Question 1

Table 26-2  
-Refer to Table 26-2. Which company had the highest earnings 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 2

Kathleen is considering expanding her dress shop. If interest rates rise she is

Accepted Answer

A)  less likely to expand. This illustrates why the supply of loanable funds slopes downward. 
B)  more likely to expand. This illustrates why the supply of loanable funds slopes upward. 
C)  less likely to expand. This illustrates why the demand for loanable funds slopes downward. 
D)  more likely to expand. This illustrates why the demand for loanable funds slopes upward. 
A)  less likely to expand. This illustrates why the supply of loanable funds slopes downward. 
B)  more likely to expand. This illustrates why the supply of loanable funds slopes upward. 
C)  less likely to expand. This illustrates why the demand for loanable funds slopes downward. 
D)  more likely to expand. This illustrates why the demand for loanable funds slopes upward.

Question 3

The prices of stock traded on exchanges are determined by

Accepted Answer

A)  the Corporate Stock Administration. 
B)  the administrators of NASDAQ. 
C)  the supply of, and demand for, the stock. 
D)  All of the above are correct. 
A)  the Corporate Stock Administration. 
B)  the administrators of NASDAQ. 
C)  the supply of, and demand for, the stock. 
D)  All of the above are correct.

Question 4

If, for an imaginary closed economy, investment amounts to $12,000 and the government is running a $2,000 deficit, then private saving must amount to $10,000.

Accepted Answer

A) True 
 B)False

Question 5

A checking deposit functions as

Accepted Answer

A)  a medium of exchange and as a store of value. 
B)  a medium of exchange, but not as a store of value. 
C)  a store of value, but not as a medium of exchange. 
D)  neither a medium of exchange nor as a store of value. 
A)  a medium of exchange and as a store of value. 
B)  a medium of exchange, but not as a store of value. 
C)  a store of value, but not as a medium of exchange. 
D)  neither a medium of exchange nor as a store of value.

Question 6

When a large, well-known corporation wishes to borrow directly from the public, it can

Accepted Answer

A)  sell bonds. 
B)  sell shares of stock. 
C)  go to a bank for a loan. 
D)  All of the above are correct. 
A)  sell bonds. 
B)  sell shares of stock. 
C)  go to a bank for a loan. 
D)  All of the above are correct.

Question 7

Which of the following is correct?

Accepted Answer

A)  Lenders sell bonds and borrowers buy them. 
B)  Long-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier. 
C)  The term junk bonds refers to bonds that have been resold many times. 
D)  None of the above is correct. 
A)  Lenders sell bonds and borrowers buy them. 
B)  Long-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier. 
C)  The term junk bonds refers to bonds that have been resold many times. 
D)  None of the above is correct.

Question 8

In a closed economy, if Y, C, and T remained the same, a decrease in G would

Accepted Answer

A)  reduce private saving and public saving. 
B)  increase private saving but not public saving. 
C)  increase public saving but not private saving. 
D)  increase neither private nor public saving. 
A)  reduce private saving and public saving. 
B)  increase private saving but not public saving. 
C)  increase public saving but not private saving. 
D)  increase neither private nor public saving.

Question 9

To state that national saving is equal to investment, for a closed economy, is to state an accounting identity.

Accepted Answer

A) True 
 B)False

Question 10

The nominal interest rate is the

Accepted Answer

A)  interest rate corrected for inflation. 
B)  interest rate as usually reported by banks. 
C)  real rate of return to the lender. 
D)  real cost of borrowing to the borrower. 
A)  interest rate corrected for inflation. 
B)  interest rate as usually reported by banks. 
C)  real rate of return to the lender. 
D)  real cost of borrowing to the borrower.

Question 11

An article in the textbook suggests that one method to correct the higher education inefficiency is to

Accepted Answer

A)  provide free higher education to all Americans. 
B)  have college students sell equity in themselves. 
C)  reduce interest rates on student loans. 
D)  increase the number of colleges and universities in the United States. 
A)  provide free higher education to all Americans. 
B)  have college students sell equity in themselves. 
C)  reduce interest rates on student loans. 
D)  increase the number of colleges and universities in the United States.

Question 12

In examining the national income accounts of the closed economy of Nepotocracy you see that this year it had taxes of $100 billion, transfers of $20 billion, and government purchases of goods and services of $70 billion. You also notice that last year it had private saving of $70 billion and investment of $50 billion. In which year did Nepotocracy have a budget deficit of $20 billion?

Accepted Answer

A)  this year and last year 
B)  this year but not last year 
C)  last year but not this year 
D)  neither this year nor last year 
A)  this year and last year 
B)  this year but not last year 
C)  last year but not this year 
D)  neither this year nor last year

Question 13

A does not engage in international trade in goods and services and it does not engage in international borrowing and lending.

Accepted Answer

The answer of A does not engage in international trade...

Question 14

Potential buyers of ABC Corporation bonds are concerned about ABC Corporation declaring bankruptcy. Potential buyers of XYZ Corporation bonds are not concerned that XYZ Corporation may declare bankruptcy. Which of the following statements is correct?

Accepted Answer

A)  Other things equal, the interest rate on XYZ Corporation bonds will be high relative to the interest rate on ABC Corporation bonds. 
B)  An ABC Corporation bond must have a longer term than an XYZ Corporation. 
C)  XYZ Corporation bonds carry less default risk than do ABC Corporation bonds. 
D)  All of the above are correct. 
A)  Other things equal, the interest rate on XYZ Corporation bonds will be high relative to the interest rate on ABC Corporation bonds. 
B)  An ABC Corporation bond must have a longer term than an XYZ Corporation. 
C)  XYZ Corporation bonds carry less default risk than do ABC Corporation bonds. 
D)  All of the above are correct.

Question 15

Bountiful Tractors has a share price of $60, retained earnings of $2 per share, and a dividend yield of 2 percent. What is Bountiful Tractor's price­earnings ratio?

Accepted Answer

A)  18.75 
A)  23.1 
B)  15 
C)  30 
A)  18.75 
A)  23.1 
B)  15 
C)  30

Question 16

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. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 5 percent, then the equilibrium nominal interest rate is

Accepted Answer

A)  11 percent. 
B)  approximately 6 percent. 
C)  between 6 percent and 8 percent. 
D)  between 11 percent and 13 percent. 
A)  11 percent. 
B)  approximately 6 percent. 
C)  between 6 percent and 8 percent. 
D)  between 11 percent and 13 percent.

Question 17

Higher education subsidies in the form of the federal government's student loan program have the potential to

Accepted Answer

A)  reduce the number of people that attend college. 
B)  reduce the number of universities and colleges in the future. 
C)  create a credit bubble and debt crisis. 
D)  reduce the default risk on student loans. 
A)  reduce the number of people that attend college. 
B)  reduce the number of universities and colleges in the future. 
C)  create a credit bubble and debt crisis. 
D)  reduce the default risk on student loans.

Question 18

Managed funds

Accepted Answer

A)  typically have a higher rate of return and higher costs than index funds. 
B)  typically have a higher rate of return and lower costs than index funds. 
C)  typically have a lower rate of return and higher costs than index funds. 
D)  typically have a lower rate of return and lower costs than index funds. 
A)  typically have a higher rate of return and higher costs than index funds. 
B)  typically have a higher rate of return and lower costs than index funds. 
C)  typically have a lower rate of return and higher costs than index funds. 
D)  typically have a lower rate of return and lower costs than index funds.

Question 19

Which advantage(s) do mutual funds claim to provide?

Accepted Answer

A)  diversification and access to the skills of professional money managers 
B)  diversification but not access to the skills of professional money managers 
C)  access to the skills of professional money managers but not diversification 
D)  neither diversification nor access to the skills of professional money managers. 
A)  diversification and access to the skills of professional money managers 
B)  diversification but not access to the skills of professional money managers 
C)  access to the skills of professional money managers but not diversification 
D)  neither diversification nor access to the skills of professional money managers.

Question 20

Suppose the government ran a budget surplus in 2010 and a larger surplus in 2011. The loanable funds model would predict that, as a result of the increase in the surplus,

Accepted Answer

A)  both the government debt and interest rates increased between 2010 and 2011. 
B)  both the government debt and interest rates decreased between 2010 and 2011. 
C)  the government debt increased and interest rates decreased between 2010 and 2011. 
D)  the government debt decreased and interest rates increased between 2010 and 2011. 
A)  both the government debt and interest rates increased between 2010 and 2011. 
B)  both the government debt and interest rates decreased between 2010 and 2011. 
C)  the government debt increased and interest rates decreased between 2010 and 2011. 
D)  the government debt decreased and interest rates increased between 2010 and 2011.

Exam 26: Saving, Investment, and the Financial System

Table 26-2 -Refer to Table 26-2. Which company had the highest earnings per share?

Kathleen is considering expanding her dress shop. If interest rates rise she is

The prices of stock traded on exchanges are determined by

If, for an imaginary closed economy, investment amounts to $12,000 and the government is running a $2,000 deficit, then private saving must amount to $10,000.

A checking deposit functions as

When a large, well-known corporation wishes to borrow directly from the public, it can

Which of the following is correct?

In a closed economy, if Y, C, and T remained the same, a decrease in G would

To state that national saving is equal to investment, for a closed economy, is to state an accounting identity.

The nominal interest rate is the

An article in the textbook suggests that one method to correct the higher education inefficiency is to

A does not engage in international trade in goods and services and it does not engage in international borrowing and lending.

Potential buyers of ABC Corporation bonds are concerned about ABC Corporation declaring bankruptcy. Potential buyers of XYZ Corporation bonds are not concerned that XYZ Corporation may declare bankruptcy. Which of the following statements is correct?

Bountiful Tractors has a share price of $60, retained earnings of $2 per share, and a dividend yield of 2 percent. What is Bountiful Tractor's price­earnings ratio? A) 18.75

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. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 5 percent, then the equilibrium nominal interest rate is

Higher education subsidies in the form of the federal government's student loan program have the potential to

Managed funds

Which advantage(s) do mutual funds claim to provide?

Suppose the government ran a budget surplus in 2010 and a larger surplus in 2011. The loanable funds model would predict that, as a result of the increase in the surplus,

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

Bountiful Tractors has a share price of $60, retained earnings of $2 per share, and a dividend yield of 2 percent. What is Bountiful Tractor's priceearnings ratio? A) 18.75