Question 1

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds,

Accepted Answer

A)  the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply. 
B)  the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply. 
C)  the city's high credit rating contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply. 
D)  the city's high credit rating contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply. 
A)  the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply. 
B)  the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply. 
C)  the city's high credit rating contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply. 
D)  the city's high credit rating contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply.

Question 2

Table 26-1  
-Refer to Table 26-1. Which firm had the P/E ratio that was closest to the historically typical P/E ratio?

Accepted Answer

A)  GenMills 
B)  Microsoft 
C)  Graco 
D)  Hershey 
A)  GenMills 
B)  Microsoft 
C)  Graco 
D)  Hershey

Question 3

A low P/E for a stock indicates that

Accepted Answer

A)  people may expect earnings to fall in the future, perhaps because the firm will be faced with increased competition. 
B)  its dividends have been low so that no one is willing to pay very much for it. 
C)  the corporation is possibly overvalued. 
D)  All of the above are correct. 
A)  people may expect earnings to fall in the future, perhaps because the firm will be faced with increased competition. 
B)  its dividends have been low so that no one is willing to pay very much for it. 
C)  the corporation is possibly overvalued. 
D)  All of the above are correct.

Question 4

When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____.

Accepted Answer

deficit, i

Question 5

Which of the following equations represents GDP for a closed economy?

Accepted Answer

A)  Y = C + I + G + T 
B)  S = I - G 
C)  I = Y - C + G 
D)  Y = C + I + G 
A)  Y = C + I + G + T 
B)  S = I - G 
C)  I = Y - C + G 
D)  Y = C + I + G

Question 6

The economy's two most important financial markets are

Accepted Answer

A)  the investment market and the saving market. 
B)  the bond market and the stock market. 
C)  banks and the stock market. 
D)  financial markets and financial institutions. 
A)  the investment market and the saving market. 
B)  the bond market and the stock market. 
C)  banks and the stock market. 
D)  financial markets and financial institutions.

Question 7

An increase in the quantity of loanable funds traded means that

Accepted Answer

A)  firms are borrowing less and investment decreases. 
B)  firms are borrowing less and investment increases. 
C)  firms are borrowing more and investment increases. 
D)  firms are borrowing more and investment decreases. 
A)  firms are borrowing less and investment decreases. 
B)  firms are borrowing less and investment increases. 
C)  firms are borrowing more and investment increases. 
D)  firms are borrowing more and investment decreases.

Question 8

By definition, government purchases and taxes are zero for a closed economy.

Accepted Answer

A) True 
 B)False

Question 9

Institutions that help to match one person's saving with another person's investment are collectively called the

Accepted Answer

A)  Federal Reserve system. 
B)  banking system. 
C)  monetary system. 
D)  financial system. 
A)  Federal Reserve system. 
B)  banking system. 
C)  monetary system. 
D)  financial system.

Question 10

Profits not paid out to stockholders are

Accepted Answer

A)  retained earnings. 
B)  known as dividends. 
C)  the denominator in the price-earnings ratio. 
D)  All of the above are correct. 
A)  retained earnings. 
B)  known as dividends. 
C)  the denominator in the price-earnings ratio. 
D)  All of the above are correct.

Question 11

The Dow Jones Industrial Average has been computed regularly since

Accepted Answer

A)  1976. 
B)  1948. 
C)  1913. 
D)  1896. 
A)  1976. 
B)  1948. 
C)  1913. 
D)  1896.

Question 12

Camp Company had total earnings of $600 million in 2013, out of which it retained 20 percent for future investments. In 2013, its stock featured a dividend yield of 4 percent and 100 million shares were outstanding. The price-earnings ratio for Camp Company stock was

Accepted Answer

A)  5. 
B)  150. 
C)  20. 
D)  25. 
A)  5. 
B)  150. 
C)  20. 
D)  25.

Question 13

Other things the same, corporate bonds generally feature higher interest rates than U.S. government bonds.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following bonds has the highest interest rate?

Accepted Answer

A)  a high credit risk and a short term. 
B)  a low credit risk and a short term. 
C)  a long term and a high credit risk. 
D)  a long term and a low credit risk. 
A)  a high credit risk and a short term. 
B)  a low credit risk and a short term. 
C)  a long term and a high credit risk. 
D)  a long term and a low credit risk.

Question 15

Which bond is likely to have higher interest rate due to a higher default risk?

Accepted Answer

A)  A share of stock issued by Apple. 
B)  A corporate bond issued by Apple. 
C)  A junk bond. 
D)  A U.S. government bond. 
A)  A share of stock issued by Apple. 
B)  A corporate bond issued by Apple. 
C)  A junk bond. 
D)  A U.S. government bond.

Question 16

In which case would people desire to borrow the most?

Accepted Answer

A)  the nominal interest rate is 8% and the inflation rate is 7% 
B)  the nominal interest rate is 7% and the inflation rate is 5% 
C)  the nominal interest rate is 6% and the inflation rate is 3% 
D)  the nominal interest rate is 5% and the inflation rate is 1% 
A)  the nominal interest rate is 8% and the inflation rate is 7% 
B)  the nominal interest rate is 7% and the inflation rate is 5% 
C)  the nominal interest rate is 6% and the inflation rate is 3% 
D)  the nominal interest rate is 5% and the inflation rate is 1%

Question 17

Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

Accepted Answer

A)  the interest rate and investment would rise. 
B)  the interest rate would rise and investment would fall. 
C)  the interest rate would fall and investment would rise. 
D)  the interest rate and investment would fall. 
A)  the interest rate and investment would rise. 
B)  the interest rate would rise and investment would fall. 
C)  the interest rate would fall and investment would rise. 
D)  the interest rate and investment would fall.

Question 18

Congress and the President allow people to make greater contributions to tax-deferred savings accounts. Which curve in the market for loanable funds would shift, which direction would it shift, what would happen to the interest rate, and what would happen to investment spending?

Accepted Answer

The supply of loanable funds w

Question 19

Skyline Chili wants to finance the purchase of new equipment for its restaurants. The firm has limited internal funds, so Skyline likely will

Accepted Answer

A)  demand funds from the financial system by buying bonds. 
B)  demand funds from the financial system by selling bonds. 
C)  supply funds to the financial system by buying bonds. 
D)  supply funds to the financial system by selling bonds. 
A)  demand funds from the financial system by buying bonds. 
B)  demand funds from the financial system by selling bonds. 
C)  supply funds to the financial system by buying bonds. 
D)  supply funds to the financial system by selling bonds.

Question 20

A stock index is

Accepted Answer

A)  an average of a group of stock prices. 
B)  an average of a group of stock yields. 
C)  a measure of the risk relative to the profitability of corporations. 
D)  a report in a newspaper or other media outlet on the price of the stock and earnings of the corporation that issued the stock. 
A)  an average of a group of stock prices. 
B)  an average of a group of stock yields. 
C)  a measure of the risk relative to the profitability of corporations. 
D)  a report in a newspaper or other media outlet on the price of the stock and earnings of the corporation that issued the stock.

Exam 26: Saving, Investment, and the Financial System

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds,

Table 26-1 -Refer to Table 26-1. Which firm had the P/E ratio that was closest to the historically typical P/E ratio?

A low P/E for a stock indicates that

When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____.

Which of the following equations represents GDP for a closed economy?

The economy's two most important financial markets are

An increase in the quantity of loanable funds traded means that

By definition, government purchases and taxes are zero for a closed economy.

Institutions that help to match one person's saving with another person's investment are collectively called the

Profits not paid out to stockholders are

The Dow Jones Industrial Average has been computed regularly since

Camp Company had total earnings of $600 million in 2013, out of which it retained 20 percent for future investments. In 2013, its stock featured a dividend yield of 4 percent and 100 million shares were outstanding. The price-earnings ratio for Camp Company stock was

Other things the same, corporate bonds generally feature higher interest rates than U.S. government bonds.

Which of the following bonds has the highest interest rate?

Which bond is likely to have higher interest rate due to a higher default risk?

In which case would people desire to borrow the most?

Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

Congress and the President allow people to make greater contributions to tax-deferred savings accounts. Which curve in the market for loanable funds would shift, which direction would it shift, what would happen to the interest rate, and what would happen to investment spending?

Skyline Chili wants to finance the purchase of new equipment for its restaurants. The firm has limited internal funds, so Skyline likely will

A stock index is

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

When the government increases its borrowing, the budget ___ increases and government debt _. The resulting change in investment due to this increased government borrowing is called ___.