Question 1

A policy that induces people to save more shifts

Accepted Answer

A)  the supply of loanable funds and raises interest rates. 
B)  the supply of loanable funds and reduces interest rates. 
C)  the demand for loanable funds and raises interest rates. 
D)  the demand for loanable funds and reduces interest rates. 
A)  the supply of loanable funds and raises interest rates. 
B)  the supply of loanable funds and reduces interest rates. 
C)  the demand for loanable funds and raises interest rates. 
D)  the demand for loanable funds and reduces interest rates.

Question 2

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Accepted Answer

A) True 
 B)False

Question 3

A closed economy does not engage in international trade, therefore

Accepted Answer

A)  national saving is less than investment S  I. 
D)  national saving is zero. 
A)  national saving is less than investment S  I. 
D)  national saving is zero.

Question 4

Stock represents

Accepted Answer

A)  a claim to a share of the profits of a firm. 
B)  ownership in a firm. 
C)  equity finance. 
D)  All of the above are correct 
A)  a claim to a share of the profits of a firm. 
B)  ownership in a firm. 
C)  equity finance. 
D)  All of the above are correct

Question 5

What is the source of the supply of loanable funds?

Accepted Answer

The answer of What is the source of the supply...

Question 6

Jim buys a $1000 bond from ABC Company. ABC Company uses the $1000 to purchase a new piece of machinery. Whose spending would be an act of investment in the language of macroeconomics?

Accepted Answer

A)  only Jim's 
B)  only ABC Corporation's 
C)  Jim's and ABC Corporation's 
D)  neither Jim's nor ABC Corporation's 
A)  only Jim's 
B)  only ABC Corporation's 
C)  Jim's and ABC Corporation's 
D)  neither Jim's nor ABC Corporation's

Question 7

Which of the following statements is correct?

Accepted Answer

A)  A large, well-known corporation such as Intel generally would use financial intermediation to finance expansion of its facilities. 
B)  On average, managed funds outperform indexed funds. 
C)  Unlike corporate bonds and stocks, checking accounts are a medium of exchange. 
D)  A mutual fund is a financial market. 
A)  A large, well-known corporation such as Intel generally would use financial intermediation to finance expansion of its facilities. 
B)  On average, managed funds outperform indexed funds. 
C)  Unlike corporate bonds and stocks, checking accounts are a medium of exchange. 
D)  A mutual fund is a financial market.

Question 8

Which bond is likely to have higher interest rate due to a higher default risk?

Accepted Answer

A)  A share of stock issued by Apple. 
B)  A corporate bond issued by Apple. 
C)  A junk bond. 
D)  A U.S. government bond. 
A)  A share of stock issued by Apple. 
B)  A corporate bond issued by Apple. 
C)  A junk bond. 
D)  A U.S. government bond.

Question 9

If the supply for loanable funds shifts to the left, then the equilibrium interest rate

Accepted Answer

A)  and quantity of loanable funds rises. 
B)  and quantity of loanable funds falls. 
C)  rises and the quantity of loanable funds falls. 
D)  falls and the quantity of loanable funds rises. 
A)  and quantity of loanable funds rises. 
B)  and quantity of loanable funds falls. 
C)  rises and the quantity of loanable funds falls. 
D)  falls and the quantity of loanable funds rises.

Question 10

Compared to bondholders, stockholders

Accepted Answer

A)  face higher risk and have the potential for higher returns. 
B)  face higher risk but receive a fixed payment. 
C)  face lower risk and have the potential for higher returns. 
D)  face lower risk but receive a fixed payment. 
A)  face higher risk and have the potential for higher returns. 
B)  face higher risk but receive a fixed payment. 
C)  face lower risk and have the potential for higher returns. 
D)  face lower risk but receive a fixed payment.

Question 11

The Dow Jones Industrial Average is now based on the prices of the stocks of

Accepted Answer

A)  30 major U.S. corporations. 
B)  100 major U.S. corporations. 
C)  500 representative U.S. corporations. 
D)  1,000 representative U.S. corporations. 
A)  30 major U.S. corporations. 
B)  100 major U.S. corporations. 
C)  500 representative U.S. corporations. 
D)  1,000 representative U.S. corporations.

Question 12

Y = C + I + G + NX is an identity because

Accepted Answer

A)  each symbol identifies a macroeconomic variable. 
B)  the right-hand and left-hand sides are equal when an equilibrium is reached. 
C)  the equality holds due to the way the variables are defined. 
D)  None of the above is correct. 
A)  each symbol identifies a macroeconomic variable. 
B)  the right-hand and left-hand sides are equal when an equilibrium is reached. 
C)  the equality holds due to the way the variables are defined. 
D)  None of the above is correct.

Question 13

If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,

Accepted Answer

A)  there is a surplus and the interest rate is above the equilibrium level. 
B)  there is a surplus and the interest rate is below the equilibrium level. 
C)  there is a shortage and the interest rate is above the equilibrium level. 
D)  there is a shortage and the interest rate is below the equilibrium level. 
A)  there is a surplus and the interest rate is above the equilibrium level. 
B)  there is a surplus and the interest rate is below the equilibrium level. 
C)  there is a shortage and the interest rate is above the equilibrium level. 
D)  there is a shortage and the interest rate is below the equilibrium level.

Question 14

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

Accepted Answer

A)  increased both interest rates and investment. 
B)  increased interest rates and decreased investment. 
C)  decreased interest rates and increased investment. 
D)  decreased both interest rates and investment. 
A)  increased both interest rates and investment. 
B)  increased interest rates and decreased investment. 
C)  decreased interest rates and increased investment. 
D)  decreased both interest rates and investment.

Question 15

If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would happen to interest rates?

Accepted Answer

There is a

Question 16

Public saving is equal to national saving minus private saving.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

Accepted Answer

A)  a larger investment tax credit 
B)  an expansion of eligibility for Individual Retirement Accounts 
C)  an increase in income-tax rates, with no change in the government budget deficit or surplus 
D)  an increase in government purchases, with no change in taxes 
A)  a larger investment tax credit 
B)  an expansion of eligibility for Individual Retirement Accounts 
C)  an increase in income-tax rates, with no change in the government budget deficit or surplus 
D)  an increase in government purchases, with no change in taxes

Question 18

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

Accepted Answer

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

Question 19

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds,

Accepted Answer

A)  the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply. 
B)  the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply. 
C)  the city's high credit rating contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply. 
D)  the city's high credit rating contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply. 
A)  the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply. 
B)  the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply. 
C)  the city's high credit rating contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply. 
D)  the city's high credit rating contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply.

Question 20

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

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

Exam 13: Saving, Investment, and the Financial System

A policy that induces people to save more shifts

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

A closed economy does not engage in international trade, therefore

Stock represents

What is the source of the supply of loanable funds?

Jim buys a $1000 bond from ABC Company. ABC Company uses the $1000 to purchase a new piece of machinery. Whose spending would be an act of investment in the language of macroeconomics?

Which of the following statements is correct?

Which bond is likely to have higher interest rate due to a higher default risk?

If the supply for loanable funds shifts to the left, then the equilibrium interest rate

Compared to bondholders, stockholders

The Dow Jones Industrial Average is now based on the prices of the stocks of

Y = C + I + G + NX is an identity because

If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would happen to interest rates?

Public saving is equal to national saving minus private saving.

Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds,

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

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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