Question 1

An increase in the government's budget surplus means

Accepted Answer

A)  public saving is greater than $0 and increasing. 
B)  public saving is greater than $0 and decreasing. 
C)  public saving is less than $0 and increasing. 
D)  public saving is less than $0 and decreasing. 
A)  public saving is greater than $0 and increasing. 
B)  public saving is greater than $0 and decreasing. 
C)  public saving is less than $0 and increasing. 
D)  public saving is less than $0 and decreasing.

Question 2

Which of the following restrictions implies that private saving and investment are equal for a closed economy?

Accepted Answer

A)  Consumption and private saving are equal. 
B)  The economy's government is running neither a surplus nor a deficit. 
C)  Private saving and public saving are both zero. 
D)  No restriction is necessary; private saving and investment are equal for all closed economies. 
A)  Consumption and private saving are equal. 
B)  The economy's government is running neither a surplus nor a deficit. 
C)  Private saving and public saving are both zero. 
D)  No restriction is necessary; private saving and investment are equal for all closed economies.

Question 3

Which of the following statements is correct?

Accepted Answer

A)  A large, well-known corporation such as Proctor and Gamble would generally use financial intermediation to finance expansion of its factories. 
B)  On average, indexed funds outperform managed funds. 
C)  Unlike corporate bonds and stocks, checking accounts are a store of value. 
D)  Financial intermediaries are institutions through which savers can directly provide funds to borrowers. 
A)  A large, well-known corporation such as Proctor and Gamble would generally use financial intermediation to finance expansion of its factories. 
B)  On average, indexed funds outperform managed funds. 
C)  Unlike corporate bonds and stocks, checking accounts are a store of value. 
D)  Financial intermediaries are institutions through which savers can directly provide funds to borrowers.

Question 4

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

Accepted Answer

Question 5

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

Accepted Answer

A)  There would be an increase in the amount of loanable funds borrowed. 
B)  There would be a reduction in the amount of loanable funds borrowed. 
C)  There would be no change in the amount of loanable funds borrowed. 
D)  The change in loanable funds is uncertain. 
A)  There would be an increase in the amount of loanable funds borrowed. 
B)  There would be a reduction in the amount of loanable funds borrowed. 
C)  There would be no change in the amount of loanable funds borrowed. 
D)  The change in loanable funds is uncertain.

Question 6

Which of the following would be included as investment in the GDP accounts?

Accepted Answer

A)  the government buys goods from another country 
B)  someone buys stock in an American company 
C)  a firm increases its capital stock 
D)  All of the above are correct. 
A)  the government buys goods from another country 
B)  someone buys stock in an American company 
C)  a firm increases its capital stock 
D)  All of the above are correct.

Question 7

Which of the following restrictions implies that saving and investment are equal for a closed economy?

Accepted Answer

A)  Private saving is equal to zero. 
B)  Public saving is equal to zero. 
C)  The economy's government is running neither a surplus nor a deficit. 
D)  No restriction is necessary; saving and investment are equal for all closed economies. 
A)  Private saving is equal to zero. 
B)  Public saving is equal to zero. 
C)  The economy's government is running neither a surplus nor a deficit. 
D)  No restriction is necessary; saving and investment are equal for all closed economies.

Question 8

For an imaginary economy, when the real interest rate is 7 percent, the quantity of loanable funds demanded is $500 and the quantity of loanable funds supplied is $500. Currently, the nominal interest rate is 9 percent and the inflation rate is 4 percent. Currently,

Accepted Answer

A)  the market for loanable funds is in equilibrium. 
B)  the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will rise. 
C)  the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall. 
D)  the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, and as a result the real interest rate will rise. 
A)  the market for loanable funds is in equilibrium. 
B)  the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will rise. 
C)  the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall. 
D)  the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, and as a result the real interest rate will rise.

Question 9

Public saving is equal to national saving minus private saving.

Accepted Answer

A) True 
 B)False

Question 10

We associate the term debt finance with

Accepted Answer

A)  the bond market, and we associate the term equity finance with the stock market. 
B)  the stock market, and we associate the term equity finance with the bond market. 
C)  financial intermediaries, and we associate the term equity finance with financial markets. 
D)  financial markets, and we associate the term equity finance with financial intermediaries. 
A)  the bond market, and we associate the term equity finance with the stock market. 
B)  the stock market, and we associate the term equity finance with the bond market. 
C)  financial intermediaries, and we associate the term equity finance with financial markets. 
D)  financial markets, and we associate the term equity finance with financial intermediaries.

Question 11

The slope of the demand for loanable funds curve represents the

Accepted Answer

A)  positive relation between the real interest rate and investment. 
B)  negative relation between the real interest rate and investment. 
C)  positive relation between the real interest rate and saving. 
D)  negative relation between the real interest rate and saving. 
A)  positive relation between the real interest rate and investment. 
B)  negative relation between the real interest rate and investment. 
C)  positive relation between the real interest rate and saving. 
D)  negative relation between the real interest rate and saving.

Question 12

What happens to desired investment spending if the interest rate rises? Is this response relevant to the supply of loanable funds curve or the demand for loanable funds curve?

Accepted Answer

Investment spending

Question 13

If Congress instituted an investment tax credit

Accepted Answer

A)  it would make buying bonds more desirable, so the demand for loanable funds would shift. 
B)  it would make buying capital goods more desirable, so the demand for loanable funds would shift. 
C)  it would make buying bonds more desirable, so the supply of loanable funds would shift. 
D)  it would make buying capital goods more desirable, so the supply of loanable funds would shift. 
A)  it would make buying bonds more desirable, so the demand for loanable funds would shift. 
B)  it would make buying capital goods more desirable, so the demand for loanable funds would shift. 
C)  it would make buying bonds more desirable, so the supply of loanable funds would shift. 
D)  it would make buying capital goods more desirable, so the supply of loanable funds would shift.

Question 14

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. For this economy, government purchases amount to

Accepted Answer

A)  $330. 
B)  $280. 
C)  $305. 
D)  $310. 
A)  $330. 
B)  $280. 
C)  $305. 
D)  $310.

Question 15

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Accepted Answer

As shown in the graph below, the economy

Question 16

Suppose the economy is closed with national saving of $3 trillion, consumption of $10 trillion, and government purchases of $4 trillion. What is GDP?

Accepted Answer

A)  $3 trillion 
B)  $9 trillion 
C)  $11 trillion 
D)  $17 trillion 
A)  $3 trillion 
B)  $9 trillion 
C)  $11 trillion 
D)  $17 trillion

Question 17

A municipal bond is

Accepted Answer

A)  issued by the federal government. 
B)  issued by state and local governments. 
C)  issued by corporations. 
D)  issued by households. 
A)  issued by the federal government. 
B)  issued by state and local governments. 
C)  issued by corporations. 
D)  issued by households.

Question 18

A decrease in taxes on interest income would increase the interest rate.

Accepted Answer

A) True 
 B)False

Question 19

Mallard Corporation had a price-earnings ratio of 15, paid a dividend of $3, and retained earnings of $1 a share. What was the price of a share of Mallard stock?

Accepted Answer

A)  $15 
B)  $30 
C)  $45 
D)  $60. 
A)  $15 
B)  $30 
C)  $45 
D)  $60.

Question 20

Banks

Accepted Answer

A)  play a role in creating an asset that people can use as a medium of exchange. 
B)  are financial intermediaries, but mutual funds are not financial intermediaries. 
C)  are financial markets, as are bond markets. 
D)  All of the above are correct. 
A)  play a role in creating an asset that people can use as a medium of exchange. 
B)  are financial intermediaries, but mutual funds are not financial intermediaries. 
C)  are financial markets, as are bond markets. 
D)  All of the above are correct.

Exam 26: Saving, Investment, and the Financial System

An increase in the government's budget surplus means

Which of the following restrictions implies that private saving and investment are equal for a closed economy?

Which of the following statements is correct?

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

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

Which of the following would be included as investment in the GDP accounts?

Which of the following restrictions implies that saving and investment are equal for a closed economy?

For an imaginary economy, when the real interest rate is 7 percent, the quantity of loanable funds demanded is $500 and the quantity of loanable funds supplied is $500. Currently, the nominal interest rate is 9 percent and the inflation rate is 4 percent. Currently,

Public saving is equal to national saving minus private saving.

We associate the term debt finance with

The slope of the demand for loanable funds curve represents the

What happens to desired investment spending if the interest rate rises? Is this response relevant to the supply of loanable funds curve or the demand for loanable funds curve?

If Congress instituted an investment tax credit

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. For this economy, government purchases amount to

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Suppose the economy is closed with national saving of $3 trillion, consumption of $10 trillion, and government purchases of $4 trillion. What is GDP?

A municipal bond is

A decrease in taxes on interest income would increase the interest rate.

Mallard Corporation had a price-earnings ratio of 15, paid a dividend of $3, and retained earnings of $1 a share. What was the price of a share of Mallard stock?

Banks

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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