Question 1

The primary economic function of the financial system is to

Accepted Answer

A)   keep interest rates low.
B)   provide expert advice to savers and investors.
C)   match one person's consumption expenditures with another person's capital expenditures.
D)   match one person's saving with another person's investment.E) None of the above
F) All of the above

Question 2

Suppose the government ran a budget surplus in 2010 and a larger surplus in 2011.The loanable funds model would predict that,as a result of the increase in the surplus,

Accepted Answer

A)   both the government debt and interest rates increased between 2010 and 2011.
B)   both the government debt and interest rates decreased between 2010 and 2011.
C)   the government debt increased and interest rates decreased between 2010 and 2011.
D)   the government debt decreased and interest rates increased between 2010 and 2011.E) All of the above
F) A) and D)

Question 3

Other things the same,if the government increases transfer payments to households,then the effect of this on the government's budget

Accepted Answer

A)   will make investment rise.
B)   will make the rate of interest rise.
C)   will make public saving rise.
D)   All of the above are correct.E) A) and B)
F) All of the above

Question 4

Robert buys bonds.Rachel buys a new truck for her landscaping business.Identify both as savers,investors,both,or neither.

Accepted Answer

Robert is ...

Question 5

When economists refer to investment,they mean the purchasing of stocks and bonds and other types of saving.

Accepted Answer

A) True 
 B)False

Question 6

If the government budget deficit increases,which curve in the market for loanable funds shifts,which direction does it shift,and what happens to the interest rate?

Accepted Answer

The supply of loanab...

Question 7

The ratio of debt to GDP in the United States

Accepted Answer

A)   tends to fall during wars.
B)   fell during the decade that began in 2000.
C)   fell during the late 1990s.
D)   None of the above is correct.E) None of the above
F) A) and B)

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) A) and D)
F) B) and C)

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

If there is a shortage 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) B) and C)
F) A) and B)

Question 11

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding.Last year,Tasty Greens earned $5 million,of which it retained $1 million for future investments.The dividend yield on the stock is

Accepted Answer

A)   1 percent.
B)   2 percent.
C)   4 percent.
D)   5 percent.E) A) and B)
F) All of the above

Question 12

Which of the following would be included as investment in the GDP accounts?

Accepted Answer

A)   the government buys goods from another country
B)   someone buys stock in an American company
C)   a firm increases its capital stock
D)   All of the above are correct.E) A) and B)
F) C) and D)

Question 13

Consider three different closed economies with the following national income statistics.Country A has taxes of $40 billion,transfers of $20 billion,and government expenditures on goods and services of $30 billion.County B has private savings of $60 billion,and investment expenditures of $50 billion.Country C has GDP of $300 billion,investment of $70,consumption of $180 billion,taxes of $60 billion and transfers of $20 billion.From this information we know that there is a $10 billion government budget deficit for

Accepted Answer

A)   only country A.
B)   only country B.
C)   only country C.
D)   all three countries.E) All of the above
F) B) and C)

Question 14

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Accepted Answer

A) True 
 B)False

Question 15

If the demand for loanable funds shifts to the left,then the equilibrium interest rate

Accepted Answer

A)   and quantity of loanable funds rise.
B)   and quantity of loanable funds fall.
C)   rises and the quantity of loanable funds falls.
D)   falls and the quantity of loanable funds rises.E) A) and B)
F) A) and C)

Question 16

Suppose the Move It! exercise chain has revenues of $45 million,accounting costs of $15 million,and currently has issued 10 million shares of stocks selling at $90 each.Compute the price-earning ratio.Show your work.Is this ratio relatively high or low? What might an increase in the price-earnings ratio indicate?

Accepted Answer

The earnings per share is ($45 million -...

Question 17

When a large,well-known corporation wishes to borrow directly from the public,it can

Accepted Answer

A)   sell bonds.
B)   sell shares of stock.
C)   go to a bank for a loan.
D)   All of the above are correct.E) A) and D)
F) All of the above

Question 18

Which of the following is a certificate of indebtedness?

Accepted Answer

A)   stocks and bonds
B)   stocks but not bonds
C)   bonds but not stocks
D)   neither stocks nor bondsE) All of the above
F) A) and D)

Question 19

In which of the following cases would it necessarily be true that national saving and private saving are equal for a closed economy?

Accepted Answer

A)   Private saving is equal to government expenditures.
B)   Public saving is equal to investment.
C)   After paying their taxes and paying for their consumption,households have nothing left.
D)   The government's tax revenue is equal to its expenditures.E) C) and D)
F) B) and D)

Question 20

Municipal bonds pay a relatively

Accepted Answer

A)   low rate of interest because of their high default risk and because the interest they pay is subject to federal income tax.
B)   low rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax.
C)   high rate of interest because of their high default risk and because federal taxes must be paid on the interest they pay.
D)   high rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax.E) B) and C)
F) A) and B)

Exam 26: Saving,investment,and the Financial System

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding.Last year,Tasty Greens earned $5 million,of which it retained $1 million for future investments.The dividend yield on the stock is

Correct Answer
verified

If the government budget deficit increases,which curve in the market for loanable funds shifts,which direction does it shift,and what happens to the interest rate?

Correct Answer
verified
The supply of loanab...
View Answer

Municipal bonds pay a relatively

Correct Answer
verified

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

Correct Answer
verified

The ratio of debt to GDP in the United States

Correct Answer
verified

When a large,well-known corporation wishes to borrow directly from the public,it can

Correct Answer
verified

Suppose the government ran a budget surplus in 2010 and a larger surplus in 2011.The loanable funds model would predict that,as a result of the increase in the surplus,

Correct Answer
verified

Correct Answer
verified
The earnings per share is ($45 million -...
View Answer

The primary economic function of the financial system is to

Correct Answer
verified

Robert buys bonds.Rachel buys a new truck for her landscaping business.Identify both as savers,investors,both,or neither.

Correct Answer
verified
Robert is ...
View Answer

In which of the following cases would it necessarily be true that national saving and private saving are equal for a closed economy?

Correct Answer
verified

Correct Answer
verified

Other things the same,if the government increases transfer payments to households,then the effect of this on the government's budget

Correct Answer
verified

If there is a shortage of loanable funds,then

Correct Answer
verified

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Correct Answer
verified

If the demand for loanable funds shifts to the left,then the equilibrium interest rate

Correct Answer
verified

When economists refer to investment,they mean the purchasing of stocks and bonds and other types of saving.

Correct Answer
verified

Two of the economy's most important financial intermediaries are

Correct Answer
verified

Which of the following is a certificate of indebtedness?

Correct Answer
verified

Which of the following would be included as investment in the GDP accounts?

Correct Answer
verified

Exam 26: Saving,investment,and the Financial System

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding.Last year,Tasty Greens earned $5 million,of which it retained $1 million for future investments.The dividend yield on the stock is

Correct AnswerverifiedShow Answer

If the government budget deficit increases,which curve in the market for loanable funds shifts,which direction does it shift,and what happens to the interest rate?

Correct AnswerverifiedThe supply of loanab...View AnswerShow Answer

Municipal bonds pay a relatively

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The ratio of debt to GDP in the United States

Correct AnswerverifiedShow Answer

When a large,well-known corporation wishes to borrow directly from the public,it can

Correct AnswerverifiedShow Answer

Suppose the government ran a budget surplus in 2010 and a larger surplus in 2011.The loanable funds model would predict that,as a result of the increase in the surplus,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe earnings per share is ($45 million -...View AnswerShow Answer

The primary economic function of the financial system is to

Correct AnswerverifiedShow Answer

Robert buys bonds.Rachel buys a new truck for her landscaping business.Identify both as savers,investors,both,or neither.

Correct AnswerverifiedRobert is ...View AnswerShow Answer

In which of the following cases would it necessarily be true that national saving and private saving are equal for a closed economy?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Other things the same,if the government increases transfer payments to households,then the effect of this on the government's budget

Correct AnswerverifiedShow Answer

If there is a shortage of loanable funds,then

Correct AnswerverifiedShow Answer

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Correct AnswerverifiedShow Answer

If the demand for loanable funds shifts to the left,then the equilibrium interest rate

Correct AnswerverifiedShow Answer

When economists refer to investment,they mean the purchasing of stocks and bonds and other types of saving.

Correct AnswerverifiedShow Answer

Two of the economy's most important financial intermediaries are

Correct AnswerverifiedShow Answer

Which of the following is a certificate of indebtedness?

Correct AnswerverifiedShow Answer

Which of the following would be included as investment in the GDP accounts?

Correct AnswerverifiedShow Answer

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The supply of loanab...
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The earnings per share is ($45 million -...
View Answer

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Robert is ...
View Answer

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