Question 1

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

Accepted Answer

A) True 
 B)False

Question 2

Suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the loanable funds model, a consequence would be

Accepted Answer

A)   lower interest rates and lower investment.
B)   lower interest rates and greater investment.
C)   higher interest rates and lower investment.
D)   higher interest rates and higher investment.E) None of the above
F) A) and B)

Question 3

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Accepted Answer

A)   credit risk.
B)   interest risk.
C)   term risk.
D)   private risk.E) A) and D)
F) None of the above

Question 4

When the government goes from running a balanced budget to running a budget surplus,

Accepted Answer

A)   national saving decreases, the interest rate rises, and the economy's long-run growth rate is likely to decrease.
B)   national saving increases, the interest rate falls, and the economy's long-run growth rate is likely to decrease.
C)   national saving decreases, the interest rate rises, and the economy's long-run growth rate is likely to increase.
D)   national saving increases, the interest rate falls, and the economy's long-run growth rate is likely to increase.E) None of the above
F) All of the above

Question 5

Nastech Pharmaceuticals announced it has developed a nasal spray that would reduce hunger cravings. Other things the same we would expect

Accepted Answer

A)   the demand for existing shares of stock in this company to decrease, so the price would fall.
B)   the demand for existing shares of stock in this company to increase, so the price would rise.
C)   the supply of existing shares of stock in this company to decrease, so the price would fall.
D)   the supply of existing shares of stock in this company to increase, so the price would rise.E) None of the above
F) A) and C)

Question 6

In a closed economy, what remains after paying for consumption and government purchases is

Accepted Answer

A)   national disposable income.
B)   national saving.
C)   public saving.
D)   private saving.E) B) and D)
F) A) and D)

Question 7

Which of the following statements is correct?

Accepted Answer

A)   A general, persistent decline in stock prices may signal that the economy is about to enter a boom period because people will be able to buy stock for less money.
B)   A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits.
C)   A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past.
D)   Expectations about the business cycle have no impact on stock prices.E) A) and D)
F) All of the above

Question 8

A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a

Accepted Answer

A)   bond.
B)   stock.
C)   mutual fund.
D)   All of the above are correct.E) C) and D)
F) A) and D)

Question 9

Suppose the market for loanable funds is in equilibrium. Given the numbers below, determine the quantity of loanable funds demanded. GDP
$200 billion
Consumption
$130 billion
Taxes Net of Transfers
$30 billion
Government Spending
$40 billion

Accepted Answer

A)   $30 billion
B)   $25 billion
C)   $20 billion
D)   $15 billionE) A) and B)
F) A) and C)

Question 10

Use the following table to answer the following questions.
Table 8-2
 
-Refer to Table 8-2. For which company's stock is the P/E ratio closest to what is historically typical?

Accepted Answer

A)   Boeing Co.
B)   Eli Lilly and Co.
C)   H. J. Heinz and Co.
D)   Kellog Co.E) None of the above
F) A) and C)

Question 11

The slope of the supply of loanable funds curve represents the

Accepted Answer

A)   positive relation between the real interest rate and investment.
B)   positive relation between the real interest rate and saving.
C)   negative relation between the real interest rate and investment.
D)   negative relation between the real interest rate and saving.E) All of the above
F) B) and D)

Question 12

Jerry has the choice of two bonds, one that pays 3 percent interest and one that pays 6 percent interest. Which of the following is most likely?

Accepted Answer

A)   The 6 percent bond is less risky than the 3 percent bond.
B)   The 6 percent bond is a U.S. government bond, and the 3 percent bond is a junk bond.
C)   The 6 percent bond has a longer term than the 3 percent bond.
D)   The 6 percent bond is a municipal bond, and the 3 percent bond is a U.S. government bond.E) B) and D)
F) B) and C)

Question 13

The country of Bienmundo 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 Bienmundo amounts to $5 billion. What are consumption and investment in Bienmundo?

Accepted Answer

A)   $18 billion and $5 billion, respectively
B)   $21 billion and $4 billion, respectively
C)   $13 billion and $7 billion, respectively
D)   There is not enough information to answer the question.E) A) and D)
F) All of the above

Question 14

Which of the following bond buyers did not buy the bond that best met his or her objective?

Accepted Answer

A)   Jackie wanted a bond with a high interest rate and was willing to take a lot of risk. She purchased a junk bond.
B)   Andrew wanted a bond that would allow him to legally avoid paying federal income taxes. He purchased a municipal bond.
C)   Suzy wanted to purchase a bond whose seller was unlikely to default. She purchased a bond that Standards and Poor's rated a low credit risk.
D)   Cecilia held long-term bonds rather than short-term bonds to avoid risk.E) A) and B)
F) All of the above

Question 15

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.E) All of the above
F) None of the above

Question 16

A closed economy does not

Accepted Answer

A)   trade with other economies.
B)   have free markets.
C)   allow financial intermediation.
D)   All of the above are correct.E) A) and D)
F) C) and D)

Question 17

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) None of the above
F) B) and D)

Question 18

Which of the following could explain an increase in the interest rate and 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) B) and C)
F) A) and B)

Question 19

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $2.5 trillion?

Accepted Answer

A)   C = $8 trillion, G = $.5 trillion
B)   C = $6.5 trillion, G = $3 trillion
C)   C = $8.5 trillion, G = $2 trillion
D)   C = $9 trillion, G = $.5 trillionE) B) and C)
F) C) and D)

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 8: Saving, Investment, and the Financial System

Nastech Pharmaceuticals announced it has developed a nasal spray that would reduce hunger cravings. Other things the same we would expect

Correct Answer
verified

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

Correct Answer
verified

A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a

Correct Answer
verified

In a closed economy, what remains after paying for consumption and government purchases is

Correct Answer
verified

Use the following table to answer the following questions. Table 8-2 -Refer to Table 8-2. For which company's stock is the P/E ratio closest to what is historically typical?

Correct Answer
verified

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

Correct Answer
verified

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

Correct Answer
verified

Jerry has the choice of two bonds, one that pays 3 percent interest and one that pays 6 percent interest. Which of the following is most likely?

Correct Answer
verified

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $2.5 trillion?

Correct Answer
verified

Suppose the market for loanable funds is in equilibrium. Given the numbers below, determine the quantity of loanable funds demanded. GDP $200 billion Consumption $130 billion Taxes Net of Transfers $30 billion Government Spending $40 billion

Correct Answer
verified

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

Correct Answer
verified

The slope of the supply of loanable funds curve represents the

Correct Answer
verified

Suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the loanable funds model, a consequence would be

Correct Answer
verified

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Correct Answer
verified

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

Correct Answer
verified

When the government goes from running a balanced budget to running a budget surplus,

Correct Answer
verified

A closed economy does not

Correct Answer
verified

Correct Answer
verified

Which of the following bond buyers did not buy the bond that best met his or her objective?

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Exam 8: Saving, Investment, and the Financial System

Nastech Pharmaceuticals announced it has developed a nasal spray that would reduce hunger cravings. Other things the same we would expect

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a

Correct AnswerverifiedShow Answer

In a closed economy, what remains after paying for consumption and government purchases is

Correct AnswerverifiedShow Answer

Use the following table to answer the following questions. Table 8-2 -Refer to Table 8-2. For which company's stock is the P/E ratio closest to what is historically typical?

Correct AnswerverifiedShow Answer

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Jerry has the choice of two bonds, one that pays 3 percent interest and one that pays 6 percent interest. Which of the following is most likely?

Correct AnswerverifiedShow Answer

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $2.5 trillion?

Correct AnswerverifiedShow Answer

Suppose the market for loanable funds is in equilibrium. Given the numbers below, determine the quantity of loanable funds demanded. GDP $200 billion Consumption $130 billion Taxes Net of Transfers $30 billion Government Spending $40 billion

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The slope of the supply of loanable funds curve represents the

Correct AnswerverifiedShow Answer

Suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the loanable funds model, a consequence would be

Correct AnswerverifiedShow Answer

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the government goes from running a balanced budget to running a budget surplus,

Correct AnswerverifiedShow Answer

A closed economy does not

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following bond buyers did not buy the bond that best met his or her objective?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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