Question 1

In a closed economy, Y - C - G equals . The variable Y is , C is , and G is .

Accepted Answer

national saving/inve

Question 2

Scenario 26-3. Assume the following information for an imaginary, open economy.
Consumption = $1,000; investment = $200; net exports = -$50; taxes = $230; private saving = $225; and national saving = $150.
-Refer to Scenario 26-3. This economy's government is running a

Accepted Answer

A)  budget deficit of $75. 
B)  budget deficit of $80. 
C)  budget deficit of $50. 
D)  budget deficit of $100. 
A)  budget deficit of $75. 
B)  budget deficit of $80. 
C)  budget deficit of $50. 
D)  budget deficit of $100.

Question 3

Which of the following is a financial intermediary?

Accepted Answer

A)  a mutual fund 
B)  the stock market 
C)  a U.S. government bond 
D)  a wealthy individual who regularly buys and holds large quantities of government bonds 
A)  a mutual fund 
B)  the stock market 
C)  a U.S. government bond 
D)  a wealthy individual who regularly buys and holds large quantities of government bonds

Question 4

The Dow Jones Industrial Average is now based on the prices of the stocks of

Accepted Answer

A)  30 major U.S. corporations. 
B)  100 major U.S. corporations. 
C)  500 representative U.S. corporations. 
D)  1,000 representative U.S. corporations. 
A)  30 major U.S. corporations. 
B)  100 major U.S. corporations. 
C)  500 representative U.S. corporations. 
D)  1,000 representative U.S. corporations.

Question 5

Which of the following statements is correct?

Accepted Answer

A)  The expected future profitability of a corporation influences the demand for that corporation's stock. 
B)  When a corporation sells stock as a means of raising funds it is engaging in debt finance. 
C)  The owners of bonds sold by the Microsoft Corporation are part owners of that corporation. 
D)  All bonds are, by definition, perpetuities. 
A)  The expected future profitability of a corporation influences the demand for that corporation's stock. 
B)  When a corporation sells stock as a means of raising funds it is engaging in debt finance. 
C)  The owners of bonds sold by the Microsoft Corporation are part owners of that corporation. 
D)  All bonds are, by definition, perpetuities.

Question 6

Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market?

Accepted Answer

A)  an increase in the supply of or a decrease in the demand for loanable funds 
B)  an increase in the supply of or an increase in the demand for loanable funds 
C)  a decrease in the supply of or a decrease in the demand for loanable funds 
D)  a decrease in the supply of or an increase in the demand for loanable funds 
A)  an increase in the supply of or a decrease in the demand for loanable funds 
B)  an increase in the supply of or an increase in the demand for loanable funds 
C)  a decrease in the supply of or a decrease in the demand for loanable funds 
D)  a decrease in the supply of or an increase in the demand for loanable funds

Question 7

In a closed economy, what remains after paying for consumption and government purchases is

Accepted Answer

A)  national disposable income. 
B)  national saving. 
C)  public saving. 
D)  private saving. 
A)  national disposable income. 
B)  national saving. 
C)  public saving. 
D)  private saving.

Question 8

Which of the following is both a store of value and a common medium of exchange?

Accepted Answer

A)  corporate bonds 
B)  mutual funds 
C)  checking account balances 
D)  All of the above are correct. 
A)  corporate bonds 
B)  mutual funds 
C)  checking account balances 
D)  All of the above are correct.

Question 9

What would happen in the market for loanable funds if the government were to increase the tax on interest income?

Accepted Answer

A)  The supply of loanable funds would shift right. 
B)  The demand for loanable funds would shift right. 
C)  The supply of loanable funds would shift left. 
D)  The demand for loanable funds would shift left. 
A)  The supply of loanable funds would shift right. 
B)  The demand for loanable funds would shift right. 
C)  The supply of loanable funds would shift left. 
D)  The demand for loanable funds would shift left.

Question 10

Jerry has the choice of two bonds, one that pays 5 percent interest and one that pays 2 percent interest. Which of the following is most likely?

Accepted Answer

A)  The 2 percent bond is more risky than the 5 percent bond. 
B)  The 5 percent bond is a U.S. government bond, and the 2 percent bond is a junk bond. 
C)  The 2 percent bond has a longer term than the 5 percent bond. 
D)  The 2 percent bond is a municipal bond, and the 5 percent bond is a U.S. government bond. 
A)  The 2 percent bond is more risky than the 5 percent bond. 
B)  The 5 percent bond is a U.S. government bond, and the 2 percent bond is a junk bond. 
C)  The 2 percent bond has a longer term than the 5 percent bond. 
D)  The 2 percent bond is a municipal bond, and the 5 percent bond is a U.S. government bond.

Question 11

Which of the following people purchased the correct asset to meet his or her objective?

Accepted Answer

A)  Michelle wanted to be a part owner of Mamma Rosa's Pizza, so she purchased a bond issued by Mamma Rosa's Pizza. 
B)  Tim wanted a high return, even if it meant taking some risk, so he purchased stock issued by Specific Electric instead of bonds issued by Specific Electric. 
C)  Jennifer wanted to buy equity in Honda, so she purchased bonds sold by Honda. 
D)  All of the above are correct. 
A)  Michelle wanted to be a part owner of Mamma Rosa's Pizza, so she purchased a bond issued by Mamma Rosa's Pizza. 
B)  Tim wanted a high return, even if it meant taking some risk, so he purchased stock issued by Specific Electric instead of bonds issued by Specific Electric. 
C)  Jennifer wanted to buy equity in Honda, so she purchased bonds sold by Honda. 
D)  All of the above are correct.

Question 12

A closed economy does not engage in international trade, therefore

Accepted Answer

A)  national saving is less than investment (S  I. 
D)  national saving is zero. 
A)  national saving is less than investment (S  I. 
D)  national saving is zero.

Question 13

Figure 26-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves.  
-Refer to Figure 26-2. What is measured along the horizontal axis of the graph?

Accepted Answer

A)  the quantity of loanable funds 
B)  the size of the government budget deficit or surplus 
C)  the real interest rate 
D)  the nominal interest rate 
A)  the quantity of loanable funds 
B)  the size of the government budget deficit or surplus 
C)  the real interest rate 
D)  the nominal interest rate

Question 14

If the government reduces transfer payments, what happens to the budget deficit? What curve does this change in the market for loanable funds, which direction does it shift, and what happens to the equilibrium interest rate?

Accepted Answer

A reduction in transfer paymen

Question 15

If you were to start a business delivering documents, you might need to purchase cell phones, bicycles, desks, and chairs.

Accepted Answer

A)  These purchases are called capital investment. If you raise the funds to purchase them from others you are a saver. 
B)  These purchases are called capital investment. If you raise the funds to purchase them from others you are a borrower. 
C)  These purchases are called consumption. If you raise the funds to purchase them from others you are a saver. 
D)  These purchases are called consumption. If you raise the funds to purchase them from others you are a borrower. 
A)  These purchases are called capital investment. If you raise the funds to purchase them from others you are a saver. 
B)  These purchases are called capital investment. If you raise the funds to purchase them from others you are a borrower. 
C)  These purchases are called consumption. If you raise the funds to purchase them from others you are a saver. 
D)  These purchases are called consumption. If you raise the funds to purchase them from others you are a borrower.

Question 16

Banks and mutual funds are examples of financial markets.

Accepted Answer

A) True 
 B)False

Question 17

If the government's expenditures exceeded its receipts, it would likely

Accepted Answer

A)  lend money to a bank or other financial intermediary. 
B)  borrow money from a bank or other financial intermediary. 
C)  buy bonds directly from the public. 
D)  sell bonds directly to the public. 
A)  lend money to a bank or other financial intermediary. 
B)  borrow money from a bank or other financial intermediary. 
C)  buy bonds directly from the public. 
D)  sell bonds directly to the public.

Question 18

Long-term bonds are

Accepted Answer

A)  riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
B)  riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
C)  less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
D)  less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
A)  riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
B)  riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
C)  less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
D)  less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

Question 19

Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.

Accepted Answer

A) True 
 B)False

Question 20

Lenders buy bonds and borrowers sell them.

Accepted Answer

A) True 
 B)False

Exam 26: Saving, Investment, and the Financial System

In a closed economy, Y - C - G equals . The variable Y is , C is , and G is .

Scenario 26-3. Assume the following information for an imaginary, open economy. Consumption = $1,000; investment = $200; net exports = -$50; taxes = $230; private saving = $225; and national saving = $150. -Refer to Scenario 26-3. This economy's government is running a

Which of the following is a financial intermediary?

The Dow Jones Industrial Average is now based on the prices of the stocks of

Which of the following statements is correct?

Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market?

In a closed economy, what remains after paying for consumption and government purchases is

Which of the following is both a store of value and a common medium of exchange?

What would happen in the market for loanable funds if the government were to increase the tax on interest income?

Jerry has the choice of two bonds, one that pays 5 percent interest and one that pays 2 percent interest. Which of the following is most likely?

Which of the following people purchased the correct asset to meet his or her objective?

A closed economy does not engage in international trade, therefore

Figure 26-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. -Refer to Figure 26-2. What is measured along the horizontal axis of the graph?

If the government reduces transfer payments, what happens to the budget deficit? What curve does this change in the market for loanable funds, which direction does it shift, and what happens to the equilibrium interest rate?

If you were to start a business delivering documents, you might need to purchase cell phones, bicycles, desks, and chairs.

Banks and mutual funds are examples of financial markets.

If the government's expenditures exceeded its receipts, it would likely

Long-term bonds are

Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.

Lenders buy bonds and borrowers sell them.

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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