Question 1

Public saving is T - G,while private saving is Y - T - C.

Accepted Answer

A) True 
 B)False

Question 2

Assuming that other things remain the same,what effect does a government budget deficit have on saving?

Accepted Answer

A)  It increases both private and national saving. 
B)  It increases public saving but reduces national saving. 
C)  It reduces both public and national saving. 
D)  It reduces private saving but increases national saving.

Question 3

Which statement best defines a closed economy?

Accepted Answer

A)  It does not trade with other economies. 
B)  It does not have free markets. 
C)  It does not allow immigration. 
D)  It does not have freedom of entry and exit.

Question 4

PacknCamp Corporation has a price of $40,has issued 2 million shares,has increased its cumulated retained earnings by $2 million,and has a dividend yield of 2 percent.What is the price / earnings ratio of PacknCamp?

Accepted Answer

A)  40,which is high compared to historical standards of the market 
B)  40,which is low compared to historical standards of the market 
C)  20,which is low compared to historical standards of the market 
D)  20,which is high compared to historical standards of the market

Question 5

Suppose that you are a broker and people tell you the following about themselves.What sort of bond would you recommend to each? Defend your choices.
a."I am in a high federal income-tax bracket and I don't want to take very much risk."
b."I want a high return and I am willing to take whatever risk necessary to get it."
c."I want a decent return and I have enough deductions that I don't value tax breaks highly."

Accepted Answer

The answer of Suppose that you are a broker and...

Question 6

Which term refers to the sale of stocks and bonds to raise money?

Accepted Answer

A)  debt finance 
B)  debt-equity finance 
C)  debt finance for stocks,and equity finance for bonds 
D)  equity finance for stocks,and debt finance for bonds

Question 7

What does a general,persistent decline in stock prices signal about an economy?

Accepted Answer

A)  that the economy is about to enter a boom period because people will be able to buy stock for less money 
B)  that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits 
C)  that the economy is about to enter a boom because people expect prices of stock to rise 
D)  that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past

Question 8

Ian has the choice of two bonds,one that pays 4 percent interest and one that pays 86 percent interest.Which of the following situations is most likely?

Accepted Answer

A)  The 8 percent bond is less risky than the 4 percent bond. 
B)  The 8 percent bond is a Canadian government bond,and the 4 percent bond is a junk bond. 
C)  The 8 percent bond has a longer term than the 4 percent bond. 
D)  The 8 percent bond is a Canadian government bond,and the 4 percent bond is a provincial bond.

Question 9

When is a budget surplus created?

Accepted Answer

A)  when the government sells more bonds than it buys back 
B)  when the government spends more than it receives in tax revenue 
C)  when private savings are greater than zero 
D)  when the government spends less than the tax revenue

Question 10

In 1995,MP Bill Gatt proposed that the income tax be replaced with a consumption tax.If his program had been passed,how would the equilibrium interest rate and the quantity of loanable funds have been affected?

Accepted Answer

A)  The equilibrium interest rate and quantity of loanable funds would be lower. 
B)  The equilibrium interest rate and quantity of loanable funds would be higher. 
C)  The equilibrium interest rate would be higher,and the equilibrium quantity of loanable funds would be lower. 
D)  The equilibrium interest rate would be lower,and the equilibrium quantity of loanable funds would be higher.

Question 11

What has the typical price / earnings ratio been historically?

Accepted Answer

A)  about 5 
B)  about 10 
C)  about 15 
D)  about 20

Question 12

Table 8-1
The following table shows stock prices and volumes for a few hypothetical companies. 
-Refer to Table 8-1.Assume that the closing price was also the average price at which each stock transaction took place.What was the total dollar volume of company B's stock traded that day?

Accepted Answer

A)  $121,712 
B)  $12,171,200 
C)  $121,712,000 
D)  $1,217,120,000

Question 13

How does the supply of loanable funds curve slope?

Accepted Answer

A)  upward because an increase in the interest rate induces people to save more 
B)  downward because an increase in the interest rate induces people to save less 
C)  downward because an increase in the interest rate induces people to invest less 
D)  upward because an increase in the interest rate induces people to invest more

Question 14

What is a characteristic of the bond market?

Accepted Answer

A)  Some bonds have terms as short as a few months. 
B)  Because they are risky,bonds pay a low rate of interest. 
C)  Corporations buy bonds to raise funds. 
D)  Bonds are rarely used as financial instruments.

Question 15

Which bond is most likely to default?

Accepted Answer

A)  a junk bond 
B)  a municipal bond 
C)  a federal government bond 
D)  a corporate bond issued by Bell Canada

Question 16

Which of the following terms refers to the profits NOT paid out to shareholders?

Accepted Answer

A)  retained earnings 
B)  dividends 
C)  revenue 
D)  costs

Question 17

How does the supply and demand for loanable funds model reflect an increase in the goods and services tax rate?

Accepted Answer

A)  The supply curve shifts to the left,while the demand curve remains unchanged. 
B)  The supply curve shifts to the right,while the demand curve remains unchanged. 
C)  The supply curve remains unchanged,while the demand curve shifts to the left. 
D)  The supply curve remains unchanged,while the demand curve shifts to the right.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

The country of Aquilonia does not trade with any other country.Its GDP is $30 billion.Its government purchases $5 billion worth of goods and services each year,collects $7 billion in taxes,and provides $3 billion in transfer payments to households.Private saving in Aquilonia is $5 billion.What is consumption?

Accepted Answer

A)  $10 billion 
B)  $13 billion 
C)  $18 billion 
D)  $21 billion

Question 20

If Parliament instituted an investment tax credit,what would most likely happen to the interest rate and saving?

Accepted Answer

A)  The interest rate would rise,and saving would rise. 
B)  The interest rate would fall,and saving would fall. 
C)  The interest rate would rise,and saving would fall. 
D)  The interest rate would fall,and saving would rise.

Exam 8: Saving, investment, and the Financial System

Public saving is T - G,while private saving is Y - T - C.

Assuming that other things remain the same,what effect does a government budget deficit have on saving?

Which statement best defines a closed economy?

PacknCamp Corporation has a price of $40,has issued 2 million shares,has increased its cumulated retained earnings by $2 million,and has a dividend yield of 2 percent.What is the price / earnings ratio of PacknCamp?

Which term refers to the sale of stocks and bonds to raise money?

What does a general,persistent decline in stock prices signal about an economy?

Ian has the choice of two bonds,one that pays 4 percent interest and one that pays 86 percent interest.Which of the following situations is most likely?

When is a budget surplus created?

In 1995,MP Bill Gatt proposed that the income tax be replaced with a consumption tax.If his program had been passed,how would the equilibrium interest rate and the quantity of loanable funds have been affected?

What has the typical price / earnings ratio been historically?

Table 8-1 The following table shows stock prices and volumes for a few hypothetical companies. -Refer to Table 8-1.Assume that the closing price was also the average price at which each stock transaction took place.What was the total dollar volume of company B's stock traded that day?

How does the supply of loanable funds curve slope?

What is a characteristic of the bond market?

Which bond is most likely to default?

Which of the following terms refers to the profits NOT paid out to shareholders?

How does the supply and demand for loanable funds model reflect an increase in the goods and services tax rate?

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

If Parliament instituted an investment tax credit,what would most likely happen to the interest rate and saving?