Question 1

A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

Accepted Answer

A)  the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic. 
B)  the demand for loanable funds is more inelastic and the supply of loanable funds is more elastic. 
C)  both the demand for and supply of loanable funds are more elastic. 
D)  both the demand for and supply of loanable funds are more inelastic. 
A)  the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic. 
B)  the demand for loanable funds is more inelastic and the supply of loanable funds is more elastic. 
C)  both the demand for and supply of loanable funds are more elastic. 
D)  both the demand for and supply of loanable funds are more inelastic.

Question 2

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to private and national saving?

Accepted Answer

A)  private and national saving would rise 
B)  private and national saving would fall 
C)  private saving would rise and national saving would fall 
D)  private saving would fall and national saving would rise 
A)  private and national saving would rise 
B)  private and national saving would fall 
C)  private saving would rise and national saving would fall 
D)  private saving would fall and national saving would rise

Question 3

The primary advantage of mutual funds is that they

Accepted Answer

A)  always provide the highest return. 
B)  always allow people to "beat the market." 
C)  allow people to diversify and reduce risk. 
D)  allow people to diversify, which increases risk and return. 
A)  always provide the highest return. 
B)  always allow people to "beat the market." 
C)  allow people to diversify and reduce risk. 
D)  allow people to diversify, which increases risk and return.

Question 4

Which of the following is not always correct for a closed economy?

Accepted Answer

A)  National saving equals private saving plus public saving. 
B)  Net exports equal zero. 
C)  Real GDP measures both income and expenditures. 
D)  Private saving equals investment. 
A)  National saving equals private saving plus public saving. 
B)  Net exports equal zero. 
C)  Real GDP measures both income and expenditures. 
D)  Private saving equals investment.

Question 5

Suppose the Move It! exercise chain has revenues of $45 million, accounting costs of $15 million, and currently has issued 10 million shares of stocks selling at $90 each. Compute the price-earning ratio. Show your work. Is this ratio relatively high or low? What might an increase in the price-earnings ratio indicate?

Accepted Answer

The earnings per share is ($45 million -

Question 6

Financial crises seldom involve economic downturns.

Accepted Answer

A) True 
 B)False

Question 7

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

Accepted Answer

A)  invest in physical capital. 
B)  use equity finance. 
C)  sell bonds. 
D)  purchase bonds. 
A)  invest in physical capital. 
B)  use equity finance. 
C)  sell bonds. 
D)  purchase bonds.

Question 8

When the U.S. government is in debt during a given year, it follows that its budget is in deficit for that year.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is included in the demand for loanable funds?

Accepted Answer

A)  investment and government borrowing 
B)  investment but not government borrowing 
C)  government borrowing but not investment 
D)  neither government borrowing nor investment 
A)  investment and government borrowing 
B)  investment but not government borrowing 
C)  government borrowing but not investment 
D)  neither government borrowing nor investment

Question 10

Buskin's Corporation has issued 2 million shares of stock. Its earnings were $10 million, of which it retained 40 percent. What was the dividend per share?

Accepted Answer

A)  $2. 
B)  $3. 
C)  $5. 
D)  $8. 
A)  $2. 
B)  $3. 
C)  $5. 
D)  $8.

Question 11

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 15.

Accepted Answer

A) True 
 B)False

Question 12

If a reform of the tax laws encourages greater saving, the result would be

Accepted Answer

A)  higher interest rates and greater investment. 
B)  higher interest rates and less investment. 
C)  lower interest rates and greater investment. 
D)  lower interest rate and less investment. 
A)  higher interest rates and greater investment. 
B)  higher interest rates and less investment. 
C)  lower interest rates and greater investment. 
D)  lower interest rate and less investment.

Question 13

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 14

Over-the-Rhine Cheese Corporation had a P/E ratio of 20, retained earnings of $0.80 per share and a dividend of $1.70. What was its dividend yield?

Accepted Answer

A)  1.25%. 
B)  5.0%. 
C)  3.4%. 
D)  10.6%. 
A)  1.25%. 
B)  5.0%. 
C)  3.4%. 
D)  10.6%.

Question 15

Suppose a country repealed its investment tax credit. The effects of this are represented by shifting the

Accepted Answer

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

Question 16

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

Accepted Answer

The claim that an increase in the intere

Question 17

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

Accepted Answer

A)  national saving = 0. 
B)  national saving = private saving. 
C)  public saving = investment. 
D)  gross domestic product = consumption. 
A)  national saving = 0. 
B)  national saving = private saving. 
C)  public saving = investment. 
D)  gross domestic product = consumption.

Question 18

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

Question 19

National saving is equal to Y - T - C.

Accepted Answer

A) True 
 B)False

Question 20

A government may use deficit financing to smooth tax rates over time.

Accepted Answer

A) True 
 B)False

Exam 26: Saving, Investment, and the Financial System

A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to private and national saving?

The primary advantage of mutual funds is that they

Which of the following is not always correct for a closed economy?

Financial crises seldom involve economic downturns.

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

When the U.S. government is in debt during a given year, it follows that its budget is in deficit for that year.

Which of the following is included in the demand for loanable funds?

Buskin's Corporation has issued 2 million shares of stock. Its earnings were $10 million, of which it retained 40 percent. What was the dividend per share?

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 15.

If a reform of the tax laws encourages greater saving, the result would be

An increase in the government's budget deficit means

Over-the-Rhine Cheese Corporation had a P/E ratio of 20, retained earnings of $0.80 per share and a dividend of $1.70. What was its dividend yield?

Suppose a country repealed its investment tax credit. The effects of this are represented by shifting the

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

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

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?

National saving is equal to Y - T - C.

A government may use deficit financing to smooth tax rates over time.

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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