Question 1

In the loanable funds market which of the following is true?

Accepted Answer

A)   Borrowers represent supply and government represents demand.
B)   Borrowers represent supply and banks represent demand.
C)   Banks represent supply and savers represent demand.
D)   Savers represent supply and borrowers represent demand. D

Question 2

Which of the following is true regarding bonds?

Accepted Answer

A)   Other things equal, bondholders have greater financial security than stockholders.
B)   The possibility of a bond's value increasing greatly is limited compared to stocks.
C)   The legal obligation to bondholders is of higher priority than that of stockholders.
D)   Higher market interest rates represent a risk to bondholders.
E)   all of the above E

Question 3

Which of the following was not a reason for the financial collapse in 2008?

Accepted Answer

A)   inaccurate ratings by S&P and Moody's
B)   government promoting aggressive mortgage lending
C)   pooling of mortgage backed securities
D)   the absence of financial leveraging in the banking industry D

Question 4

A rational individual would rather receive $1,000 today than receive $1,100 in one year if the applicable nominal interest rate was 12%.

Accepted Answer

A) True 
 B)False

Question 5

A bank is an example of a financial intermediary.

Accepted Answer

A) True 
 B)False

Question 6

A government budget deficit will have a:

Accepted Answer

A)   positive effect on public saving causing a rightward shift in the supply of loanable funds.
B)   positive effect on public saving causing a leftward shift in the supply of loanable funds.
C)   negative effect on public saving causing a rightward shift in the supply of loanable funds.
D)   negative effect on public saving causing a leftward shift in the supply of loanable funds.

Question 7

Which of the following is likely to increase the equilibrium real interest rate?

Accepted Answer

A)   greater tax benefits for IRAs
B)   technological improvement creating profitable investment opportunities
C)   elimination of an investment tax credit for corporations
D)   an increased consumption tax

Question 8

In 2005 and 2006,because of fears of inflation,the Fed:

Accepted Answer

A)   increased interest rates which lead to higher monthly payments on fixed rate mortgages.
B)   increased interest rates which lead to higher monthly payments on adjustable rate mortgages.
C)   decreased interest rates which lead to higher monthly payments on fixed rate mortgages.
D)   decreased interest rates which lead to higher monthly payments on adjustable rate mortgages.

Question 9

Why are real interest rates more important than nominal interest rates with regard to analyzing the supply and demand of loanable funds?

Accepted Answer

The answer of Why are real interest rates more important...

Question 10

If the government runs a deficit,which of the following will be true?

Accepted Answer

A)   T > G - TR
B)   T 
C)   T > G + TR
D)   T < G + TR

Question 11

Other things held constant,investment in physical capital will increase:

Accepted Answer

A)   labor productivity.
B)   national income.
C)   wages.
D)   all of the above

Question 12

Exhibit 21-1  Refer to Exhibit 21-1.Which of the following is true of Home Depot stock on this day?

Accepted Answer

A)   It decreased in price compared to the previous day's close.
B)   It is trading near its 52-week low.
C)   It pays a dividend of $3.10 per share.
D)   More than 11,000,000 shares were traded.

Question 13

In 2005,the percentages of mortgages that were considered sub-prime:

Accepted Answer

A)   increased dramatically.
B)   increased minimally.
C)   decreased minimally.
D)   decreased dramatically.

Question 14

Rank bonds,common stock,and preferred stock with regard to two factors the possibility of a substantial increase in value.Rank these same securities with regard to investors' legal claims for repayment on their investments.

Accepted Answer

The answer of Rank bonds,common stock,and preferred stock with regard...

Question 15

Which of the following statements is true with regard to the Fed's response to the economic crisis of 2008?

Accepted Answer

A)   Although the Fed lowered its interest rates to nearly zero, there are other actions it can take to improve the economy.
B)   Because the Fed lowered its interest rates to nearly zero, there are no other actions it can take to improve the economy.
C)   Since the Fed did not lower its interest rates to near zero, there are still other actions it can take to improve the economy.
D)   none of the above

Question 16

The actions of a miser benefit ____ and the actions of a philanthropist benefit ____.

Accepted Answer

A)   a select few; a wide range of individuals
B)   a wide range of individuals; a select few
C)   a wide range of individuals; a wide range of individuals
D)   a select few; a select few

Question 17

What is the present value of $5,000 to be received in one year if the current market interest rate is 6.0%?

Accepted Answer

A)   $3,125
B)   $4,717
C)   $4,923
D)   $5,300

Question 18

Which of the following is not true with regard to mutual funds?

Accepted Answer

A)   Some mutual funds allow investors to invest in all stocks in a given market.
B)   Mutual fund returns are greater than those for an individual who selects his/her own stocks.
C)   They allow individuals to spread risk across many different companies.
D)   Investors gain access to the services of a financial expert.

Question 19

Public saving equals:

Accepted Answer

A)   TR - G - T
B)   Y - C - T + TR
C)   Y + C + T + TR
D)   T - G - TR

Question 20

Private saving equals:

Accepted Answer

A)   Y - C - T + TR
B)   Y + C + T + TR
C)   Y + C + T - TR
D)   Y + C - T - TR

Exam 21: Financial Markets, Saving, and Investment