Question 1

Which of the following both make the interest rate on a bond higher than otherwise?

Accepted Answer

A)  the interest it pays is taxed and it was issued by a financially strong corporation 
B)  the interest it pays is taxed and it was issued by a financially weak corporation 
C)  the interest it pays is tax exempt and it was issued by a financially strong corporation 
D)  the interest it pays is tax exempt and it was issued by a financially weak corporation 
A)  the interest it pays is taxed and it was issued by a financially strong corporation 
B)  the interest it pays is taxed and it was issued by a financially weak corporation 
C)  the interest it pays is tax exempt and it was issued by a financially strong corporation 
D)  the interest it pays is tax exempt and it was issued by a financially weak corporation

Question 2

Compared to short-term bonds, other things the same, long-term bonds generally have

Accepted Answer

A)  more risk and so they pay higher interest rates. 
B)  less risk and so they pay lower interest rates. 
C)  less risk and so they pay higher interest rates. 
D)  about the same risk and so they pay about the same interest rate. 
A)  more risk and so they pay higher interest rates. 
B)  less risk and so they pay lower interest rates. 
C)  less risk and so they pay higher interest rates. 
D)  about the same risk and so they pay about the same interest rate.

Question 3

The purchase of a new house is the one form of

Accepted Answer

A)  investment that is financed by private saving rather than public saving. 
B)  household spending that is not counted as part of investment in the national income accounts. 
C)  household spending that is investment rather than consumption. 
D)  household spending that does not contribute to GDP. 
A)  investment that is financed by private saving rather than public saving. 
B)  household spending that is not counted as part of investment in the national income accounts. 
C)  household spending that is investment rather than consumption. 
D)  household spending that does not contribute to GDP.

Question 4

Which of the following would shift the demand for loanable funds to the right?

Accepted Answer

A)  income tax increases 
B)  government expenditures increase 
C)  the interest rate falls 
D)  Congress and the president pass an investment tax credit 
A)  income tax increases 
B)  government expenditures increase 
C)  the interest rate falls 
D)  Congress and the president pass an investment tax credit

Question 5

A creditor of a corporation holds

Accepted Answer

A)  bonds sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders. 
B)  bonds sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders. 
C)  stocks sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders. 
D)  stocks sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders. 
A)  bonds sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders. 
B)  bonds sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders. 
C)  stocks sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders. 
D)  stocks sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders.

Question 6

Other things the same, a higher interest rate induces people to

Accepted Answer

A)  save more, so the supply of loanable funds slopes upward. 
B)  save less, so the supply of loanable funds slopes downward. 
C)  invest more, so the supply of loanable funds slopes upward. 
D)  invest less, so the supply of loanable funds slopes downward. 
A)  save more, so the supply of loanable funds slopes upward. 
B)  save less, so the supply of loanable funds slopes downward. 
C)  invest more, so the supply of loanable funds slopes upward. 
D)  invest less, so the supply of loanable funds slopes downward.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

National saving

Accepted Answer

A)  is the total income in the economy that remains after paying for consumption. 
B)  is the total income in the economy that remains after paying for consumption and government purchases. 
C)  is always greater than investment for a closed economy. 
D)  is equal to private saving minus public saving. 
A)  is the total income in the economy that remains after paying for consumption. 
B)  is the total income in the economy that remains after paying for consumption and government purchases. 
C)  is always greater than investment for a closed economy. 
D)  is equal to private saving minus public saving.

Question 9

If Congress instituted an investment tax credit, the interest rate would

Accepted Answer

A)  rise and saving would rise. 
B)  fall and saving would fall. 
C)  rise and saving would fall. 
D)  fall and saving would rise. 
A)  rise and saving would rise. 
B)  fall and saving would fall. 
C)  rise and saving would fall. 
D)  fall and saving would rise.

Question 10

In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving?

Accepted Answer

Investment = $100, T

Question 11

An increase in the government budget deficit causes national saving to _____, the interest rate to _____, and investment to _____.

Accepted Answer

decrease,

Question 12

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 4 percent, then the equilibrium real interest rate is

Accepted Answer

A)  lower than 6 percent. 
B)  6 percent. 
C)  between 6 percent and 8 percent. 
D)  higher than 8 percent. 
A)  lower than 6 percent. 
B)  6 percent. 
C)  between 6 percent and 8 percent. 
D)  higher than 8 percent.

Question 13

Which of the following bond buyers did not buy the bond that best met his or her objective?

Accepted Answer

A)  Jackie wanted a bond with a high interest rate and was willing to take a lot of risk. She purchased a junk bond. 
B)  Andrew wanted a bond that would allow him to legally avoid paying federal income taxes. He purchased a municipal bond. 
C)  Suzy wanted to purchase a bond whose seller was unlikely to default. She purchased a bond that Standards and Poor's rated a low credit risk. 
D)  Cecilia held long-term bonds rather than short-term bonds to avoid risk. 
A)  Jackie wanted a bond with a high interest rate and was willing to take a lot of risk. She purchased a junk bond. 
B)  Andrew wanted a bond that would allow him to legally avoid paying federal income taxes. He purchased a municipal bond. 
C)  Suzy wanted to purchase a bond whose seller was unlikely to default. She purchased a bond that Standards and Poor's rated a low credit risk. 
D)  Cecilia held long-term bonds rather than short-term bonds to avoid risk.

Question 14

If the supply for loanable funds shifts to the left, then the equilibrium interest rate

Accepted Answer

A)  and quantity of loanable funds rises. 
B)  and quantity of loanable funds falls. 
C)  rises and the quantity of loanable funds falls. 
D)  falls and the quantity of loanable funds rises. 
A)  and quantity of loanable funds rises. 
B)  and quantity of loanable funds falls. 
C)  rises and the quantity of loanable funds falls. 
D)  falls and the quantity of loanable funds rises.

Question 15

The primary economic function of the financial system is to

Accepted Answer

A)  keep interest rates low. 
B)  provide expert advice to savers and investors. 
C)  match one person's consumption expenditures with another person's capital expenditures. 
D)  match one person's saving with another person's investment. 
A)  keep interest rates low. 
B)  provide expert advice to savers and investors. 
C)  match one person's consumption expenditures with another person's capital expenditures. 
D)  match one person's saving with another person's investment.

Question 16

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that

Accepted Answer

A)  Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation. 
B)  Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the state of New York. 
C)  Bond A has a term of 1 year and Bond B has a term of 5 years. 
D)  All of the above are correct. 
A)  Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation. 
B)  Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the state of New York. 
C)  Bond A has a term of 1 year and Bond B has a term of 5 years. 
D)  All of the above are correct.

Question 17

If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would happen to interest rates?

Accepted Answer

There is a

Question 18

Which of the following statements is correct?

Accepted Answer

A)  Stocks, bonds, and deposits are all similar in that each provides a common medium of exchange. 
B)  Most buyers of stocks and bonds prefer those issued by large and familiar companies. 
C)  Banks charge borrowers a slightly lower interest rate than they pay to depositors. 
D)  None of the above is correct. 
A)  Stocks, bonds, and deposits are all similar in that each provides a common medium of exchange. 
B)  Most buyers of stocks and bonds prefer those issued by large and familiar companies. 
C)  Banks charge borrowers a slightly lower interest rate than they pay to depositors. 
D)  None of the above is correct.

Question 19

Compared to bondholders, stockholders

Accepted Answer

A)  face higher risk and have the potential for higher returns. 
B)  face higher risk but receive a fixed payment. 
C)  face lower risk and have the potential for higher returns. 
D)  face lower risk but receive a fixed payment. 
A)  face higher risk and have the potential for higher returns. 
B)  face higher risk but receive a fixed payment. 
C)  face lower risk and have the potential for higher returns. 
D)  face lower risk but receive a fixed payment.

Question 20

Bonds issued by state and local governments are called _____ bonds. Bonds issued by financially shaky corporations are called _____ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

Accepted Answer

municipal,

Exam 26: Saving, Investment, and the Financial System

Which of the following both make the interest rate on a bond higher than otherwise?

Compared to short-term bonds, other things the same, long-term bonds generally have

The purchase of a new house is the one form of

Which of the following would shift the demand for loanable funds to the right?

A creditor of a corporation holds

Other things the same, a higher interest rate induces people to

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

National saving

If Congress instituted an investment tax credit, the interest rate would

In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving?

An increase in the government budget deficit causes national saving to _____, the interest rate to _____, and investment to _____.

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 4 percent, then the equilibrium real interest rate is

Which of the following bond buyers did not buy the bond that best met his or her objective?

If the supply for loanable funds shifts to the left, then the equilibrium interest rate

The primary economic function of the financial system is to

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that

If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would happen to interest rates?

Which of the following statements is correct?

Compared to bondholders, stockholders

Bonds issued by state and local governments are called _____ bonds. Bonds issued by financially shaky corporations are called _____ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

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

An increase in the government budget deficit causes national saving to ___, the interest rate to _, and investment to ___.

Bonds issued by state and local governments are called _ bonds. Bonds issued by financially shaky corporations are called _ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?