Question 1

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

Accepted Answer

A) True 
 B)False

Question 2

In a closed economy, national saving is

Accepted Answer

A)   usually greater than investment.
B)   equal to investment.
C)   usually less than investment because of the leakage of taxes.
D)   always less than investment.E) A) and B)
F) A) and C)

Question 3

If the supply of and demand for loanable funds both shift left, which of the following necessarily happens?

Accepted Answer

A)   the equilibrium interest rate falls
B)   the equilibrium interest rate rises
C)   the equilibrium quantity of loanable funds rises
D)   the equilibrium quantity of loanable funds fallsE) A) and B)
F) A) and C)

Question 4

Suppose that in a closed economy GDP is equal to 15,000, government purchases are equal to 3,000, consumption equals 10,500, and taxes equal 3,500. What are private saving and public saving?

Accepted Answer

A)   1,500 and -500, respectively
B)   1,500 and 500, respectively
C)   1,000 and -500, respectively
D)   1,000 and 500, respectivelyE) C) and D)
F) All of the above

Question 5

The first element of a financial crisis is

Accepted Answer

A)   inflation.
B)   a decline in confidence in financial institutions.
C)   a relaxation of rules and regulations that pertain to the financial system.
D)   a large decline in some asset prices.E) B) and C)
F) None of the above

Question 6

According to the definitions of private and public saving, if Y, C, and G remained the same, an increase in taxes would

Accepted Answer

A)   raise both private and public saving.
B)   raise private saving and lower public saving.
C)   lower private saving and raise public saving.
D)   lower private and public saving.E) A) and C)
F) A) and D)

Question 7

For an economy that engages in international trade, GDP is divided into four components. Which of the following items is not one of those components?

Accepted Answer

A)   consumption.
B)   national saving.
C)   government purchases.
D)   net exports.E) A) and D)
F) B) and D)

Question 8

Two of the economy's most important financial intermediaries are

Accepted Answer

A)   suppliers of funds and demanders of funds.
B)   banks and the bond market.
C)   the stock market and the bond market.
D)   banks and mutual funds.E) None of the above
F) B) and C)

Question 9

Last quarter in a closed economy GDP was 200,000. Expenditures on capital goods such as business equipment and structures was 19,000, inventory rose 1,000, and new construction of homes was 8,000. Consumption was 135,000 and taxes were 32,000. What was public saving?

Accepted Answer

A)   -4,000
B)   -5,000
C)   -14,000
D)   -6,000E) C) and D)
F) A) and B)

Question 10

Given that Monika's income exceeds her expenditures, Monika is best described as a

Accepted Answer

A)   saver or as a supplier of funds.
B)   saver or as a demander of funds.
C)   borrower or as a supplier of funds.
D)   borrower or as a demander of funds.E) A) and B)
F) A) and C)

Question 11

Which of the following statements is correct?

Accepted Answer

A)   A large, well-known corporation such as Intel generally would use financial intermediation to finance expansion of its facilities.
B)   On average, managed funds outperform indexed funds.
C)   Unlike corporate bonds and stocks, checking accounts are a medium of exchange.
D)   A mutual fund is a financial market.E) A) and C)
F) B) and C)

Question 12

Which of the following statements is correct?

Accepted Answer

A)   The total income in the economy that remains after paying for consumption and government purchases is called private saving.
B)   The sum of private saving and national saving is called public saving.
C)   For a closed economy, the sum of private saving and public saving must equal investment.
D)   For a closed economy, the sum of consumption, national saving, and taxes must equal GDP.E) A) and C)
F) None of the above

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Potential buyers of ABC Corporation bonds are concerned about ABC Corporation declaring bankruptcy. Potential buyers of XYZ Corporation bonds are not concerned that XYZ Corporation may declare bankruptcy. Which of the following statements is correct?

Accepted Answer

A)   Other things equal, the interest rate on XYZ Corporation bonds will be high relative to the interest rate on ABC Corporation bonds.
B)   An ABC Corporation bond must have a longer term than an XYZ Corporation.
C)   XYZ Corporation bonds carry less default risk than do ABC Corporation bonds.
D)   All of the above are correct.E) None of the above
F) All of the above

Question 15

A government may use deficit financing to smooth tax rates over time.

Accepted Answer

A) True 
 B)False

Question 16

Mutual funds are a type of financial intermediary.

Accepted Answer

A) True 
 B)False

Question 17

What happens to desired investment spending if the interest rate rises? Is this response relevant to the supply of loanable funds curve or the demand for loanable funds curve?

Accepted Answer

Investment spending ...

Question 18

Which of the following is not correct?

Accepted Answer

A)   American families save a larger fraction of their incomes than their counterparts in many other countries such as Germany and Japan.
B)   Saving is an important long-run determinant of a nation's standard of living.
C)   A change in tax laws that encouraged greater saving would lower interest rates.
D)   Taxes on interest income can substantially decrease the future value of current saving.E) All of the above
F) A) and B)

Question 19

Use the following table to answer the following questions.
Table 26-2
 
-Refer to Table 26-2. For which stocks)  isare)  the P/E ratio less than what is historically typical?

Accepted Answer

A)   Boeing Co.
B)   Eli Lilly and Co.
C)   Boeing Co. and Eli Lilly and Co.
D)   All are higher than what is historically typical.E) A) and B)
F) A) and C)

Question 20

If there is a surplus of loanable funds, then

Accepted Answer

A)   the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium.
B)   the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium.
C)   the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium.
D)   the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium.E) A) and D)
F) A) and C)

Exam 18: Saving, Investment, and the Financial System

According to the definitions of private and public saving, if Y, C, and G remained the same, an increase in taxes would

Correct AnswerverifiedShow Answer

For an economy that engages in international trade, GDP is divided into four components. Which of the following items is not one of those components?

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Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2. For which stocks) isare) the P/E ratio less than 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 shares of stock.

Correct AnswerverifiedShow Answer

What happens to desired investment spending if the interest rate rises? Is this response relevant to the supply of loanable funds curve or the demand for loanable funds curve?

Correct AnswerverifiedInvestment spending ...View AnswerShow Answer

Potential buyers of ABC Corporation bonds are concerned about ABC Corporation declaring bankruptcy. Potential buyers of XYZ Corporation bonds are not concerned that XYZ Corporation may declare bankruptcy. Which of the following statements is correct?

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If the supply of and demand for loanable funds both shift left, which of the following necessarily happens?

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Which of the following statements is correct?

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Which of the following is not correct?

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Last quarter in a closed economy GDP was 200,000. Expenditures on capital goods such as business equipment and structures was 19,000, inventory rose 1,000, and new construction of homes was 8,000. Consumption was 135,000 and taxes were 32,000. What was public saving?

Correct AnswerverifiedShow Answer

Two of the economy's most important financial intermediaries are

Correct AnswerverifiedShow Answer

Given that Monika's income exceeds her expenditures, Monika is best described as a

Correct AnswerverifiedShow Answer

Mutual funds are a type of financial intermediary.

Correct AnswerverifiedShow Answer

If there is a surplus of loanable funds, then

Correct AnswerverifiedShow Answer

Suppose that in a closed economy GDP is equal to 15,000, government purchases are equal to 3,000, consumption equals 10,500, and taxes equal 3,500. What are private saving and public saving?

Correct AnswerverifiedShow Answer

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

A government may use deficit financing to smooth tax rates over time.

Correct AnswerverifiedShow Answer

The first element of a financial crisis is

Correct AnswerverifiedShow Answer

In a closed economy, national saving is

Correct AnswerverifiedShow Answer

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Investment spending ...
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