Question 1

An increase in the demand for loanable funds increases the equilibrium interest rate and decreases the equilibrium level of saving.

Accepted Answer

A) True 
 B)False

Question 2

What variable adjusts to balance demand and supply in the market for loanable funds?

Accepted Answer

The real i

Question 3

Which of the following statements about the term of a bond is correct?

Accepted Answer

A)  Term refers to the various characteristics of a bond, including its interest rate and tax treatment. 
B)  The term of a bond is determined entirely by its credit risk. 
C)  The term of a bond is determined entirely by how much sales charge the buyer of the bond pays when he or she purchases the bond. 
D)  Interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
A)  Term refers to the various characteristics of a bond, including its interest rate and tax treatment. 
B)  The term of a bond is determined entirely by its credit risk. 
C)  The term of a bond is determined entirely by how much sales charge the buyer of the bond pays when he or she purchases the bond. 
D)  Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

Question 4

If a firm sells a total of 100 shares of stock, then

Accepted Answer

A)  the supply of, and demand for, those shares determine the price per share. 
B)  each share represents ownership of 1 percent of the firm. 
C)  the firm is engaging in equity finance. 
D)  All of the above are correct. 
A)  the supply of, and demand for, those shares determine the price per share. 
B)  each share represents ownership of 1 percent of the firm. 
C)  the firm is engaging in equity finance. 
D)  All of the above are correct.

Question 5

For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that

Accepted Answer

A)  S = I. 
B)  S = 0. 
C)  I = S + NX. 
D)  S = I + NX. 
A)  S = I. 
B)  S = 0. 
C)  I = S + NX. 
D)  S = I + NX.

Question 6

Which of the following is both a financial institution and a financial intermediary?

Accepted Answer

A)  banks 
B)  stock exchanges 
C)  the bond market 
D)  All of the above are correct. 
A)  banks 
B)  stock exchanges 
C)  the bond market 
D)  All of the above are correct.

Question 7

Which of the following statements is correct?

Accepted Answer

A)  The total income in the economy that remains after paying for consumption and government purchases is called private saving. 
B)  The sum of private saving and national saving is called public saving. 
C)  For a closed economy, the sum of private saving and public saving must equal investment. 
D)  For a closed economy, the sum of consumption, national saving, and taxes must equal GDP. 
A)  The total income in the economy that remains after paying for consumption and government purchases is called private saving. 
B)  The sum of private saving and national saving is called public saving. 
C)  For a closed economy, the sum of private saving and public saving must equal investment. 
D)  For a closed economy, the sum of consumption, national saving, and taxes must equal GDP.

Question 8

If the budget deficit increases then

Accepted Answer

A)  saving and the interest rate rise 
B)  saving rises and the interest rate falls 
C)  saving falls and the interest rate rises 
D)  saving and the interest rate falls 
A)  saving and the interest rate rise 
B)  saving rises and the interest rate falls 
C)  saving falls and the interest rate rises 
D)  saving and the interest rate falls

Question 9

If the government budget deficit increases, which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

Accepted Answer

The supply of loanab

Question 10

Lenders sell bonds and borrowers buy them.

Accepted Answer

A) True 
 B)False

Question 11

A policy that induces people to save more shifts

Accepted Answer

A)  the supply of loanable funds rightward and increases investment. 
B)  the supply of loanable funds leftward and decreases investment. 
C)  the supply of loanable funds rightward and decreases investment. 
D)  the supply of loanable funds leftward and increases investment. 
A)  the supply of loanable funds rightward and increases investment. 
B)  the supply of loanable funds leftward and decreases investment. 
C)  the supply of loanable funds rightward and decreases investment. 
D)  the supply of loanable funds leftward and increases investment.

Question 12

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.  
-Refer to Figure 26-3. A shift of the demand curve from D1 to D2 is called

Accepted Answer

A)  an increase in the demand for loanable funds, and that increase would originate from people who had some extra income they wanted to lend. 
B)  an increase in the demand for loanable funds, and that increase would originate from households and firms who wish to borrow to make investments. 
C)  a decrease in the demand for loanable funds, and that decrease would originate from people who had some extra income they wanted to lend. 
D)  a decrease in the demand for loanable funds, and that decrease would originate from households and firms who wish to borrow to make investments. 
A)  an increase in the demand for loanable funds, and that increase would originate from people who had some extra income they wanted to lend. 
B)  an increase in the demand for loanable funds, and that increase would originate from households and firms who wish to borrow to make investments. 
C)  a decrease in the demand for loanable funds, and that decrease would originate from people who had some extra income they wanted to lend. 
D)  a decrease in the demand for loanable funds, and that decrease would originate from households and firms who wish to borrow to make investments.

Question 13

The amount of revenue a firm receives for the sale of its products minus its costs of production as measured by its accountants is the firm's

Accepted Answer

A)  earnings. 
B)  retained earnings. 
C)  economic, or real, profit. 
D)  dividend. 
A)  earnings. 
B)  retained earnings. 
C)  economic, or real, profit. 
D)  dividend.

Question 14

According to the loanable funds model, which of the following events would result in higher interest rates and greater saving?

Accepted Answer

A)  Firms become pessimistic about the future and, as a result, they cut back on their plans to buy new equipment and build new factories. 
B)  The government goes from running a budget deficit to running a budget surplus. 
C)  Congress passes a reform of the tax laws that encourages greater saving. 
D)  Congress passes a reform of the tax laws that encourages greater investment. 
A)  Firms become pessimistic about the future and, as a result, they cut back on their plans to buy new equipment and build new factories. 
B)  The government goes from running a budget deficit to running a budget surplus. 
C)  Congress passes a reform of the tax laws that encourages greater saving. 
D)  Congress passes a reform of the tax laws that encourages greater investment.

Question 15

If people expect future earnings of Galt Corporation to be high relative to current earnings, then

Accepted Answer

A)  the P/E ratio of its stock will be high. A P/E ratio of 8 is relatively high. 
B)  the P/E ratio of its stock will be high. A P/E ratio of 8 is relatively low. 
C)  the P/E ratio of its stock will be low. A P/E ratio of 8 is relatively high. 
D)  the P/E ratio of its stock will be low. A P/E ratio of 8 is relatively low. 
A)  the P/E ratio of its stock will be high. A P/E ratio of 8 is relatively high. 
B)  the P/E ratio of its stock will be high. A P/E ratio of 8 is relatively low. 
C)  the P/E ratio of its stock will be low. A P/E ratio of 8 is relatively high. 
D)  the P/E ratio of its stock will be low. A P/E ratio of 8 is relatively low.

Question 16

According to the definitions of national saving and private saving, if Y, C, and G remained the same, an increase in taxes would

Accepted Answer

A)  raise both national saving and private saving. 
B)  raise national saving and reduce private saving. 
C)  leave national saving and private saving unchanged. 
D)  leave national saving unchanged and reduce private saving. 
A)  raise both national saving and private saving. 
B)  raise national saving and reduce private saving. 
C)  leave national saving and private saving unchanged. 
D)  leave national saving unchanged and reduce private saving.

Question 17

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy.  
-Refer to Figure 26-5. Starting at point A, a reduction in government spending would cause

Accepted Answer

A)  the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% (point 
C) . 
B)  the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to 5% (point 
B) . 
C)  the quantity of loanable funds traded to increase to $125 and the interest rate to fall to 5% (point 
D) . 
D)  the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to 7% (point 
E) . 
A)  the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% (point 
C) . 
B)  the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to 5% (point 
B) . 
C)  the quantity of loanable funds traded to increase to $125 and the interest rate to fall to 5% (point 
D) . 
D)  the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to 7% (point 
E) .

Question 18

Which of the following involves financial intermediation?

Accepted Answer

A)  a bank makes a loan 
B)  a household buys stock issued by a corporation 
C)  a foreign government purchases U.S. government bonds 
D)  All of the above are correct. 
A)  a bank makes a loan 
B)  a household buys stock issued by a corporation 
C)  a foreign government purchases U.S. government bonds 
D)  All of the above are correct.

Question 19

Which of the following equations will always represent GDP in an open economy?

Accepted Answer

A)  S = I - G 
B)  I = Y - C + G 
C)  Y = C + I + G 
D)  Y = C + I + G + NX 
A)  S = I - G 
B)  I = Y - C + G 
C)  Y = C + I + G 
D)  Y = C + I + G + NX

Question 20

Which of the following counts as part of the supply of loanable funds?

Accepted Answer

A)  bank deposits and purchases of bonds 
B)  bank deposits but not purchases of bonds 
C)  purchases of bonds but not bank deposits 
D)  neither purchases of bonds nor bank deposits 
A)  bank deposits and purchases of bonds 
B)  bank deposits but not purchases of bonds 
C)  purchases of bonds but not bank deposits 
D)  neither purchases of bonds nor bank deposits

Exam 26: Saving, Investment, and the Financial System

An increase in the demand for loanable funds increases the equilibrium interest rate and decreases the equilibrium level of saving.

What variable adjusts to balance demand and supply in the market for loanable funds?

Which of the following statements about the term of a bond is correct?

If a firm sells a total of 100 shares of stock, then

For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that

Which of the following is both a financial institution and a financial intermediary?

Which of the following statements is correct?

If the budget deficit increases then

If the government budget deficit increases, which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

Lenders sell bonds and borrowers buy them.

A policy that induces people to save more shifts

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. A shift of the demand curve from D1 to D2 is called

The amount of revenue a firm receives for the sale of its products minus its costs of production as measured by its accountants is the firm's

According to the loanable funds model, which of the following events would result in higher interest rates and greater saving?

If people expect future earnings of Galt Corporation to be high relative to current earnings, then

According to the definitions of national saving and private saving, if Y, C, and G remained the same, an increase in taxes would

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. -Refer to Figure 26-5. Starting at point A, a reduction in government spending would cause

Which of the following involves financial intermediation?

Which of the following equations will always represent GDP in an open economy?

Which of the following counts as part of the supply of loanable funds?

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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