Question 1

Which of the following is correct?

Accepted Answer

A)  Joan takes some of her income and buys mutual fund shares. Joan's purchase will be included in the investment category of GDP. 
B)  If a share of stock in Virtual Pizza Corporation sells for $77, the earnings per share are $5, and the dividend per share is $2, then the P/E ratio is 11. 
C)  In order to use equity finance, a firm must sell about equal values of stocks and bonds. 
D)  None of the above is correct. 
A)  Joan takes some of her income and buys mutual fund shares. Joan's purchase will be included in the investment category of GDP. 
B)  If a share of stock in Virtual Pizza Corporation sells for $77, the earnings per share are $5, and the dividend per share is $2, then the P/E ratio is 11. 
C)  In order to use equity finance, a firm must sell about equal values of stocks and bonds. 
D)  None of the above is correct.

Question 2

National saving is the sum of and . In a closed economy it is equal to in equilibrium.

Accepted Answer

private saving, publ

Question 3

A corporation's earnings are the amount of revenue it receives for the sale of its products

Accepted Answer

A)  minus its cost of production as measured by its accountants. Earnings must be paid out as dividends. 
B)  minus its cost of production as measured by its accountants. Earnings may be paid out as dividends or retained by the corporation. 
C)  minus its direct and indirect costs as measured by its economists. Earnings must be paid out as dividends. 
D)  minus its direct and indirect cost as measure by its economists. Earnings may be paid out as dividends or retained by the corporation. 
A)  minus its cost of production as measured by its accountants. Earnings must be paid out as dividends. 
B)  minus its cost of production as measured by its accountants. Earnings may be paid out as dividends or retained by the corporation. 
C)  minus its direct and indirect costs as measured by its economists. Earnings must be paid out as dividends. 
D)  minus its direct and indirect cost as measure by its economists. Earnings may be paid out as dividends or retained by the corporation.

Question 4

If the nominal interest rate is 7 percent and the real interest rate is 2 percent, then what is the inflation rate?

Accepted Answer

A)  9.0 percent 
B)  5 percent 
C)  3.5 percent 
D)  None of the above is correct. 
A)  9.0 percent 
B)  5 percent 
C)  3.5 percent 
D)  None of the above is correct.

Question 5

If federal tax rates increased, what would happen to the interest rate on municipal bonds?

Accepted Answer

the intere

Question 6

Table 26-1  
-Refer to Table 26-1. Assume that the closing price was also the average price at which each stock transaction took place. What was the total dollar volume of Graco stock traded that day?

Accepted Answer

A)  $68,770,900 
B)  $6,877,090 
C)  $687,709 
D)  $6,877.1 
A)  $68,770,900 
B)  $6,877,090 
C)  $687,709 
D)  $6,877.1

Question 7

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 8

Which of the following would necessarily increase the equilibrium interest rate?

Accepted Answer

A)  The demand for and the supply of loanable funds shift right. 
B)  The demand for and the supply of loanable funds shift left. 
C)  The demand for loanable funds shifts right and the supply of loanable funds shifts left. 
D)  The demand for loanable funds shifts left and the supply of loanable funds shifts right. 
A)  The demand for and the supply of loanable funds shift right. 
B)  The demand for and the supply of loanable funds shift left. 
C)  The demand for loanable funds shifts right and the supply of loanable funds shifts left. 
D)  The demand for loanable funds shifts left and the supply of loanable funds shifts right.

Question 9

Suppose a country had a smaller increase in debt in 2011 than it had in 2010. Then other things the same, we would expect

Accepted Answer

A)  lower interest rates and investment in 2011 than in 2010. 
B)  lower interest rates and greater investment in 2011 than in 2010. 
C)  higher interest rates and greater investment in 2011 than in 2010. 
D)  higher interest rates and lower investment in 2011 than in 2010. 
A)  lower interest rates and investment in 2011 than in 2010. 
B)  lower interest rates and greater investment in 2011 than in 2010. 
C)  higher interest rates and greater investment in 2011 than in 2010. 
D)  higher interest rates and lower investment in 2011 than in 2010.

Question 10

The term crowding out refers to decreases in the interest rate caused by government budget surpluses.

Accepted Answer

A) True 
 B)False

Question 11

If there is a shortage of loanable funds, then

Accepted Answer

A)  the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium. 
B)  the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium. 
C)  the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium. 
D)  the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium. 
A)  the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium. 
B)  the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium. 
C)  the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium. 
D)  the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium.

Question 12

If the nominal interest rate is 2.5 percent and the inflation rate is 2 percent, what is the real interest rate?

Accepted Answer

A)  .5 percent 
B)  1.25 percent 
C)  4.5 percent 
D)  None of the above is correct. 
A)  .5 percent 
B)  1.25 percent 
C)  4.5 percent 
D)  None of the above is correct.

Question 13

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 500. What value of government purchases would make national savings equal to 2,000 and at that value would the government have a deficit or surplus?

Accepted Answer

A)  1,500, deficit 
B)  1,500, surplus 
C)  1,000, deficit 
D)  1,000, surplus 
A)  1,500, deficit 
B)  1,500, surplus 
C)  1,000, deficit 
D)  1,000, surplus

Question 14

A mutual fund

Accepted Answer

A)  is a financial institution that stands between savers and borrowers. 
B)  is a financial intermediary. 
C)  allows people with small amounts of money to diversify their holdings. 
D)  All of the above are correct. 
A)  is a financial institution that stands between savers and borrowers. 
B)  is a financial intermediary. 
C)  allows people with small amounts of money to diversify their holdings. 
D)  All of the above are correct.

Question 15

Figure 26-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves.  
-Refer to Figure 26-2. Which of the following events would shift the demand curve from D1 to D2?

Accepted Answer

A)  The government goes from running a budget deficit to running a budget surplus. 
B)  Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories. 
C)  A change in the tax laws encourages people to consume less and save more. 
D)  A change in the tax laws encourages people to consume more and save less. 
A)  The government goes from running a budget deficit to running a budget surplus. 
B)  Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories. 
C)  A change in the tax laws encourages people to consume less and save more. 
D)  A change in the tax laws encourages people to consume more and save less.

Question 16

After a corporation issues stock, the stock

Accepted Answer

A)  cannot be resold. 
B)  can be resold only if the corporation wants to buy it back. 
C)  can be resold on exchanges; the resale will raise additional funds for the corporation. 
D)  None of the above are correct. 
A)  cannot be resold. 
B)  can be resold only if the corporation wants to buy it back. 
C)  can be resold on exchanges; the resale will raise additional funds for the corporation. 
D)  None of the above are correct.

Question 17

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

Accepted Answer

A)  Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation. 
B)  Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the state of New York. 
C)  Bond A has a term of 20 years and Bond B has a term of 1 year. 
D)  All of the above are correct. 
A)  Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation. 
B)  Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the state of New York. 
C)  Bond A has a term of 20 years and Bond B has a term of 1 year. 
D)  All of the above are correct.

Question 18

Mutual funds

Accepted Answer

A)  provide diversification. Shareholders assume all of the risk associated with the mutual fund. 
B)  provide diversification. Government insurance eliminates the risk of mutual fund shareholders. 
C)  do not provide diversification. Shareholders assume all of the risk associated with the mutual fund 
D)  do not provide diversification. Government insurance eliminates the risk of mutual fund shareholders. 
A)  provide diversification. Shareholders assume all of the risk associated with the mutual fund. 
B)  provide diversification. Government insurance eliminates the risk of mutual fund shareholders. 
C)  do not provide diversification. Shareholders assume all of the risk associated with the mutual fund 
D)  do not provide diversification. Government insurance eliminates the risk of mutual fund shareholders.

Question 19

Suppose government expenditures on goods and services and net taxes both decrease, and expenditures fall by more than net taxes. The effects of these changes on the budget deficit cause

Accepted Answer

A)  both the equilibrium interest rate and the equilibrium quantity of loanable funds to fall. 
B)  both the equilibrium interest rate and the equilibrium quantity of loanable funds to rise. 
C)  the equilibrium interest rate to rise and the equilibrium quantity of loanable funds to fall. 
D)  the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to rise. 
A)  both the equilibrium interest rate and the equilibrium quantity of loanable funds to fall. 
B)  both the equilibrium interest rate and the equilibrium quantity of loanable funds to rise. 
C)  the equilibrium interest rate to rise and the equilibrium quantity of loanable funds to fall. 
D)  the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to rise.

Question 20

Table 26-2  
-Refer to Table 26-2. For which stock(s) is(are) the P/E ratio less than what is historically typical?

Accepted Answer

A)  Boeing Co. 
B)  Eli Lilly and Co. 
C)  Boeing Co. and Eli Lilly and Co. 
D)  All are higher than what is historically typical. 
A)  Boeing Co. 
B)  Eli Lilly and Co. 
C)  Boeing Co. and Eli Lilly and Co. 
D)  All are higher than what is historically typical.

Exam 26: Saving, Investment, and the Financial System

Which of the following is correct?

National saving is the sum of and . In a closed economy it is equal to in equilibrium.

A corporation's earnings are the amount of revenue it receives for the sale of its products

If the nominal interest rate is 7 percent and the real interest rate is 2 percent, then what is the inflation rate?

If federal tax rates increased, what would happen to the interest rate on municipal bonds?

Table 26-1 -Refer to Table 26-1. Assume that the closing price was also the average price at which each stock transaction took place. What was the total dollar volume of Graco stock traded that day?

A larger budget surplus

Which of the following would necessarily increase the equilibrium interest rate?

Suppose a country had a smaller increase in debt in 2011 than it had in 2010. Then other things the same, we would expect

The term crowding out refers to decreases in the interest rate caused by government budget surpluses.

If there is a shortage of loanable funds, then

If the nominal interest rate is 2.5 percent and the inflation rate is 2 percent, what is the real interest rate?

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 500. What value of government purchases would make national savings equal to 2,000 and at that value would the government have a deficit or surplus?

A mutual fund

Figure 26-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. -Refer to Figure 26-2. Which of the following events would shift the demand curve from D1 to D2?

After a corporation issues stock, the stock

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

Mutual funds

Suppose government expenditures on goods and services and net taxes both decrease, and expenditures fall by more than net taxes. The effects of these changes on the budget deficit cause

Table 26-2 -Refer to Table 26-2. For which stock(s) is(are) the P/E ratio less than what is historically typical?

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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