Question 1

A government reduces its budget deficit, but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default. Which of the following is correct?

Accepted Answer

A)  The reduced budget deficit will raise interest rates in general. The increased risk of default will raise interest rates on government bonds.
B)  The reduced budget deficit will raise interest rates in general. The increased risk of default will reduce interest rates on government bonds.
C)  The reduced budget deficit will reduce interest rates in general. The increased risk of default will raise interest rates on government bonds.
D)  The reduced budget deficit will reduce interest rates in general. The increased risk of default will reduce interest rates on government bonds.E) B) and C)
F) B) and D)

Question 2

What is the source of the supply of loanable funds?

Accepted Answer

The answer of What is the source of the supply...

Question 3

Draw and label a graph showing equilibrium in the market for loanable funds.

Accepted Answer

Market for...

Question 4

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

Accepted Answer

A)  The demand for loanable funds shifted rightward.
B)  The demand for loanable funds shifted leftward.
C)  The supply of loanable funds shifted rightward.
D)  The supply of loanable funds shifted leftward.E) All of the above
F) A) and D)

Question 5

The assumption of a closed economy

Accepted Answer

A)  applies to the world economy.
B)  applies to most national economies.
C)  requires us to assume that the government's budget is always balanced.
D)  All of the above are correct.E) None of the above
F) A) and B)

Question 6

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Accepted Answer

A) True 
 B)False

Question 7

It is claimed that a secondary advantage of mutual funds is that

Accepted Answer

A)  an investor can avoid investment charges and fees.
B)  they give ordinary people access to loanable funds for investing.
C)  they usually outperform stock market indexes.
D)  they give ordinary people access to the skills of professional money managers.E) B) and C)
F) A) and B)

Question 8

If Congress instituted an investment tax credit, the equilibrium quantity of loanable funds would

Accepted Answer

A)  rise.
B)  fall.
C)  be unchanged.
D)  move in an uncertain direction.E) A) and B)
F) B) and D)

Question 9

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 26-3. Which of the following movements shows the effects of the government going from a budget surplus to a budget deficit?

Accepted Answer

A)  a movement from Point A to Point B
B)  a movement from Point B to Point A
C)  a movement from Point A to Point F
D)  a movement from Point B to Point CE) All of the above
F) C) and D)

Question 10

The price of a stock will rise if

Accepted Answer

A)  the managers of a stock exchange decide the price should be higher.
B)  the demand for the stock rises.
C)  the supply of the stock rises.
D)  None of the above are correct.E) B) and C)
F) A) and B)

Question 11

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Accepted Answer

A) True 
 B)False

Question 12

People who buy stock in a corporation such as General Electric become

Accepted Answer

A)  creditors of General Electric, so the benefits of holding the stock depend on General Electric's profits.
B)  creditors of General Electric, but the benefits of holding the stock do not depend on General Electric's profits.
C)  part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits.
D)  part owners of General Electric, but the benefits of holding the stock do not depend on General Electric's profits.E) None of the above
F) B) and C)

Question 13

Scenario 26-2. Assume the following information for an imaginary, closed economy.
GDP = $5 trillion; consumption = $3.1 trillion;
government purchases = $0.7 trillion; and taxes = $0.9 trillion.
-Refer to Scenario 26-2. For this economy, private saving is equal to

Accepted Answer

A)  $0.3 trillion.
B)  $1.2 trillion.
C)  $1.0 trillion.
D)  $1.7 trillion.E) A) and D)
F) A) and C)

Question 14

Other things the same, corporate bonds generally feature higher interest rates than U.S. government bonds.

Accepted Answer

A) True 
 B)False

Question 15

Other things the same, an increase in the budget deficit

Accepted Answer

A)  shifts the demand for loanable funds right, so the interest rate rises.
B)  shifts the demand for loanable funds left, so the interest rate falls.
C)  shifts the supply of loanable funds right, so the interest rate falls.
D)  shifts the supply of loanable funds left, so the interest rate rises.E) B) and C)
F) A) and D)

Question 16

Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.

Accepted Answer

A) True 
 B)False

Question 17

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Accepted Answer

A)  stock markets
B)  financial institutions
C)  financial markets
D)  financial intermediariesE) A) and B)
F) C) and D)

Exam 26: Saving, Investment, and the Financial System

The price of a stock will rise if

Correct Answer
verified

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Correct Answer
verified

What is the source of the supply of loanable funds?

Correct Answer
verified

Other things the same, corporate bonds generally feature higher interest rates than U.S. government bonds.

Correct Answer
verified

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, private saving is equal to

Correct Answer
verified

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

Correct Answer
verified

The assumption of a closed economy

Correct Answer
verified

People who buy stock in a corporation such as General Electric become

Correct Answer
verified

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. Which of the following movements shows the effects of the government going from a budget surplus to a budget deficit?

Correct Answer
verified

If Congress instituted an investment tax credit, the equilibrium quantity of loanable funds would

Correct Answer
verified

Other things the same, an increase in the budget deficit

Correct Answer
verified

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Correct Answer
verified

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Correct Answer
verified

A government reduces its budget deficit, but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default. Which of the following is correct?

Correct Answer
verified

Draw and label a graph showing equilibrium in the market for loanable funds.

Correct Answer
verified
Market for...
View Answer

It is claimed that a secondary advantage of mutual funds is that

Correct Answer
verified

Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.

Correct Answer
verified

Exam 26: Saving, Investment, and the Financial System

The price of a stock will rise if

Correct AnswerverifiedShow Answer

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Correct AnswerverifiedShow Answer

What is the source of the supply of loanable funds?

Correct AnswerverifiedShow Answer

Other things the same, corporate bonds generally feature higher interest rates than U.S. government bonds.

Correct AnswerverifiedShow Answer

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, private saving is equal to

Correct AnswerverifiedShow Answer

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

Correct AnswerverifiedShow Answer

The assumption of a closed economy

Correct AnswerverifiedShow Answer

People who buy stock in a corporation such as General Electric become

Correct AnswerverifiedShow Answer

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. Which of the following movements shows the effects of the government going from a budget surplus to a budget deficit?

Correct AnswerverifiedShow Answer

If Congress instituted an investment tax credit, the equilibrium quantity of loanable funds would

Correct AnswerverifiedShow Answer

Other things the same, an increase in the budget deficit

Correct AnswerverifiedShow Answer

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Correct AnswerverifiedShow Answer

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Correct AnswerverifiedShow Answer

A government reduces its budget deficit, but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default. Which of the following is correct?

Correct AnswerverifiedShow Answer

Draw and label a graph showing equilibrium in the market for loanable funds.

Correct AnswerverifiedMarket for...View AnswerShow Answer

It is claimed that a secondary advantage of mutual funds is that

Correct AnswerverifiedShow Answer

Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.

Correct AnswerverifiedShow Answer

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Market for...
View Answer

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Correct Answer
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