Question 1

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion?

Accepted Answer

A)  C = $8 trillion, G = $3 trillion
B)  C = $13 trillion, G = -$1 trillion
C)  C = $9 trillion, G = $5 trillion
D)  C = $7 trillion, G = $1 trillionE) B) and C)
F) B) and D)

Question 2

A perpetuity is

Accepted Answer

A)  a financial intermediary that has existed throughout recorded history.
B)  an instrument of equity finance.
C)  a stock that pays dividends forever.
D)  a bond that pays interest forever.E) A) and D)
F) B) and D)

Question 3

A municipal bond is

Accepted Answer

A)  issued by the federal government.
B)  issued by state and local governments.
C)  issued by corporations.
D)  issued by households.E) A) and B)
F) C) and D)

Question 4

Which of the following is not an important stock exchange in the United States?

Accepted Answer

A)  New York Stock Exchange
B)  American Stock Exchange
C)  Chicago Mercantile Exchange
D)  NASDAQE) None of the above
F) All of the above

Question 5

The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:

Accepted Answer

A)  "Buy low-risk bonds."
B)  "Use a medium of exchange."
C)  "Diversify."
D)  "Intermediate."E) A) and D)
F) B) and C)

Question 6

If the nominal interest rate is 2.5 percent and the inflation rate is 2 percent, what is the real interest rate?

Accepted Answer

A)  .5 percent
B)  1.25 percent
C)  4.5 percent
D)  None of the above is correct.E) All of the above
F) B) and D)

Question 7

Use the following table to answer the following questions.
Table 26-2 
-Refer to Table 26-2. For which stock(s)  is(are)  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) B) and C)
F) A) and D)

Question 8

Identify each of the following acts as representing either saving or investment.
a.Fred 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.Elaine uses some of her income to buy stock in a major corporation.
e.
Henrietta hires a builder to construct a new building for her bicycle shop.

Accepted Answer

a.Fred is saving.b.J...

Question 9

If a reform of the tax laws encourages greater saving, the result would be

Accepted Answer

A)  higher interest rates and greater investment.
B)  higher interest rates and less investment.
C)  lower interest rates and greater investment.
D)  lower interest rate and less investment.E) A) and D)
F) A) and B)

Question 10

National saving is the sum of _____ and _____. In a closed economy it is equal to _____ in equilibrium.

Accepted Answer

private saving, publ...

Question 11

What does the maturity of a bond indicate?

Accepted Answer

The date a...

Question 12

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Accepted Answer

The answer of Bond A and Bond B have identical...

Question 13

The primary advantage of mutual funds is that they

Accepted Answer

A)  always provide the highest return.
B)  always allow people to "beat the market."
C)  allow people to diversify and reduce risk.
D)  allow people to diversify, which increases risk and return.E) All of the above
F) A) and C)

Question 14

Which of the following equations represents GDP for an open economy?

Accepted Answer

A)  Y = C + I + G + NX
B)  NX = I - G
C)  I = Y - C + G + NX
D)  Y = C + I + GE) C) and D)
F) A) and B)

Question 15

In the language of macroeconomics, investment refers to

Accepted Answer

A)  saving.
B)  the purchase of new capital.
C)  the purchase of stocks, bonds, or mutual funds.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 16

If the nominal interest rate is 3 percent and the inflation rate is 4 percent, then the real interest rate is

Accepted Answer

A)  7 percent.
B)  -1 percent.
C)  3 percent.
D)  4 percent.E) A) and D)
F) None of the above

Question 17

When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____.

Accepted Answer

deficit, i...

Question 18

In a closed economy, what does (Y - T - C)  represent?

Accepted Answer

A)  national saving
B)  government tax revenue
C)  public saving
D)  private savingE) B) and C)
F) None of the above

Question 19

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. 
-Refer to Figure 26-5. Starting at point A, a change in tax laws that encouraged households to save more would likely cause

Accepted Answer

A)  the quantity of loanable funds traded to increase to $125 and the interest rate fall to 5% (point 
D)  .
B)  the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% (point 
C)  .
C)  the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to 5% (point 
B)  .
D)  the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to 7% (point 
E)  .E) A) and D)
F) B) and C)

Question 20

Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free. This would shift the

Accepted Answer

A)  supply of loanable funds to the right, causing interest rates to fall.
B)  supply of loanable funds to the left, causing interest rates to rise.
C)  demand for loanable funds to the right, causing interest rates to rise.
D)  demand for loanable funds to the left, causing interest rates to fall.E) A) and C)
F) None of the above

Exam 26: Saving, Investment, and the Financial System

A perpetuity is

Correct Answer
verified

National saving is the sum of ___ and _. In a closed economy it is equal to ___ in equilibrium.

Correct Answer
verified
private saving, publ...
View Answer

If a reform of the tax laws encourages greater saving, the result would be

Correct Answer
verified

The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:

Correct Answer
verified

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion?

Correct Answer
verified

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. -Refer to Figure 26-5. Starting at point A, a change in tax laws that encouraged households to save more would likely cause

Correct Answer
verified

Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free. This would shift the

Correct Answer
verified

Which of the following is not an important stock exchange in the United States?

Correct Answer
verified

What does the maturity of a bond indicate?

Correct Answer
verified
The date a...
View Answer

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Correct Answer
verified

In the language of macroeconomics, investment refers to

Correct Answer
verified

If the nominal interest rate is 2.5 percent and the inflation rate is 2 percent, what is the real interest rate?

Correct Answer
verified

In a closed economy, what does (Y - T - C) represent?

Correct Answer
verified

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

Correct Answer
verified

A municipal bond is

Correct Answer
verified

Which of the following equations represents GDP for an open economy?

Correct Answer
verified

Correct Answer
verified
a.Fred is saving.b.J...
View Answer

If the nominal interest rate is 3 percent and the inflation rate is 4 percent, then the real interest rate is

Correct Answer
verified

When the government increases its borrowing, the budget ___ increases and government debt _. The resulting change in investment due to this increased government borrowing is called ___.

Correct Answer
verified
deficit, i...
View Answer

The primary advantage of mutual funds is that they

Correct Answer
verified

Exam 26: Saving, Investment, and the Financial System

A perpetuity is

Correct AnswerverifiedShow Answer

National saving is the sum of _____ and _____. In a closed economy it is equal to _____ in equilibrium.

Correct Answerverifiedprivate saving, publ...View AnswerShow Answer

If a reform of the tax laws encourages greater saving, the result would be

Correct AnswerverifiedShow Answer

The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:

Correct AnswerverifiedShow Answer

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion?

Correct AnswerverifiedShow Answer

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. -Refer to Figure 26-5. Starting at point A, a change in tax laws that encouraged households to save more would likely cause

Correct AnswerverifiedShow Answer

Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free. This would shift the

Correct AnswerverifiedShow Answer

Which of the following is not an important stock exchange in the United States?

Correct AnswerverifiedShow Answer

What does the maturity of a bond indicate?

Correct AnswerverifiedThe date a...View AnswerShow Answer

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Correct AnswerverifiedShow Answer

In the language of macroeconomics, investment refers to

Correct AnswerverifiedShow Answer

If the nominal interest rate is 2.5 percent and the inflation rate is 2 percent, what is the real interest rate?

Correct AnswerverifiedShow Answer

In a closed economy, what does (Y - T - C) represent?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A municipal bond is

Correct AnswerverifiedShow Answer

Which of the following equations represents GDP for an open economy?

Correct AnswerverifiedShow Answer

Correct Answerverifieda.Fred is saving.b.J...View AnswerShow Answer

If the nominal interest rate is 3 percent and the inflation rate is 4 percent, then the real interest rate is

Correct AnswerverifiedShow Answer

When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____.

Correct Answerverifieddeficit, i...View AnswerShow Answer

The primary advantage of mutual funds is that they

Correct AnswerverifiedShow Answer

Correct Answer
verified

National saving is the sum of ___ and _. In a closed economy it is equal to ___ in equilibrium.

Correct Answer
verified
private saving, publ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified
The date a...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a.Fred is saving.b.J...
View Answer

Correct Answer
verified

When the government increases its borrowing, the budget ___ increases and government debt _. The resulting change in investment due to this increased government borrowing is called ___.

Correct Answer
verified
deficit, i...
View Answer

Correct Answer
verified