Question 1

Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.

Accepted Answer

A) True 
 B)False

Question 2

If the demand 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 3

An increase in the government's budget deficit 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 4

Interest rates fall and investment falls. Which of the following could explain these changes?

Accepted Answer

A)  The government goes from a surplus to a deficit. 
B)  The government repeals an investment tax credit. 
C)  The government replaces a consumption tax with an income tax. 
D)  None of the above is correct. 
A)  The government goes from a surplus to a deficit. 
B)  The government repeals an investment tax credit. 
C)  The government replaces a consumption tax with an income tax. 
D)  None of the above is correct.

Question 5

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds

Accepted Answer

A)  is not subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government. 
B)  is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government. 
C)  is subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government. 
D)  is subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government. 
A)  is not subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government. 
B)  is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government. 
C)  is subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government. 
D)  is subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government.

Question 6

A larger budget surplus

Accepted Answer

A)  raises the interest rate and investment. 
B)  reduces the interest rate and investment. 
C)  raises the interest rate and reduces investment. 
D)  reduces the interest rate and raises investment. 
A)  raises the interest rate and investment. 
B)  reduces the interest rate and investment. 
C)  raises the interest rate and reduces investment. 
D)  reduces the interest rate and raises investment.

Question 7

In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving?

Accepted Answer

Investment = $100, T

Question 8

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

Accepted Answer

A)  both Midwestern corporation and Southern corporation 
B)  Midwestern corporation but not Southern corporation 
C)  Southern corporation but not Midwestern corporation 
D)  neither Midwestern nor Southern corporation 
A)  both Midwestern corporation and Southern corporation 
B)  Midwestern corporation but not Southern corporation 
C)  Southern corporation but not Midwestern corporation 
D)  neither Midwestern nor Southern corporation

Question 9

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

Accepted Answer

A) True 
 B)False

Question 10

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

Accepted Answer

A) True 
 B)False

Question 11

When a corporation experiences financial problems, bondholders are paid before stockholders.

Accepted Answer

A) True 
 B)False

Question 12

Other things being constant, when a firm sells new shares of stock, the

Accepted Answer

A)  supply of the stock increases and the price decreases. 
B)  supply of the stock decreases and the price increases. 
C)  demand for the stock increases and the price increases. 
D)  demand for the stock decreases and the price decreases. 
A)  supply of the stock increases and the price decreases. 
B)  supply of the stock decreases and the price increases. 
C)  demand for the stock increases and the price increases. 
D)  demand for the stock decreases and the price decreases.

Question 13

Which of the following would not be a result of replacing the income tax with a consumption tax so that interest income was no longer taxed?

Accepted Answer

A)  The interest rate would decrease. 
B)  Investment would decrease. 
C)  The standard of living would eventually rise. 
D)  The supply of loanable funds would shift right. 
A)  The interest rate would decrease. 
B)  Investment would decrease. 
C)  The standard of living would eventually rise. 
D)  The supply of loanable funds would shift right.

Question 14

Public saving is T - G, while private saving is Y - T - C.

Accepted Answer

A) True 
 B)False

Question 15

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

Accepted Answer

Its price to earnings ratio is

Question 16

Suppose that in a closed economy GDP is equal to 15,000, government purchases are equal to 3,000, consumption equals 10,500, and taxes equal 3,500. What are private saving and public saving?

Accepted Answer

A)  1,500 and -500, respectively 
B)  1,500 and 500, respectively 
C)  1,000 and -500, respectively 
D)  1,000 and 500, respectively 
A)  1,500 and -500, respectively 
B)  1,500 and 500, respectively 
C)  1,000 and -500, respectively 
D)  1,000 and 500, respectively

Question 17

Which of the following could explain an increase in the interest rate and 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 18

A bond buyer is a

Accepted Answer

A)  saver. Long term bonds have less risk than short term bonds. 
B)  saver. Long term bonds have more risk than short term bonds. 
C)  borrower. Long term bonds have less risk than short term bonds. 
D)  borrower. Long term bonds have more risk than short term bonds. 
A)  saver. Long term bonds have less risk than short term bonds. 
B)  saver. Long term bonds have more risk than short term bonds. 
C)  borrower. Long term bonds have less risk than short term bonds. 
D)  borrower. Long term bonds have more risk than short term bonds.

Question 19

Suppose that you are a broker and people tell you the following about themselves. What sort of bond would you recommend to each? Defend your choices.
a. "I am in a high federal income tax bracket and I don't want to take very much risk."
b. "I want a high return and I am willing to take a lot of risk to get it."
c. "I want a decent return and I have enough deductions that I don't value tax breaks highly."

Accepted Answer

a. A municipal bond. Municipal bonds gen

Question 20

The economy's two most important financial markets are

Accepted Answer

A)  the investment market and the saving market. 
B)  the bond market and the stock market. 
C)  banks and the stock market. 
D)  financial markets and financial institutions. 
A)  the investment market and the saving market. 
B)  the bond market and the stock market. 
C)  banks and the stock market. 
D)  financial markets and financial institutions.

Exam 13: Saving, Investment, and the Financial System

Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.

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

An increase in the government's budget deficit means

Interest rates fall and investment falls. Which of the following could explain these changes?

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds

A larger budget surplus

In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving?

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

When a corporation experiences financial problems, bondholders are paid before stockholders.

Other things being constant, when a firm sells new shares of stock, the

Which of the following would not be a result of replacing the income tax with a consumption tax so that interest income was no longer taxed?

Public saving is T - G, while private saving is Y - T - C.

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

Suppose that in a closed economy GDP is equal to 15,000, government purchases are equal to 3,000, consumption equals 10,500, and taxes equal 3,500. What are private saving and public saving?

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

A bond buyer is a

The economy's two most important financial markets are

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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