Question 1

If the supply of loanable funds shifts to the right, then the equilibrium interest rate

Accepted Answer

A)  and quantity of loanable funds rises. 
B)  and quantity of loanable funds falls. 
C)  rises and the quantity of loanable funds falls. 
D)  falls and the quantity of loanable funds rises. 
A)  and quantity of loanable funds rises. 
B)  and quantity of loanable funds falls. 
C)  rises and the quantity of loanable funds falls. 
D)  falls and the quantity of loanable funds rises.

Question 2

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

Accepted Answer

A) True 
 B)False

Question 3

Other things the same, an increase in taxes with no change in government purchases makes national saving

Accepted Answer

A)  rise. The supply of loanable funds shifts right. 
B)  rise. The demand for loanable funds shifts right. 
C)  fall. The supply of loanable funds shifts left. 
D)  fall. The demand for loanable funds shifts left. 
A)  rise. The supply of loanable funds shifts right. 
B)  rise. The demand for loanable funds shifts right. 
C)  fall. The supply of loanable funds shifts left. 
D)  fall. The demand for loanable funds shifts left.

Question 4

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the

Accepted Answer

A)  supply of existing shares of the stock and the price will both rise. 
B)  supply of existing shares of the stock and the price will both fall. 
C)  demand for existing shares of the stock and the price will both rise. 
D)  demand for existing shares of the stock and the price will both fall. 
A)  supply of existing shares of the stock and the price will both rise. 
B)  supply of existing shares of the stock and the price will both fall. 
C)  demand for existing shares of the stock and the price will both rise. 
D)  demand for existing shares of the stock and the price will both fall.

Question 5

Late in the 2000-2009 decade, real estate prices in the U.S. fell by a greater percentage than they had fallen since the

Accepted Answer

A)  1890s. 
B)  1930s. 
C)  1950s. 
D)  1970s. 
A)  1890s. 
B)  1930s. 
C)  1950s. 
D)  1970s.

Question 6

If the Apple corporation sells a bond it is

Accepted Answer

A)  borrowing directly from the public. 
B)  borrowing indirectly from the public. 
C)  selling shares of ownership directly to the public. 
D)  selling shares of ownership indirectly to the public. 
A)  borrowing directly from the public. 
B)  borrowing indirectly from the public. 
C)  selling shares of ownership directly to the public. 
D)  selling shares of ownership indirectly to the public.

Question 7

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Accepted Answer

A)  credit risk. 
B)  interest risk. 
C)  term risk. 
D)  private risk. 
A)  credit risk. 
B)  interest risk. 
C)  term risk. 
D)  private risk.

Question 8

According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would

Accepted Answer

A)  raise national saving and public saving. 
B)  raise national saving and raise public saving. 
C)  leave national saving and public saving unchanged. 
D)  leave national saving unchanged and raise public saving. 
A)  raise national saving and public saving. 
B)  raise national saving and raise public saving. 
C)  leave national saving and public saving unchanged. 
D)  leave national saving unchanged and raise public saving.

Question 9

Mutual funds are a type of financial intermediary.

Accepted Answer

A) True 
 B)False

Question 10

Index funds are usually outperformed by mutual funds that are actively managed by professional money managers.

Accepted Answer

A) True 
 B)False

Question 11

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.  
-Refer to Figure 26-3. Which of the following movements shows the effects of the government going from a budget surplus to a budget deficit?

Accepted Answer

A)  a movement from Point A to Point B 
B)  a movement from Point B to Point A 
C)  a movement from Point A to Point F 
D)  a movement from Point B to Point C 
A)  a movement from Point A to Point B 
B)  a movement from Point B to Point A 
C)  a movement from Point A to Point F 
D)  a movement from Point B to Point C

Question 12

Short-term bonds are generally

Accepted Answer

A)  less risky than long-term bonds and so they feature higher interest rates. 
B)  less risky than long-term bonds and so they feature lower interest rates. 
C)  more risky than long-term bonds and so they feature higher interest rates. 
D)  more risky than long-term bonds and so they feature lower interest rates. 
A)  less risky than long-term bonds and so they feature higher interest rates. 
B)  less risky than long-term bonds and so they feature lower interest rates. 
C)  more risky than long-term bonds and so they feature higher interest rates. 
D)  more risky than long-term bonds and so they feature lower interest rates.

Question 13

Interest rates fall and investment falls. Which of the following could explain these changes?

Accepted Answer

A)  The government goes from a surplus to a deficit. 
B)  The government repeals an investment tax credit. 
C)  The government replaces a consumption tax with an income tax. 
D)  None of the above is correct. 
A)  The government goes from a surplus to a deficit. 
B)  The government repeals an investment tax credit. 
C)  The government replaces a consumption tax with an income tax. 
D)  None of the above is correct.

Question 14

Which of the following statements is correct?

Accepted Answer

A)  A general, persistent decline in stock prices may signal that the economy is about to enter a boom period because people will be able to buy stock for less money. 
B)  A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits. 
C)  A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past. 
D)  Expectations about the business cycle have no impact on stock prices. 
A)  A general, persistent decline in stock prices may signal that the economy is about to enter a boom period because people will be able to buy stock for less money. 
B)  A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits. 
C)  A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past. 
D)  Expectations about the business cycle have no impact on stock prices.

Question 15

Which of the following is correct?

Accepted Answer

A)  The maturity of a bond refers to the amount to be paid back. 
B)  The principal of the bond refers to the person selling the bond. 
C)  A bond buyer cannot sell a bond before it matures. 
D)  None of the above is correct. 
A)  The maturity of a bond refers to the amount to be paid back. 
B)  The principal of the bond refers to the person selling the bond. 
C)  A bond buyer cannot sell a bond before it matures. 
D)  None of the above is correct.

Question 16

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Accepted Answer

A) True 
 B)False

Question 17

The price of a stock will rise if

Accepted Answer

A)  the managers of a stock exchange decide the price should be higher. 
B)  the demand for the stock rises. 
C)  the supply of the stock rises. 
D)  None of the above are correct. 
A)  the managers of a stock exchange decide the price should be higher. 
B)  the demand for the stock rises. 
C)  the supply of the stock rises. 
D)  None of the above are correct.

Question 18

Suppose that you are a broker and people tell you the following about themselves. What sort of bond would you recommend to each? Defend your choices.
a. "I am in a high federal income tax bracket and I don't want to take very much risk."
b. "I want a high return and I am willing to take a lot of risk to get it."
c. "I want a decent return and I have enough deductions that I don't value tax breaks highly."

Accepted Answer

a. A municipal bond. Municipal bonds gen

Question 19

The country of Meditor, a small country with a closed economy, uses the merit as its currency. Recent national income statistics showed that it had GDP of $600 million merits, no government transfer payments, taxes of $150 million merits, a budget surplus of $40 billion merits, and investment of $100 billion merits. What were its consumption and government expenditures on goods and services?

Accepted Answer

A)  $460 million merits and $150 million merits 
B)  $310 million merits and $190 million merits 
C)  $350 million merits and $190 million merits 
D)  $390 million merits and $110 million merits 
A)  $460 million merits and $150 million merits 
B)  $310 million merits and $190 million merits 
C)  $350 million merits and $190 million merits 
D)  $390 million merits and $110 million merits

Question 20

If a share of stock in Dell sells for $70, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 10.

Accepted Answer

A) True 
 B)False

Exam 26: Saving, Investment, and the Financial System

If the supply of loanable funds shifts to the right, then the equilibrium interest rate

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

Other things the same, an increase in taxes with no change in government purchases makes national saving

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the

Late in the 2000-2009 decade, real estate prices in the U.S. fell by a greater percentage than they had fallen since the

If the Apple corporation sells a bond it is

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would

Mutual funds are a type of financial intermediary.

Index funds are usually outperformed by mutual funds that are actively managed by professional money managers.

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. Which of the following movements shows the effects of the government going from a budget surplus to a budget deficit?

Short-term bonds are generally

Interest rates fall and investment falls. Which of the following could explain these changes?

Which of the following statements is correct?

Which of the following is correct?

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

The price of a stock will rise if

If a share of stock in Dell sells for $70, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 10.

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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