Question 1

Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to Joan's purchase as investment.

Accepted Answer

A) True 
 B)False

Question 2

The real interest rate is the

Accepted Answer

A)  interest rate corrected for inflation. 
B)  interest rate as usually reported by banks. 
C)  difference between the interest rate charged by banks on the loans they make and the interest rate paid by banks to their depositors. 
D)  difference between the average dividend yield on stocks and the average interest rate on bonds. 
A)  interest rate corrected for inflation. 
B)  interest rate as usually reported by banks. 
C)  difference between the interest rate charged by banks on the loans they make and the interest rate paid by banks to their depositors. 
D)  difference between the average dividend yield on stocks and the average interest rate on bonds.

Question 3

Suppose the issuer of a bond fails to pay some of the interest or principal that was promised to the bondholders. This failure is referred to as a

Accepted Answer

A)  breach. 
B)  default. 
C)  risk. 
D)  term failure. 
A)  breach. 
B)  default. 
C)  risk. 
D)  term failure.

Question 4

Suppose a country has a consumption tax that is similar to a state sales tax. If its government were to eliminate the consumption tax and replace it with an income tax that includes an income tax on interest from savings, what would happen?

Accepted Answer

A)  There would be no change in the interest rate or saving. 
B)  The interest rate would decrease and saving would increase. 
C)  The interest rate would increase and saving would decrease. 
D)  None of the above is correct. 
A)  There would be no change in the interest rate or saving. 
B)  The interest rate would decrease and saving would increase. 
C)  The interest rate would increase and saving would decrease. 
D)  None of the above is correct.

Question 5

Which of the following lists correctly identifies the four expenditure categories of GDP?

Accepted Answer

A)  consumption, government purchases, investment, net-exports 
B)  consumption, investment, depreciation, net-exports 
C)  consumption, saving, investment, depreciation, 
D)  consumption, government purchases, investment, savings 
A)  consumption, government purchases, investment, net-exports 
B)  consumption, investment, depreciation, net-exports 
C)  consumption, saving, investment, depreciation, 
D)  consumption, government purchases, investment, savings

Question 6

Other things the same, which bond would you expect to pay the lowest interest rate?

Accepted Answer

A)  a bond issued by a state with a very good credit rating 
B)  a bond issued by the U.S. government 
C)  a bond issued by a fairly new company doing genetic research 
D)  a bond issued by Nabisco 
A)  a bond issued by a state with a very good credit rating 
B)  a bond issued by the U.S. government 
C)  a bond issued by a fairly new company doing genetic research 
D)  a bond issued by Nabisco

Question 7

At the broadest level, the financial system moves the economy's scarce resources from

Accepted Answer

A)  the rich to the poor. 
B)  financial institutions to business firms and government. 
C)  households to financial institutions. 
D)  savers to borrowers. 
A)  the rich to the poor. 
B)  financial institutions to business firms and government. 
C)  households to financial institutions. 
D)  savers to borrowers.

Question 8

The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms.

Accepted Answer

A) True 
 B)False

Question 9

Scenario 26-1. Assume the following information for an imaginary, closed economy.
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000.
-Refer to Scenario 26-1. This economy's government is running a

Accepted Answer

A)  budget surplus of $3,000. 
B)  budget surplus of $12,000. 
C)  budget deficit of $3,000. 
D)  budget deficit of $12,000. 
A)  budget surplus of $3,000. 
B)  budget surplus of $12,000. 
C)  budget deficit of $3,000. 
D)  budget deficit of $12,000.

Question 10

If the supply of and demand for loanable funds both shift left, which of the following necessarily happens?

Accepted Answer

A)  the equilibrium interest rate falls 
B)  the equilibrium interest rate rises 
C)  the equilibrium quantity of loanable funds rises 
D)  the equilibrium quantity of loanable funds falls 
A)  the equilibrium interest rate falls 
B)  the equilibrium interest rate rises 
C)  the equilibrium quantity of loanable funds rises 
D)  the equilibrium quantity of loanable funds falls

Question 11

The U.S. government increases its budget deficit, but at the same time Congress eliminates an investment tax credit. Which of the following is correct?

Accepted Answer

A)  The interest rate will increase; investment may increase or decrease. 
B)  The interest rate will decrease; investment may increase or decrease. 
C)  The interest rate may increase or decrease; investment will decrease. 
D)  The interest rate may increase or decrease; investment will increase. 
A)  The interest rate will increase; investment may increase or decrease. 
B)  The interest rate will decrease; investment may increase or decrease. 
C)  The interest rate may increase or decrease; investment will decrease. 
D)  The interest rate may increase or decrease; investment will increase.

Question 12

Which of the following statements is correct?

Accepted Answer

A)  A large, well-known corporation such as Intel generally would use financial intermediation to finance expansion of its facilities. 
B)  On average, managed funds outperform indexed funds. 
C)  Unlike corporate bonds and stocks, checking accounts are a medium of exchange. 
D)  A mutual fund is a financial market. 
A)  A large, well-known corporation such as Intel generally would use financial intermediation to finance expansion of its facilities. 
B)  On average, managed funds outperform indexed funds. 
C)  Unlike corporate bonds and stocks, checking accounts are a medium of exchange. 
D)  A mutual fund is a financial market.

Question 13

The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:

Accepted Answer

A)  "Buy low­risk bonds." 
B)  "Use a medium of exchange." 
C)  "Diversify." 
D)  "Intermediate." 
A)  "Buy low­risk bonds." 
B)  "Use a medium of exchange." 
C)  "Diversify." 
D)  "Intermediate."

Question 14

Corporations receive no proceeds from the resale of their stock.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A)  the supply of loanable funds shifted right. 
B)  the supply of loanable funds shifted left. 
C)  the demand for loanable funds shifted right. 
D)  the demand for loanable funds shifted left. 
A)  the supply of loanable funds shifted right. 
B)  the supply of loanable funds shifted left. 
C)  the demand for loanable funds shifted right. 
D)  the demand for loanable funds shifted left.

Question 16

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

Accepted Answer

A) True 
 B)False

Question 17

If Congress increased the tax rate on interest income, investment

Accepted Answer

A)  would increase and saving would decrease. 
B)  would decrease and saving would increase. 
C)  and saving would increase. 
D)  and saving would decrease. 
A)  would increase and saving would decrease. 
B)  would decrease and saving would increase. 
C)  and saving would increase. 
D)  and saving would decrease.

Question 18

In a closed economy, investment must be equal to private saving.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is correct?

Accepted Answer

A)  As a group, economists see no purpose in distinguishing between the nominal interest rate and the real interest rate. 
B)  The interest rate that is usually reported is the nominal interest rate. 
C)  If the nominal interest rate increases and the inflation rate remains unchanged, then the real interest rate decreases. 
D)  All of the above are correct. 
A)  As a group, economists see no purpose in distinguishing between the nominal interest rate and the real interest rate. 
B)  The interest rate that is usually reported is the nominal interest rate. 
C)  If the nominal interest rate increases and the inflation rate remains unchanged, then the real interest rate decreases. 
D)  All of the above are correct.

Question 20

The primary advantage of mutual funds is that they

Accepted Answer

A)  always make a return that "beats the market." 
B)  allow people with small amounts of money to diversify. 
C)  provide customers with a medium of exchange. 
D)  All of the above are correct. 
A)  always make a return that "beats the market." 
B)  allow people with small amounts of money to diversify. 
C)  provide customers with a medium of exchange. 
D)  All of the above are correct.

Exam 26: Saving, Investment, and the Financial System

Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to Joan's purchase as investment.

The real interest rate is the

Suppose the issuer of a bond fails to pay some of the interest or principal that was promised to the bondholders. This failure is referred to as a

Suppose a country has a consumption tax that is similar to a state sales tax. If its government were to eliminate the consumption tax and replace it with an income tax that includes an income tax on interest from savings, what would happen?

Which of the following lists correctly identifies the four expenditure categories of GDP?

Other things the same, which bond would you expect to pay the lowest interest rate?

At the broadest level, the financial system moves the economy's scarce resources from

The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms.

Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. -Refer to Scenario 26-1. This economy's government is running a

If the supply of and demand for loanable funds both shift left, which of the following necessarily happens?

The U.S. government increases its budget deficit, but at the same time Congress eliminates an investment tax credit. Which of the following is correct?

Which of the following statements is correct?

The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:

Corporations receive no proceeds from the resale of their stock.

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

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

If Congress increased the tax rate on interest income, investment

In a closed economy, investment must be equal to private saving.

Which of the following statements is correct?

The primary advantage of mutual funds is that they

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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