Question 1

When a business firm sells a bond, it has obtained equity finance.

Accepted Answer

A) True 
 B)False

Question 2

Identify each of the following acts as representing either saving or investment.
a.Pieter uses some of his income to buy government bonds.
b.Julie takes some of her income and buys mutual funds.
c.Alex purchases a new truck for his delivery business using borrowed funds.
d.Thato uses some of his income to buy stock in a major corporation.
e.Lerato hires a builder to construct a new building for her bicycle shop.

Accepted Answer

a.Pieter is saving.
b.Julie is...

Question 3

An increase in the budget deficit that causes the government to increase its borrowing shifts the demand for loanable funds to the right.

Accepted Answer

A) True 
 B)False

Question 4

Credit risk refers to a bond's

Accepted Answer

A)  probability of default.
B)  dividend.
C)  tax treatment.
D)  term to maturity.E) All of the above
F) None of the above

Question 5

An increase in the budget deficit will

Accepted Answer

A)  raise the real interest rate and decrease the quantity of loanable funds demanded for investment.
B)  lower the real interest rate and increase the quantity of loanable funds demanded for investment.
C)  raise the real interest rate and increase the quantity of loanable funds demanded for investment.
D)  lower the real interest rate and decrease the quantity of loanable funds demanded for investment.E) None of the above
F) B) and C)

Question 6

In the national income accounting identity showing the equality between national saving and investment, what are the algebraic expressions for private saving and public saving?

Accepted Answer

Private saving is Y ...

Question 7

What is the price of funds in the loanable funds market?

Accepted Answer

A)  The real wage rate.
B)  The consumer price index.
C)  The nominal interest rate.
D)  The average firm profit rate.E) All of the above
F) B) and D)

Question 8

If government spending exceeds tax collections,

Accepted Answer

A)  there is a budget deficit.
B)  public debt will fall.
C)  there is a budget surplus.
D)  private saving is positive.
E)  public saving is positive.F) A) and B)
G) A) and E)

Question 9

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise.Yet we also suppose that higher interest rates lead to lower investment.How can these two conclusions be reconciled?

Accepted Answer

The claim that an increase in the intere...

Question 10

Economists say that investment occurs when

Accepted Answer

A)  someone buys shares on the London or Paris or Frankfurt Stock Exchange, or any other stock exchange.
B)  someone buys a government bond.
C)  a firm increases its capital stock.
D)  a government buys goods from another country.E) A) and D)
F) B) and D)

Question 11

Public saving is always positive.

Accepted Answer

A) True 
 B)False

Question 12

The stock market is an institution that facilitates

Accepted Answer

A)  buying and selling of debt financing.
B)  the purchase and sale of company shares.
C)  the purchase and sale of investment funds.
D)  bank borrowing and lending.E) B) and C)
F) A) and D)

Question 13

The supply of loanable funds curve is upward sloping because a rise in the interest rate

Accepted Answer

A)  decreases the opportunity cost of firms' investment spending.
B)  increases the opportunity cost of firms' investment spending.
C)  decreases the opportunity cost to households of consuming.
D)  increases the opportunity cost to households of consuming.E) A) and B)
F) B) and C)

Question 14

Which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why.
a.a German government bond or a South African government bond
b.a 6-month Treasury bill or a 20-year Treasury bond
c.a Microsoft bond or a bond issued by a new recording company

Accepted Answer

a.The South African government bond woul...

Question 15

The four categories of expenditures that make up GDP are consumption,

Accepted Answer

A)  investment, net exports, and government expenditures.
B)  investment, government purchases, and depreciation.
C)  interest, government purchases, and net exports.
D)  investment, exports, and rental expenditures.E) All of the above
F) B) and D)

Question 16

If the public consumes r₁00 billion less and the government purchases r₁00 billion more (other things unchanging) , which of the following statement is true?

Accepted Answer

A)  Saving is unchanged.
B)  There is an increase in saving and the economy should grow more quickly.
C)  There is a decrease in saving and the economy should grow more slowly.
D)  There is not enough information to determine what will happen to saving.E) A) and B)
F) A) and D)

Question 17

If SA citizens become less concerned with the future and save less at each real interest rate, real interest rates

Accepted Answer

A)  rise and investment falls.
B)  rise and investment rises.
C)  fall and investment rises.
D)  fall and investment falls.E) B) and C)
F) All of the above

Question 18

If taxes are reduced with no change in government spending, and people save all the money from the tax cut,

Accepted Answer

A)  the demand for loanable funds will increase and the interest rate will increase.
B)  the demand for loanable funds will increase and the interest rate will remain constant.
C)  the supply of loanable funds will increase and the interest rate will decrease.
D)  neither the demand nor the supply of loanable funds will change.E) C) and D)
F) All of the above

Question 19

An increase in the budget deficit that causes the government to increase its borrowing shifts the

Accepted Answer

A)  supply of loanable funds to the right.
B)  demand for loanable funds to the left.
C)  demand for loanable funds to the right.
D)  supply of loanable funds to the left.E) B) and C)
F) A) and D)

Question 20

If the government budget deficit increases, the

Accepted Answer

A)  supply of loans increases and the equilibrium interest rate increases.
B)  supply of loans increases and the equilibrium interest rate decreases.
C)  demand for loans increases and the equilibrium interest rate decreases.
D)  demand for loans increases and the equilibrium interest rate increases.E) B) and C)
F) A) and B)

Exam 7: Saving, Investment and the Financial System

What is the price of funds in the loanable funds market?

Correct Answer
verified

In the national income accounting identity showing the equality between national saving and investment, what are the algebraic expressions for private saving and public saving?

Correct Answer
verified
Private saving is Y ...
View Answer

The stock market is an institution that facilitates

Correct Answer
verified

An increase in the budget deficit that causes the government to increase its borrowing shifts the

Correct Answer
verified

The supply of loanable funds curve is upward sloping because a rise in the interest rate

Correct Answer
verified

Credit risk refers to a bond's

Correct Answer
verified

If government spending exceeds tax collections,

Correct Answer
verified

Correct Answer
verified
a.Pieter is saving.
b.Julie is...
View Answer

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise.Yet we also suppose that higher interest rates lead to lower investment.How can these two conclusions be reconciled?

Correct Answer
verified
The claim that an increase in the intere...
View Answer

An increase in the budget deficit will

Correct Answer
verified

If taxes are reduced with no change in government spending, and people save all the money from the tax cut,

Correct Answer
verified

An increase in the budget deficit that causes the government to increase its borrowing shifts the demand for loanable funds to the right.

Correct Answer
verified

If the public consumes r₁00 billion less and the government purchases r₁00 billion more (other things unchanging) , which of the following statement is true?

Correct Answer
verified

If SA citizens become less concerned with the future and save less at each real interest rate, real interest rates

Correct Answer
verified

Economists say that investment occurs when

Correct Answer
verified

Public saving is always positive.

Correct Answer
verified

If the government budget deficit increases, the

Correct Answer
verified

Which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why. a.a German government bond or a South African government bond b.a 6-month Treasury bill or a 20-year Treasury bond c.a Microsoft bond or a bond issued by a new recording company

Correct Answer
verified
a.The South African government bond woul...
View Answer

When a business firm sells a bond, it has obtained equity finance.

Correct Answer
verified

The four categories of expenditures that make up GDP are consumption,

Correct Answer
verified

Exam 7: Saving, Investment and the Financial System

What is the price of funds in the loanable funds market?

Correct AnswerverifiedShow Answer

In the national income accounting identity showing the equality between national saving and investment, what are the algebraic expressions for private saving and public saving?

Correct AnswerverifiedPrivate saving is Y ...View AnswerShow Answer

The stock market is an institution that facilitates

Correct AnswerverifiedShow Answer

An increase in the budget deficit that causes the government to increase its borrowing shifts the

Correct AnswerverifiedShow Answer

The supply of loanable funds curve is upward sloping because a rise in the interest rate

Correct AnswerverifiedShow Answer

Credit risk refers to a bond's

Correct AnswerverifiedShow Answer

If government spending exceeds tax collections,

Correct AnswerverifiedShow Answer

Correct Answerverifieda.Pieter is saving.b.Julie is...View AnswerShow Answer

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise.Yet we also suppose that higher interest rates lead to lower investment.How can these two conclusions be reconciled?

Correct AnswerverifiedThe claim that an increase in the intere...View AnswerShow Answer

An increase in the budget deficit will

Correct AnswerverifiedShow Answer

If taxes are reduced with no change in government spending, and people save all the money from the tax cut,

Correct AnswerverifiedShow Answer

An increase in the budget deficit that causes the government to increase its borrowing shifts the demand for loanable funds to the right.

Correct AnswerverifiedShow Answer

If the public consumes r₁00 billion less and the government purchases r₁00 billion more (other things unchanging) , which of the following statement is true?

Correct AnswerverifiedShow Answer

If SA citizens become less concerned with the future and save less at each real interest rate, real interest rates

Correct AnswerverifiedShow Answer

Economists say that investment occurs when

Correct AnswerverifiedShow Answer

Public saving is always positive.

Correct AnswerverifiedShow Answer

If the government budget deficit increases, the

Correct AnswerverifiedShow Answer

Which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why. a.a German government bond or a South African government bond b.a 6-month Treasury bill or a 20-year Treasury bond c.a Microsoft bond or a bond issued by a new recording company

Correct Answerverifieda.The South African government bond woul...View AnswerShow Answer

When a business firm sells a bond, it has obtained equity finance.

Correct AnswerverifiedShow Answer

The four categories of expenditures that make up GDP are consumption,

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
Private saving is Y ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a.Pieter is saving.
b.Julie is...
View Answer

Correct Answer
verified
The claim that an increase in the intere...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a.The South African government bond woul...
View Answer

Correct Answer
verified

Correct Answer
verified