000. 
C)  private saving = $12,000 and GDP = $67,000. 
D)  private saving = $12,000 and GDP = $69,000.

Question 8

The country of Meditor, a small country with a closed economy, uses the merit as its currency. Recent national income statistics showed that it had GDP of $600 million merits, no government transfer payments, taxes of $150 million merits, a budget surplus of $40 billion merits, and investment of $100 billion merits. What were its consumption and government expenditures on goods and services?

Accepted Answer

A)  $460 million merits and $150 million merits 
B)  $310 million merits and $190 million merits 
C)  $350 million merits and $190 million merits 
D)  $390 million merits and $110 million merits 
A)  $460 million merits and $150 million merits 
B)  $310 million merits and $190 million merits 
C)  $350 million merits and $190 million merits 
D)  $390 million merits and $110 million merits

Question 9

Suppose there is a shortage in the market for loanable funds. Is the interest rate above or below its equilibrium level? How do desired saving and desired investment at this interest rate compare?

Accepted Answer

The interest rate is below its

Question 10

Given that Monika's income exceeds her expenditures, Monika is best described as a

Accepted Answer

A)  saver or as a supplier of funds. 
B)  saver or as a demander of funds. 
C)  borrower or as a supplier of funds. 
D)  borrower or as a demander of funds. 
A)  saver or as a supplier of funds. 
B)  saver or as a demander of funds. 
C)  borrower or as a supplier of funds. 
D)  borrower or as a demander of funds.

Question 11

Which of the following is both a store of value and a common medium of exchange?

Accepted Answer

A)  corporate bonds 
B)  mutual funds 
C)  checking account balances 
D)  All of the above are correct. 
A)  corporate bonds 
B)  mutual funds 
C)  checking account balances 
D)  All of the above are correct.

Question 12

The purchase of a new house is the one form of

Accepted Answer

A)  investment that is financed by private saving rather than public saving. 
B)  household spending that is not counted as part of investment in the national income accounts. 
C)  household spending that is investment rather than consumption. 
D)  household spending that does not contribute to GDP. 
A)  investment that is financed by private saving rather than public saving. 
B)  household spending that is not counted as part of investment in the national income accounts. 
C)  household spending that is investment rather than consumption. 
D)  household spending that does not contribute to GDP.

Question 13

List three characteristics of a bond that would make its interest rate higher than otherwise.

Accepted Answer

it has a longer term to maturi

Question 14

Which of the following could explain a decrease in the equilibrium interest rate and 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 15

Which of the following is correct?

Accepted Answer

A)  Lenders sell bonds and borrowers buy them. 
B)  Long-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier. 
C)  The term junk bonds refers to bonds that have been resold many times. 
D)  None of the above is correct. 
A)  Lenders sell bonds and borrowers buy them. 
B)  Long-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier. 
C)  The term junk bonds refers to bonds that have been resold many times. 
D)  None of the above is correct.

Question 16

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

Accepted Answer

A)  and investment both would increase. 
B)  and investment both would decrease. 
C)  would increase and investment would decrease. 
D)  would decrease and investment would increase. 
A)  and investment both would increase. 
B)  and investment both would decrease. 
C)  would increase and investment would decrease. 
D)  would decrease and investment would increase.

Question 17

The sale of bonds

Accepted Answer

A)  and stocks to raise money is called debt finance. 
B)  and stocks to raise money is called equity finance. 
C)  to raise money is called debt finance, while the sale of stocks to raise funds is called equity finance. 
D)  to raise money is called equity finance, while the sale of stocks to raise funds is called debt finance. 
A)  and stocks to raise money is called debt finance. 
B)  and stocks to raise money is called equity finance. 
C)  to raise money is called debt finance, while the sale of stocks to raise funds is called equity finance. 
D)  to raise money is called equity finance, while the sale of stocks to raise funds is called debt finance.

Question 18

If a firm wants to borrow it can

Accepted Answer

A)  supply bonds by selling them. 
B)  supply bonds by buying them. 
C)  demand bonds by selling them. 
D)  demand bonds by buying them. 
A)  supply bonds by selling them. 
B)  supply bonds by buying them. 
C)  demand bonds by selling them. 
D)  demand bonds by buying them.

Question 19

Short-term bonds are generally

Accepted Answer

A)  less risky than long-term bonds and so they feature higher interest rates. 
B)  less risky than long-term bonds and so they feature lower interest rates. 
C)  more risky than long-term bonds and so they feature higher interest rates. 
D)  more risky than long-term bonds and so they feature lower interest rates. 
A)  less risky than long-term bonds and so they feature higher interest rates. 
B)  less risky than long-term bonds and so they feature lower interest rates. 
C)  more risky than long-term bonds and so they feature higher interest rates. 
D)  more risky than long-term bonds and so they feature lower interest rates.

Question 20

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Accepted Answer

A)  stock markets 
B)  financial institutions 
C)  financial markets 
D)  financial intermediaries 
A)  stock markets 
B)  financial institutions 
C)  financial markets 
D)  financial intermediaries

Exam 13: Saving, Investment, and the Financial System

In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?

If the nominal interest rate is 3 percent and the inflation rate is 4 percent, then the real interest rate is

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

The first element of a financial crisis is

In a closed economy, national saving is

Concerns about the bankruptcy of an appliance manufacturer diminish after a new CEO is appointed and some of the company's less productive factories are sold. What type of risk for bondholders falls? What happens to the interest rate on this company's bonds?

For an imaginary closed economy, T = $5,000; S = $11,000; C = $48,000; and the government is running a budget surplus of $1,000. Then

Suppose there is a shortage in the market for loanable funds. Is the interest rate above or below its equilibrium level? How do desired saving and desired investment at this interest rate compare?

Given that Monika's income exceeds her expenditures, Monika is best described as a

Which of the following is both a store of value and a common medium of exchange?

The purchase of a new house is the one form of

List three characteristics of a bond that would make its interest rate higher than otherwise.

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

Which of the following is correct?

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

The sale of bonds

If a firm wants to borrow it can

Short-term bonds are generally

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

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