Question 1

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 2

The number of shares of Biggie Corporation stock outstanding in 2013 was 100 million. In 2013, Biggie stock paid a dividend of $2.50 per share and its dividend yield was 2 percent. If the price­earnings ratio is 20, then Biggie's total earnings in 2013 amounted to

Accepted Answer

A)  $15.6 million. 
B)  $250 million. 
C)  $160 million. 
D)  $625 million. 
A)  $15.6 million. 
B)  $250 million. 
C)  $160 million. 
D)  $625 million.

Question 3

Which of the following statements is correct?

Accepted Answer

A)  The interest rate that is usually reported is the interest rate that has been corrected for inflation. 
B)  The supply of, and demand for, loanable funds depend on the real (rather than nominal) interest rate. 
C)  If the nominal interest rate has decreased and the real interest rate has also decreased, then the inflation rate must have decreased as well. 
D)  All of the above are correct. 
A)  The interest rate that is usually reported is the interest rate that has been corrected for inflation. 
B)  The supply of, and demand for, loanable funds depend on the real (rather than nominal) interest rate. 
C)  If the nominal interest rate has decreased and the real interest rate has also decreased, then the inflation rate must have decreased as well. 
D)  All of the above are correct.

Question 4

If the government institutes policies that diminish incentives to save, then in the loanable funds market

Accepted Answer

A)  the demand for loanable funds shifts rightward. 
B)  the demand for loanable funds shifts leftward. 
C)  the supply of loanable funds shifts rightward. 
D)  the supply of loanable funds shifts leftward. 
A)  the demand for loanable funds shifts rightward. 
B)  the demand for loanable funds shifts leftward. 
C)  the supply of loanable funds shifts rightward. 
D)  the supply of loanable funds shifts leftward.

Question 5

Which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why.
a. a U.S. government bond or a Venezuelan government bond
b. a U.S. government bond or a municipal bond with the same term and issued by a creditworthy municipality.
c. a 6-month Treasury bill or a 20-year Treasury bond
d. a Microsoft bond or a bond issued by a new recording company

Accepted Answer

a. The Venezuelan government bond would

Question 6

and are the two most important financial intermediaries.

Accepted Answer

Banks, Mut

Question 7

Scenario 26-2. Assume the following information for an imaginary, closed economy.
GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion.
-Refer to Scenario 26-2. For this economy, private saving is equal to

Accepted Answer

A)  $0.3 trillion. 
B)  $1.2 trillion. 
C)  $1.0 trillion. 
D)  $1.7 trillion. 
A)  $0.3 trillion. 
B)  $1.2 trillion. 
C)  $1.0 trillion. 
D)  $1.7 trillion.

Question 8

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 9

A U.S. Treasury bond is a

Accepted Answer

A)  store of value and common medium of exchange. 
B)  store of value, but not a common medium of exchange. 
C)  a common medium of exchange, but not a store of value. 
D)  neither a store of value nor a common medium of exchange. 
A)  store of value and common medium of exchange. 
B)  store of value, but not a common medium of exchange. 
C)  a common medium of exchange, but not a store of value. 
D)  neither a store of value nor a common medium of exchange.

Question 10

Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating. Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate?

Accepted Answer

A)  corporate bond, municipal bond, U.S. government bond 
B)  corporate bond, U.S. government bond, municipal bond 
C)  municipal bond, U.S. government bond, corporate bond 
D)  U.S. government bond, municipal bond, corporate bond 
A)  corporate bond, municipal bond, U.S. government bond 
B)  corporate bond, U.S. government bond, municipal bond 
C)  municipal bond, U.S. government bond, corporate bond 
D)  U.S. government bond, municipal bond, corporate bond

Question 11

A budget surplus

Accepted Answer

A)  occurs when the government has debt equal to zero. 
B)  causes government debt to increase. 
C)  exists when government spending is greater than tax revenues. 
D)  reduces the government's debt. 
A)  occurs when the government has debt equal to zero. 
B)  causes government debt to increase. 
C)  exists when government spending is greater than tax revenues. 
D)  reduces the government's debt.

Question 12

Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one of its breweries.

Accepted Answer

A)  Fran and Miller are both investing. 
B)  Fran and Miller are both saving. 
C)  Fran is investing; Miller is saving. 
D)  Fran is saving; Miller is investing. 
A)  Fran and Miller are both investing. 
B)  Fran and Miller are both saving. 
C)  Fran is investing; Miller is saving. 
D)  Fran is saving; Miller is investing.

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

Ethan purchases a new house for $170,000. Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?

Accepted Answer

A)  C 
B)  I 
C)  G 
D)  None of the above are correct. 
A)  C 
B)  I 
C)  G 
D)  None of the above are correct.

Question 15

A particular stock pays an annual dividend of $2 per share and the annual dividend yield is 2.5 percent. The price of a share of this stock is

Accepted Answer

A)  $2.05. 
B)  $5.00. 
C)  $80.00 
D)  $50.00. 
A)  $2.05. 
B)  $5.00. 
C)  $80.00 
D)  $50.00.

Question 16

In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?

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 17

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion?

Accepted Answer

A)  C = $8 trillion, G = $3 trillion 
B)  C = $13 trillion, G = -$1 trillion 
C)  C = $9 trillion, G = $5 trillion 
D)  C = $7 trillion, G = $1 trillion 
A)  C = $8 trillion, G = $3 trillion 
B)  C = $13 trillion, G = -$1 trillion 
C)  C = $9 trillion, G = $5 trillion 
D)  C = $7 trillion, G = $1 trillion

Question 18

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

Accepted Answer

A)  -500 
B)  500 
C)  2,000 
D)  None of the above is correct. 
A)  -500 
B)  500 
C)  2,000 
D)  None of the above is correct.

Question 19

A mutual fund

Accepted Answer

A)  is a financial market where small firms mutually agree to sell stocks and bonds to raise funds. 
B)  is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community. 
C)  sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. 
D)  is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds. 
A)  is a financial market where small firms mutually agree to sell stocks and bonds to raise funds. 
B)  is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community. 
C)  sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. 
D)  is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds.

Question 20

In 2009 and 2010, the federal government's budget deficit was about

Accepted Answer

A)  5 percent of GDP, and this was the highest debt-GDP ratio in U.S history. 
B)  10 percent of GDP, and this was the highest debt-GDP ratio in U.S history. 
C)  5 percent of GDP, and this was the highest debt-GDP ratio since World War II. 
D)  10 percent of GDP, and this was the highest debt-GDP ratio since World War II. 
A)  5 percent of GDP, and this was the highest debt-GDP ratio in U.S history. 
B)  10 percent of GDP, and this was the highest debt-GDP ratio in U.S history. 
C)  5 percent of GDP, and this was the highest debt-GDP ratio since World War II. 
D)  10 percent of GDP, and this was the highest debt-GDP ratio since World War II.

Exam 26: Saving, Investment, and the Financial System

Stock represents

The number of shares of Biggie Corporation stock outstanding in 2013 was 100 million. In 2013, Biggie stock paid a dividend of $2.50 per share and its dividend yield was 2 percent. If the price­earnings ratio is 20, then Biggie's total earnings in 2013 amounted to

Which of the following statements is correct?

If the government institutes policies that diminish incentives to save, then in the loanable funds market

and are the two most important financial intermediaries.

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, private saving is equal to

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

A U.S. Treasury bond is a

Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating. Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate?

A budget surplus

Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one of its breweries.

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?

Ethan purchases a new house for $170,000. Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?

A particular stock pays an annual dividend of $2 per share and the annual dividend yield is 2.5 percent. The price of a share of this stock is

In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion?

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

A mutual fund

In 2009 and 2010, the federal government's budget deficit was about

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

Filters

The number of shares of Biggie Corporation stock outstanding in 2013 was 100 million. In 2013, Biggie stock paid a dividend of $2.50 per share and its dividend yield was 2 percent. If the priceearnings ratio is 20, then Biggie's total earnings in 2013 amounted to