Question 1

In macroeconomics, refers to the purchase of new capital.

Accepted Answer

The answer of In macroeconomics, refers to the purchase of...

Question 2

When the government increases spending (holding taxes constant), the budget balance _____. This causes the interest rate in the market for loanable funds to _____ and investment to _____.

Accepted Answer

falls, inc

Question 3

Two of the economy's most important financial intermediaries are

Accepted Answer

A)  suppliers of funds and demanders of funds. 
B)  banks and the bond market. 
C)  the stock market and the bond market. 
D)  banks and mutual funds. 
A)  suppliers of funds and demanders of funds. 
B)  banks and the bond market. 
C)  the stock market and the bond market. 
D)  banks and mutual funds.

Question 4

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.  
-Refer to Figure 26-4. Regard the position of the Supply curve as fixed, as on the graph. If the real interest rate is 8 percent, the inflation rate is 3 percent, and the market for loanable funds is in equilibrium, then the position of the demand-for-loanable-funds curve must be

Accepted Answer

A)  D1. 
B)  D2. 
C)  between D1 and D2. 
D)  to the right of D2. 
A)  D1. 
B)  D2. 
C)  between D1 and D2. 
D)  to the right of D2.

Question 5

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

Accepted Answer

A)  Because they have the same term to maturity the interest rates should be the same. 
B)  Because of the differences in tax treatment and credit risk, the state bond should have the higher interest rate. 
C)  Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate. 
D)  It is not possible to say if one bond has a higher interest rate than the other. 
A)  Because they have the same term to maturity the interest rates should be the same. 
B)  Because of the differences in tax treatment and credit risk, the state bond should have the higher interest rate. 
C)  Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate. 
D)  It is not possible to say if one bond has a higher interest rate than the other.

Question 6

The sale of either stocks or bonds to raise money is known as equity finance.

Accepted Answer

A) True 
 B)False

Question 7

The bond market

Accepted Answer

A)  is a financial market, whereas the stock market is a financial intermediary. 
B)  is a financial intermediary, whereas the stock market is a financial market. 
C)  is a financial market, as is the stock market. 
D)  is a financial intermediary, as is the stock market. 
A)  is a financial market, whereas the stock market is a financial intermediary. 
B)  is a financial intermediary, whereas the stock market is a financial market. 
C)  is a financial market, as is the stock market. 
D)  is a financial intermediary, as is the stock market.

Question 8

Other things the same, the effects of an increase in transfer payments on the government's budget deficit will lead to

Accepted Answer

A)  greater investment. 
B)  a higher interest rate. 
C)  higher public saving. 
D)  All of the above are correct. 
A)  greater investment. 
B)  a higher interest rate. 
C)  higher public saving. 
D)  All of the above are correct.

Question 9

Which of the following is not correct?

Accepted Answer

A)  If you buy a bond from a corporation, you can sell the bond to someone else before it matures. 
B)  Term refers to the scheduling of periodic interest rate payments on a bond. 
C)  A bond is an IOU. 
D)  There are millions of different bonds in the U.S. economy. 
A)  If you buy a bond from a corporation, you can sell the bond to someone else before it matures. 
B)  Term refers to the scheduling of periodic interest rate payments on a bond. 
C)  A bond is an IOU. 
D)  There are millions of different bonds in the U.S. economy.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

Accepted Answer

A)  The demand for loanable funds shifted rightward. 
B)  The demand for loanable funds shifted leftward. 
C)  The supply of loanable funds shifted rightward. 
D)  The supply of loanable funds shifted leftward. 
A)  The demand for loanable funds shifted rightward. 
B)  The demand for loanable funds shifted leftward. 
C)  The supply of loanable funds shifted rightward. 
D)  The supply of loanable funds shifted leftward.

Question 12

Consider the expressions T - G and Y - T - C. Which of the following statements is correct?

Accepted Answer

A)  Each one of these is equal to national saving. 
B)  Each one of these is equal to public saving. 
C)  The first of these is private saving; the second one is public saving. 
D)  The first of these is public saving; the second one is private saving. 
A)  Each one of these is equal to national saving. 
B)  Each one of these is equal to public saving. 
C)  The first of these is private saving; the second one is public saving. 
D)  The first of these is public saving; the second one is private saving.

Question 13

In a closed economy, what does (T - G) represent?

Accepted Answer

A)  national saving 
B)  investment 
C)  private saving 
D)  public saving 
A)  national saving 
B)  investment 
C)  private saving 
D)  public saving

Question 14

In a closed economy, each unit of output is either consumed by households or invested.

Accepted Answer

A) True 
 B)False

Question 15

A bond that never matures is known as a

Accepted Answer

A)  perpetuity. 
B)  an intermediary bond. 
C)  an indexed bond. 
D)  a junk bond. 
A)  perpetuity. 
B)  an intermediary bond. 
C)  an indexed bond. 
D)  a junk bond.

Question 16

The identity that shows that total income and total expenditure are equal is

Accepted Answer

A)  GDP = Y. 
B)  Y = DI + T + NX. 
C)  GDP = GNP - NX. 
D)  Y = C + I + G + NX. 
A)  GDP = Y. 
B)  Y = DI + T + NX. 
C)  GDP = GNP - NX. 
D)  Y = C + I + G + NX.

Question 17

Other things the same, if the government increases transfer payments to households, then the effect of this on the government's budget

Accepted Answer

A)  will make investment rise. 
B)  will make the rate of interest rise. 
C)  will make public saving rise. 
D)  All of the above are correct. 
A)  will make investment rise. 
B)  will make the rate of interest rise. 
C)  will make public saving rise. 
D)  All of the above are correct.

Question 18

When economists refer to investment, they mean the purchasing of stocks and bonds and other types of saving.

Accepted Answer

A) True 
 B)False

Question 19

A government reduces its budget deficit, but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default. Which of the following is correct?

Accepted Answer

A)  The reduced budget deficit will raise interest rates in general. The increased risk of default will raise interest rates on government bonds. 
B)  The reduced budget deficit will raise interest rates in general. The increased risk of default will reduce interest rates on government bonds. 
C)  The reduced budget deficit will reduce interest rates in general. The increased risk of default will raise interest rates on government bonds. 
D)  The reduced budget deficit will reduce interest rates in general. The increased risk of default will reduce interest rates on government bonds. 
A)  The reduced budget deficit will raise interest rates in general. The increased risk of default will raise interest rates on government bonds. 
B)  The reduced budget deficit will raise interest rates in general. The increased risk of default will reduce interest rates on government bonds. 
C)  The reduced budget deficit will reduce interest rates in general. The increased risk of default will raise interest rates on government bonds. 
D)  The reduced budget deficit will reduce interest rates in general. The increased risk of default will reduce interest rates on government bonds.

Question 20

Which of the following statements is not correct?

Accepted Answer

A)  If GDP is rising faster than debt, the government is, in some sense, living within its means. 
B)  The ratio of debt to GDP in the United States has always been less than one. 
C)  Debts during wars may distribute the burden of fighting the war more evenly across generations. 
D)  During times of peace in the United States, the ratio of debt to GDP sometimes rose. 
A)  If GDP is rising faster than debt, the government is, in some sense, living within its means. 
B)  The ratio of debt to GDP in the United States has always been less than one. 
C)  Debts during wars may distribute the burden of fighting the war more evenly across generations. 
D)  During times of peace in the United States, the ratio of debt to GDP sometimes rose.

Exam 26: Saving, Investment, and the Financial System

In macroeconomics, refers to the purchase of new capital.

When the government increases spending (holding taxes constant), the budget balance _____. This causes the interest rate in the market for loanable funds to _____ and investment to _____.

Two of the economy's most important financial intermediaries are

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

The sale of either stocks or bonds to raise money is known as equity finance.

The bond market

Other things the same, the effects of an increase in transfer payments on the government's budget deficit will lead to

Which of the following is not correct?

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

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

Consider the expressions T - G and Y - T - C. Which of the following statements is correct?

In a closed economy, what does (T - G) represent?

In a closed economy, each unit of output is either consumed by households or invested.

A bond that never matures is known as a

The identity that shows that total income and total expenditure are equal is

Other things the same, if the government increases transfer payments to households, then the effect of this on the government's budget

When economists refer to investment, they mean the purchasing of stocks and bonds and other types of saving.

A government reduces its budget deficit, but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default. Which of the following is correct?

Which of the following statements is not correct?

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 spending (holding taxes constant), the budget balance ___. This causes the interest rate in the market for loanable funds to _ and investment to ___.