Question 1

Which of the following are financial intermediaries?

Accepted Answer

A)  both banks and mutual funds 
B)  banks but not mutual funds 
C)  mutual funds but not banks 
D)  neither banks or mutual funds 
A)  both banks and mutual funds 
B)  banks but not mutual funds 
C)  mutual funds but not banks 
D)  neither banks or mutual funds

Question 2

An increase in the budget deficit shifts the demand for loanable funds to the right.

Accepted Answer

A) True 
 B)False

Question 3

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 4

Which of the following is not a characteristic of a bond?

Accepted Answer

A)  its tax treatment 
B)  its credit risk 
C)  its term 
D)  its dividend yield 
A)  its tax treatment 
B)  its credit risk 
C)  its term 
D)  its dividend yield

Question 5

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves.  
-Refer to Figure 26-1. What is measured along the vertical axis of the graph?

Accepted Answer

A)  the nominal interest rate 
B)  the real interest rate 
C)  the quantity of investment 
D)  the quantity of saving 
A)  the nominal interest rate 
B)  the real interest rate 
C)  the quantity of investment 
D)  the quantity of saving

Question 6

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Accepted Answer

A)  The supply of and demand for loanable funds would shift right. 
B)  The supply of and demand for loanable funds would shift left. 
C)  The supply of loanable funds would shift right and the demand for loanable funds would shift left. 
D)  None of the above is correct. 
A)  The supply of and demand for loanable funds would shift right. 
B)  The supply of and demand for loanable funds would shift left. 
C)  The supply of loanable funds would shift right and the demand for loanable funds would shift left. 
D)  None of the above is correct.

Question 7

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 8

The country of Yokovia does not trade with any other country. Its GDP is $20 billion. Its government collects $2 billion in taxes. Consumption equals $15 billion and investment equals $2 billion. What is public saving in Yokovia, and what is the value of the goods and services purchased by the government of Yokovia?

Accepted Answer

A)  -$2 billion and $1 billion. 
B)  $1 billion and $1 billion. 
C)  -$1 billion and $3 billion. 
D)  -$2 billion and $3 billion. 
A)  -$2 billion and $1 billion. 
B)  $1 billion and $1 billion. 
C)  -$1 billion and $3 billion. 
D)  -$2 billion and $3 billion.

Question 9

If Huedepool Beer runs into financial difficulty, the stockholders as

Accepted Answer

A)  part owners of Huedepool are paid before bondholders get paid anything at all. 
B)  part owners of Huedepool are paid after bondholders get paid. 
C)  creditors of Huedepool are paid before bondholders get paid anything at all. 
D)  creditors of Huedepool are paid after bondholders get paid. 
A)  part owners of Huedepool are paid before bondholders get paid anything at all. 
B)  part owners of Huedepool are paid after bondholders get paid. 
C)  creditors of Huedepool are paid before bondholders get paid anything at all. 
D)  creditors of Huedepool are paid after bondholders get paid.

Question 10

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Accepted Answer

A) True 
 B)False

Question 11

What would happen in the market for loanable funds if the government were to increase the tax on interest income?

Accepted Answer

A)  Interest rates would rise. 
B)  Interest rates would be unaffected. 
C)  Interest rates would fall. 
D)  The effect on the interest rate is uncertain. 
A)  Interest rates would rise. 
B)  Interest rates would be unaffected. 
C)  Interest rates would fall. 
D)  The effect on the interest rate is uncertain.

Question 12

Suppose a country has a larger increase in debt in 2014 than it had in 2013. Then other things the same,

Accepted Answer

A)  the supply of loanable funds shifts rightward and the interest rate falls. 
B)  the supply of loanable funds shifts leftward and the interest rate rises. 
C)  the demand for loanable funds shifts leftward and the interest rate falls. 
D)  the demand for loanable funds shifts rightward and the interest rate rises. 
A)  the supply of loanable funds shifts rightward and the interest rate falls. 
B)  the supply of loanable funds shifts leftward and the interest rate rises. 
C)  the demand for loanable funds shifts leftward and the interest rate falls. 
D)  the demand for loanable funds shifts rightward and the interest rate rises.

Question 13

As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is

Accepted Answer

A)  borrowing directly. 
B)  borrowing indirectly. 
C)  lending directly. 
D)  lending indirectly. 
A)  borrowing directly. 
B)  borrowing indirectly. 
C)  lending directly. 
D)  lending indirectly.

Question 14

Suppose the Congress and president decreased the maximum annual contributions limits to retirement accounts and at the same time reduced the budget deficit. What would happen to the interest rate?

Accepted Answer

A)  It would decrease. 
B)  It would increase. 
C)  It would stay the same. 
D)  It might do any of the above. 
A)  It would decrease. 
B)  It would increase. 
C)  It would stay the same. 
D)  It might do any of the above.

Question 15

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 16

Other things the same, the higher the rate of saving and investment in a country, the higher will be the standard of living in the future.

Accepted Answer

A) True 
 B)False

Question 17

Which government policy raises the interest rate and raises investment spending?

Accepted Answer

An investm

Question 18

If there is surplus of loanable funds, then

Accepted Answer

A)  the supply for loanable funds shifts right and the demand shifts left. 
B)  the supply for loanable funds shifts left and the demand shifts right. 
C)  neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium. 
D)  neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium. 
A)  the supply for loanable funds shifts right and the demand shifts left. 
B)  the supply for loanable funds shifts left and the demand shifts right. 
C)  neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium. 
D)  neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.

Question 19

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 20

Morgan, a financial advisor, has told her clients the following things. Which of her statements is not correct?

Accepted Answer

A)  "U.S. government bonds generally pay a higher rate of interest than corporate bonds." 
B)  "The interest received on corporate bonds is taxable." 
C)  "U.S. government bonds have the lowest default risk." 
D)  "If you purchase a municipal bond, you can sell it before it matures." 
A)  "U.S. government bonds generally pay a higher rate of interest than corporate bonds." 
B)  "The interest received on corporate bonds is taxable." 
C)  "U.S. government bonds have the lowest default risk." 
D)  "If you purchase a municipal bond, you can sell it before it matures."

Exam 26: Saving, Investment, and the Financial System

Which of the following are financial intermediaries?

An increase in the budget deficit shifts the demand for loanable funds to the right.

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

Which of the following is not a characteristic of a bond?

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1. What is measured along the vertical axis of the graph?

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

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

If Huedepool Beer runs into financial difficulty, the stockholders as

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

What would happen in the market for loanable funds if the government were to increase the tax on interest income?

Suppose a country has a larger increase in debt in 2014 than it had in 2013. Then other things the same,

As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is

Suppose the Congress and president decreased the maximum annual contributions limits to retirement accounts and at the same time reduced the budget deficit. What would happen to the interest rate?

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?

Other things the same, the higher the rate of saving and investment in a country, the higher will be the standard of living in the future.

Which government policy raises the interest rate and raises investment spending?

If there is surplus of loanable funds, then

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

Morgan, a financial advisor, has told her clients the following things. Which of her statements is not correct?

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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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