Question 1

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then

Accepted Answer

A)  the demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. 
B)  the demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate. 
C)  the supply of loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. 
D)  the supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate. 
A)  the demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. 
B)  the demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate. 
C)  the supply of loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. 
D)  the supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.

Question 2

Table 26-2  
-Refer to Table 26-2. Which company had the lowest dollar dividend per share?

Accepted Answer

A)  Boeing Co. 
B)  Eli Lilly and Co. 
C)  Kraft 
D)  Kellogg Co. 
A)  Boeing Co. 
B)  Eli Lilly and Co. 
C)  Kraft 
D)  Kellogg Co.

Question 3

For a closed economy, GDP is $18 trillion, consumption is $13 trillion, taxes are $2 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

Accepted Answer

A)  $3 trillion and $1 trillion, respectively 
B)  $3 trillion and $2 trillion, respectively 
C)  $2 trillion and $3 trillion, respectively 
D)  $2 trillion and $2 trillion, respectively 
A)  $3 trillion and $1 trillion, respectively 
B)  $3 trillion and $2 trillion, respectively 
C)  $2 trillion and $3 trillion, respectively 
D)  $2 trillion and $2 trillion, respectively

Question 4

Which of the following statements about mutual funds is correct?

Accepted Answer

A)  A mutual fund is a financial intermediary. 
B)  A mutual fund acquires its funds primarily by selling shares to the public. 
C)  People who buy shares from a mutual fund accept all of the risk and return associated with the mutual fund's portfolio. 
D)  All of the above are correct. 
A)  A mutual fund is a financial intermediary. 
B)  A mutual fund acquires its funds primarily by selling shares to the public. 
C)  People who buy shares from a mutual fund accept all of the risk and return associated with the mutual fund's portfolio. 
D)  All of the above are correct.

Question 5

A closed economy

Accepted Answer

A)  does not engage in international trade of goods and services. 
B)  does not engage in international borrowing or lending. 
C)  both A and B 
D)  engages in international borrowing and lending. 
A)  does not engage in international trade of goods and services. 
B)  does not engage in international borrowing or lending. 
C)  both A and B 
D)  engages in international borrowing and lending.

Question 6

Index funds

Accepted Answer

A)  buy all the stocks in a given stock index. 
B)  promise to beat the market by a certain percentage known as an index. 
C)  provide a return that is adjusted for changes in the consumer price index. 
D)  buy industries within a particular category of the North American Industry Classification System. 
A)  buy all the stocks in a given stock index. 
B)  promise to beat the market by a certain percentage known as an index. 
C)  provide a return that is adjusted for changes in the consumer price index. 
D)  buy industries within a particular category of the North American Industry Classification System.

Question 7

For an imaginary closed economy, T = $5,000; S = $11,000; C = $48,000; and the government is running a budget surplus of $1,000. Then

Accepted Answer

A)  private saving = $10,000 and GDP = $55,000. 
B)  private saving = $10,000 and GDP = $63,000. 
C)  private saving = $12,000 and GDP = $67,000. 
D)  private saving = $12,000 and GDP = $69,000. 
A)  private saving = $10,000 and GDP = $55,000. 
B)  private saving = $10,000 and GDP = $63,000. 
C)  private saving = $12,000 and GDP = $67,000. 
D)  private saving = $12,000 and GDP = $69,000.

Question 8

What is the source of the supply of loanable funds?

Accepted Answer

The answer of What is the source of the supply...

Question 9

Most entrepreneurs finance their purchases of real capital using their past saving.

Accepted Answer

A) True 
 B)False

Question 10

A corporation's earnings are

Accepted Answer

A)  the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants minus the dividends paid out. 
B)  the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists minus the dividends paid out. 
C)  the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants. 
D)  the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists. 
A)  the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants minus the dividends paid out. 
B)  the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists minus the dividends paid out. 
C)  the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants. 
D)  the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists.

Question 11

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

Accepted Answer

A)  there is a surplus so interest rates will rise. 
B)  there is a surplus so interest rates will fall. 
C)  there is a shortage so interest rates will rise. 
D)  there is a shortage so interest rates will fall. 
A)  there is a surplus so interest rates will rise. 
B)  there is a surplus so interest rates will fall. 
C)  there is a shortage so interest rates will rise. 
D)  there is a shortage so interest rates will fall.

Question 12

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves.  
-Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?

Accepted Answer

A)  In response to tax reform, firms are encouraged to invest more than they previously invested. 
B)  In response to tax reform, households are encouraged to save more than they previously saved. 
C)  Government goes from running a balanced budget to running a budget deficit. 
D)  Any of the above events would shift the supply curve from S1 to S2. 
A)  In response to tax reform, firms are encouraged to invest more than they previously invested. 
B)  In response to tax reform, households are encouraged to save more than they previously saved. 
C)  Government goes from running a balanced budget to running a budget deficit. 
D)  Any of the above events would shift the supply curve from S1 to S2.

Question 13

Other things the same, bonds are likely to have higher interest rates if they have

Accepted Answer

A)  tax exemptions and short terms. 
B)  tax exemptions and long terms. 
C)  no tax exemptions and short terms. 
D)  no tax exemptions and long terms. 
A)  tax exemptions and short terms. 
B)  tax exemptions and long terms. 
C)  no tax exemptions and short terms. 
D)  no tax exemptions and long terms.

Question 14

Northwest Wholesale Foods sells common stock. The company is using

Accepted Answer

A)  equity financing and the return shareholders earn is fixed. 
B)  equity financing and the return shareholders earn depends on how profitable the company is. 
C)  debt financing and the return shareholders earn is fixed. 
D)  debt financing and the return shareholders earn depends on how profitable the company is. 
A)  equity financing and the return shareholders earn is fixed. 
B)  equity financing and the return shareholders earn depends on how profitable the company is. 
C)  debt financing and the return shareholders earn is fixed. 
D)  debt financing and the return shareholders earn depends on how profitable the company is.

Question 15

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

Accepted Answer

Its price to earnings ratio is

Question 16

Borrowers can (and sometimes do) default on their loans when

Accepted Answer

A)  the dividend yield on their shares of stock reaches zero. 
B)  they convert their bonds into perpetuities. 
C)  they declare bankruptcy. 
D)  they cannot find enough buyers of their bonds to sell all the bonds they wish to sell. 
A)  the dividend yield on their shares of stock reaches zero. 
B)  they convert their bonds into perpetuities. 
C)  they declare bankruptcy. 
D)  they cannot find enough buyers of their bonds to sell all the bonds they wish to sell.

Question 17

A closed economy

Accepted Answer

A)  does not trade with other economies. 
B)  is centrally-planned. 
C)  does not allow financial intermediation. 
D)  All of the above are correct. 
A)  does not trade with other economies. 
B)  is centrally-planned. 
C)  does not allow financial intermediation. 
D)  All of the above are correct.

Question 18

Which of the following statements about mutual funds is correct?

Accepted Answer

A)  A mutual fund is not a financial intermediary. 
B)  A disadvantage of buying mutual funds is a lack of diversification 
C)  People who buy shares from a mutual fund are guaranteed a minimum return. 
D)  On average index funds outperform managed funds. 
A)  A mutual fund is not a financial intermediary. 
B)  A disadvantage of buying mutual funds is a lack of diversification 
C)  People who buy shares from a mutual fund are guaranteed a minimum return. 
D)  On average index funds outperform managed funds.

Question 19

A low price-earnings ratio indicates that either the stock is

Accepted Answer

A)  undervalued or people are relatively optimistic about the corporation's prospects. 
B)  overvalued or people are relatively optimistic about the corporation's prospects. 
C)  overvalued or people are relatively pessimistic about the corporation's prospects. 
D)  undervalued or people are relatively pessimistic about the corporation's prospects. 
A)  undervalued or people are relatively optimistic about the corporation's prospects. 
B)  overvalued or people are relatively optimistic about the corporation's prospects. 
C)  overvalued or people are relatively pessimistic about the corporation's prospects. 
D)  undervalued or people are relatively pessimistic about the corporation's prospects.

Question 20

Suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the loanable funds model, a consequence would be

Accepted Answer

A)  lower interest rates and lower investment. 
B)  lower interest rates and greater investment. 
C)  higher interest rates and lower investment. 
D)  higher interest rates and higher investment. 
A)  lower interest rates and lower investment. 
B)  lower interest rates and greater investment. 
C)  higher interest rates and lower investment. 
D)  higher interest rates and higher investment.

Exam 26: Saving, Investment, and the Financial System

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then

Table 26-2 -Refer to Table 26-2. Which company had the lowest dollar dividend per share?

For a closed economy, GDP is $18 trillion, consumption is $13 trillion, taxes are $2 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

Which of the following statements about mutual funds is correct?

A closed economy

Index funds

For an imaginary closed economy, T = $5,000; S = $11,000; C = $48,000; and the government is running a budget surplus of $1,000. Then

What is the source of the supply of loanable funds?

Most entrepreneurs finance their purchases of real capital using their past saving.

A corporation's earnings are

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?

Other things the same, bonds are likely to have higher interest rates if they have

Northwest Wholesale Foods sells common stock. The company is using

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

Borrowers can (and sometimes do) default on their loans when

A closed economy

Which of the following statements about mutual funds is correct?

A low price-earnings ratio indicates that either the stock is

Suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the loanable funds model, a consequence would be

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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