Question 1

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Accepted Answer

A)  stock markets 
B)  financial institutions 
C)  financial markets 
D)  financial intermediaries 
A)  stock markets 
B)  financial institutions 
C)  financial markets 
D)  financial intermediaries

Question 2

If national saving in a closed economy is greater than zero, which of the following must be true?

Accepted Answer

A)  Either public saving or private saving must be greater than zero. 
B)  Investment is positive. 
C)  Y - C - G > 0. 
D)  All of the above are correct. 
A)  Either public saving or private saving must be greater than zero. 
B)  Investment is positive. 
C)  Y - C - G > 0. 
D)  All of the above are correct.

Question 3

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 4

You are thinking of buying a bond from Bluestone Corporation. You know that this bond is long term and you know that Bluestone's business ventures are risky and uncertain. You then consider another bond with a shorter term to maturity issued by a company with good prospects and an established reputation. Which of the following is correct?

Accepted Answer

A)  The longer term would tend to make the interest rate on the bond issued by Bluestone higher, while the higher risk would tend to make the interest rate lower. 
B)  The longer term would tend to make the interest rate on the bond issued by Bluestone lower, while the higher risk would tend to make the interest rate higher. 
C)  Both the longer term and the higher risk would tend to make the interest rate lower on the bond issued by Bluestone. 
D)  Both the longer term and the higher risk would tend to make the interest rate higher on the bond issued by Bluestone. 
A)  The longer term would tend to make the interest rate on the bond issued by Bluestone higher, while the higher risk would tend to make the interest rate lower. 
B)  The longer term would tend to make the interest rate on the bond issued by Bluestone lower, while the higher risk would tend to make the interest rate higher. 
C)  Both the longer term and the higher risk would tend to make the interest rate lower on the bond issued by Bluestone. 
D)  Both the longer term and the higher risk would tend to make the interest rate higher on the bond issued by Bluestone.

Question 5

When public saving falls by $2b and private saving falls by $1b in a closed economy,

Accepted Answer

A)  investment falls by $1b. 
B)  investment falls by $3b. 
C)  investment increases by $1b. 
D)  investment falls by $2b. 
A)  investment falls by $1b. 
B)  investment falls by $3b. 
C)  investment increases by $1b. 
D)  investment falls by $2b.

Question 6

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy.  
-Refer to Figure 26-5. Starting at point A, a change in tax laws that encouraged households to save more would likely cause

Accepted Answer

A)  the quantity of loanable funds traded to increase to $125 and the interest rate fall to 5% (point 
D) . 
B)  the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% (point 
C) . 
C)  the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to 5% (point 
B) . 
D)  the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to 7% (point 
E) . 
A)  the quantity of loanable funds traded to increase to $125 and the interest rate fall to 5% (point 
D) . 
B)  the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% (point 
C) . 
C)  the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to 5% (point 
B) . 
D)  the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to 7% (point 
E) .

Question 7

Historically, the typical price-earnings ratio for stocks is about

Accepted Answer

A)  3 
B)  8 
C)  15 
D)  26 
A)  3 
B)  8 
C)  15 
D)  26

Question 8

Which of the following are effects of an increased budget deficit?

Accepted Answer

A)  the supply of loanable funds does not change; a higher interest rate reduces private saving 
B)  the supply of loanable funds does not change; a higher interest rate raises private saving 
C)  at any interest rate the supply of loanable funds is less; a higher interest rate reduces private saving 
D)  at any interest rate the supply of loanable funds is less; a higher interest rate raises private saving 
A)  the supply of loanable funds does not change; a higher interest rate reduces private saving 
B)  the supply of loanable funds does not change; a higher interest rate raises private saving 
C)  at any interest rate the supply of loanable funds is less; a higher interest rate reduces private saving 
D)  at any interest rate the supply of loanable funds is less; a higher interest rate raises private saving

Question 9

The country of Growpaw does not trade with any other country. Its GDP is $20 billion. Its government purchases $3 billion worth of goods and services each year, collects $4 billion in taxes, and provides $2 billion in transfer payments to households. Private saving in Growpaw is $4 billion. What is investment in Growpaw?

Accepted Answer

A)  $5 billion 
B)  $4 billion 
C)  $3 billion 
D)  $11 billion 
A)  $5 billion 
B)  $4 billion 
C)  $3 billion 
D)  $11 billion

Question 10

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, investment amounts to

Accepted Answer

A)  $0.4 trillion. 
B)  $2.1 trillion. 
C)  $1.7 trillion. 
D)  $1.2 trillion. 
A)  $0.4 trillion. 
B)  $2.1 trillion. 
C)  $1.7 trillion. 
D)  $1.2 trillion.

Question 11

In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then

Accepted Answer

A)  the government has a budget surplus and investment is 1,000 
B)  the government has a budget surplus and investment is 2,000 
C)  the government has a budget deficit and investment is 1,000 
D)  the government has a budget deficit and investment is 2,000 
A)  the government has a budget surplus and investment is 1,000 
B)  the government has a budget surplus and investment is 2,000 
C)  the government has a budget deficit and investment is 1,000 
D)  the government has a budget deficit and investment is 2,000

Question 12

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

Accepted Answer

A) True 
 B)False

Question 13

When the government budget deficit rises, national saving is reduced, interest rates rise, and investment falls.

Accepted Answer

A) True 
 B)False

Question 14

A perpetuity is distinguished from other bonds in that it

Accepted Answer

A)  pays continuously compounded interest. 
B)  pays interest only when it matures. 
C)  never matures. 
D)  will be used to purchase another bond when it matures unless the owner specifies otherwise. 
A)  pays continuously compounded interest. 
B)  pays interest only when it matures. 
C)  never matures. 
D)  will be used to purchase another bond when it matures unless the owner specifies otherwise.

Question 15

The final element of a financial crisis is

Accepted Answer

A)  an economic downturn. 
B)  a decline in confidence in financial institutions. 
C)  declining prices of real estate or other assets. 
D)  a vicious circle. 
A)  an economic downturn. 
B)  a decline in confidence in financial institutions. 
C)  declining prices of real estate or other assets. 
D)  a vicious circle.

Question 16

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 17

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 public and national saving?

Accepted Answer

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

Question 18

The financial system is important because it helps to match one person's with another person's .

Accepted Answer

The answer of The financial system is important because it...

Question 19

Draw and label a graph showing equilibrium in the market for loanable funds.

Accepted Answer

Market for

Question 20

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

Accepted Answer

A)  increased both interest rates and investment. 
B)  increased interest rates and decreased investment. 
C)  decreased interest rates and increased investment. 
D)  decreased both interest rates and investment. 
A)  increased both interest rates and investment. 
B)  increased interest rates and decreased investment. 
C)  decreased interest rates and increased investment. 
D)  decreased both interest rates and investment.

Exam 26: Saving, Investment, and the Financial System

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

If national saving in a closed economy is greater than zero, which of the following must be true?

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

When public saving falls by $2b and private saving falls by $1b in a closed economy,

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. -Refer to Figure 26-5. Starting at point A, a change in tax laws that encouraged households to save more would likely cause

Historically, the typical price-earnings ratio for stocks is about

Which of the following are effects of an increased budget deficit?

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, investment amounts to

In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

When the government budget deficit rises, national saving is reduced, interest rates rise, and investment falls.

A perpetuity is distinguished from other bonds in that it

The final element of a financial crisis is

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.

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 public and national saving?

The financial system is important because it helps to match one person's with another person's .

Draw and label a graph showing equilibrium in the market for loanable funds.

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

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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